G.R. No. 88866. February 18, 1991.
* Mercantile Law; Negotiable Instruments; Requisites of
METROPOLITAN BANK & TRUST COMPANY,
petitioner, vs. COURT OF APPEALS, GOLDEN
SAVINGS & LOAN ASSOCIATION, INC., LUCIA
CASTILLO, MAGNO CASTILLO and GLORIA
CASTILLO, respondents.
Civil Law; Obligations and Contracts; Agency; The
agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a
compensation.—The negligence of Metro-bank has been
sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was
already safe to allow Gomez to withdraw the proceeds of the
treasury warrants
_______________
FIRST DIVISION.
*
170
170 SUPREME COURT
REPORTS ANNOTATED
Metropolitan Bank and Trust
Company vs. Court of Appeals
he had deposited. Metrobank misled Golden Savings.
There may have been no express clearance, as Metrobank
insists (although this is refuted by Golden Savings) but in
any case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only once
or even twice but three times. The total withdrawal was in
excess of its original balance before the treasury warrants
were deposited, which only added to its belief that the
treasury warrants had indeed been cleared.
1
Negotiabil-ity; An instrument to be negotiable must contain
an unconditional promise or order to pay a sum certain in
money.—SEC. 3. When promise is unconditional.—An
unqualified order or promise to pay is unconditional within
the meaning of this Act though coupled with—(a) An
indication of a particular fund out of which reimbursement
is to be made or a particular account to be debited with the
amount; or (b) A statement of the trasaction which gives rise
to the instrument. But an order or promise to pay out of a
particular fund is not unconditional. The indication of Fund
501 as the source of the payment to be made on the treasury
warrants makes the order or promise to pay “not uncon-
ditional” and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of the
Negotiable Instruments Law is applicable in the case at bar.
PETITION to review the decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Angara, Abello, Concepcion, Regala & Cruz for
petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson &
Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for
respondent Golden Savings & Loan Association, Inc.
CRUZ, J.:
This case, for all its seeming complexity, turns on a
simple question of negligence. The facts, pruned of all
non-essentials, are easily told.
 The Metropolitan Bank and Trust Co. is a
commercial bank with branches throughout the
Philippines and even abroad. Golden Savings and Loan
Association was, at the time these events happened,
operating in Calapan, Mindoro, with the other private
respondents as its principal officers.
171
VOL. 194, FEBRUARY 18, 1991 171
Metropolitan Bank and Trust Company vs.
Court of Appeals
In January 1979, a certain Eduardo Gomez opened an
account with Golden Savings and deposited over a
period of two months 38 treasury warrants with a total
value of P1,755,228.37. They were all drawn by the
Philippine Fish Marketing Authority and purportedly
signed by its General Manager and countersigned by its
Auditor. Six of these were directly payable to Gomez
while the others appeared to have been indorsed by
their respective payees, followed by Gomez as second
indorser. 1
On various dates between June 25 and July 16, 1979,
all these warrants were subsequently indorsed by
Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings Account No. 2498 in the
Metrobank branch in Calapan, Mindoro. They were
then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to
the Bureau of Treasury for special clearing.
2
More than two weeks after the deposits, Gloria
Castillo went to the Calapan branch several times to
ask whether the warrants had been cleared. She was
told to wait. Accordingly, Gomez was meanwhile not
2
allowed to withdraw from his account. Later, however,
“exasperated” over Gloria’s repeated inquiries and also
as an accommodation for a “valued client,” the
petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the
warrants. The first withdrawal was made on July 9,
3
1979, in the amount of P508,000.00, the second on July
13, 1979, in the amount of P310,000.00, and the third
on July 16, 1979, in the amount of P150,000.00. The
total withdrawal was P968,000.00. In turn, Golden
4
Savings subsequently allowed Gomez to make
withdrawals from his own account, eventually
collecting the total amount of P1,167,500.00 from the
proceeds of the apparently cleared warrants. The last
withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden
Savings that 32 of the warrants had been dishonored by
the Bureau of
_______________
1 Rollo, pp. 12-13.
2 Ibid., p. 52.
3 Id., p. 14.
4 Id.
172
172 SUPREME COURT REPORTS
ANNOTATED
Metropolitan Bank and Trust Company vs.
Court of Appeals
Treasury on July 19, 1979, and demanded the refund by
Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account.
 The demand was rejected. Metrobank then sued
Golden Savings in the Regional Trial Court of
Mindoro. After trial, judgment was rendered in favor of
5 review on the following grounds:
Golden Savings, which, however, filed a motion for
reconsideration even as Metrobank filed its notice of
appeal. On November 4, 1986, the lower court modified
its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. 1.Dismissing the complaint with costs against the
plaintiff;
2. 2.Dissolving and lifting the writ of attachment of the
properties of defendant Golden Savings and Loan
Association, Inc. and defendant Spouses Magno
Castillo and Lucia Castillo;
3. 3.Directing the plaintiff to reverse its action of
debiting Savings Account No. 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such
account such amount existing before the debit was
made including the amount of P812,033.37 in favor
of defendant Golden Savings and Loan Association,
Inc. and thereafter, to allow defendant Golden
Savings and Loan Association, Inc. to withdraw the
amount outstanding thereon before the debit;
4. 4.Ordering the plaintiff to pay the defendant Golden
Savings and Loan Association, Inc. attorney’s fees
and expenses of litigation in the amount of
P200,000.00.
5. 5.Ordering the plaintiff to pay the defendant Spouses
Magno Castillo and Lucia Castillo attorney’s fees
and expenses of litigation in the amount of
P100,000.00.
SO ORDERED.
3
On appeal to the respondent court, the decision was
6
affirmed, prompting Metrobank to file this petition for
1. 1.Respondent Court of Appeals erred in
disregarding and fail-ing to apply the clear
contractual terms and conditions on the deposit
slips allowing Metrobank to charge back any
amount erroneously credited.
________________
5 Through Judge Marciano T. Virola.
6 Penned by Ejercito, J., with Pe and Victor, JJ.,concurring.
173
VOL. 194, FEBRUARY 18, 1991 173
Metropolitan Bank and Trust Company vs.
Court of Appeals
1. (a)Metrobank’s right to charge back is not limited
to instances where the checks or treasury
warrants are forged or unauthorized.
2. (b)Until such time as Metrobank is actually paid,
its obligation is that of a mere collecting agent
which cannot be held liable for its failure to
collect on the warrants.
1. 2.Under the lower court’s decision, affirmed by
respondent Court of Appeals, Metrobank is
made to pay for warrants already dishonored,
thereby perpetuating the fraud committed by
Eduardo Gomez.
 2. 3.Respondent Court of Appeals erred in not
finding that as between Metrobank and Golden
Savings, the latter should bear the loss.
3. 4.Respondent Court of Appeals erred in holding
that the treasury warrants involved in this case
are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to
the Court that Metrobank was indeed negligent in
giving Golden Savings the impression that the treasury
warrants had been cleared and that, consequently, it
was safe to allow Gomez to withdraw the proceeds
thereof from his account with it. Without such
assurance, Golden Savings would not have allowed the
withdrawals; with such assurance, there was no reason
not to allow the withdrawal. Indeed, Golden Savings
might even have incurred liability for its refusal to
return the money that to all appearances belonged to
the depositor, who could therefore withdraw it any time
and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury
warrants that Golden Savings deposited them to its
account with Metrobank. Golden Savings had no
clearing facilities of its own. It relied on Metrobank to
determine the validity of the warrants through its own
services. The proceeds of the warrants were withheld
from Gomez until Metrobank allowed Golden Savings
itself to withdraw them from its own deposit. It was
7
only when Metrobank gave the go-signal that Gomez
was finally allowed by Golden Savings to withdraw
them from his own account.
4
The argument of Metrobank that Golden Savings
should have exercised more care in checking the
personal circumstances of Gomez before accepting his
deposit does not hold water. It was Gomez who was
entrusting the warrants, not Golden Savings
_______________
7 Rollo, p. 84.
174
174 SUPREME COURT REPORTS
ANNOTATED
Metropolitan Bank and Trust Company vs.
Court of Appeals
that was extending him a loan; and moreover, the
treasury warrants were subject to clearing, pending
which the depositor could not withdraw its proceeds.
There was no question of Gomez’s identity or of the
genuineness of his signature as checked by Golden
Savings. In fact, the treasury warrants were dishonored
allegedly because of the forgery of the signatures of the
drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted
with due care and diligence and cannot be faulted for
the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary
carelessness. The amount involved was not trifling—
more than one and a half million pesos (and this was
1979). There was no reason why it should not have
waited until the treasury warrants had been cleared; it
would not have lost a single centavo by waiting. Yet,
despite the lack of such clearance—and
notwithstanding that it had not received a single
centavo from the proceeds of the treasury warrants, as
it now repeatedly stresses—it allowed Golden Savings
to withdraw—not once, not twice, but thrice—from
the uncleared treasury warrants in the total amount of
P968,000.00
Its reason? It was “exasperated” over the persistent
inquiries of Gloria Castillo about the clearance and it
also wanted to “accommodate” a valued client. It
“presumed” that the warrants had been cleared simply
because of “the lapse of one week.” For a bank with its
8
long experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank
would invoke the conditions printed on the dorsal side
of the deposit slips through which the treasury
warrants were deposited by Golden Savings with its
Calapan branch. The conditions read as follows:
Kindly note that in receiving items on deposit, the bank
obligates itself only as the depositor’s collecting agent,
assuming no responsibility beyond care in selecting
correspondents, and until such time as actual payment shall
have come into possession of this bank, the right is reserved
to charge back to the depositor’s account any amount
_______________
8 TSN, July 29, 1983, p. 20.
175
VOL. 194, FEBRUARY 18, 1991 175
Metropolitan Bank and Trust Company vs.
Court of Appeals
previously credited, whether or not such item is returned.
This also applies to checks drawn on local banks and bankers
and their branches as well as on this bank, which are unpaid
5
due toinsufficiency of funds, forgery, unauthorized overdraft
or any other reason. (Italics supplied.)
According to Metrobank, the said conditions clearly
show that it was acting only as a collecting agent for
Golden Savings and give it the right to “charge back to
the depositor’s account any amount previously credited,
whether or not such item is returned. This also applies
to checks “. . . which are unpaid due to insufficiency of
funds, forgery, unauthorized overdraft of any other
reason.” It is claimed that the said conditions are in the
nature of contractual stipulations and became binding
on Golden Savings when Gloria Castillo, as its Cashier,
signed the deposit slips.
Doubt may be expressed about the binding force of
the conditions, considering that they have apparently
been imposed by the bank unilaterally, without the
consent of the depositor. Indeed, it could be argued that
the depositor, in signing the deposit slip, does so only to
identify himself and not to agree to the conditions set
forth in the given permit at the back of the deposit slip.
We do not have to rule on this matter at this time. At
any rate, the Court feels that even if the deposit slip
were considered a contract, the petitioner could still not
validly disclaim responsibility thereunder in the light of
the circumstances of this case.
In stressing that it was acting only as a collecting
agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to
the principal. This is not exactly true. On the contrary,
Article 1909 of the Civil Code clearly provides that—
Art. 1909.—The agent is responsible not only for fraud, but
also for negligence, which shall be judged with more or less
rigor by the courts, according to whether the agency was or
was not for a compensation.
The negligence of Metrobank has been sufficiently
established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it
was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had depos-
176
176 SUPREME COURT REPORTS
ANNOTATED
Metropolitan Bank and Trust Company vs.
Court of Appeals
ited. Metrobank misled Golden Savings. There may
have been no express clearance, as Metrobank insists
(although this is refuted by Golden Savings) but in any
case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only
once or even twice but three times. The total withdrawal
was in excess of its original balance before the treasury
warrants were deposited, which only added to its belief
that the treasury warrants had indeed been cleared.
Metrobank’s argument that it may recover the
disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean no
reason at all. Otherwise, there would have been no need
at all for Golden Savings to deposit the treasury
warrants with it for clearance. There would have been
no need for it to wait until the warrants had been
cleared before paying the proceeds thereof to Gomez.
Such a condition, if interpreted in the way the petitioner
suggests, is not binding for being arbitrary and
unconscionable. And it becomes more so in the case at
6
bar when it is considered that the supposed dishonor of
the warrants was not communicated to Golden Savings
before it made its own payment to Gomez.
The belated notification aggravated the petitioner’s
earlier negligence in giving express or at least implied
clearance to the treasury warrants and allowing
payments therefrom to Golden Savings. But that is not
all. On top of this, the supposed reason for the dishonor,
to wit, the forgery of the signatures of the general
manager and the auditor of the drawer corporation, has
not been established. This was the finding of the lower
9
courts which we see no reason to disturb. And as we said
in MWSS v. Court of Appeals:
10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139
SCRA 238). It must be established by clear, positive and
convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance
that the treasury warrants in question are not
negotiable instruments. Clearly stamped on their face
is the word “non-nego-
_______________
9 Rollo, p. 61.
10 143 SCRA 20.
177
VOL. 194, FEBRUARY 18, 1991 177
Metropolitan Bank and Trust Company vs.
Court of Appeals
tiable.” Moreover, and this is of equal significance, it is
indicated that they are payable from a particular fund,
to wit, Fund 501.
 The following sections of the Negotiable Instruments
Law, especially the underscored parts, are pertinent:
SECTION 1.—Form of negotiable instruments.—An
instrument to be negotiable must conform to the following
requirements:
1. (a)It must be in writing and signed by the maker or
drawer;
2. (b)Must contain an unconditional promise or order to
pay a sum certain in money;
3. (c)Must be payable on demand, or at a fixed or
determinable future time;
4. (d)Must be payable to order or to bearer; and
5. (e)Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
reasonable certainty.
xxx
SEC. 3. When promise is unconditional.—An unqualified
order or promise to pay is unconditional within the meaning
of this Act though coupled with—
1. (a)An indication of a particular fund out of which
reimbursement is to be made or a particular account
to be debited with the amount; or
2. (b)A statement of the transaction which gives rise to
the instrument.
But an order or promise to pay out of a particular fund is
not unconditional.
The indication of Fund 501 as the source of the payment
to be made on the treasury warrants makes the order
or promise to pay “not unconditional” and the warrants
themselves non-negotiable. There should be no question
7
that the exception on Section 3 of the Negotiable
Instruments Law is applicable in the case at bar. This
conclusion conforms to Abubakar vs. Auditor
General where the Court held:
11
The petitioner argues that he is a holder in good faith and for
value of a negotiable instrument and is entitled to the rights
and privileges of a holder in due course, free from defenses.
But this
_______________
11 81 Phil. 359.
178
178 SUPREME COURT REPORTS
ANNOTATED
Metropolitan Bank and Trust Company vs.
Court of Appeals
treasury warrant is not within the scope of the negotiable
instrument law. For one thing, the document bearing on its
face the words “pay-able from the appropriation for food
administration, is actually an Order for payment out of “a
particular fund,” and is not unconditional and does not fulfill
one of the essential requirements of a negotiable instrument
(Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law).
Metrobank cannot contend that by indorsing the
warrants in general, Golden Savings assumed that they
were “genuine and in all respects what they purport to
be,” in accordance with Section 66 of the Negotiable
Instruments Law. The simple reason is that this law is
not applicable to the non-negotiable treasury warrants.
The indorsement was made by Gloria Cas-tillo not for
the purpose of guaranteeing the genuineness of the
warrants but merely to deposit them with Metrobank
for clearing. It was in fact Metrobank that made the
guarantee when it stamped on the back of the warrants:
“All prior indorsement and/or lack of endorsements
guaranteed, Metropolitan Bank & Trust Co., Calapan
Branch.”
The petitioner lays heavy stress on Jai Alai
Corporation v. Bank of the Philippine Islands, but we
12
feel this case is inapplicable to the present controversy.
That case involved checks whereas this case involves
treasury warrants. Golden Savings never represented
that the warrants were negotiable but signed them only
for the purpose of depositing them for clearance. Also,
the fact of forgery was proved in that case but not in the
case before us. Finally, the Court found the Jai Alai
Corporation negligent in accepting the checks without
question from one Antonio Ramirez notwithstanding
that the payee was the Inter-Island Gas Services, Inc.
and it did not appear that he was authorized to indorse
it. No similar negligence can be imputed to Golden
Savings.
We find the challenged decision to be basically
correct. However, we will have to amend it insofar as it
directs the petitioner to credit Golden Savings with the
full amount of the treasury checks deposited to its
account.
The total value of the 32 treasury warrants
dishonored was
_______________
12 66 SCRA 29.
179
8
VOL. 194, FEBRUARY 18, 1991 179
Metropolitan Bank and Trust Company vs.
Court of Appeals
P1,754,089.00, from which Gomez was allowed to
withdraw P1,167,500.00 before Golden Savings was
notified of the dishonor. The amount he has withdrawn
must be charged not to Golden Savings but to
Metrobank, which must bear the consequences of its
own negligence. But the balance of P586,589.00 should
be debited to Golden Savings, as obviously Gomez can
no longer be permitted to withdraw this amount from
his deposit because of the dishonor of the warrants.
Gomez has in fact disappeared. To also credit the
balance to Golden Savings would unduly enrich it at the
expense of Metrobank, let alone the fact that it has
already been informed of the dishonor of the treasury
warrants.
WHEREFORE, the challenged decision is
AFFIRMED, with the modification that Paragraph 3 of
the dispositive portion of the judgment of the lower
court shall be reworded as follows: 3. Debiting Savings
Account No. 2498 in the sum of P586,589.00 only and
thereafter allowing defendant Golden Savings & Loan
Association, Inc. to withdraw the amount outstanding
thereon, if any, after the debit.
SO ORDERED.
G.R. No. L-16671 March 30, 1921
LIM CHAI SENG, plaintiff-appellant,
vs.
WENCESLAO TRINIDAD, Collector of Internal
Revenue, defendant-appellant.
Crossfield and O'Brien for plaintiff and appellant.
Attorney-General Feria for defendant and appellant.
STREET, J.:
The plaintiff, Lim Chai Seng, is a merchant, of Chinese
nationality, doing business in Manila; and as such he is subject to
the merchant's tax of 1 per cent imposed on all gross sales. In
order to comply with the law and regulations of the Bureau of
Internal Revenue, it is incumbent on the person liable to this tax
to keep records of their transactions and to make quarterly
reports from which the amount of tax due is computed; and it
seems sometimes to have been found convenient in the Chinese
community for two or more firms to employ jointly a sort of
specialist to act as their representative in their relations with the
Bureau of Internal Revenue.
It thus happened that during the years 1917 and 1918, one Cu
Chiat was the agent and intermediary of the plaintiff, Lim Chai
Seng, in making reports to the Collector of Internal Revenue of
business done by Lim Chai Seng as well as in the making of
payments for the taxes due from the latter. In the performance of
these services the books of Lim Chai Seng were consulted in
order to discover the amount due to the Bureau of Internal
Revenue, and either the proper amount of money or a check was
delivered by the merchant to Cu Chiat, whose duty is then
became to repair to the office of the collector, to make the proper
report of business done by Lim Chai Seng, and to make payment
accordingly.
9
It appears, however, that instead of fulfilling this duty punctually,
Cu Chiat, upon five different occasion, submitted false reports of
the business of Lim Chai Seng, showing business to have
transacted for five particular quarters in amounts must lower than
was really the case. By this means Cu Chiat contrived to make it
appear that the taxes due from Lim Chai Seng were considerably
less than were in fact due, and he misappropriated the excess
that had been confided to him. Upon the three occasions when
checks had been given to him by Lim Chai Seng for the exact
amount really due, the misappropriation was accomplished by
causing the Collector of Internal Revenue to apply the excess
contained in those checks to the payment of similar taxes due
from other Chinese firms of whom Cu Chiat was also the
representative. The amounts thus misappropriated by Cu Chiat
were as follows:
For the second quarter, 1917, P100.
For the third quarter, 1917, P200.
For the second quarter, 1918, P500.
For the third quarter, 1918, P500.
For the fourth quarter, 1918, P200.
In the time these peculations were found out, and the Internal
Revenue Collector required Lim Chai Seng to make good the
deficiency in the tax and to pay in addition thereto an additional
25 per cent surcharge thereon under the authority of the second
paragraph of section 1458 of the Administrative Code. This
payment having been made under protest the present action was
instituted by Lim Chai Seng to recover the entire amount paid, or
P1,875. The trial judge decided that the amount of P375,
collected in the character of surcharge, was properly due, on
account of the failure of Cu Chiat to submit correct returns for the
five period with which his peculations were concerns. As to this
amount the trial judge held that there could be no recovery. The
same was true, so he decided, in regard to those transactions in
connection with which Lim Chai Seng had delivered money to Cu
Chiat to be applied to the taxes due. In regard, however, to the
three payments when checks were delivered by Lim Chai Seng
for the exact amount due, the trial judge held that the Collector of
Internal Revenue had no right to apply the excess to the taxes
due from other merchants. He accordingly gave judgment in favor
of the plaintiff for the excess, amounting to P1,200, carried in
these checks over the amount shown to be due on the face of the
reports submitted by Cu Chiat and which the collector had, as the
trial judge held, improperly applied to other accounts. From this
judgment both parties appealed; and for the plaintiff it is assigned
as error that the trial judge erroneously refused to allow recovery
by the plaintiff of the sum of P300 which had been exacted as a
surcharge upon the P1,200 above-mentioned. For the defendant
it is assigned as error that the trial judge allowed recovery of the
P1,200 as above stated.
It will be convenient first to discuss the point presented by the
assignment of error of the defendant as appellant; that is, whether
the Collector of Internal Revenue has made himself liable to
account to the plaintiff for the P1,200, which represents the
excess of the plaintiff's three checks over the amount apparently
due upon the returns made, and which the collector applied,
under the directions of Cu Chiat, to the payment of the taxes due
from other persons.
The point is simple enough and we think it is to be solved with
reference to the general rule that a principal is bound by the acts
of his agent in the scope of the agency. In this connection it is
undeniable that Cu Chiat had full authority to make returns to the
Collector of Internal Revenue of the business done each quarter
by Lim Chai Seng and to make payment of the proper amount of
the taxes due by those returns. This being undeniable, it follows
that when Cu Chiat made returns, as he did, showing a certain
amount of business transacted and the taxes due were computed
according to those returns, the Collector of Internal Revenue
could not legitimately collect a greater amount. Furthermore, in
view of the authority which, as the Collector of Internal Revenue
knew, had been confided to Cu Chiat by Lim Chai Seng it was
entirely proper for him to allow the check of Lim Chai Seng to be
10
applied not only to the taxes of the latter but under the directions
of Cu Chia to the similar taxes of other merchants — the more so
as according to the proof it was not unusual for checks drawn by
one firm to be thus applied to the taxes of another.
It cannot be overlooked that in the commercial world the checks
of persons of known solvency are customarily received as money;
and that this check was received and applied by the Collector of
Internal Revenue in entire good faith in the usual course of
business and without any knowledge whatever that the check, or
part thereof, was being misapplied, is shown by the testimony.
Nor can it be maintained that the mere fact that the three checks
in questions were made payable to the Collector of Internal
Revenue and not to Cu Chiat, is a circumstance from which it
could be argued that the Collector was put upon notice that the
check was applicable only to the taxes of the plaintiff. Even if the
Collector had refunded the excess in money to Cu Chiat, the
latter could have at once applied it to other taxes; and no
question could have been made as to the propriety of the
Collector's then receiving it. A check when received and treated
as money is the same as money so far as legal consequences
are concerned.
We hold the case to be one where the plaintiff, as principal, is
bound by the act of his agent, and the effects of the dishonestly of
the latter must be borne by the principal, not by an innocent third
party who has dealt with the dishonest agent in good faith.
It results that the action of the trial judge in allowing the plaintiff to
recover the sum or P1,200 representing the amount
misappropriated from said checks by Cu Chiat, must be reversed.
In view of this result it is obvious that the error assigned in the
brief of the plaintiff as appellant, with reference to the P300,
collected as a surcharge upon this sum of P1,200, is untenable,
and said assignment need not be discussed.
The judgment appealed from is affirmed in so far as it absolves
the defendant from liability for the amount of P375, collected as
surcharge upon the delinquent taxes, and is reversed in so far as
it concedes to the plaintiff a recovery of the mount of P1,200 from
the defendant; and the defendant will be wholly absolved from the
complaint. It is so ordered, without express pronouncement as to
costs.
G.R. No. 79688. February 1, 1996. *
PLEASANTVILLE DEVELOPMENT CORPORATION,
petitioner, vs. COURT OF APPEALS, WILSON KEE,
C.T. TORRES ENTERPRISES, INC. and ELDRED
JARDINICO, respondents.
Civil Law; Property; Builder in Good Faith; Court
agrees with the findings and conclusions of the Court of
Appeals that Kee was a builder in good faith.—Petitioner
fails to persuade this Court to abandon the findings and
conclusions of the Court of Appeals that Kee was a builder in
good faith.
Same; Same; Same; Good faith consists in the belief of
the builder that the land he is building on is his and his
ignorance of any defect or flaw in his title.—Good faith
consists in the belief of the builder that the land he is
building on is his and his ignorance of any defect or flaw in
his title. And as good faith is presumed, petitioner has the
burden of proving bad faith on the part of Kee. At the time
he built improvements on Lot 8, Kee believed that said lot
was what he bought from petitioner. He was not aware that
the lot delivered to him was not Lot 8. Thus, Kee’s good faith.
Petitioner failed to prove otherwise.
Same; Same; Same; Violation of the Contract of Sale on
Installment may not be the basis to negate the presumption
that Kee was a builder in good faith.—Such violations have
no bearing whatsoever on whether Kee was a builder in good
11
faith, that is, on his state of mind at the time he built the
improvements on Lot 9. These
_______________
*THIRD DIVISION.
11
VOL. 253, FEBRUARY 1, 11
1996
Pleasantville Development
Corporation vs. Court of Appeals
alleged violations may give rise to petitioner’s cause of
action against Kee under the said contract (contractual
breach), but may not be bases to negate the presumption that
Kee was a builder in good faith.
Same; Same; Waiver; Rights may be waived unless the
waiver is contrary to law, public order, public policy, morals
or good customs or prejudicial to a third person with a right
recognized by law.—We do not agree with the interpretation
of petitioner that Kee contracted away his right to recover
damages resulting from petitioner’s negligence. Such waiver
would be contrary to public policy and cannot be allowed.
“Rights may be waived, unless the waiver is contrary to law,
public order, public policy, morals, or good customs, or
prejudicial to a third person with a right recognized by law.”
Same; Agency; Damages; Rule is that the principal is
responsible for the acts of the agent, done within the scope of
his authority and should bear the damage caused to third
persons.—The rule is that the principal is responsible for the
acts of the agent, done within the scope of his authority, and
should bear the damage caused to third persons. On the
other hand, the agent who exceeds his authority is personally
liable for the damage.
PETITION for review on certiorari of a decision of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Mirano, Mirano & Associates Law Offices for
petitioner.
Federico T. Tabino, Jr. for C.T. Torres
Enterprises, Inc.
Abraham D. Caña for Wilson Kee.
PANGANIBAN, J.:
Is a lot buyer who constructs improvements on the
wrong property erroneously delivered by the owner’s
agent, a builder in good faith? This is the main issue
resolved in this petition for review on certiorari to
reverse the Decision of the Court of
1
_______________
1Rollo, pp. 37-46.
12
12 SUPREME COURT REPORTS
ANNOTATED
Pleasantville Development Corporation vs.
Court of Appeals
Appeals in CA-G.R. SP No. 11040, promulgated on
2
August 20, 1987.
By resolution dated November 13, 1995, the First
Division of this Court resolved to transfer this case
(along with several others) to the Third Division. After
due deliberation and consultation, the Court assigned
the writing of this Decision to the undersigned ponente.
12
The Facts
The facts, as found by respondent Court, are as follows:
Edith Robillo purchased from petitioner a parcel of
land designated as Lot 9, Phase II and located at
Taculing Road, Pleasantville Subdivision, Bacolod City.
In 1975, respondent Eldred Jardinico bought the rights
to the lot from Robillo. At that time, Lot 9 was vacant.
Upon completing all payments, Jardinico secured
from the Register of Deeds of Bacolod City on December
19, 1978 Transfer Certificate of Title No. 106367 in his
name. It was then that he discovered that
improvements had been introduced on Lot 9 by
respondent Wilson Kee, who had taken possession
thereof.
It appears that on March 26, 1974, Kee bought on
installment Lot 8 of the same subdivision from C.T.
Torres Enterprises, Inc. (CTTEI), the exclusive real
estate agent of petitioner. Under the Contract to Sell on
Installment, Kee could possess the lot even before the
completion of all installment payments. On January 20,
1975, Kee paid CTTEI the relocation fee of P50.00 and
another P50.00 on January 27, 1975, for the
preparation of the lot plan. These amounts were paid
prior to Kee’s taking actual possession of Lot 8. After
the preparation of the lot plan and a copy thereof given
to Kee, CTTEI through its employee, Zenaida
Octaviano, accompanied Kee’s wife, Donabelle Kee, to
inspect Lot 8. Unfortu-
_______________
 Eleventh Division, composed of J. Alfredo L. Benipayo, ponente,
2
and JJ. Lorna S. Lombos-dela Fuente, chair, and Ricardo J. Francisco,
member.
13
VOL. 253, FEBRUARY 1, 1996 13
Pleasantville Development Corporation vs.
Court of Appeals
nately, the parcel of land pointed by Octaviano was Lot
9. Thereafter, Kee proceeded to construct his residence,
a store, an auto repair shop and other improvements on
the lot.
After discovering that Lot 9 was occupied by Kee,
Jardinico confronted him. The parties tried to reach an
amicable settlement, but failed.
On January 30, 1981, Jardinico’s lawyer wrote Kee,
demanding that the latter remove all improvements
and vacate Lot 9. When Kee refused to vacate Lot 9,
Jardinico filed with the Municipal Trial Court in Cities,
Branch 3, Bacolod City (MTCC), a complaint for
ejectment with damages against Kee.
Kee, in turn, filed a third-party complaint against
petitioner and CTTEI.
The MTCC held that the erroneous delivery of Lot 9
to Kee was attributable to CTTEI. It further ruled that
petitioner and CTTEI could not successfully invoke as a
defense the failure of Kee to give notice of his intention
to begin construction required under paragraph 22 of
the Contract to Sell on Installment and his having built
a sari-sari store without the prior approval of petitioner
required under paragraph 26 of said contract, saying
that the purpose of these requirements was merely to
regulate the type of improvements to be constructed on
the lot. 3
13
However, the MTCC found that petitioner had
already rescinded its contract with Kee over Lot 8 for
the latter’s failure to pay the installments due, and that
Kee had not contested the rescission. The rescission was
effected in 1979, before the complaint was instituted.
The MTCC concluded that Kee no longer had any right
over the lot subject of the contract between him and
petitioner. Consequently, Kee must pay reasonable
rentals for the use of Lot 9, and, furthermore, he cannot
claim reimbursement for the improvements he
introduced on said lot.
_______________
3Rollo, pp. 28-29.
14
14 SUPREME COURT REPORTS
ANNOTATED
Pleasantville Development Corporation vs.
Court of Appeals
The MTCC thus disposed:
“IN VIEW OF ALL THE FOREGOING, judgment is hereby
rendered as follows:
1. 1.Defendant Wilson Kee is ordered to vacate the
premises of Lot 9, covered by TCT No. 106367 and to
remove all structures and improvements he
introduced thereon;
2. 2.Defendant Wilson Kee is ordered to pay to the
plaintiff rentals at the rate of P15.00 a day computed
from the time this suit was filed on March 12, 1981
until he actually vacates the premises. This amount
shall bear interests (sic) at the rate of 12 per cent
(sic) per annum.
 3. 3.Third-Party Defendant C.T. Torres Enterprises,
Inc. and Pleasantville Subdivision are ordered to pay
the plaintiff jointly and severally the sum of
P3,000.00 as attorney’s fees and P700.00 as cost and
litigation expenses.”
4
On appeal, the Regional Trial Court, Branch 48,
Bacolod City (RTC) ruled that petitioner and CTTEI
were not at fault or were not negligent, there being no
preponderant evidence to show that they directly
participated in the delivery of Lot 9 to Kee. It found Kee
5 Torres Enterprises, Inc. is dismissed. The order against
a builder in bad faith. It further ruled that even
assuming arguendo that Kee was acting in good faith,
he was, nonetheless, guilty of unlawfully usurping the
possessory right of Jardinico over Lot 9 from the time
he was served with notice to vacate said lot, and thus
was liable for rental.
The RTC thus disposed:
“WHEREFORE, the decision appealed from is affirmed with
respect to the order against the defendant to vacate the
premises of Lot No. 9 covered by Transfer Certificate of Title
No. T-106367 of the land records of Bacolod City; the removal
of all structures and improvements introduced thereon at his
expense and the payment to plaintiff (sic) the sum of Fifteen
(P15.00) Pesos a day as reasonable rental to be computed
from January 30, 1981, the date of the de-
_______________
4 Rollo, pp. 30-31.
5 Rollo, p. 34.
15
VOL. 253, FEBRUARY 1, 1996 15
14
Pleasantville Development Corporation vs.
Court of Appeals
mand, and not from the date of the filing of the complaint,
until he had vacated (sic) the premises, with interest thereon
at 12% per annum. This Court further renders judgment
against the defendant to pay the plaintiff the sum of Three
Thousand (P3,000.00) Pesos as attorney’s fees, plus costs of
litigation.
“The third-party complaint against Third-Party
Defendants Pleasantville Development Corporation and C.T.
Third-Party Defendants to pay attorney’s fees to plaintiff
and costs of litigation is reversed.”
6
Following the denial of his motion for reconsideration
on October 20, 1986, Kee appealed directly to the
Supreme Court, which referred the matter to the Court
of Appeals.
The appellate court ruled that Kee was a builder in
good faith, as he was unaware of the “mix-up” when he
began construction of the improvements on Lot 8. It
further ruled that the erroneous delivery was due to the
negligence of CTTEI, and that such wrong delivery was
likewise imputable to its principal, petitioner herein.
The appellate court also ruled that the award of rentals
was without basis.
Thus, the Court of Appeals disposed:
“WHEREFORE, the petition is GRANTED, the appealed
decision is REVERSED, and judgment is rendered as follows:
1. 1.Wilson Kee is declared a builder in good faith with
respect to the improvements he introduced on Lot 9,
and is entitled to the rights granted him under
Articles 448, 546 and 548 of the New Civil Code.
 2. 2.Third-party defendants C.T. Torres Enterprises,
Inc. and Pleasantville Development Corporation are
solidarily liable under the following circumstances:
1. a.If Eldred Jardinico decides to appropriate the
improvements and, thereafter, remove these
structures, the third-party defendants shall answer
for all demolition expenses and the value of the
improvements thus destroyed or rendered useless;
_______________
6Rollo, p. 35.
16
16 SUPREME COURT REPORTS
ANNOTATED
Pleasantville Development Corporation vs.
Court of Appeals
1. b.If Jardinico prefers that Kee buy the land, the third-
party defendants shall answer for the amount
representing the value of Lot 9 that Kee should pay
to Jardinico.
1. 3.Third-party defendants C.T. Torres Enterprises,
Inc. and Pleasantville Development Corporation are
ordered to pay in solidum the amount of P3,000.00
to Jardinico as attorney’s fees, as well as litigation
expenses.
2. 4.The award of rentals to Jardinico is dispensed with.
“Furthermore, the case is REMANDED to the court of origin
for the determination of the actual value of the
improvements and the property (Lot 9), as well as for further
15
proceedings in conformity with Article 448 of the New Civil
Code.” 7
Petitioner then filed the instant petition against Kee,
Jardinico and CTTEI.
The Issues
The petition submitted the following grounds to justify
a review of the respondent Court’s Decision, as follows:
1. “1.The Court of Appeals has decided the case in a way
probably not in accord with law or the the (sic)
applicable decisions of the Supreme Court on third-
party complaints, by ordering third-party
defendants to pay the demolition expenses and/or
price of the land;
2. “2.The Court of Appeals has so far departed from the
accepted course of judicial proceedings, by granting
to private respondent-Kee the rights of a builder in
good faith in excess of what the law provides, thus
enriching private respondent Kee at the expense of
the petitioner;
3. “3.In the light of the subsequent events or
circumstances which changed the rights of the
parties, it becomes imperative to set aside or at least
modify the judgment of the Court of Appeals to
harmonize with justice and the facts;
4. “4.Private respondent-Kee in accordance with the
findings of facts of the lower court is clearly a builder
in bad faith, having vio-
_______________
7Rollo, pp. 45-46.
17
VOL. 253, FEBRUARY 1, 1996 17
Pleasantville Development Corporation vs.
Court of Appeals
lated several provisions of the contract to sell on
installments;
1. “5.The decision of the Court of Appeals, holding the
principal, Pleasantville Development Corporation
(liable) for the acts made by the agent in excess of its
authority is clearly in violation of the provision of
the law;
2. “6.The award of attorney’s fees is clearly without
basis and is equivalent to putting a premium in (sic)
court litigation.”
From these grounds, the issues could be re-stated as
follows:
1. (1)Was Kee a builder in good faith?
2. (2)What is the liability, if any, of petitioner and its
agent, C.T. Torres Enterprises, Inc.? and
3. (3)Is the award of attorney’s fees proper?
The First Issue: Good Faith
Petitioner contends that the Court of Appeals erred in
reversing the RTC’s ruling that Kee was a builder in
bad faith.
Petitioner fails to persuade this Court to abandon the
findings and conclusions of the Court of Appeals that
Kee was a builder in good faith. We agree with the
following observation of the Court of Appeals:
“The roots of the controversy can be traced directly to the
errors committed by CTTEI, when it pointed the wrong
property to Wilson Kee and his wife. It is highly improbable
16
that a purchaser of a lot would knowingly and willingly build
his residence on a lot owned by another, deliberately
exposing himself and his family to the risk of being ejected
from the land and losing all improvements thereon, not to
mention the social humiliation that would follow.
“Under the circumstances, Kee had acted in the manner
of a prudent man in ascertaining the identity of his property.
Lot 8 is covered by Transfer Certificate of Title No. T-69561,
while Lot 9 is identified in Transfer Certificate of Title No.
T-106367. Hence, under the Torrens system of land
registration, Kee is presumed to have knowledge of the metes
and bounds of the property with which he is dealing. x x x
18
18 SUPREME COURT REPORTS
ANNOTATED
Pleasantville Development Corporation vs.
Court of Appeals
xxx xxx xxx
“But as Kee is a layman not versed in the technical
description of his property, he had to find a way to ascertain
that what was described in TCT No. 69561 matched Lot 8.
Thus, he went to the subdivision developer’s agent and
applied and paid for the relocation of the lot, as well as for
the production of a lot plan by CTTEI’s geodetic engineer.
Upon Kee’s receipt of the map, his wife went to the
subdivision site accompanied by CTTEI’s employee,
Octaviano, who authoritatively declared that the land she
was pointing to was indeed Lot 8. Having full faith and
confidence in the reputation of CTTEI, and because of the
company’s positive identification of the property, Kee saw no
reason to suspect that there had been a misdelivery. The
steps Kee had taken to protect his interests were reasonable.
There was no need for him to have acted ex-abundantia
cautela, such as being present during the geodetic engineer’s
relocation survey or hiring an independent geodetic engineer
to countercheck for errors, for the final delivery of
subdivision lots to their owners is part of the regular course
of everyday business of CTTEI. Because of CTTEI’s blunder,
what Kee had hoped to forestall did in fact transpire. Kee’s
efforts all went to naught.” 8
state of mind at the time he built the improvements on
Lot 9. These alleged violations may give rise to
petitioner’s cause of action against Kee under the said
contract (contractual breach), but may not be bases to
negate the presumption that Kee was a builder in good

faith.
Good faith consists in the belief of the builder that the
Petitioner also points out that, as found by the trial
land he is building on is his and his ignorance of any
court, the Contract of Sale on Installment covering Lot
defect or flaw in his title. And as good faith is
9

8 between it and Kee was rescinded long before the

presumed, petitioner has the burden of proving bad
present action was instituted. This has no relevance on
faith on the part of Kee. 10

the liability of petitioner, as such fact does not negate

At the time he built improvements on Lot 8, Kee
the negligence of its agent in pointing out the wrong lot
believed that said lot was what he bought from
to Kee. Such circumstance is relevant only as it gives
petitioner. He was not aware that the lot delivered to
Jardinico a cause of action for unlawful detainer against
him was not Lot 8. Thus, Kee’s good faith. Petitioner
Kee.
failed to prove otherwise.
Petitioner next contends that Kee cannot “claim that
To demonstrate Kee’s bad faith, petitioner points to
another lot was erroneously pointed out to him” because
Kee’s violation of paragraphs 22 and 26 of the Contract
the latter agreed to the following provision in the
of Sale on Installment.
Contract of Sale on Installment, to wit:
We disagree. Such violations have no bearing
“13. The Vendee hereby declares that prior to the execution
whatsoever on whether Kee was a builder in good faith, of his contract he/she has personally examined or inspected
that is, on his the property made subject-matter hereof, as to its location,
contours, as well as the natural condition of the lots and from
_______________
the date hereof whatever consequential change therein made
Rollo, pp. 43-44.
8
due to erosion, the said Vendee shall bear the expenses of the
Floreza vs. Evangelista, 96 SCRA 130 (February 21, 1980); cf. Art.
9 necessary fillings, when the same is so desired by him/her.” 11

526, Civil Code of the Philippines. The subject matter of this provision of the contract is
10 Art. 527, Civil Code of the Philippines.
the change of the location, contour and condition of the
19
lot due to erosion. It merely provides that the vendee,
VOL. 253, FEBRUARY 1, 1996 19
having examined the property prior to the execution of
Pleasantville Development Corporation vs. the contract, agrees to shoulder the expenses resulting
Court of Appeals from such change.

17
 We do not agree with the interpretation of petitioner
that Kee contracted away his right to recover damages
resulting from petitioner’s negligence. Such waiver
would be contrary to public policy and cannot be
allowed. “Rights may be waived, unless the waiver is
contrary to law, public order,
_______________
Rollo, p. 17.
11
20
20 SUPREME COURT REPORTS
ANNOTATED
Pleasantville Development Corporation vs.
Court of Appeals
public policy, morals, or good customs, or prejudicial to
a third person with a right recognized by law.”12
The Second Issue: Petitioner’s Liability
Kee filed a third-party complaint against petitioner and
CTTEI, which was dismissed by the RTC after ruling
that there was no evidence from which fault or
negligence on the part of petitioner and CTTEI can be
inferred. The Court of Appeals disagreed and found
CTTEI negligent for the erroneous delivery of the lot by
Octaviano, its employee.
Petitioner does not dispute the fact that CTTEI was
its agent. But it contends that the erroneous delivery of
Lot 9 to Kee was an act which was clearly outside the
scope of its authority, and consequently, CTTEI alone
should be liable. It asserts that “while [CTTEI] was
authorized to sell the lot belonging to the herein
petitioner, it was never authorized to deliver the wrong
lot to Kee.” 13
18
Petitioner’s contention is without merit.
The rule is that the principal is responsible for the
acts of the agent, done within the scope of his authority,
and should bear the damage caused to third
persons. On the other hand, the agent who exceeds his
14
authority is personally liable for the damage. 15
CTTEI was acting within its authority as the sole
real estate representative of petitioner when it made
the delivery to Kee. In acting within its scope of
authority, it was, however, negligent. It is this
negligence that is the basis of petitioner’s liability, as
principal of CTTEI, per Articles 1909 and 1910 of
_______________
12 Art. 6, Civil Code of the Philippines; see Cañete vs. San Antonio
Agro-Industrial Development Corp., 113 SCRA 723 (April 27, 1982).
13 Rollo, p. 19.
14 Lopez vs. Alvendia, 120 Phil. 1424 (December 24, 1964); cf. Art.
1910, Civil Code.
15 BA Finance Corporation vs. Court of Appeals, 211 SCRA
112 (July 3, 1992); Art. 1897, Civil Code.
21
VOL. 253, FEBRUARY 1, 1996 21
Pleasantville Development Corporation vs.
Court of Appeals
the Civil Code.
Pending resolution of the case before the Court of
Appeals, Jardinico and Kee on July 24, 1987 entered
into a deed of sale, wherein the former sold Lot 9 to Kee.
Jardinico and Kee did not inform the Court of Appeals
of such deal.
The deed of sale contained the following provision:
 1. “1.That Civil Case No. 3815 entitled “Jardinico vs.
Kee” which is now pending appeal with the Court of
Appeals, regardless of the outcome of the decision
shall be mutually disregarded and shall not be
pursued by the parties herein and shall be
considered dismissed and without effect
whatsoever”;16
Kee asserts though that the “terms and conditions in
said deed of sale are strictly for the parties thereto” and
that “(t)here is no waiver made by either of the parties
in said deed of whatever favorable judgment or award
the honorable respondent Court of Appeals may make
in their favor against herein petitioner Pleasantville
Development Corporation and/or private respondent
C.T. Torres Enterprises, Inc.” 17
Obviously, the deed of sale can have no effect on the
liability of petitioner. As we have earlier stated,
petitioner’s liability is grounded on the negligence of its
agent. On the other hand, what the deed of sale
regulates are the reciprocal rights of Kee and Jardinico;
it stressed that they had reached an agreement
independent of the outcome of the case.
Petitioner further assails the following holding of the
Court of Appeals:
1. “2.Third-party defendants C.T. Torres Enterprises,
Inc. and Pleasantville Development Corporation are
solidarily liable under the following circumstances:
1. “a.If Eldred Jardinico decides to appropriate the
improvements and, thereafter, remove these
structures, the
19
_______________
Rollo, p. 47.
16
Rollo, p. 61.
17
22
22 SUPREME COURT REPORTS
ANNOTATED
Pleasantville Development Corporation vs.
Court of Appeals
third-party defendants shall answer for all demolition
expenses and the value of the improvements thus destroyed
or rendered useless;
1. “b.If Jardinico prefers that Kee buy the land, the
third-party defendants shall answer for the amount
representing the value of Lot 9 that Kee should pay
to Jardinico.”
18
Petitioner contends that if the above holding would be
carried out, Kee would be unjustly enriched at its
expense. In other words, Kee would be able to own the
lot, as buyer, without having to pay anything on it,
because the aforequoted portion of respondent Court’s
Decision would require petitioner and CTTEI jointly
and solidarily to “answer” or reimburse Kee therefor.
We agree with petitioner.
Petitioner’s liability lies in the negligence of its agent
CTTEI. For such negligence, the petitioner should be
held liable for damages. Now, the extent and/or amount
of damages to be awarded is a factual issue which
should be determined after evidence is adduced.
However, there is no showing that such evidence was
actually presented in the trial court; hence no damages
could now be awarded.
The rights of Kee and Jardinico vis-a-vis each other,
as builder in good faith and owner in good faith,
respectively, are regulated by law (i.e., Arts. 448, 546
and 548 of the Civil Code). It was error for the Court of
Appeals to make a “slight modification” in the
application of such law, on the ground of “equity.” At
any rate, as it stands now, Kee and Jardinico have
amicably settled through their deed of sale their rights
and obligations with regards to Lot 9. Thus, we delete
items 2 (a) and (b) of the dispositive portion of the Court
of Appeals’ Decision [as reproduced above] holding
petitioner and CTTEI solidarily liable.
_______________
Rollo, pp. 9-10.
18
23
23 VOL. 253, FEBRUARY 1, 1996
Pleasantville Development Corporation vs.
Court of Appeals
The Third Issue: Attorney’s Fees
The MTCC awarded Jardinico attorney’s fees and costs
in the amount of P3,000.00 and P700.00, respectively,
as prayed for in his complaint. The RTC deleted the
award, consistent with its ruling that petitioner was
without fault or negligence. The Court of Appeals,
however, reinstated the award of attorney’s fees after
ruling that petitioner was liable for its agent’s
negligence.
The award of attorney’s fees lies within the
discretion of the court and depends upon the
20
circumstances of each case. We shall not interfere with
19
the discretion of the Court of Appeals. Jardinico was
compelled to litigate for the protection of his interests
and for the recovery of damages sustained as a result of
the negligence of petitioner’s agent. 20
In sum, we rule that Kee is a builder in good faith.
The disposition of the Court of Appeals that Kee “is
entitled to the rights granted him under Articles 448,
546 and 548 of the New Civil Code” is deleted, in view
of the deed of sale entered into by Kee and Jardinico,
which deed now governs the rights of Jardinico and Kee
as to each other. There is also no further need, as ruled
by the appellate Court, to remand the case to the court
of origin “for determination of the actual value of the
improvements and the property (Lot 9), as well as for
further proceedings in conformity with Article 448 of
the New Civil Code.”
WHEREFORE, the petition is partially GRANTED.
The Decision of the Court of Appeals is hereby
MODIFIED as follows:
1. (1)Wilson Kee is declared a builder in good faith;
2. (2)Petitioner Pleasantville Development Corporation
and respondent C.T. Torres Enterprises, Inc. are
declared solidarily liable for damages due to
negligence;
_______________
19 Universal Shipping Lines, Inc. vs. Intermediate Appellate
Court, 188 SCRA 170 (July 31, 1990).
20 Art. 2208, Civil Code of the Philippines.
24
24 SUPREME COURT REPORTS
ANNOTATED
Pleasantville Development Corporation vs.
Court of Appeals
however, since the amount and/or extent of such
damages was not proven during the trial, the same
cannot now be quantified and awarded;
1. (3)Petitioner Pleasantville Development Corporation
and respondent C.T. Torres Enterprises, Inc. are
ordered to pay in solidum the amount of P3,000.00
to Jardinico as attorney’s fees, as well as litigation
expenses; and
2. (4)The award of rentals to Jardinico is dispensed
with.
SO ORDERED.
G.R. No. 88866. February 18, 1991. *
METROPOLITAN BANK & TRUST COMPANY,
petitioner, vs. COURT OF APPEALS, GOLDEN
SAVINGS & LOAN ASSOCIATION, INC., LUCIA
CASTILLO, MAGNO CASTILLO and GLORIA
CASTILLO, respondents.
Civil Law; Obligations and Contracts; Agency; The
agent is responsible not only for fraud, but also for negligence,
which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a
compensation.—The negligence of Metro-bank has been
sufficiently established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it was
21
already safe to allow Gomez to withdraw the proceeds of the
treasury warrants
_______________
*FIRST DIVISION.
170
170 SUPREME COURT
REPORTS ANNOTATED
Metropolitan Bank and Trust
Company vs. Court of Appeals
he had deposited. Metrobank misled Golden Savings.
There may have been no express clearance, as Metrobank
insists (although this is refuted by Golden Savings) but in
any case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only once
or even twice but three times. The total withdrawal was in
excess of its original balance before the treasury warrants
were deposited, which only added to its belief that the
treasury warrants had indeed been cleared.
Mercantile Law; Negotiable Instruments; Requisites of
Negotiabil-ity; An instrument to be negotiable must contain
an unconditional promise or order to pay a sum certain in
money.—SEC. 3. When promise is unconditional.—An
unqualified order or promise to pay is unconditional within
the meaning of this Act though coupled with—(a) An
indication of a particular fund out of which reimbursement
is to be made or a particular account to be debited with the
amount; or (b) A statement of the trasaction which gives rise
to the instrument. But an order or promise to pay out of a
particular fund is not unconditional. The indication of Fund
501 as the source of the payment to be made on the treasury
warrants makes the order or promise to pay “not uncon-
ditional” and the warrants themselves non-negotiable. There
should be no question that the exception on Section 3 of the
Negotiable Instruments Law is applicable in the case at bar.
PETITION to review the decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Angara, Abello, Concepcion, Regala & Cruz for
petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson &
Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for
respondent Golden Savings & Loan Association, Inc.
CRUZ, J.:
This case, for all its seeming complexity, turns on a
simple question of negligence. The facts, pruned of all
non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a
commercial bank with branches throughout the
Philippines and even abroad. Golden Savings and Loan
Association was, at the time these events happened,
operating in Calapan, Mindoro, with the other private
respondents as its principal officers.
171
VOL. 194, FEBRUARY 18, 1991 171
Metropolitan Bank and Trust Company vs.
Court of Appeals
In January 1979, a certain Eduardo Gomez opened an
account with Golden Savings and deposited over a
period of two months 38 treasury warrants with a total
value of P1,755,228.37. They were all drawn by the
22
Philippine Fish Marketing Authority and purportedly
signed by its General Manager and countersigned by its
Auditor. Six of these were directly payable to Gomez
while the others appeared to have been indorsed by
their respective payees, followed by Gomez as second
indorser.
1
On various dates between June 25 and July 16, 1979,
all these warrants were subsequently indorsed by
Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings Account No. 2498 in the
Metrobank branch in Calapan, Mindoro. They were
then sent for clearing by the branch office to the
principal office of Metrobank, which forwarded them to
the Bureau of Treasury for special clearing.
2
More than two weeks after the deposits, Gloria
Castillo went to the Calapan branch several times to
ask whether the warrants had been cleared. She was
told to wait. Accordingly, Gomez was meanwhile not
allowed to withdraw from his account. Later, however,
“exasperated” over Gloria’s repeated inquiries and also
as an accommodation for a “valued client,” the
petitioner says it finally decided to allow Golden
Savings to withdraw from the proceeds of the
warrants. The first withdrawal was made on July 9,
3
1979, in the amount of P508,000.00, the second on July
13, 1979, in the amount of P310,000.00, and the third
on July 16, 1979, in the amount of P150,000.00. The
total withdrawal was P968,000.00. In turn, Golden
4
Savings subsequently allowed Gomez to make
withdrawals from his own account, eventually
collecting the total amount of P1,167,500.00 from the
proceeds of the apparently cleared warrants. The last
withdrawal was made on July 16, 1979.
On July 21, 1979, Metrobank informed Golden
Savings that 32 of the warrants had been dishonored by
the Bureau of
_______________
1 Rollo, pp. 12-13.
2 Ibid., p. 52.
3 Id., p. 14.
4 Id.
172
172 SUPREME COURT REPORTS
ANNOTATED
Metropolitan Bank and Trust Company vs.
Court of Appeals
Treasury on July 19, 1979, and demanded the refund by
Golden Savings of the amount it had previously
withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued
Golden Savings in the Regional Trial Court of
Mindoro. After trial, judgment was rendered in favor of
5
Golden Savings, which, however, filed a motion for
reconsideration even as Metrobank filed its notice of
appeal. On November 4, 1986, the lower court modified
its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. 1.Dismissing the complaint with costs against the
plaintiff;
2. 2.Dissolving and lifting the writ of attachment of the
properties of defendant Golden Savings and Loan
23
Association, Inc. and defendant Spouses Magno
Castillo and Lucia Castillo;
3. 3.Directing the plaintiff to reverse its action of
debiting Savings Account No. 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such
account such amount existing before the debit was
made including the amount of P812,033.37 in favor
of defendant Golden Savings and Loan Association,
Inc. and thereafter, to allow defendant Golden
Savings and Loan Association, Inc. to withdraw the
amount outstanding thereon before the debit;
4. 4.Ordering the plaintiff to pay the defendant Golden
Savings and Loan Association, Inc. attorney’s fees
and expenses of litigation in the amount of
P200,000.00.
5. 5.Ordering the plaintiff to pay the defendant Spouses
Magno Castillo and Lucia Castillo attorney’s fees
and expenses of litigation in the amount of
P100,000.00.
SO ORDERED.
On appeal to the respondent court, the decision was
6
affirmed, prompting Metrobank to file this petition for
review on the following grounds:
1. 1.Respondent Court of Appeals erred in disregarding
and fail-ing to apply the clear contractual terms and
conditions on the deposit slips allowing Metrobank
to charge back any amount erroneously credited.
________________
5Through Judge Marciano T. Virola.
6Penned by Ejercito, J., with Pe and Victor, JJ.,concurring.
173
 VOL. 194, FEBRUARY 18, 1991 173
Metropolitan Bank and Trust Company vs.
Court of Appeals
1. (a)Metrobank’s right to charge back is not limited to
instances where the checks or treasury warrants are
forged or unauthorized.
2. (b)Until such time as Metrobank is actually paid, its
obligation is that of a mere collecting agent which
cannot be held liable for its failure to collect on the
warrants.
1. 2.Under the lower court’s decision, affirmed by
respondent Court of Appeals, Metrobank is made to
pay for warrants already dishonored, thereby
perpetuating the fraud committed by Eduardo
Gomez.
2. 3.Respondent Court of Appeals erred in not finding
that as between Metrobank and Golden Savings, the
latter should bear the loss.
3. 4.Respondent Court of Appeals erred in holding that
the treasury warrants involved in this case are not
negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to
the Court that Metrobank was indeed negligent in
giving Golden Savings the impression that the treasury
warrants had been cleared and that, consequently, it
was safe to allow Gomez to withdraw the proceeds
thereof from his account with it. Without such
assurance, Golden Savings would not have allowed the
withdrawals; with such assurance, there was no reason
24
not to allow the withdrawal. Indeed, Golden Savings
might even have incurred liability for its refusal to
return the money that to all appearances belonged to
the depositor, who could therefore withdraw it any time
and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury
warrants that Golden Savings deposited them to its
account with Metrobank. Golden Savings had no
clearing facilities of its own. It relied on Metrobank to
determine the validity of the warrants through its own
services. The proceeds of the warrants were withheld
from Gomez until Metrobank allowed Golden Savings
itself to withdraw them from its own deposit. It was
7
only when Metrobank gave the go-signal that Gomez
was finally allowed by Golden Savings to withdraw
them from his own account.
The argument of Metrobank that Golden Savings
should have exercised more care in checking the
personal circumstances of Gomez before accepting his
deposit does not hold water. It was Gomez who was
entrusting the warrants, not Golden Savings
_______________
Rollo, p. 84.
7
174
174 SUPREME COURT REPORTS
ANNOTATED
Metropolitan Bank and Trust Company vs.
Court of Appeals
that was extending him a loan; and moreover, the
treasury warrants were subject to clearing, pending
which the depositor could not withdraw its proceeds.
There was no question of Gomez’s identity or of the
genuineness of his signature as checked by Golden
Savings. In fact, the treasury warrants were dishonored
allegedly because of the forgery of the signatures of the
drawers, not of Gomez as payee or indorser. Under the
circumstances, it is clear that Golden Savings acted
with due care and diligence and cannot be faulted for
the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary
carelessness. The amount involved was not trifling—
more than one and a half million pesos (and this was
1979). There was no reason why it should not have
waited until the treasury warrants had been cleared; it
would not have lost a single centavo by waiting. Yet,
despite the lack of such clearance—and
notwithstanding that it had not received a single
centavo from the proceeds of the treasury warrants, as
it now repeatedly stresses—it allowed Golden Savings
to withdraw—not once, not twice, but thrice—from
the uncleared treasury warrants in the total amount of
P968,000.00
Its reason? It was “exasperated” over the persistent
inquiries of Gloria Castillo about the clearance and it
also wanted to “accommodate” a valued client. It
“presumed” that the warrants had been cleared simply
because of “the lapse of one week.” For a bank with its
8
long experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank
would invoke the conditions printed on the dorsal side
of the deposit slips through which the treasury
warrants were deposited by Golden Savings with its
Calapan branch. The conditions read as follows:
25
Kindly note that in receiving items on deposit, the bank
obligates itself only as the depositor’s collecting agent,
assuming no responsibility beyond care in selecting
correspondents, and until such time as actual payment shall
have come into possession of this bank, the right is reserved
to charge back to the depositor’s account any amount
_______________
8 TSN, July 29, 1983, p. 20.
175
VOL. 194, FEBRUARY 18, 1991 175
Metropolitan Bank and Trust Company vs.
Court of Appeals
previously credited, whether or not such item is returned.
This also applies to checks drawn on local banks and bankers
and their branches as well as on this bank, which are unpaid
due toinsufficiency of funds, forgery, unauthorized overdraft
or any other reason. (Italics supplied.)
According to Metrobank, the said conditions clearly
show that it was acting only as a collecting agent for
Golden Savings and give it the right to “charge back to
the depositor’s account any amount previously credited,
whether or not such item is returned. This also applies
to checks “. . . which are unpaid due to insufficiency of
funds, forgery, unauthorized overdraft of any other
reason.” It is claimed that the said conditions are in the
nature of contractual stipulations and became binding
on Golden Savings when Gloria Castillo, as its Cashier,
signed the deposit slips.
Doubt may be expressed about the binding force of
the conditions, considering that they have apparently
been imposed by the bank unilaterally, without the
consent of the depositor. Indeed, it could be argued that
the depositor, in signing the deposit slip, does so only to
identify himself and not to agree to the conditions set
forth in the given permit at the back of the deposit slip.
We do not have to rule on this matter at this time. At
any rate, the Court feels that even if the deposit slip
were considered a contract, the petitioner could still not
validly disclaim responsibility thereunder in the light of
the circumstances of this case.
In stressing that it was acting only as a collecting
agent for Golden Savings, Metrobank seems to be
suggesting that as a mere agent it cannot be liable to
the principal. This is not exactly true. On the contrary,
Article 1909 of the Civil Code clearly provides that—
Art. 1909.—The agent is responsible not only for fraud, but
also for negligence, which shall be judged with more or less
rigor by the courts, according to whether the agency was or
was not for a compensation.
The negligence of Metrobank has been sufficiently
established. To repeat for emphasis, it was the
clearance given by it that assured Golden Savings it
was already safe to allow Gomez to withdraw the
proceeds of the treasury warrants he had depos-
176
176 SUPREME COURT REPORTS
ANNOTATED
Metropolitan Bank and Trust Company vs.
Court of Appeals
ited. Metrobank misled Golden Savings. There may
have been no express clearance, as Metrobank insists
(although this is refuted by Golden Savings) but in any
case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only
26
once or even twice but three times. The total withdrawal
was in excess of its original balance before the treasury
warrants were deposited, which only added to its belief
that the treasury warrants had indeed been cleared.
Metrobank’s argument that it may recover the
disputed amount if the warrants are not paid for any
reason is not acceptable. Any reason does not mean no
reason at all. Otherwise, there would have been no need
at all for Golden Savings to deposit the treasury
warrants with it for clearance. There would have been
no need for it to wait until the warrants had been
cleared before paying the proceeds thereof to Gomez.
Such a condition, if interpreted in the way the petitioner
suggests, is not binding for being arbitrary and
unconscionable. And it becomes more so in the case at
bar when it is considered that the supposed dishonor of
the warrants was not communicated to Golden Savings
before it made its own payment to Gomez.
The belated notification aggravated the petitioner’s
earlier negligence in giving express or at least implied
clearance to the treasury warrants and allowing
payments therefrom to Golden Savings. But that is not
all. On top of this, the supposed reason for the dishonor,
to wit, the forgery of the signatures of the general
manager and the auditor of the drawer corporation, has
not been established. This was the finding of the lower
9
courts which we see no reason to disturb. And as we said
in MWSS v. Court of Appeals: 10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139
SCRA 238). It must be established by clear, positive and
convincing evidence. This was not done in the present case.
A no less important consideration is the circumstance SEC. 3. When promise is unconditional.—An unqualified
that the treasury warrants in question are not order or promise to pay is unconditional within the meaning
negotiable instruments. Clearly stamped on their face of this Act though coupled with—
is the word “non-nego-
1. (a)An indication of a particular fund out of which
_______________ reimbursement is to be made or a particular account
to be debited with the amount; or
9Rollo, p. 61. 2. (b)A statement of the transaction which gives rise to
143 SCRA 20.
10
the instrument.
177
VOL. 194, FEBRUARY 18, 1991 177 But an order or promise to pay out of a particular fund is
Metropolitan Bank and Trust Company vs. not unconditional.
Court of Appeals The indication of Fund 501 as the source of the payment
tiable.” Moreover, and this is of equal significance, it is to be made on the treasury warrants makes the order
indicated that they are payable from a particular fund, or promise to pay “not unconditional” and the warrants
to wit, Fund 501. themselves non-negotiable. There should be no question
The following sections of the Negotiable Instruments that the exception on Section 3 of the Negotiable
Law, especially the underscored parts, are pertinent: Instruments Law is applicable in the case at bar. This
SECTION 1.—Form of negotiable instruments.—An conclusion conforms to Abubakar vs. Auditor
instrument to be negotiable must conform to the following General where the Court held:
11

requirements: The petitioner argues that he is a holder in good faith and for
value of a negotiable instrument and is entitled to the rights
1. (a)It must be in writing and signed by the maker or and privileges of a holder in due course, free from defenses.
drawer; But this
2. (b)Must contain an unconditional promise or order to
pay a sum certain in money; _______________
3. (c)Must be payable on demand, or at a fixed or
determinable future time;
11 81 Phil. 359.
178
4. (d)Must be payable to order or to bearer; and
5. (e)Where the instrument is addressed to a drawee, he
178 SUPREME COURT REPORTS
must be named or otherwise indicated therein with ANNOTATED
reasonable certainty. Metropolitan Bank and Trust Company vs.
Court of Appeals
xxx

27
treasury warrant is not within the scope of the negotiable
instrument law. For one thing, the document bearing on its
face the words “pay-able from the appropriation for food
administration, is actually an Order for payment out of “a
particular fund,” and is not unconditional and does not fulfill
one of the essential requirements of a negotiable instrument
(Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law).
Metrobank cannot contend that by indorsing the
warrants in general, Golden Savings assumed that they
were “genuine and in all respects what they purport to
be,” in accordance with Section 66 of the Negotiable
Instruments Law. The simple reason is that this law is
not applicable to the non-negotiable treasury warrants.
The indorsement was made by Gloria Cas-tillo not for
the purpose of guaranteeing the genuineness of the
warrants but merely to deposit them with Metrobank
for clearing. It was in fact Metrobank that made the
guarantee when it stamped on the back of the warrants:
“All prior indorsement and/or lack of endorsements
guaranteed, Metropolitan Bank & Trust Co., Calapan
Branch.”
The petitioner lays heavy stress on Jai Alai
Corporation v. Bank of the Philippine Islands, but we12
feel this case is inapplicable to the present controversy.
That case involved checks whereas this case involves
treasury warrants. Golden Savings never represented
that the warrants were negotiable but signed them only
for the purpose of depositing them for clearance. Also,
the fact of forgery was proved in that case but not in the
case before us. Finally, the Court found the Jai Alai
Corporation negligent in accepting the checks without
question from one Antonio Ramirez notwithstanding
28
that the payee was the Inter-Island Gas Services, Inc.
and it did not appear that he was authorized to indorse
it. No similar negligence can be imputed to Golden
Savings.
We find the challenged decision to be basically
correct. However, we will have to amend it insofar as it
directs the petitioner to credit Golden Savings with the
full amount of the treasury checks deposited to its
account.
The total value of the 32 treasury warrants
dishonored was
_______________
66 SCRA 29.
12
179
VOL. 194, FEBRUARY 18, 1991 179
Metropolitan Bank and Trust Company vs.
Court of Appeals
P1,754,089.00, from which Gomez was allowed to
withdraw P1,167,500.00 before Golden Savings was
notified of the dishonor. The amount he has withdrawn
must be charged not to Golden Savings but to
Metrobank, which must bear the consequences of its
own negligence. But the balance of P586,589.00 should
be debited to Golden Savings, as obviously Gomez can
no longer be permitted to withdraw this amount from
his deposit because of the dishonor of the warrants.
Gomez has in fact disappeared. To also credit the
balance to Golden Savings would unduly enrich it at the
expense of Metrobank, let alone the fact that it has
already been informed of the dishonor of the treasury
warrants.
 WHEREFORE, the challenged decision is 428 SUPREME COURT
AFFIRMED, with the modification that Paragraph 3 of REPORTS ANNOTATED
the dispositive portion of the judgment of the lower Country Bankers Insurance
court shall be reworded as follows: 3. Debiting Savings Corporation vs. Keppel Cebu Shipyard
Account No. 2498 in the sum of P586,589.00 only and consent or authority; By this legal fiction of
thereafter allowing defendant Golden Savings & Loan representation, the actual or legal absence of the principal is
Association, Inc. to withdraw the amount outstanding converted into his legal or juridical presence.—In a contract
thereon, if any, after the debit. of agency, a person, the agent, binds himself to represent
SO ORDERED. another, the principal, with the latter’s consent or authority.
Thus, agency is based on representation, where the agent
acts for and in behalf of the principal on matters within the
scope of the authority conferred upon him. Such “acts have
the same legal effect as if they were personally done by the
principal. By this legal fiction of representation, the actual
Article 1910 or legal absence of the principal is converted into his legal or
juridical presence.”
Same; Same; Guaranty; Suretyship; Special Power of
Attorney; Under Article 1878(11) of the Civil Code, a special
G.R. No. 166044. June 18, 2012.* power of attorney is necessary to obligate the principal as a
COUNTRY BANKERS INSURANCE CORPORATION, guarantor or surety.—The scope of an agent’s authority is
petitioner, vs. KEPPEL CEBU SHIPYARD, what appears in the written terms of the power of attorney
UNIMARINE SHIPPING LINES, INC., PAUL granted upon him. Under Article 1878(11) of the Civil
RODRIGUEZ, PETER RODRIGUEZ, ALBERT Code, a special power of attorney is necessary to obligate
HONTANOSAS, and BETHOVEN QUINAIN, the principal as a guarantor or surety.
respondents. Same; Same; An agent’s act, even if done beyond the
scope of his authority, may bind the principal if he ratifies
Civil Law; Agency; In a contract of agency, a person, the them, whether expressly or tacitly.—Under Articles 1898 and
agent, binds himself to represent another, the principal, with 1910, an agent’s act, even if done beyond the scope of his
the latter’s authority, may bind the principal if he ratifies them, whether
_______________ expressly or tacitly. It must be stressed though that only the
* FIRST DIVISION.
principal, and not the agent, can ratify the unauthorized
428 acts, which the principal must have knowledge of.
Same; Same; Agency by Estoppel; The principal is
solidarily liable with the agent even when the latter has

29
exceeded his authority, if the principal allowed him to act as
though he had full powers.—Article 1911, on the other hand,
is based on the principle of estoppel, which is necessary for
the protection of third persons. It states that the principal is
solidarily liable with the agent even when the latter has
exceeded his authority, if the principal allowed him to act as
though he had full powers. However, for an agency by
estoppel to exist, the following must be established: 1. The
principal manifested a representation of the agent’s
authority or knowingly allowed the agent to assume such
authority; 2. The third person, in good faith, relied upon such
representation; and 3. Relying upon such representation,
such third person has changed his position to his
detriment.429
VOL. 673, JUNE 18, 429
2012
Country Bankers Insurance
Corporation vs. Keppel Cebu Shipyard
Same; Same; Same; Persons dealing with an assumed
agent are bound at their peril, and if they would hold the
principal liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to prove it.—
As this Court held in Litonjua, Jr. v. Eternit Corp., 490 SCRA
204, 224-225 (2006): A person dealing with a known agent is
not authorized, under any circumstances, blindly to trust the
agents; statements as to the extent of his powers; such
person must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent acts
within the scope of his authority. The settled rule is that,
persons dealing with an assumed agent are bound at their
peril, and if they would hold the principal liable, to ascertain
not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of
30
proof is upon them to prove it. In this case, the petitioners
failed to discharge their burden; hence, petitioners are not
entitled to damages from respondent EC.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Velasquez and Associates for petitioner.
Angara, Abello, Concepcion, Regala and Cruz for
respondent Keppel Cebu Shipyard, Inc.
Albert L. Hontanosas for himself and for
respondents Unimarine Shipping Lines, Inc., Paul
Rodriguez and Peter Rodriguez.
Lorenzo S. Paylado for respondent B. Quinain.
LEONARDO-DE CASTRO,** J.:
This is a petition for review on certiorari1 to reverse
and set
_______________
** Acting Chairperson, Per Special Order No. 1226 dated May 30,
2012.
430
430 SUPREME COURT REPORTS
ANNOTATED
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
aside the January 29, 2004 Decision2 and October 28,
2004 Resolution3 of the Court of Appeals in CA-G.R. CV
No. 58001, wherein the Court of Appeals affirmed with
modification the February 10, 1997 Decision4 of the
Regional Trial Court (RTC) of Cebu City, Branch 7, in
Civil Case No. CBB-13447.
 Hereunder are the undisputed facts as culled from Country Bankers Insurance Corporation
the records of the case. vs. Keppel Cebu Shipyard
On January 27, 1992, Unimarine Shipping Lines, Attention: Mr. Paul Rodriguez
Inc. (Unimarine), a corporation engaged in the shipping President/General Manager
industry, contracted the services of Keppel Cebu This is to confirm our agreement on the shiprepair bills
Shipyard, formerly known as Cebu Shipyard and charged for the repair of MV Pacific Fortune, our invoice no.
Engineering Works, Inc. (Cebu Shipyard), for dry 26035.
docking and ship repair works on its vessel, the M/V The shiprepair bill (Bill No. 26035) is agreed at a negotiated
amount of P3,850,000.00 excluding VAT.
Pacific Fortune.5
Unimarine Shipping Lines, Inc. (“Unimarine”) will pay the
On February 14, 1992, Cebu Shipyard issued Bill No. above amount of [P3,850,000.00] in US Dollars to be fixed at
26035 to Unimarine in consideration for its services, the prevailing USDollar to Philippine Peso exchange rate at
which amounted to P4,486,052.00.6 Negotiations the time of payment. The payment terms to be extended to
between Cebu Shipyard and Unimarine led to the Unimarine is as follows:
reduction of this amount to P3,850,000.00. The terms of
this agreement were embodied in Cebu Shipyard’s Installments Amount Due Date
February 18, 1992 letter to the President/General 1st Installment P2,350,000.00 30 May
Manager of Unimarine, Paul Rodriguez, who signed his 1992
conformity to said letter, quoted in full below: 2nd P1,500,000.00 30 Jun
18 February 1992 Installment 1992
Ref No.: LL92/0383 Unimarine will deposit post-dated checks equivalent to the
UNIMARINE SHIPPING LINES, INC. above amounts in Philippine Peso and an additional check
C/O Autographics, Inc. amount of P385,000.00, representing 10% [Value Added Tax]
Gorordo Avenue, Lahug, Cebu City VAT on the above bill of P3,850,000.00. In the event that
_______________ Unimarine fails to make full payment on the above due dates
1 Under Rule 45 of the 1997 Rules of Court. in US Dollars, the post-dated checks will be deposited by
2 Rollo, pp. 31-55; penned by Associate Justice Jose C. Reyes, Jr. with
CSEW in payment of the amounts owned by Unimarine and
Associate Justices Romeo A. Brawner and Rebecca De Guia-Salvador,
concurring. Unimarine agree that the 10% VAT (P385,000.00) shall also
3 Id., at pp. 57-58. become payable to CSEW.
4 CA Rollo, pp. 25-33. Unimarine in consideration of the credit terms extended by
5 Rollo, pp. 81-82. CSEW and the release of the vessel before full payment of
6 Id., at pp. 94-114.
the above debt, agree to present CSEW surety bonds equal
431 to 120% of the value of the credit extended. The total bond
amount shall be P4,620,000.00.
VOL. 673, JUNE 18, 2012 431
31
Yours faithfully, consideration of Cebu Shipyard & Engineering Works,
CEBU SHIPYARD & ENG’G WORKS, INC Conforme: Inc. (“Cebu Shipyard”) at our request agreeing to release the
(SGD) (SGD vessel specified in part A of the Schedule (“name of vessel”)
_______________ prior to the receipt of the sum specified in part B of the
SEET KENG TAT PAUL RODRIGUEZ Schedule (“Moneys Payable”) payable in respect of certain
Treasurer/VP-Admin. Unimarine Shipping works performed or to be performed by Cebu Shipyard and/or
Lines, Inc.7 its subcontractors and/or material and equipment supplied
or to be supplied by Cebu Shipyard and/or its subcontractors
_______________
7 Id., at p. 115. in connection with the vessel for the party specified in part
C of the Schedule (“the Debtor”), we hereby unconditionally,
432 irrevocably undertake to make punctual payment to Cebu
432 SUPREME COURT REPORTS Shipyard of the Moneys Payable on the terms and conditions
ANNOTATED as set out in part B of the Schedule. We likewise hereby
Country Bankers Insurance Corporation expressly waive whatever right of excussion we may have
vs. Keppel Cebu Shipyard under the law and equity.
This contract shall be binding upon Uni-Marine Shipping
In compliance with the agreement, Unimarine,
Lines, Inc., its heirs, executors, administrators, successors,
through Paul Rodriguez, secured from Country Bankers and assigns and
Insurance Corp. (CBIC), through the latter’s agent, _______________
Bethoven Quinain (Quinain), CBIC Surety Bond No. G 8 Id., at pp. 116-117.
9 Id., at p. 118.
(16) 294198 (the surety bond) on January 15, 1992 in the 10 Id., at pp. 119-120.
amount of P3,000,000.00. The expiration of this surety
bond was extended to January 15, 1993, through 433

Endorsement No. 331529 (the endorsement), which was VOL. 673, JUNE 18, 2012 433
later on attached to and formed part of the surety bond. Country Bankers Insurance Corporation
In addition to this, Unimarine, on February 19, 1992, vs. Keppel Cebu Shipyard
obtained another bond from Plaridel Surety and shall not be discharged until all obligation of this contract
Insurance Co. (Plaridel), PSIC Bond No. G (16)- shall have been faithfully and fully performed by the
0036510 in the amount of P1,620,000.00. Debtor.”11
On February 17, 1992, Unimarine executed a
Contract of Undertaking in favor of Cebu Shipyard. The Because Unimarine failed to remit the first
pertinent portions of the contract read as follows: installment when it became due on May 30, 1992, Cebu
“Messrs, Uni-Marine Shipping Lines, Inc.(“the Debtor”) Shipyard was constrained to deposit the peso check
of Gorordo Avenue, Cebu City hereby acknowledges that in corresponding to the initial installment of

32
P2,350,000.00. The check, however, was dishonored by 434 SUPREME COURT REPORTS
the bank due to insufficient funds.12 Cebu Shipyard ANNOTATED
faxed a message to Unimarine, informing it of the Country Bankers Insurance Corporation
situation, and reminding it to settle its account vs. Keppel Cebu Shipyard
immediately.13 B#26035 MV PACIFIC FORTUNE 4,486,052.00
On June 24, 1992, Cebu Shipyard again faxed a LESS: ADJUSTMENT:
message14 to Unimarine, to confirm Paul Rodriguez’s CN#00515-03/19/92 (636,052.00)
promise that Unimarine will pay in full the ------------------
P3,850,000.00, in US Dollars on July 1, 1992. 3,850,000.00
Since Unimarine failed to deliver on the above Add: VAT on repair bill no. 26035 385,000.00
promise, Cebu Shipyard, on July 2, 1992, through a ------------------
4,235,000.00
faxed letter, asked Unimarine if the payment could be
Add: Interest/penalty charges:
picked up the next day. This was followed by another
Debit Note No. 02381 189,888.00
faxed message on July 6, 1992, wherein Cebu Shipyard Debit Note No. 02382 434,570.00
reminded Unimarine of its promise to pay in full on July ------------------
28, 1992. On August 24, 1992, Cebu Shipyard again 4,859,458.0017
faxed15 Unimarine, to inform it that interest charges
will have to be imposed on their outstanding debt, and Due to Unimarine’s failure to heed Cebu Shipyard’s
if it still fails to pay before August 28, 1992, Cebu repeated demands, Cebu Shipyard, through counsel,
Shipyard will have to enforce payment against the wrote the sureties CBIC18 on November 18, 1992, and
sureties and take legal action. Plaridel,19 on November 19, 1992, to inform them of
On November 18, 1992, Cebu Shipyard, through its Unimarine’s nonpayment, and to ask them to fulfill
counsel, sent Unimarine a letter,16 demanding payment, their obligations as sureties, and to respond within
within seven days from receipt of the letter, the amount seven days from receipt of the demand.
of P4,859,458.00, broken down as follows: However, even the sureties failed to discharge their
_______________ obligations, and so Cebu Shipyard filed a Complaint
11 Id., at p. 121. dated January 8, 1993, before the RTC, Branch 18 of
12 Id., at p. 85. Cebu City, against Unimarine, CBIC, and Plaridel. This
13 Id., at p. 123.
14 Id., at p. 124. was docketed as Civil Case No. CBB-13447.
15 Id., at pp. 125-127. CBIC, in its Answer,20 said that Cebu Shipyard’s
16 Id., at pp. 128-129. complaint states no cause of action. CBIC alleged that
434 the surety bond was issued by its agent, Quinain, in

33
excess of his authority. CBIC claimed that Cebu
Shipyard should have doubted the authority of Quinain
to issue the surety bond based on the following:
_______________
17 Id., at p. 130.
18 Id., at pp. 131-132.
19 Id., at p. 133.
20 Id., at pp. 136-143.
435
VOL. 673, JUNE 18, 2012 435
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
1.
The nature of the bond undertaking (guarantee
payment), and the amount involved.
2. The surety bond could only be issued in favor of
the Department of Public Works and Highways, as
stamped on the upper right portion of the face of
the bond.21 This stamp was covered by
documentary stamps.
3. The issuance of the surety bond was not reported,
and the corresponding premiums were not
remitted to CBIC.22
CBIC added that its liability was extinguished when,
without its knowledge and consent, Cebu Shipyard and
Unimarine novated their agreement several times.
Furthermore, CBIC stated that Cebu Shipyard’s claim
had already been paid or extinguished when Unimarine
executed an Assignment of Claims23 of the proceeds of
the sale of its vessel M/V Headline in favor of Cebu
Shipyard. CBIC also averred that Cebu Shipyard’s
claim had already prescribed as the endorsement that
extended the surety bond’s expiry date, was not
34
reported to CBIC. Finally, CBIC asseverated that if it
were held to be liable, its liability should be limited to
the face value of the bond and not for exemplary
damages, attorney’s fees, and costs of litigation.24
Subsequently, CBIC filed a Motion to Admit Cross
and Third Party Complaint25against Unimarine, as
cross defendant; Paul Rodriguez, Albert Hontanosas,
and Peter Rodriguez, as signatories to the Indemnity
Agreement they executed in favor of CBIC; and
Bethoven Quinain, as the agent
_______________
21 Id., at p. 236.
22 Id., at p. 137.
23 CA Rollo, p. 27.
24 Rollo, pp. 138-141.
25 Id., at pp. 144-145.
436
436 SUPREME COURT REPORTS
ANNOTATED
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
who issued the surety bond and endorsement in excess
of his authority, as third party defendants.26
CBIC claimed that Paul Rodriguez, Albert
Hontanosas, and Peter Rodriguez executed an
Indemnity Agreement, wherein they bound themselves,
jointly and severally, to indemnify CBIC for any
amount it may sustain or incur in connection with the
issuance of the surety bond and the endorsement.27 As
for Quinain, CBIC alleged that he exceeded his
authority as stated in the Special Power of Attorney,
wherein he was authorized to solicit business and issue
surety bonds not exceeding P500,000.00 but only in
favor of the Department of Public Works and Highways,
National Power Corporation, and other government
agencies.28
On August 23, 1993, third party defendant
Hontanosas filed his Answer with Counterclaim, to the
Cross and Third Party Complaint. Hontanosas claimed
that he had no financial interest in Unimarine and was
neither a stockholder, director nor an officer of
Unimarine. He asseverated that his relationship to
Unimarine was limited to his capacity as a lawyer,
being its retained counsel. He further denied having
any participation in the Indemnity Agreement executed
in favor of CBIC, and alleged that his signature therein
was forged, as he neither signed it nor appeared before
the Notary Public who acknowledged such
undertaking.29
Various witnesses were presented by the parties
during the course of the trial of the case. Myrna
Obrinaga testified for Cebu Shipyard. She was the
Chief Accountant in charge of the custody of the
documents of the company. She corroborated Cebu
Shipyard’s allegations and produced in court the
documents to support Cebu Shipyard’s claim. She also
testified that while it was true that the proceeds of the
sale of
_______________
26 CA Rollo, pp. 42-43.
27 Rollo, p. 150.
28 Id., at pp. 233-234.
29 Id., at pp. 153-155.
437
VOL. 673, JUNE 18, 2012 437
35
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
Unimarine’s vessel, M/V Headline, were assigned to
Cebu Shipyard, nothing was turned over to them.30
Paul Rodriguez admitted that Unimarine failed to
pay Cebu Shipyard for the repairs it did on M/V Pacific
Fortune, despite the extensions granted to Unimarine.
He claimed that he signed the Indemnity Agreement
because he trusted Quinain that it was a mere pre-
requisite for the issuance of the surety bond. He added
that he did not bother to read the documents and he was
not aware of the consequences of signing an Indemnity
Agreement. Paul Rodriguez also alleged to not having
noticed the limitation “Valid only in favor of DPWH”
stamped on the surety bond.31 However, Paul Rodriguez
did not contradict the fact that Unimarine failed to pay
Cebu Shipyard its obligation.32
CBIC presented Dakila Rianzares, the Senior
Manager of its Bonding Department. Her duties
included the evaluation and approval of all applications
for and reviews of bonds issued by their agents, as
authorized under the Special Power of Attorney and
General Agency Contract of CBIC. Rianzares testified
that she only learned of the existence of CBIC Surety
Bond No. G (16) 29419 when she received the summons
for this case. Upon investigation, she found out that the
surety bond was not reported to CBIC by Quinain, the
issuing agent, in violation of their General Agency
Contract, which provides that all bonds issued by the
agent be reported to CBIC’s office within one week from
the date of issuance. She further stated that the surety
bond issued in favor of Unimarine was issued beyond
Quinain’s authority. Rianzares added that she was not
aware that an endorsement pertaining to the surety
bond was also issued by Quinain.33
_______________
30 CA Rollo, p. 27.
31 Id., at p. 28.
32 Id., at p. 30.
33 Id., at pp. 28-29.
438
438 SUPREME COURT REPORTS
ANNOTATED
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
After the trial, the RTC was faced with the lone issue
of whether or not CBIC was liable to Cebu Shipyard
based on Surety Bond No. G (16) 29419.34
On February 10, 1997, the RTC rendered its
Decision, the fallo of which reads:
“WHEREFORE, judgment is hereby rendered in favor of
the plaintiff Cebu Shipyard & Engineering Works,
Incorporated and against the defendants:
1. Ordering the defendants Unimarine Shipping Lines,
Incorporated, Country Bankers Insurance Corporation and
Plaridel Surety and Insurance Corporation to pay plaintiff
jointly and severally the amount of P4,620,000.00 equivalent
to the value of the surety bonds;
2. Ordering further defendant Unimarine to pay
plaintiff the amount of P259,458.00 to complete its entire
obligation of P4,859,458.00;
3. To pay plaintiff jointly and severally the amount of
P100,000.00 in attorney’s fees and litigation expenses;
4. For Cross defendant Unimarine Shipping Lines,
Incorporated and Third party defendants Paul Rodriguez,
Peter Rodriguez and Alber[t] Hontanosas: To indemnify
36
jointly and severally, cross plaintiff and third party plaintiff
Country Bankers Insurance Corporation whatever amount
the latter is made to pay to plaintiff.”35
The RTC held that CBIC, “in its capacity as surety is
bound with its principal jointly and severally to the
extent of the surety bond it issued in favor of [Cebu
Shipyard]” because “although the contract of surety is
in essence secondary only to a valid principal obligation,
his liability to [the] creditor is said to be direct,
primary[,] and absolute, in other words, he is bound by
the principal.”36 The RTC added:
_______________
34 Id., at p. 31.
35 Id., at p. 33.
36 Id., at p. 31.
439
VOL. 673, JUNE 18, 2012 439
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
“Solidary obligations on the part of Unimarine and CBIC
having been established and expressly stated in the Surety
Bond No. 29419 (Exh. “C”), [Cebu Shipyard], therefore, is
entitled to collect and enforce said obligation against any and
or both of them, and if and when CBIC pays, it can compel
its co-defendant Unimarine to reimburse to it the amount it
has paid.”37
The RTC found CBIC’s contention that Quinain
acted in excess of his authority in issuing the surety
bond untenable. The RTC held that CBIC is bound by
the surety bond issued by its agent who acted within the
apparent scope of his authority. The RTC said:
 “[A]s far as third persons are concerned, an act is deemed
to have been performed within the scope of the agent’s
authority, if such act is within the terms of the powers of
attorney as written, even if the agent has in fact exceeded
the limits of his authority according to an understanding
between the principal and the agent.”38
All the defendants appealed this Decision to the
Court of Appeals.
Unimarine, Paul Rodriguez, Peter Rodriguez, and
Albert Hontanosas argued that Unimarine’s obligation
under Bill No. 26035 had been extinguished by
novation, as Cebu Shipyard had agreed to accept the
proceeds of the sale of the M/V Headline as payment for
the ship repair works it did on M/V Pacific Fortune.
Paul Rodriguez and Peter Rodriguez added that such
novation also freed them from their liability under the
Indemnity Agreement they signed in favor of CBIC.
Albert Hontanosas in turn reiterated that he did not
sign the Indemnity Agreement.39
_______________
37 Id.
38 Id., at p. 33.
39 Id., at pp. 21-22.
440
440 SUPREME COURT REPORTS
ANNOTATED
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
CBIC, in its Appellant’s Brief,40claimed that the RTC
erred in enforcing its liability on the surety bond as it
was issued in excess of Quinain’s authority. Moreover,
CBIC averred, its liability under such surety had been
37
extinguished by reasons of novation, payment, and
prescription. CBIC also questioned the RTC’s order,
holding it jointly and severally liable with Unimarine
and Plaridel for the amount of P4,620,000.00, a sum
larger than the face value of CBIC Surety Bond No.
G (16) 29419, and why the RTC did not hold Quinain
liable to indemnify CBIC for whatever amount it was
ordered to pay Cebu Shipyard.
On January 29, 2004, the Court of Appeals
promulgated its decision, with the following dispositive
portion:
“WHEREFORE, in view of the foregoing, the respective
appeal[s] filed by Defendants-Appellants Unimarine
Shipping Lines, Inc. and Country Bankers Insurance
Corporation; Cross-Defendant-Appellant Unimarine
Shipping Lines, Inc. and; Third-Party Defendants-
Appellants Paul Rodriguez, Peter Rodriguez and Albert
Hontanosas are hereby DENIED. The decision of the RTC in
Civil Case No. CEB-13447 dated February 10, 1997
is AFFIRMED with modification that Mr. Bethoven
Quinain, CBIC’s agent is hereby held jointly and severally
liable with CBIC by virtue of Surety Bond No. 29419
executed in favor of plaintiff-appellee CSEW.”41
In its decision, the Court of Appeals resolved the
following issues, as it had summarized from the parties’
pleadings:
I. Whether or not UNIMARINE is liable to [Cebu Shipyard]
for a sum of money arising from the ship-repair contract;
II. Whether or not the obligation of UNIMARINE to [Cebu
Shipyard] has been extinguished by novation;
III. Whether or not Defendant-Appellant CBIC, allegedly
being the Surety of UNIMARINE is liable under Surety Bond
No. 29419[;]
 _______________
40 Id., at pp. 39-63.
41 Rollo, pp. 54-55.
441
VOL. 673, JUNE 18, 2012 441
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
IV. Whether or not Cross Defendant-Appellant
UNIMARINE and Third-Party Defendants-Appellants Paul
Rodriguez, Peter Rodriguez, Albert Hontanosas and Third-
Party Defendant Bethoven Quinain are liable by virtue of the
Indemnity Agreement executed between them and Cross and
Third Party Plaintiff CBIC;
V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is
entitled to the award of P100,000.00 in attorney’s fees and
litigation expenses.42
The Court of Appeals held that it was duly proven
that Unimarine was liable to Cebu Shipyard for the ship
repair works it did on the former’s M/V Pacific Fortune.
The Court of Appeals dismissed CBIC’s contention of
novation for lack of merit.43 CBIC was held liable under
the surety bond as there was no novation on the
agreement between Unimarine and Cebu Shipyard that
would discharge CBIC from its obligation. The Court of
Appeals also did not allow CBIC to disclaim liability on
the ground that Quinain exceeded his authority because
third persons had relied upon Quinain’s representation,
as CBIC’s agent.44Quinain was, however, held solidarily
liable with CBIC under Article 1911 of the Civil Code.45
Anent the liability of the signatories to the
Indemnity Agreement, the Court of Appeals held Paul
Rodriguez, Peter Rodriguez, and Albert Hontanosas
38
jointly and severally liable thereunder. The Court of
Appeals rejected Hontanosas’ claim that his signature
in the Indemnity Agreement was forged, as he was not
able to prove it.46
The Court of Appeals affirmed the award of
attorney’s fees and litigation expenses to Cebu Shipyard
since it was able to clearly establish the defendants’
liability, which they tried to
_______________
42 Id., at p. 38.
43 Id., at pp. 39-40.
44 Id., at pp. 44-46.
45 Id., at p. 53.
46 Id., at pp. 49-51.
442
442 SUPREME COURT REPORTS
ANNOTATED
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
dodge by setting up defenses to release themselves from
their obligation.47
CBIC48 and Unimarine, together with third party
defendants-appellants49 filed their respective Motions
for Reconsideration. This was, however, denied by the
Court of Appeals in its October 28, 2004 Resolution for
lack of merit.
Unimarine elevated its case to this Court via a
petition for review on certiorari, docketed as G.R. No.
166023, which was denied in a Resolution dated
January 19, 2005.50
The lone petitioner in this case, CBIC, is now before
this Court, seeking the reversal of the Court of Appeals’
decision and resolution on the following grounds:
 A.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN APPLYING THE PROVISIONS OF
ARTICLE 1911 OF THE CIVIL CODE TO HOLD
PETITIONER LIABLE FOR THE ACTS DONE BY ITS
AGENT IN EXCESS OF AUTHORITY.
B.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN HOLDING THAT AN EXTENSION OF THE
PERIOD FOR THE PERFORMANCE OF AN
OBLIGATION GRANTED BY THE CREDITOR TO
THE PRINCIPAL DEBTOR IS NOT SUFFICIENT TO
RELEASE THE SURETY.
C.
ASSUMING THAT PETITIONER IS LIABLE UNDER
THE BOND, THE HONORABLE COURT OF APPEALS
NONETHE-
_______________
47 Id., at p. 54.
48 CA Rollo, pp. 240-252.
49 Id., at pp. 253-256.
50 Rollo, p. 389.
443
VOL. 673, JUNE 18, 2012 443
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
LESS SERIOUSLY ERRED IN AFFIRMING THE
SOLIDARY LIABILITY OF PETITIONER BEYOND
THE VALUE OF THE BOND.
D.
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING PETITIONER JOINTLY AND SEVERALLY
LIABLE FOR ATTORNEY’S FEES IN THE AMOUNT
OF P100,000.00.51
39
Issue
The crux of the controversy lies in CBIC’s liability on
the surety bond Quinain issued to Unimarine, in favor
of Cebu Shipyard.
CBIC avers that the Court of Appeals erred in
interpreting and applying the rules governing the
contract of agency. It argued that the Special Power of
Attorney granted to Quinain clearly set forth the extent
and limits of his authority with regard to businesses he
can transact for and in behalf of CBIC. CBIC added that
it was incumbent upon Cebu Shipyard to inquire and
look into the power of authority conferred to Quinain.
CBIC said:
“The authority to bind a principal as a guarantor or surety is
one of those powers which requires a Special Power of
Attorney pursuant to Article 1878 of the Civil Code. Such
power could not be simply assumed or inferred from
the mere existence of an agency. A person who enters
into a contract of suretyship with an agent without
confirming the extent of the latter’s authority does so at his
peril. x x x.”52
CBIC claims that the foregoing is true even if
Quinain was granted the authority to transact in the
business of insurance in general, as “the authority to
bind the principal in a
_______________
51 Id., at pp. 13-14.
52 Id., at p. 15.
444
444 SUPREME COURT REPORTS
ANNOTATED
 Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
contract of suretyship could nonetheless never be
presumed.”53Thus, CBIC claims, that:
“[T]hird persons seeking to hold the principal liable for
transactions entered into by an agent should establish the
following, in case the same is controverted:
6.6.1. The fact or existence of the agency.
6.6.2. The nature and extent of authority.”54
To go a little further, CBIC said that the correct Civil
Code provision to apply in this case is Article 1898.
CBIC asserts that “Cebu Shipyard was charged with
knowledge of the extent of the authority conferred on
Mr. Quinain by its failure to perform due diligence
investigations.”55
Cebu Shipyard, in its Comment56 first assailed the
propriety of the petition for raising factual issues. In
support, Cebu Shipyard claimed that the Court of
Appeals’ application of Article 1911 of the Civil Code
was founded on findings of facts that CBIC now
disputes. Thus, the question is not purely of law.
Discussion
The fact that Quinain was an agent of CBIC was
never put in issue. What has always been debated by
the parties is the extent of authority or, at the very
least, apparent authority, extended to Quinain by CBIC
to transact insurance business for and in its behalf.
In a contract of agency, a person, the agent, binds
himself to represent another, the principal, with the
latter’s consent
40
_______________
53 Id., at p. 16.
54 Id., at p. 18.
55 Id., at p. 19.
56 Id., at pp. 248-287.
445
VOL. 673, JUNE 18, 2012 445
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
or authority.57 Thus, agency is based on representation,
where the agent acts for and in behalf of the principal
on matters within the scope of the authority conferred
upon him.58 Such “acts have the same legal effect as if
they were personally done by the principal. By this legal
fiction of representation, the actual or legal absence of
the principal is converted into his legal or juridical
presence.”59
The RTC applied Articles 1900 and 1911 of the Civil
Code in holding CBIC liable for the surety bond. It held
that CBIC could not be allowed to disclaim liability
because Quinain’s actions were within the terms of the
special power of attorney given to him.60 The Court of
Appeals agreed that CBIC could not be permitted to
abandon its obligation especially since third persons
had relied on Quinain’s representations. It based its
decision on Article 1911 of the Civil Code and found
CBIC to have been negligent and less than prudent in
conducting its insurance business for its failure to
supervise and monitor the acts of its agents, to regulate
the distribution of its insurance forms, and to devise
schemes to prevent fraudulent misrepresentations of its
agents.61
 This Court does not agree.Pertinent to this case
are the following provisions of the Civil Code:
“Art. 1898. If the agent contracts in the name of the
principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void if the
party with whom the agent contracted is aware of the limits
of the powers granted by the principal. In this case, however,
the agent is liable if he undertook to secure the principal’s
ratification.
_______________
57 Civil Code, Art. 1868.
58 Id., Art. 1881.
59 Siredy Enterprises, Inc. v. Court of Appeals, 437 Phil. 580, 591; 389
SCRA 34, 42-43 (2002).
60 CA Rollo, pp. 31-32.
61 Rollo, pp. 46-47.
446
446 SUPREME COURT REPORTS
ANNOTATED
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
Art. 1900. So far as third persons are concerned, an act
is deemed to have been performed within the scope of the
agent’s authority, if such act is within the terms of the power
of attorney, as written, even if the agent has in fact exceeded
the limits of his authority according to an understanding
between the principal and the agent.
Art. 1902. A third person with whom the agent wishes
to contract on behalf of the principal may require the
presentation of the power of attorney, or the instructions as
regards the agency. Private or secret orders and instructions
of the principal do not prejudice third persons who have
relied upon the power of attorney or instructions shown to
them.
41
Art. 1910. The principal must comply with all the
obligations which the agent may have contracted within the
scope of his authority.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly.
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.”
Our law mandates an agent to act within the scope
of his authority.62 The scope of an agent’s authority is
what appears in the written terms of the power of
attorney granted upon him.63 Under Article 1878(11) of
the Civil Code, a special power of attorney is
necessary to obligate the principal as a guarantor or
surety.
In the case at bar, CBIC could be held liable even if
Quinain exceeded the scope of his authority only if
Quinain’s act of issuing Surety Bond No. G (16) 29419
is deemed to have been performed within the written
terms of the power of attorney he was granted.64
_______________
62 CIVIL CODE, Art. 1881.
63 Id., Art. 1900.
64 Id.
447
VOL. 673, JUNE 18, 2012 447
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
However, contrary to what the RTC held, the Special
Power of Attorney accorded to Quinain clearly states
the limits of his authority and particularly provides 448 SUPREME COURT REPORTS
that in case of surety bonds, it can only be issued in ANNOTATED
favor of the Department of Public Works and Highways, Country Bankers Insurance Corporation
the National Power Corporation, and other government vs. Keppel Cebu Shipyard
agencies; furthermore, the amount of the surety bond is d. MARINE:
limited to P500,000.00, to wit: xxxx
SPECIAL POWER OF ATTORNEY e. BONDS:
KNOW ALL MEN BY THESE PRESENTS: xxxx
That, COUNTRY BANKERS INSURANCE Surety Bond (in favor of Dept. of Pub. Works and Highways,
CORPORATION, a corporation duly organized and existing Nat’l. Power Corp. & other Government
under and by virtue of the laws of the Philippines, with head agencies)65........................... 500,000.00
offices at 8th Floor, G.F. Antonino Building, T.M. Kalaw
Street, Ermita, Manila, now and hereinafter referred to as CBIC does not anchor its defense on a secret
“the Company” hereby appoints BETHOVEN B. agreement, mutual understanding, or any verbal
QUINAIN with address at x x x to be its General Agent and instruction to Quinain. CBIC’s stance is grounded on its
Attorney-in-Fact, for and in its place, name and stead, and contract with Quinain, and the clear, written terms
for its own use and benefit, to do and perform the following therein. This Court finds that the terms of the foregoing
acts and things: contract specifically provided for the extent and scope of
1. To conduct, manage, carry on and transact insurance Quinain’s authority, and Quinain has indeed exceeded
business as usually pertains to a General Agency of Fire, them.
Personal Accident, Bond, Marine, Motor Car (Except
Under Articles 1898 and 1910, an agent’s act, even if
Lancer).
2. To accept, underwrite and subscribe policies of done beyond the scope of his authority, may bind the
insurance for and in behalf of the Company under the terms principal if he ratifies them, whether expressly or
and conditions specified in the General Agency Contract tacitly. It must be stressed though that only the
executed and entered into by and between it and its said principal, and not the agent, can ratify the
Attorney-in-Fact subject to the following Schedule of Limits: unauthorized acts, which the principal must have
- SCHEDULE OF LIMITS - knowledge of.66Expounding on the concept and doctrine
a. FIRE: of ratification in agency, this Court said:
xxxx “Ratification in agency is the adoption or confirmation by
b. PERSONAL ACCIDENT: one person of an act performed on his behalf by another
xxxx without authority. The substance of the doctrine is
c. MOTOR CAR: confirmation after conduct, amounting to a substitute for a
x x x x448 prior authority. Ordinarily, the principal must have full

42
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 be-
_______________
65 Rollo, pp. 233-234.
66 Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No.
151319, November 22, 2004, 443 SCRA 377, 394.
449
VOL. 673, JUNE 18, 2012 449
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
tween whom the question of ratification may
arise. Nevertheless, this principle does not apply if the
principal’s ignorance of the material facts and circumstances
was willful, or that the principal chooses to act in ignorance
of the facts. 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.”67 (Emphases supplied.)
Neither Unimarine nor Cebu Shipyard was able to
repudiate CBIC’s testimony that it was unaware of the
existence of Surety Bond No. G (16) 29419 and
Endorsement No. 33152. There were no allegations
either that CBIC should have been put on alert with
regard to Quinain’s business transactions done on its
behalf. It is clear, and undisputed therefore, that there
can be no ratification in this case, whether express or
implied.
43
Article 1911, on the other hand, is based on the
principle of estoppel, which is necessary for the
protection of third persons. It states that the principal
is solidarily liable with the agent even when the latter
has exceeded his authority, if the principal allowed him
to act as though he had full powers. However, for an
agency by estoppel to exist, the following must be
established:
1. The principal manifested a representation of the
agent’s authority or knowingly allowed the agent
to assume such authority;
2. The third person, in good faith, relied upon such
representation; and
3. Relying upon such representation, such third
person has changed his position to his detriment.68
In Litonjua, Jr. v. Eternit Corp.,69 this Court said
that “[a]n agency by estoppel, which is similar to the
doctrine of appar-
_______________
67 Id., at pp. 394-395.
68 Litonjua, Jr. v. Eternit Corp., G.R. No. 144805, June 8, 2006,
490 SCRA 204, 224-225.
4450
4450 SUPREME COURT REPORTS
ANNOTATED
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
ent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.”70
This Court cannot agree with the Court of Appeals’
pronouncement of negligence on CBIC’s part. CBIC not
only clearly stated the limits of its agents’ powers in
their contracts, it even stamped its surety bonds with
the restrictions, in order to alert the concerned parties.
Moreover, its company procedures, such as reporting
requirements, show that it has designed a system to
monitor the insurance contracts issued by its agents.
CBIC cannot be faulted for Quinain’s deliberate failure
to notify it of his transactions with Unimarine. In fact,
CBIC did not even receive the premiums paid by
Unimarine to Quinain.
Furthermore, nowhere in the decisions of the lower
courts was it stated that CBIC let the public, or
specifically Unimarine, believe that Quinain had the
authority to issue a surety bond in favor of companies
other than the Department of Public Works and
Highways, the National Power Corporation, and other
government agencies. Neither was it shown that CBIC
knew of the existence of the surety bond before the
endorsement extending the life of the bond, was issued
to Unimarine. For one to successfully claim the benefit
of estoppel on the ground that he has been misled by the
representations of another, he must show that he was
not misled through his own want of reasonable care and
circumspection.71
It is apparent that Unimarine had been negligent or
less than prudent in its dealings with Quinain.
In Manila Memorial Park Cemetery, Inc. v.
Linsangan,72 this Court held:
_______________
69 Id.
70 Id., at p. 225.
71 Manila Memorial Park Cemetery, Inc. v. Linsangan, supra note
66 at p. 397.
44
72 Id., at pp. 391-392.
451
VOL. 673, JUNE 18, 2012 451
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
“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. 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. If he does not make such an inquiry,
he is chargeable with knowledge of the agent’s authority and
his ignorance of that authority will not be any excuse.”
In the same case, this Court added:
“[T]he ignorance of a person dealing with an agent as to the
scope of the latter’s authority is no excuse to such person and
the fault cannot be thrown upon the principal. A person
dealing with an agent assumes the risk of lack of authority
in the agent. He cannot charge the principal by relying upon
the agent’s assumption of authority that proves to be
unfounded. The principal, on the other hand, may act on the
presumption that third persons dealing with his agent will
not be negligent in failing to ascertain the extent of his
authority as well as the existence of his agency.”73
Unimarine undoubtedly failed to establish that it
even bothered to inquire if Quinain was authorized to
agree to terms beyond the limits indicated in his special
power of attorney. While Paul Rodriguez stated that he
has done business with Quinain more than once, he was
not able to show that he was misled by CBIC as to the
extent of authority it granted Quinain. Paul Rodriguez
did not even allege that he asked for documents to prove
Quinain’s authority to contract business for CBIC, such
as their contract of agency and power of attorney. It is
also worthy to note that even with the Indemnity
Agreement, Paul Rodriguez signed it on Quinain’s mere
assurance and without truly understanding the
consequences of the terms of the said agreement.
Moreover, both Unimarine and Paul Rodriguez could
have inquired directly from CBIC to verify the validity
and effectivity of the surety
_______________
73 Id., at p. 392.
452
452 SUPREME COURT REPORTS
ANNOTATED
Country Bankers Insurance Corporation
vs. Keppel Cebu Shipyard
bond and endorsement; but, instead, they blindly relied
on the representations of Quinain. As this Court held
in Litonjua, Jr. v. Eternit Corp.:74
“A person dealing with a known agent is not authorized,
under any circumstances, blindly to trust the agents;
statements as to the extent of his powers; such person must
not act negligently but must use reasonable diligence and
prudence to ascertain whether the agent acts within the
scope of his authority. The settled rule is that, persons
dealing with an assumed agent are bound at their peril, and
if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon
them to prove it. In this case, the petitioners failed to
45
discharge their burden; hence, petitioners are not entitled to
damages from respondent EC.”75
In light of the foregoing, this Court is constrained to
release CBIC from its liability on Surety Bond No. G
(16) 29419 and Endorsement No. 33152. This Court sees
no need to dwell on the other grounds propounded by
CBIC in support of its prayer.
WHEREFORE, this petition is hereby GRANTED
and the complaint against CBIC is DISMISSED for lack
of merit. The January 29, 2004 Decision and October 28,
2004 Resolution of the Court of Appeals in CA-G.R. CV
No. 58001 is MODIFIED insofar as it affirmed CBIC’s
liability on Surety Bond No.
G (16) 29419 and Endorsement No. 33152.
SO ORDERED.
G.R. No. 114091. June 29, 1995. *
BACALTOS COAL MINES and GERMAN A.
BACALTOS, petitioners, vs.HON. COURT OF
APPEALS and SAN MIGUEL CORPORATION,
respondents.
Agency; Contracts; Obligations; Every person dealing
with an agent is put upon inquiry and must discover upon his
peril the authority of the agent.—Every person dealing with
an agent is put upon inquiry and must discover upon his peril
the authority of the agent. If he does not make such inquiry,
he is chargeable with knowledge of the agent’s authority, and
his ignorance of that authority will not be any excuse.
Persons dealing with an assumed agent, whether the
assumed agency be a general or special one, are bound at
their peril, if they would hold the principal, to ascertain not
only the fact of the agency but also the nature and extent of
the authority, and in case either is controverted, the burden
of proof is upon them to establish it.
Same; Same; Same; The Authorization is a special
power of attorney for it refers to a clear mandate specifically
authorizing the performance of a specific power and of express
acts subsumed therein.—The conclusion then of the Court of
Appeals that the Authorization includes the power to enter
into the Trip Charter Party because the “five prerogatives”
are prefaced by such clause, is seriously flawed. It fails to
note that the broadest scope of Savellon’s authority is limited
to the use of the coal operating contract and the clause cannot
contemplate any other power not included in the
enumeration or which are unrelated either to the power to
use the coal operating contract or to those already
enumerated. In short, while the clause allows some room for
flexibility, it can comprehend only additional prerogatives
falling within the primary power and within the same class
as those enumerated. The trial court, however, went further
by hastily making a sweeping conclusion that “a company
such as a coal mining company is not prohibited to engage in
entering into a Trip Charter Party contract.” But what the
trial court failed to consider was that there is no evidence at
all that Bacaltos Coal Mines as a coal mining company owns
and operates vessels, and even if it owned any such vessels,
that it was allowed to charter or lease them. The trial court
also failed to note that the Authorization is not a general
power of attorney. It is a special power of attorney for it refers
to a clear mandate specifically
_______________
46
*FIRST DIVISION.
461
VOL. 245, JUNE 29, 1995 461
Bacaltos Coal Mines vs. Court of
Appeals
authorizing the performance of a specific power and of
express acts subsumed therein.
Mines and Mining; Coal Operating Contract; Coal
operating contract is one of the authorized ways of active
exploration, development, and production of coal resources in
a specified contract area.—A coal operating contract is
governed by P.D. No. 972 (The Coal Development Act of
1976), as amended by P.D. No. 1174. It is one of the
authorized ways of active exploration, development, and
production of coal resources in a specified contract area.
Agency; Contracts; Obligations; Rule that between two
innocent parties, the one who made it possible for the wrong
to be done should be the one to bear the resulting loss. In the
present case, SMC is guilty of not ascertaining the extent and
limits of the authority of Savellon. In not doing so, SMC dealt
with Savellon at its own peril.—We agree with the
petitioners that SMC committed negligence in drawing the
check in the manner aforestated. It even disregarded the
request of Savellon that it be drawn in favor of BACALTOS
COAL MINES/RENE SAVELLON. Furthermore, assuming
that the transaction was permitted in the Authorization, the
check should still have been drawn in favor of the principal.
SMC then made possible the wrong done. There is an
equitable maxim that between two innocent parties, the one
who made it possible for the wrong to be done should be the
one to bear the resulting loss. For this rule to apply, the
condition precedent is that both parties must be innocent. In
the present case, however, SMC is guilty of not ascertaining
the extent and limits of the authority of Savellon. In not
doing so, SMC dealt with Savellon at its own peril.
PETITION for review on certiorari of a decision of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Zosa & Quijano Law Offices for petitioners.
Angara, Abello, Concepcion, Regala & Cruz for
San Miguel Corporation.
DAVIDE, JR., J.:
Petitioners seek the reversal of the decision of 30
September 1993 of the Court of Appeals in CA-G.R. CV
No.
462
462 SUPREME COURT REPORTS
ANNOTATED
Bacaltos Coal Mines vs. Court of Appeals
35180, entitled “San Miguel Corporation vs. Bacaltos
1 granted to Rene Savellon;
Coal Mines, German A. Bacaltos and Rene R. Savellon,”
which affirmed the decision of 19 August 1991 of the
Regional Trial Court (RTC) of Cebu, Branch 9, in Civil
Case No. CEB-8187 holding petitioners Bacaltos Coal
2
Mines and German A. Bacaltos and their co-defendant
Rene R. Savellon jointly and severally liable to private
respondent San Miguel Corporation under a Trip
Charter Party.
The paramount issue raised is whether Savellon was
duly authorized by the petitioners to enter into the Trip
Charter Party (Exhibit “A”) under and by virtue of an
3
Authorization (Exhibit “C” and Exhibit “1”), dated 1
4 3 Original Records (OR), 8-10.
March 1988, the pertinent portions of which read as
follows:
47
I, GERMAN A. BACALTOS, of legal age, Filipino, widower,
and residing at second street, Espina Village, Cebu City,
province of Cebu, Philippines, do hereby authorize RENE R.
SAVELLON, of legal age, Filipino and residing at 376-R
Osmeña Blvd., Cebu City, Province of Cebu, Philippines, to
use the coal operating contract of BACALTOS COAL MINES
of which I am the proprietor, for any legitimate purpose that
it may serve. Namely, but not by way of limitation, as follows:
1. (1)To acquire purchase orders for and in behalf of
BACALTOS COAL MINES;
2. (2)To engage in trading under the style of
BACALTOS COAL MINES/RENE SAVELLON;
3. (3)To collect all receivables due or in arrears from
people or companies having dealings under
BACALTOS COAL MINES/ RENE SAVELLON;
4. (4)To extend to any person or company by
substitution the same extent of authority that is
5. (5)In connection with the preceding paragraphs to
execute and sign documents, contracts, and other
pertinent papers.
Further, I hereby give and grant to RENE SAVELLON
full authority to do and perform all and every lawful act
requisite or neces-
_______________
1 Annex “D” of Petition; Rollo, 64-71. Per Herrera, M., J., with
Francisco, C., and Guerrero, B., JJ., concurring.
2 Annex “B,” Id.; Id., 24-32. Per Judge Benigno G. Gaviola.
4 Id., 11. The document is not acknowledged before a notary public.
463
VOL. 245, JUNE 29, 1995 463
Bacaltos Coal Mines vs. Court of Appeals
sary to carry into effect the foregoing stipulations as fully to
all intents and purposes as I might or would lawfully do if
personally present, with full power of substitution and
revocation.
The Trip Charter Party was executed on 19 October
1988 “by and between BACALTOS COAL MINES,
into any contract with SMC. They further claimed that
if it is true that SMC entered into a contract with them,
it should have issued the check in their favor. They set
up counterclaims for moral and exemplary damages
and attorney’s fees.
Savellon did not file his Answer and was declared in
default on 17 July 1990. 8

represented . . . by its Chief Operating Officer, RENE At the pre-trial conference on 1 February 1991, the
ROSEL SAVELLON” and private respondent San petitioners and SMC agreed to submit the following
Miguel Corporation (hereinafter SMC), represented by issues for resolution:
Francisco B. Manzon, Jr., its “SAVP and Director, Plant
Operations-Mandaue.” Thereunder, Savellon claims _______________
that Bacaltos Coal Mines is the owner of the vessel M/V
5 OR, 12.
Premship II and that for P650,000.00 to be paid within 6 Id., 13.
seven days after the execution of the contract, it “lets, 7 Id., 16-18.

demises” the vessel to charterer SMC “for three round 8 Id., 44.

trips to Davao.” 464

As payment of the aforesaid consideration, SMC 464 SUPREME COURT REPORTS
issued a check (Exhibit “B”) payable to “RENE
5
ANNOTATED
SAVELLON IN TRUST FOR BACALTOS COAL Bacaltos Coal Mines vs. Court of Appeals
MINES” for which Savellon issued a receipt under the
heading of BACALTOS COAL MINES with the address Plaintiff—
at No. 376-R Osmeña Blvd., Cebu City (Exhibit “B-1”). 6

1. 1.Whether or not defendants are jointly liable to

The vessel was able to make only one trip. Its
demands to comply with the contract having been
unheeded, SMC filed against the petitioners and Rene
Savellon the complaint in Civil Case No. CEB-8187 for
specific performance and damages. In their
Answer, the petitioners alleged that Savellon was not
7
their Chief Operating Officer and that the powers
granted to him are only those clearly expressed in the
Authorization which do not include the power to enter
plaintiff for damages on account of breach of
contract;
2. 2.Whether or not the defendants acted in good faith
in its representations to the plaintiff;
3. 3.Whether or not defendant Bacaltos was duly
enriched on the payment made by the plaintiff for
the use of the vessel;
4. 4.Whether or not defendant Bacaltos is estopped to
deny the authorization given to defendant Savellon;

48
Defendants—
1. 1.Whether or not the plaintiff should have first
investigated the ownership of vessel M/V
PREM[SHIP] II before entering into any contract
with defendant Savellon;
2. 2.Whether or not defendant Savellon was authorized
to enter into a shipping contract with the [plaintiff]
corporation;
3. 3.Whether or not the plaintiff was correct and not
mistaken in issuing the checks in payment of the
contract in the name of defendant Savellon and not
in the name of defendant Bacaltos Coal Mines;
4. 4.Whether or not the plaintiff is liable on defendants’
counterclaim.9
After trial, the lower court rendered the assailed
decision in favor of SMC and against the petitioners and
Savellon as follows:
“WHEREFORE, by preponderance of evidence, the Court
hereby renders judgment in favor of plaintiff and against
defendants, ordering defendants Rene Savellon, Bacaltos
Coal Mines and German A. Bacaltos, jointly and severally, to
pay to plaintiff:
1. 1.The amount of P433,000.00 by way of
reimbursement of the consideration paid by
plaintiff, plus 12% interest to start from date of
written demand, which is June 14, 1989;
2. 2.The amount of P20,000.00 by way of exemplary
damages;
3. 3.The amount of P20,000.00 as attorney’s fees and
P5,000.00 as litigation expenses. Plus costs.10
_______________
49
9OR, 57-58.
OR, 138; Rollo, 32.
10
465
VOL. 245, JUNE 29, 1995 465
Bacaltos Coal Mines vs. Court of Appeals
It ruled that the Authorization given by German
Bacaltos to Savellon necessarily included the power to
enter into the Trip Charter Party. It did not give
credence to the petitioners’ claim that the authorization
refers only to coal or coal mining and not to shipping
because, according to it, “the business of coal mining
may also involve the shipping of products” and “a
company such as a coal mining company is not
prohibited to engage in entering into a Trip Charter
Party contract.” It further reasoned out that even
assuming that the petitioners did not intend to
authorize Savellon to enter into the Trip Charter Party,
they are still liable because: (a) SMC appears to be an
innocent party which has no knowledge of the real
intent of the parties to the Authorization and has
reason to rely on the written Authorization submitted
by Savellon pursuant to Articles 1900 and 1902 of the
Civil Code; (b) Savellon issued an official receipt of
Bacaltos Coal Mines (Exhibit “B-1”) for the
consideration of the Trip Charter Party, and the
petitioners’ denial that they caused the printing of such
official receipt is “lame” because they submitted only a
cash voucher and not their official receipt; (c) the
“Notice of Readiness” (Exhibit “A-1”) is written on a
paper with the letterhead “Bacaltos Coal Mines” and
the logo therein is the same as that appearing in their
voucher; (d) the petitioners were benefited by the
payment because the real payee in the check is actually
Bacaltos Coal Mines and since in the Authorization
they authorized Savellon to collect receivables due or in
arrears, the check was then properly delivered to
Savellon; and, (e) if indeed Savellon had not been
authorized or if indeed he exceeded his authority or if
the Trip Charter Party was personal to him and the
petitioners have nothing to do with it, then Savellon
should have “bother[ed] to answer” the complaint and
the petitioners should have filed “a cross-claim” against
him.
In their appeal to the Court of Appeals in CA-G.R.
CV No. 35180, the petitioners asserted that the trial
court erred in: (a) not holding that SMC was negligent
in (1) not verifying the credentials of Savellon and the
ownership of the vessel, (2) issuing the check in the
name of Savellon in trust for Bacaltos Coal Mines
thereby allowing Savellon to encash the check, and, (3)
making full payment of P650,000.00 after the vessel
made only one trip and before it completed three trips
as required in the Trip Charter Party; (b) holding that
under the authority
466
466 SUPREME COURT REPORTS
ANNOTATED
Bacaltos Coal Mines vs. Court of Appeals
given to him Savellon was authorized to enter into the
Trip Charter Party; and, (c) holding German Bacaltos
jointly and severally liable with Savellon and Bacaltos
Coal Mines. 11
As stated at the beginning, the Court of Appeals
affirmed in toto the judgment of the trial court. It held
50
that: (a) the credentials of Savellon is not an issue since
the petitioners impliedly admitted the agency while the
ownership of the vessel was warranted on the face of the
Trip Charter Party; (b) SMC was not negligent when it
issued the check in the name of Savellon in trust for
Bacaltos Coal Mines since the Authorization clearly
provides that collectibles of the petitioners can be
coursed through Savellon as the agent; (c) the
Authorization includes the power to enter into the Trip
Charter Party because the “five prerogatives”
enumerated in the former is prefaced by the phrase “but
not by way of limitation”; (d) the petitioners’ statement
that the check should have been issued in the name of
Bacaltos Coal Mines is another implicit admission that
the Trip Charter Party is part and parcel of the
petitioners’ business notwithstanding German
Bacaltos’ contrary interpretation when he testified, and
in any event, the construction of obscure words should
not favor him since he prepared the Authorization in
favor of Savellon; and, (e) German Bacaltos admitted in
the Answer that he is the proprietor of Bacaltos Coal
Mines and he likewise represented himself to be so in
the Authorization itself, hence he should not now be
permitted to disavow what he initially stated to be true
and to interpose the defense that Bacaltos Coal Mines
has a distinct legal personality.
Their motion for a reconsideration of the above
decision having been denied, the petitioners filed the
instant petition wherein they raise the following errors:
1. I.THE RESPONDENT COURT ERRED IN
HOLDING THAT RENE SAVELLON WAS
 AUTHORIZED TO ENTER INTO A TRIP
CHARTER PARTY CONTRACT WITH PRIVATE
RESPONDENT IN SPITE OF ITS FINDING THAT
SUCH AUTHORITY CANNOT BE FOUND IN THE
FOUR CORNERS OF THE AUTHORIZATION;
2. II.THE RESPONDENT COURT ERRED IN NOT
HOLDING THAT BY ISSUING THE CHECK IN
THE NAME OF RENE
_______________
Annex “C” of Petition, Brief for Appellants; Rollo, 45-46.
11
467
VOL. 245, JUNE 29, 1995 467
Bacaltos Coal Mines vs. Court of Appeals
1. SAVELLON IN TRUST FOR BACALTOS COAL
MINES, THE PRIVATE RESPONDENT WAS THE
AUTHOR OF ITS OWN DAMAGE; AND
2. III.THE RESPONDENT COURT ERRED IN
HOLDING PETITIONER GERMAN BACALTOS
JOINTLY AND SEVERALLY LIABLE WITH
RENE SAVELLON AND CO-PETITIONER
BACALTOS COAL MINES IN SPITE OF THE
FINDING OF THE COURT A QUO THAT
PETITIONER BACALTOS COAL MINES AND
PETITIONER BACALTOS ARE TWO DISTINCT
AND SEPARATE LEGAL PERSONALITIES.
After due deliberations on the allegations, issues raised,
and arguments adduced in the petition, and the
comment thereto and reply to the comment, the Court
resolved to give due course to the petition.
51
Every person dealing with an agent is put upon
inquiry and must discover upon his peril the authority
of the agent. If he does not make such inquiry, he is
chargeable with knowledge of the agent’s authority, and
his ignorance of that authority will not be any excuse.
Persons dealing with an assumed agent, whether the
assumed agency be a general or special one, are bound
at their peril, if they would hold the principal, to
ascertain not only the fact of the agency but also the
nature and extent of the authority, and in case either is
controverted, the burden of proof is upon them to
establish it. American jurisprudence summarizes the
13 14
rule in dealing with an agent as follows:
A third person dealing with a known agent may not act
negligently with regard to the extent of the agent’s authority
or blindly trust the agent’s statements in such respect.
Rather, he must use reasonable diligence and prudence to
ascertain whether the agent is acting and dealing with him
within the scope of his powers. The mere opinion of an agent
as to the extent of his powers, or his mere assumption of
_______________
Rollo, 9.
12
13 Veloso vs. La Urbana, 58 Phil. 681 [1933], citing Deen vs. Pacific
Commercial Co., 42 Phil. 738 [1922] and Harry E. Keller Electric Co. vs.
Rodriguez, 44 Phil. 19[1922]. See also Strong vs. Repide, 6 Phil.
12 680 [1906], and Pineda vs. Court of Appeals, 226 SCRA 754 [1993].
14 3 Am Jur 2d Agency § 83 [1986].
468
468 SUPREME COURT REPORTS
ANNOTATED
Bacaltos Coal Mines vs. Court of Appeals
authority without foundation, will not bind the principal;
and a third person dealing with a known agent must bear the
burden of determining for himself, by the exercise of
reasonable diligence and prudence, the existence or
nonexistence of the agent’s authority to act in the premises.
In other words, whether the agency is general or special, the
third person is bound to ascertain not only the fact of agency,
but the nature and extent of the authority. The principal, on
the other hand, may act on the presumption that third
persons dealing with his agent will not be negligent in failing
to ascertain the extent of his authority as well as the
existence of his agency.
Or, as stated in Harry E. Keller Electric Co. vs.
Rodriguez, quoting Mechem on Agency:
15
The person dealing with the agent must also act with
ordinary prudence and reasonable diligence. Obviously, if he
knows or has good reason to believe that the agent is
exceeding his authority, he cannot claim protection. So if the
suggestions of probable limitations be of such a clear and
reasonable quality, or if the character assumed by the agent
is of such a suspicious or unreasonable nature, or if the
authority which he seeks to exercise is of such an unusual or
improbable character, as would suffice to put an ordinarily
prudent man upon his guard, the party dealing with him
may not shut his eyes to the real state of the case, but should
either refuse to deal with the agent at all, or should ascertain
from the principal the true condition of affairs. [emphasis
supplied]
In the instant case, since the agency of Savellon is based
on a written document, the Authorization of 1 March
1988 (Exhibits “C” and “1”), the extent and scope of his
powers must be determined on the basis thereof. The
language of the Authorization is clear. It pertinently
states as follows:
I, GERMAN A. BACALTOS . . . do hereby authorize RENE
R. SAVELLON . . . to use the ‘coal operating contract’ of
52
BACALTOS COAL MINES, of which I am the proprietor, for
any legitimate purpose that it may serve. Namely, but not by
way of limitation, as follows: .... [emphasis supplied]
There is only one express power granted to
Savellon, viz., to use the coal operating contract for any
legitimate purpose it may
_______________
Supra note 13.
15
469
VOL. 245, JUNE 29, 1995 469
Bacaltos Coal Mines vs. Court of Appeals
serve. The enumerated “five prerogatives”—to employ
the term used by the Court of Appeals—are nothing but
the specific prerogatives subsumed under or classified
as part of or as examples of the power to use the coal
operating contract. The clause “but not by way of
limitation” which precedes the enumeration could only
refer to or contemplate other prerogatives which must
exclusively pertain or relate or be germane to the power
to use the coal operating contract. The conclusion then
of the Court of Appeals that the Authorization includes
the power to enter into the Trip Charter Party because
the “five prerogatives” are prefaced by such clause, is
seriously flawed. It fails to note that the broadest scope
of Savellon’s authority is limited to the use of the coal
operating contract and the clause cannot contemplate
any other power not included in the enumeration or
which are unrelated either to the power to use the coal
operating contract or to those already enumerated. In
short, while the clause allows some room for flexibility,
it can comprehend only additional prerogatives falling
within the primary power and within the same class as
those enumerated. The trial court, however, went
further by hastily making a sweeping conclusion that “a
company such as a coal mining company is not
prohibited to engage in entering into a Trip Charter
Party contract.” But what the trial court failed to
16
consider was that there is no evidence at all that
Bacaltos Coal Mines as a coal mining company owns
and operates vessels, and even if it owned any such
vessels, that it was allowed to charter or lease them.
The trial court also failed to note that the Authorization
is not a general power of attorney. It is a special power
of attorneyfor it refers to a clear mandate specifically
authorizing the performance of a specific power and of
express acts subsumed therein. In short, both courts
17
below unreasonably expanded the express terms of or
otherwise gave unrestricted meaning to a clause which
was precisely intended to prevent unwarranted and
unlimited expansion of the powers entrusted to
Savellon. The suggestion of the Court of Appeals that
there is obscurity in the Authorization which must be
construed against German Bacaltos because he
_______________
OR, 135; Rollo, 29.
16
See Article 1876, Civil Code.
17
470
470 SUPREME COURT REPORTS
ANNOTATED
Bacaltos Coal Mines vs. Court of Appeals
prepared the Authorization has no leg to stand on
inasmuch as there is no obscurity or ambiguity in the
53
instrument. If any obscurity or ambiguity indeed
existed, then there will be more reason to place SMC on
guard and for it to exercise due diligence in seeking
clarification or enlightenment thereon, for that was
part of its duty to discover upon its peril the nature and
extent of Savellon’s written agency. Unfortunately, it
did not.
Howsoever viewed, the foregoing conclusions of the
Court of Appeals and the trial court are tenuous and
farfetched, bringing to unreasonable limits the clear
parameters of the powers granted in the Authorization.
Furthermore, had SMC exercised due diligence and
prudence, it should have known in no time that there is
absolutely nothing on the face of the Authorization that
confers upon Savellon the authority to enter into any
Trip Charter Party. Its conclusion to the contrary is
based solely on the second prerogative under the
Authorization, to wit:
(2) To engage in trading under the style of BACALTOS
COAL MINES/RENE SAVELLON;
unmindful that such is but a part of the primary
authority to use the coal operating contract which it did
not even require Savellon to produce. Its principal
witness, Mr. Valdescona, expressly so admitted on
cross-examination, thus:
Atty. Zosa (to witness—ON CROSS)
Q You said that in your office Mr. Rene
Savellon presented to you this
authorization marked Exhibit “C” and
Exhibit “1” for the defendant?
A Yes, sir.
Q Did you read in the first part[y] of this
authorization Mr. Valdescona that Mr.
Rene Savellon was authorized as the
coal operating contract of Bacaltos Coal
Mines?
A Yes, sir.
Q Did it not occur to you that you should
have examined further the authorization
of Mr. Rene Savellon, whether or not
this coal operating contract allows Mr.
Savellon to enter into a trip charter
party?
A Yes, sir. We discussed about the extent
of his authorization and he referred us to
the number 2 provision of this autho
471
VOL. 471
245,
JUNE
29, 1995
Bacaltos Coal Mines vs. Court of Appeals
rization which is to engage in
trading under the style of
Bacaltos Coal Mines/Rene
Savellon, which we followed up
to the check preparation because
it is part of the authority.
Q In other words, you examined
this and you found out that Mr.
Savellon is authorized to use the
54
coal operating contract of
Bacaltos Coal Mines?
A Yes, sir.
Q You doubted his authority but
you found out in paragraph 2 that
he is authorized that’s why you
agreed and entered into that trip
charter party?
A We did not doubt his authority
but we were questioning as to the
extent of his operating contract.
Q Did you not require Mr. Savellon
to produce that coal operating
contract of Bacaltos Coal Mines?
A No sir. We did not.
18
Since the principal subject of the Authorization is the
coal operating contract, SMC should have required its
presentation to determine what it is and how it may be
used by Savellon. Such a determination is
indispensable to an inquiry into the extent or scope of
his authority. For this reason, we now deem it necessary
to examine the nature of a coal operating contract.
A coal operating contract is governed by P.D. No. 972
(The Coal Development Act of 1976), as amended by
P.D. No. 1174. It is one of the authorized ways of active
exploration, development, and production of coal
resources in a specified contract area. Section 9 of the
19 20
decree prescribes the obligation of the contractor, thus:
SEC. 9. Obligations of Operator in Coal Operating
Contract.—The operator under a coal operating contract
shall undertake, manage and execute the coal operations
which shall include:
 1. (a)The examination and investigation of lands
supposed to contain coal, by detailed surface geologic
mapping, core drilling, trenching, test pitting and
other appropriate means, for the purpose of probing
the presence of coal deposits and the extent thereof;
_______________
18 TSN, 4 April 1991, 21-22.
19 Section 4.
20 Section 6.
472
472 SUPREME COURT REPORTS
ANNOTATED
Bacaltos Coal Mines vs. Court of Appeals
1. (b)Steps necessary to reach the coal deposit so that it
can be mined, including but not limited to shaft
sinking and tunneling; and
2. (c)The extraction and utilization of coal deposits.
The Government shall oversee the management of the
operation contemplated in a coal operating contract and in
this connection, shall require the operator to:
1. (a)Provide all the necessary service and technology;
2. (b)Provide the requisite financing;
3. (c)Perform the work obligations and program
prescribed in the coal operating contract which shall
not be less than those prescribed in this Decree;
4. (d)Operate the area on behalf of the Government in
accordance with good coal mining practices using
modern methods appropriate for the geological
conditions of the area to enable maximum economic
production of coal, avoiding hazards to life, health
55
and property, avoiding pollution of air, lands and
waters, and pursuant to an efficient and economic
program of operation;
5. (e)Furnish the Energy Development Board promptly
with all information, data and reports which it may
require;
6. (f)Maintain detailed technical records and account of
its expenditures;
7. (g)Conform to regulations regarding, among others,
safety demarcation of agreement acreage and work
areas, non-interference with the rights of the other
petroleum, mineral and natural resources operators;
8. (h)Maintain all necessary equipment in good order
and allow access to these as well as to the
exploration, development and production sites and
operations to inspectors authorized by the Energy
Development Board;
9. (i)Allow representatives authorized by the Energy
Development Board full access to their accounts,
books and records for tax and other fiscal purposes.
Section 11 thereof provides for the minimum terms and
conditions of a coal operating contract. From the
foregoing, it is obvious that a scrutiny of the coal
operating contract of Bacaltos Coal Mines would have
provided SMC knowledge of the activities which are
germane, related, or incident to the power to use it. But
it did not even require Savellon to produce the same.
473
VOL. 245, JUNE 29, 1995 473
Bacaltos Coal Mines vs. Court of Appeals
SMC’s negligence was further compounded by its
failure to verify if Bacaltos Coal Mines owned a vessel.
A party desiring to charter a vessel must satisfy itself
that the other party is the owner of the vessel or is at
least entitled to its possession with power to lease or
charter the vessel. In the instant case, SMC made no
such attempt. It merely satisfied itself with the claim of
Savellon that the vessel it was leasing is owned by
Bacaltos Coal Mines and relied on the presentation of
the Authorization as well as its test on the
seaworthiness of the vessel. Valdescona thus declared
on direct examination as follows:
A In October, a certain Rene Savellon
called our office offering us shipping
services. So I told him to give us a
formal proposal and also for him to
come to our office so that we can go
over his proposal and formally discuss
his offer.
Q Did Mr. Rene Savellon go to your
office?
A Few days later he came to our office and
gave us his proposal verbally offering a
vessel for us to use for our cargo.
Q Did he mention the owner of that
vessel?
A Yes, sir. That it is Bacaltos.
Q Did he present a document to you?
A Yes, sir. He presented to us the
authorization.
Q When Mr. Rene Savellon presented to
you the authorization what did you do?
A On the strength of that authorization we
initially asked him for us to check the
56
vessel to see its sea worthiness, and we
assigned our in-house surveyor to check
the sea worthiness of the vessel which
was on drydock that time in Danao.
Q What was the result of your inspection?
A We found out the vessel’s sea
worthiness to be our cargo carrier.
Q After that what did you do?
A After that we were discussing the
condition of the contract.
Q Were you able to execute that contract?
A Yes, sir.
21
He further declared as follows:
Q When you entered into a trip charter
contract did you check
_______________
TSN, 4 April 1991, 6-7.
21
474
474 SUPREME COURT REPORTS
ANNOTATED
Bacaltos Coal Mines vs. Court of Appeals
the ownership of M/V Premship?
A The representation made by Mr. Rene
Savellon was that Bacaltos Coal
Mines operates the vessel and on the
strength of the authorization he
showed us we were made to believe
that it was Bacaltos Coal Mines that
owned it.
COURT: (to witness)
Q In other words, you just believed Rene that they maintained a preprinted business form known
Savellon? as a “Notice of Readiness” (Exhibit “A-1”). This paper
24

A Yes, sir. is only a photocopy and, despite its reservation to

COURT: (to witness) present the original for purposes of comparison at the
Q You did not check with Bacaltos Coal next
Mines?
_______________
A That is the representation he made.
Q Did he show you document regarding 22 TSN, 4 April 1991, 14-15.
this M/V Premship II? 23 TSN, 30 April 1991, 23-24.
24 OR, 73.

A No document shown. 22
475
The Authorization itself does not state that Bacaltos VOL. 245, JUNE 29, 1995 475
Coal Mines owns any vessel, and since it is clear Bacaltos Coal Mines vs. Court of Appeals
therefrom that it is not engaged in shipping but in coal
hearing, SMC failed to produce the latter. This “Notice
25

mining or in coal business, SMC should have required

of Readiness” is not, therefore, the best evidence, hence
the presentation of pertinent documentary proof of
inadmissible under Section 3, Rule 130 of the Rules of
ownership of the vessel to be chartered. Its in-house
Court. It is true that when SMC made a formal offer of
surveyor who saw the vessel while drydocked in Danao
its exhibits, the petitioners did not object to the
and thereafter conducted a seaworthiness test could not
admission of Exhibit “A-1,” the “Notice of Readiness,”
have failed to ascertain the registered owner of the
under the best evidence rule but on the ground that
vessel. The petitioners themselves declared in open
Savellon was not authorized to enter into the Trip
court that they have not leased any vessel for they do
Charter Party and that the party who signed it, one
not need it in their coal operations thereby implying
23

Elmer Baliquig, is not the petitioners’ employee but of

that they do not even own one.
Premier Shipping Lines, the owner of the vessel in
The Court of Appeals’ asseveration that there was no
question. The petitioners raised the issue of
26

need to verify the ownership of the vessel because such

inadmissibility under the best evidence rule only
ownership is warranted on the face of the trip charter
belatedly in this petition. But although Exhibit “A-1”
party begs the question since Savellon’s authority to
remains admissible for not having been timely objected
enter into that contract is the very heart of the
to, it has no probative value as to the ownership of the
controversy.
vessel.
We are not prepared to accept SMC’s contention that
There is likewise no proof that the petitioners
the petitioners’ claim that they are not engaged in
received the consideration of the Trip Charter Party.
shipping and do not own any ship is belied by the fact
57
The petitioners denied having received it. The evidence
27
for SMC established beyond doubt that it was Savellon
who requested in writing on 19 October 1988 that the
check in payment therefor be drawn in favor of
BACALTOS COAL MINES/RENE SAVELLON
(Exhibit “B-3”) and that SMC drew the check in favor of
RENE SAVELLON IN TRUST FOR BACALTOS COAL
MINES (Exhibit “B”) and delivered it to Savellon who
thereupon issued a receipt (Exhibit “B-1”). We agree
with the petitioners that SMC committed negligence in
drawing the check in the manner aforestated. It even
disregarded the request of Savellon that it be drawn in
favor of BACALTOS COAL MINES/RENE
SAVELLON. Furthermore, assuming that the
transaction was permitted in the Authorization, the
check should still have been drawn in favor of the
principal. SMC then made possible the wrong done.
There is an equitable maxim that between two innocent
parties, the one who made it possible for the wrong to
be done should be the one to bear the resulting loss. For
this rule to apply, the condition
_______________
TSN, 4 April 1991, 11-12.
25
OR, 74.
26
27 TSN, 30 April 1991, 5-6.
28 Francisco vs. Government Service Insurance System, 7 SCRA
577 [1963], cited in Cuison vs. Court of Appeals, 227 SCRA 391 [1993].
476
476 SUPREME COURT REPORTS
ANNOTATED
Bacaltos Coal Mines vs. Court of Appeals
58
precedent is that both parties must be innocent. In the
present case, however, SMC is guilty of not ascertaining
the extent and limits of the authority of Savellon. In not
doing so, SMC dealt with Savellon at its own peril.
Having thus found that SMC was the author of its
own damage and that the petitioners are, therefore, free
from any liability, it has become unnecessary to discuss
the issue of whether Bacaltos Coal Mines is a
corporation with a personality distinct and separate
from German Bacaltos.
WHEREFORE, the instant petition is GRANTED
and the challenged decision of 30 September 1993 of the
Court of Appeals in CA-G.R. CV No. 35180 is hereby
REVERSED and SET ASIDE and another judgment is
hereby rendered MODIFYING the judgment of the
Regional Trial Court of Cebu, Branch 9, in Civil Case
No. CEB-8187 by setting aside the declaration of
solidary liability, holding defendant RENE R.
SAVELLON solely liable for the amounts adjudged, and
28 ordering the dismissal of the case as against herein
petitioners.
SO ORDERED.
Bellosillo, Quiason and Kapunan, JJ., concur.
Padilla (Chairman) J., No part, in view of
interest in private respondent.
Petition granted.
Article 1911
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.
Civil Law; Agency; 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; The acts of an agent beyond the scope of his authority
do not bind the principal, unless the principal ratifies them,
expressly or impliedly.—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. 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. When the agent
exceeds his authority, the agent becomes personally liable for
the damage. 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. In other words, the acts of an agent beyond
the scope of his authority do not bind the principal, unless
the principal ratifies them, expressly or impliedly.
Ratification in agency is the adoption or confirmation by one
person of an act performed on his behalf by another without
authority.
Same; Same; Innocent third persons should not be
prejudiced if the principal failed to adopt the needed
measures to prevent misrepresentation, much more so if the
59
principal ratified his agent’s acts beyond the latter’s
authority.—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
_______________
*SECOND DIVISION.
543
VOL. 543, FEBRUARY 4, 543
2008
Filipinas Life Assurance Company vs.
Pedroso
view, Filipinas Life had clothed Valle with apparent
authority; hence, it is now estopped to deny said authority.
Innocent third persons should not be prejudiced if the
principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal ratified his
agent’s acts beyond the latter’s authority. The act of the
agent is considered that of the principal itself. Qui per alium
facit per seipsum facere videtur. “He who does a thing by an
agent is considered as doing it himself.”
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Benedicto, Verzosa, Gealogo, Burkley &
Associates for petitioner.
Engelbert C. Caronan, Jr. for respondents.
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal
of the Decision and Resolution, dated November 29,
1 2
2002 and August 5, 2003, respectively, of the Court of
Appeals in CAG.R. CV No. 33568. The appellate court
had affirmed the Decision dated October 10, 1989 of the
3
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 20year endowment life insurance issued by petitioner
Filipinas Life Assurance Company (Filipinas Life).
Pedroso claims Renato Valle was her insurance agent
since 1972 and Valle
_______________
1 Rollo, pp. 43-55. Penned by Associate Justice Renato C. Dacudao,
with Associate Justices Eugenio S. Labitoria and Danilo B. Pine
concurring.
2 Id., at p. 56.
3 Id., at pp. 57-63. Penned by Judge Clemente M. Soriano.
544
544 SUPREME COURT REPORTS
ANNOTATED
Filipinas Life Assurance Company vs.
Pedroso
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
60
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. In return, Valle issued Pedroso his personal
4
check for P800 for the 8% prepaid interest and a
5
Filipinas Life “Agent’s Receipt” No. 807838. 6
Subsequently, she called the Escolta office and
talked to Francisco Alcantara, the administrative
assistant, who referred her to the branch manager,
Angel Apetrior. Pedroso inquired about the promotional
investment and Apetrior confirmed that there was such
a promotion. She was even told she could “push through
with the check” she issued. From the records, the check,
with the endorsement of Alcantara at the back, was
deposited in the account of Filipinas Life with the
Commercial Bank and Trust Company (CBTC), Escolta
Branch.
Relying on the representations made by the
petitioner’s duly authorized representatives Apetrior
and Alcantara, as well as having known agent Valle for
quite some time, Pedroso waited for the maturity of her
initial investment. A month after, her investment of
P10,000 was returned to her after she made a written
request for its refund. The formal written request, dated
February 3, 1977, was written on an inter-office
memorandum form of Filipinas Life prepared by
Alcantara. To collect the amount, Pedroso personally
7
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
_______________
4 Records, p. 246.
5 TSN, October 7, 1983, pp. 9-10.
6 Records, p. 248.
7 Id., at p. 247.
545
VOL. 543, FEBRUARY 4, 2008 545
Filipinas Life Assurance Company vs.
Pedroso
lower rate of 5% prepaid interest a month. Upon
8
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
P49,550 but at only 5% prepaid interest. However,
9
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.
61
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
_______________
8 Supra note 5.
9 Records, pp. 253-264.
10 Rollo, p. 108.
546
546 SUPREME COURT REPORTS
ANNOTATED
Filipinas Life Assurance Company vs.
Pedroso
Simply put, did the Court of Appeals err in holding
petitioner and its co-defendants jointly and severally
liable to the herein respondents?
Filipinas Life does not dispute that Valle was its
agent, but claims that it was only a life insurance
company and was not engaged in the business of
collecting investment money. It contends that the
investment scheme offered to respondents by Valle,
Apetrior and Alcantara was outside the scope of their
authority as agents of Filipinas Life such that, it cannot
be held liable to the respondents. 11
On the other hand, respondents contend that
Filipinas Life authorized Valle to solicit investments
from them. In fact, Filipinas Life’s official documents
and facilities were used in consummating the
transactions. These transactions, according to
respondents, were confirmed by its officers Apetrior and
Alcantara. Respondents assert they exercised all the
diligence required of them in ascertaining the authority
of petitioner’s agents; and it is Filipinas Life that failed
in its duty to ensure that its agents act within the scope
of their authority.
Considering the issue raised in the light of the
submissions of the parties, we find that the petition
lacks merit. The Court of Appeals committed no
reversible error nor abused gravely its discretion in
rendering the assailed decision and resolution.
It appears indisputable that respondents Pedroso
and Palacio had invested P47,000 and P49,550,
respectively. These were received by Valle and remitted
to Filipinas Life, using Filipinas Life’s official receipts,
whose authenticity were not disputed. Valle’s authority
to solicit and receive investments was also established
by the parties. When respondents sought confirmation,
Alcantara, holding a supervisory position, and Apetrior,
the branch manager, confirmed that Valle had
authority. While it is true that a person deal-
_______________
Id., at p. 109.
11
547
62
VOL. 543, FEBRUARY 4, 2008 547
Filipinas Life Assurance Company vs.
Pedroso
ing 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. The general rule is that the principal is
12
responsible for the acts of its agent done within the
scope of its authority, and should bear the damage
caused to third persons. When the agent exceeds his
13
authority, the agent becomes personally liable for the
damage. But even when the agent exceeds his
14
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. In other words,
15
the acts of an agent beyond the scope of his authority do
not bind the principal, unless the principal ratifies
them, expressly or impliedly. Ratification in agency is
16
the adoption or confirmation by one person of an act
performed on his behalf by another without authority. 17
_______________
CIVIL CODE, Art. 1868.
12
Lopez, et al. v. Hon. Alvendia, et al., 120 Phil. 1424, 14311432; 12
13
SCRA 634, 641 (1964).
 14BA Finance Corporation v. Court of Appeals, G.R. No. 94566, July
3, 1992, 211 SCRA 112, 118.
15 CIVIL CODE, Art. 1911.
16 Id., Art. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power,
the principal is not bound except when he ratifies it expressly or
tacitly.
17 Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No.
151319, November 22, 2004, 443 SCRA 377, 394.
548
548 SUPREME COURT REPORTS
ANNOTATED
Filipinas Life Assurance Company vs.
Pedroso
Filipinas Life cannot profess ignorance of Valle’s acts.
Even if Valle’s representations were beyond his
authority as a debit/insurance agent, Filipinas Life thru
Alcantara and Apetrior expressly and knowingly
ratified Valle’s acts. It cannot even be denied that
Filipinas Life benefited from the investments deposited
by Valle in the account of Filipinas Life. In our
considered view, Filipinas Life had clothed Valle with
apparent authority; hence, it is now estopped to deny
said authority. Innocent third persons should not be
prejudiced if the principal failed to adopt the needed
measures to prevent misrepresentation, much more so
if the principal ratified his agent’s acts beyond the
latter’s authority. The act of the agent is considered
that of the principal itself. Qui per alium facit per
seipsum facere videtur. “He who does a thing by an
agent is considered as doing it himself.” 18
WHEREFORE, the petition is DENIED for lack of
merit. The Decision and Resolution, dated November
63
29, 2002 and August 5, 2003, respectively, of the Court
of Appeals in CAG.R. CV No. 33568 are AFFIRMED.
Costs against the petitioner.
SO ORDERED.
Carpio, Carpio-Morales, Tingaand Velasco, Jr.,
JJ., concur.
Petition denied, judgment and resolution affirmed.
PROFESSIONAL SERVICES, INC.,
petitioner, vs. THE COURT OF APPEALS and
NATIVIDAD and ENRIQUE AGANA, respondents.
G.R. No. 126467. February 2, 2010.*
NATIVIDAD [substituted by her children Marcelino
Agana III, Enrique Agana, Jr., Emma Agana-Andaya,
Jesus Agana and Raymund Agana] and ENRIQUE
AGANA, petitioners, vs. THE COURT OF APPEALS
and JUAN FUENTES, respondents.
G.R. No. 127590. February 2, 2010.*
MIGUEL AMPIL, petitioner, vs.NATIVIDAD and
ENRIQUE AGANA, respondents.
Medical Negligence; Corporate Negligence; Ostensible
Agency; Court holds that Professional Services, Inc. (PSI) is
liable to the Aganas not under the principle of respondent
superior for lack of evidence of an employment relationship
with Dr. Ampil but under the principle of ostensible agency
for the negligence of Dr. Ampil and pro hac vice under the
principle of corporate negligence for its failure to perform its
duties as a hospital.—After gathering its thoughts on the
issues, this Court holds that PSI is liable to the Aganas, not
under the principle of respondeat superiorfor lack of evidence
of an employment relationship with Dr. Ampil but under the
principle of ostensible agency for the negligence of Dr. Ampil
and, pro hac vice, under the principle of corporate negligence
for its failure to perform its duties as a hospital.
Same; Same; Same; While in theory a hospital as a
juridical entity cannot practice medicine, in reality it utilizes
doctors, surgeons and medical practitioners in the conduct of
its business of facilitating medical and surgical treatment;
Three legal relationships crisscross
_______________
* EN BANC.
283within that reality.—While in theory a hospital as a
juridical entity cannot practice medicine, in reality it utilizes
doctors, surgeons and medical practitioners in the conduct of
its business of facilitating medical and surgical treatment.
Within that reality, three legal relationships crisscross: (1)
between the hospital and the doctor practicing within its
premises; (2) between the hospital and the patient being
treated or examined within its premises and (3) between the
patient and the doctor. The exact nature of each relationship
determines the basis and extent of the liability of the hospital
for the negligence of the doctor.
Same; Same; Same; Regardless of its relationship with
the doctor, the hospital may be held directly liable to the
patient for its own negligence or failure to follow established
standard of conduct to which it should conform as a
corporation.—Where an employment relationship exists, the
hospital may be held vicariously liable under Article 2176 in
relation to Article 2180 of the Civil Code or the principle
of respondeat superior.Even when no employment
relationship exists but it is shown that the hospital holds out
64
to the patient that the doctor is its agent, the hospital may
still be vicariously liable under Article 2176 in relation to
Article 1431 and Article 1869 of the Civil Code or the
principle of apparent authority. Moreover, regardless of its
relationship with the doctor, the hospital may be held
directly liable to the patient for its own negligence or failure
to follow established standard of conduct to which it should
conform as a corporation.
Same; Same; Same; Employer-Employee Relationship;
Court still employs the “control test” to determine the existence
of an employer-employee relationship between hospital and
doctor.—This Court still employs the “control test” to
determine the existence of an employer-employee
relationship between hospital and doctor. In Calamba
Medical Center, Inc. v. National Labor Relations
Commission, et al., 571 SCRA 585 (2008), it held: Under the
“control test,” an employment relationship exists between a
physician and a hospital if the hospital controls both the
means and the details of the process by which the physician
is to accomplish his task.
Same; Same; Same; Same; Control as a determinative
factor in testing the employer-employee relationship between
doctor and hospital under which the hospital could be held
vicariously liable to a patient in medical negligence cases is a
requisite fact to be established
284by preponderance of evidence.—To allay the anxiety
of the intervenors, the Court holds that, in this particular
instance, the concurrent finding of the RTC and the CA that
PSI was not the employer of Dr. Ampil is correct. Control as
a determinative factor in testing the employer-employee
relationship between doctor and hospital under which the
hospital could be held vicariously liable to a patient in
medical negligence cases is a requisite fact to be established
by preponderance of evidence. Here, there was insufficient
evidence that PSI exercised the power of control or wielded
such power over the means and the details of the specific
process by which Dr. Ampil applied his skills in the
treatment of Natividad. Consequently, PSI cannot be held
vicariously liable for the negligence of Dr. Ampil under the
principle of respondeat superior.
Same; Same; Same; Same; Factors that Determine
Apparent Authority.—There is, however, ample evidence
that the hospital (PSI) held out to the patient (Natividad)
that the doctor (Dr. Ampil) was its agent. Present are the two
factors that determine apparent authority: first, the
hospital’s implied manifestation to the patient which led the
latter to conclude that the doctor was the hospital’s agent;
and second, the patient’s reliance upon the conduct of the
hospital and the doctor, consistent with ordinary care and
prudence.
SECOND MOTION FOR RECONSIDERATION of a
decision of the Supreme Court.
The facts are stated in the resolution of the Court.
Enrique Agana & Associates and Horacio Alvaro B.
Peralta for Natividad Agana and Enrique Agana.
Castelo & Associates Law Offices collaborating
counsel for the Heirs of Natividad Agana and Enrique
Agana.
The Bengzon Law Firm for Professional Services,
Inc.
The Law Firm of Raymundo M. Armovit for Miguel
Ampil.
Agcaoili Law Offices for Heirs of Natividad Agana.
Bu C. Castro for intervenor private hospitals.285
Caguioa & Gatmaitan for intervenor Asian
Hospital, Inc.
Pilar Nenuca P. Almira for Manila Medical
Services, Inc.
65
Benjamin M. Tongol for Juan Fuentes.
RESOLUTION
CORONA, J.:
With prior leave of court,1 petitioner Professional
Services, Inc. (PSI) filed a second motion for
reconsideration2 urging referral thereof to the Court en
banc and seeking modification of the decision dated
January 31, 2007 and resolution dated February 11,
2008 which affirmed its vicarious and direct liability for
damages to respondents Enrique Agana and the heirs
of Natividad Agana (Aganas).
Manila Medical Services, Inc. (MMSI),3Asian
Hospital, Inc. (AHI),4 and Private Hospital Association
of the Philippines (PHAP)5 all sought to intervene in
these cases invoking the common ground that, unless
modified, the assailed decision and resolution will
jeopardize the financial viability of private hospitals
and jack up the cost of health care.
The Special First Division of the Court granted the
motions for intervention of MMSI, AHI and PHAP
(hereafter intervenors),6 and referred en consulta to the
Court en banc the mo-
_______________
1 Rollo (G.R. No. 126297), p. 468.
2 Id., at p. 489.
3 Filed a motion for leave of court to intervene (by way of attached
memorandum), id., at p. 512.
4 Filed a motion to intervene and for leave to file memorandum-in-
intervention, id., p. 534. AHI did not file any memorandum.
5 Filed a motion for intervention (by way of attached brief/
memorandum), id., p. 602.
6 Resolution dated June 16, 2008, id., at p. 647.
286tion for prior leave of court and the second motion
for reconsideration of PSI.7
Due to paramount public interest, the Court en
banc accepted the referral8 and heard the parties on
oral arguments on one particular issue: whether a
hospital may be held liable for the negligence of
physicians-consultants allowed to practice in its
premises.9
To recall the salient facts, PSI, together with Dr.
Miguel Ampil (Dr. Ampil) and Dr. Juan Fuentes (Dr.
Fuentes), was impleaded by Enrique Agana and
Natividad Agana (later substituted by her heirs), in a
complaint10for damages filed in the Regional Trial Court
(RTC) of Quezon City, Branch 96, for the injuries
suffered by Natividad when Dr. Ampil and Dr. Fuentes
neglected to remove from her body two gauzes11 which
were used in the surgery they performed on her on April
11, 1984 at the Medical City General Hospital. PSI was
impleaded as owner, operator and manager of the
hospital.
In a decision12 dated March 17, 1993, the RTC held
PSI solidarily liable with Dr. Ampil and Dr. Fuentes for
damages.13On appeal, the Court of Appeals (CA),
absolved Dr. Fuentes but affirmed the liability of Dr.
Ampil and PSI, sub-
_______________
7 Resolution dated June 12, 2008, id., at p. 645.
8 Resolution dated August 12, 2008, id., at p. 649.
9 As per Advisory dated March 4, 2009. It should be borne in mind
that the issues in G.R. No. 126467 on the exculpation of Dr. Juan
Fuentes from liability, and in G.R. No. 127590 on the culpability of Dr.
Miguel Ampil for negligence and medical malpractice, are deemed
finally decided, no motion for reconsideration having been filed by the
66
Heirs of Agana in G.R. No. 126467 nor by Dr. Miguel Ampil in G.R.
No. 127467 from the January 31, 2007 Decision of the First Division
of the Court.
10 Docketed as Civil Case No. Q-43322, Record, p. 6.
11 Also referred to in the records as “sponges.”
12 Penned by then Presiding Judge and now Associate Justice of
the Supreme Court Lucas Bersamin.
13 RTC Decision, Record, p. 133.
287ject to the right of PSI to claim reimbursement from
Dr. Ampil.14
On petition for review, this Court, in its January 31,
2007 decision, affirmed the CA decision.15 PSI filed a
motion for reconsideration16 but the Court denied it in a
resolution dated February 11, 2008.17
The Court premised the direct liability of PSI to the
Aganas on the following facts and law:
First, there existed between PSI and Dr. Ampil an
employer-employee relationship as contemplated in the
December 29, 1999 decision in Ramos v. Court of
Appeals18 that “for purposes of allocating responsibility
in medical negligence cases, an employer-employee
relationship exists between hospitals and their
consultants.”19 Although the Court in Ramos later
issued a Resolution dated April 11, 200220 reversing its
earlier finding on the existence of an employment
relationship between hospital and doctor, a similar
reversal was not warranted in the present case because
the defense raised by PSI consisted of a mere general
denial of control or responsibility over the actions of Dr.
Ampil.21
Second, by accrediting Dr. Ampil and advertising his
qualifications, PSI created the public impression that
he was its agent.22 Enrique testified that it was on
account of Dr. Ampil’s
_______________
14 CA decision dated September 6, 1996, penned by then Court of
Appeals Associate Justice and later Supreme Court Associate Justice
Cancio Garcia (Ret.); CA Rollo, pp. 136-137.
15 G.R. Nos. 126297/126467/127590, 31 January 2007, 513 SCRA
478.
16 Rollo, p. 403.
17 G.R. Nos. 126297/126467/127590, 11 February 2008, 544 SCRA
170.
18 G.R. No. 124354, 29 December 1999, 321 SCRA 548.
19 Supra at 15, p. 499.
20 G.R. No. 124354, 11 April 2002, 380 SCRA 467.
21 Supra at 17, p. 179.
22 Supra at 15, p. 502.
288accreditation with PSI that he conferred with
said doctor about his wife’s (Natividad’s)
condition. After his meeting with Dr. Ampil, Enrique
23
asked Natividad to personally consult Dr. Ampil.24 In
effect, when Enrigue and Natividad engaged the
services of Dr. Ampil, at the back of their minds was
that the latter was a staff member of a prestigious
hospital. Thus, under the doctrine of apparent authority
applied in Nogales, et al. v. Capitol Medical Center, et
al.,25 PSI was liable for the negligence of Dr. Ampil.
Finally, as owner and operator of Medical City
General Hospital, PSI was bound by its duty to provide
comprehensive medical services to Natividad Agana, to
exercise reasonable care to protect her from harm,26 to
oversee or supervise all persons who practiced medicine
within its walls, and to take active steps in fixing any
form of negligence committed within its premises.27 PSI
67
committed a serious breach of its corporate duty when
it failed to conduct an immediate investigation into the
reported missing gauzes.28
PSI is now asking this Court to reconsider the
foregoing rulings for these reasons:
I
The declaration in the 31 January 2007 Decision vis-a-
vis the 11 February 2009 Resolution that the ruling
in Ramos vs. Court of Appeals (G.R. No. 134354, December
29, 1999) that “an employer-employee relations exists
between hospital and their consultants” stays should be set
aside for being inconsistent with or contrary to the import of
the resolution granting the hospital’s motion for
reconsideration in Ramos vs. Court of Appeals(G.R. No.
134354, April 11, 2002), which is applicable to PSI since the
Aganas failed to prove an
_______________
23 Supra at 17, p. 181, citing TSN, April 12, 1985, pp. 25-26.
24 Id.
25 G.R. No. 142625, 19 December 2006, 511 SCRA 204.
26 Supra at 15, p. 505.
27 Supra at 17, p. 182.
28 Id.
289employer-employee relationship between PSI and Dr.
Ampil and PSI proved that it has no control over Dr. Ampil.
In fact, the trial court has found that there is no employer-
employee relationship in this case and that the doctor’s are
independent contractors.
II
Respondents Aganas engaged Dr. Miguel Ampil as their
doctor and did not primarily and specifically look to the
Medical City Hospital (PSI) for medical care and support;
otherwise stated, respondents Aganas did not select Medical
City Hospital (PSI) to provide medical care because of any
apparent authority of Dr. Miguel Ampil as its agent since the
latter was chosen primarily and specifically based on his
qualifications and being friend and neighbor.
III
PSI cannot be liable under doctrine of corporate
negligence since the proximate cause of Mrs. Agana’s injury
was the negligence of Dr. Ampil, which is an element of the
principle of corporate negligence.29
In their respective memoranda, intervenors raise
parallel arguments that the Court’s ruling on the
existence of an employer-employee relationship
between private hospitals and consultants will force a
drastic and complex alteration in the long-established
and currently prevailing relationships among patient,
physician and hospital, with burdensome operational
and financial consequences and adverse effects on all
three parties.30
The Aganas comment that the arguments of PSI
need no longer be entertained for they have all been
traversed in the assailed decision and resolution.31
After gathering its thoughts on the issues, this Court
holds that PSI is liable to the Aganas, not under the
principle of respondeat superior for lack of evidence of
an employment
_______________
29 Rollo (G.R. No. 126297), pp. 489-490.
30 Id., at pp. 518-527, 605-613.
31 Id., at p. 659.
290relationship with Dr. Ampil but under the principle
of ostensible agency for the negligence of Dr. Ampil
and, pro hac vice, under the principle of corporate
68
negligence for its failure to perform its duties as a
hospital.
While in theory a hospital as a juridical entity cannot
practice medicine,32 in reality it utilizes doctors,
surgeons and medical practitioners in the conduct of its
business of facilitating medical and surgical
treatment.33 Within that reality, three legal
relationships crisscross: (1) between the hospital and
the doctor practicing within its premises; (2) between
the hospital and the patient being treated or examined
within its premises and (3) between the patient and the
doctor. The exact nature of each relationship
determines the basis and extent of the liability of the
hospital for the negligence of the doctor.
Where an employment relationship exists, the
hospital may be held vicariously liable under Article
217634 in relation to Article 218035 of the Civil Code or
the principle of respondeat
_______________
32 Section 8, Republic Act No. 2382 (RA 2382) or The Medical Act
of 1959.
33 See Acebedo Optical Co. Inc. v. CA, G.R. No. 100152, 31 March
2000, 314 SCRA 315.
34 Article 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties is called a quasi-delict and is
governed by the provisions of this Chapter.
35 Art. 2180. The obligation imposed by article 2176 is
demandable not only for one’s own acts or omissions, but also for those
of persons for whom one is responsible.
The father and, in case of his death or incapacity, the mother, are
responsible for the damages caused by the minor children who live in
their company.
 Guardians are liable for damages caused by the minors or
incapacitated persons who are under their authority and live in their
company.
291superior. Even when no employment relationship
exists but it is shown that the hospital holds out to the
patient that the doctor is its agent, the hospital may
still be vicariously liable under Article 2176 in relation
to Article 143136 and Article 186937 of the Civil Code or
the principle of apparent authority.38Moreover,
regardless of its relationship with the doctor, the
hospital may be held directly liable to the patient for its
own negligence or failure to follow established standard
of conduct to which it should conform as a corporation.39
_______________
The owners and managers of an establishment or enterprise are
likewise responsible for damages caused by their employees in the
service of the branches in which the latter are employed or on the
occasion of their functions.
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any
business or industry.
The State is responsible in like manner when it acts through a
special agent; but not when the damage has been caused by the official
to whom the task done properly pertains, in which case what is
provided in article 2176 shall be applicable.
Lastly, teachers or heads of establishments of arts and trades shall
be liable for damages caused by their pupils and students or
apprentices, so long as they remain in their custody.
The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the diligence of
a good father of a family to prevent damage.
36 Article 1431. Through estoppel an admission or
representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon.
69
37 Art. 1869. Agency may be express, or implied from the acts
of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.
38 Nogales v. Capitol Medical Center, et al., supraat 25.
39 Pedro Solis, Medical Jurisprudence (The Practice of Medicine
and the Law), Quezon City: R.P. Garcia Publishing Co., 1988, p. 321,
citing U.S. district and appellate cases. See also Darling v. Charles-
292This Court still employs the “control test” to
determine the existence of an employer-employee
relationship between hospital and doctor. In Calamba
Medical Center, Inc. v. National Labor Relations
Commission, et al.40 it held:
“Under the “control test,”,an employment relationship
exists between a physician and a hospital if the hospital
controls both the means and the details of the process by
which the physician is to accomplish his task.
xx xx xx
As priorly stated, private respondents maintained specific
work-schedules, as determined by petitioner through its
medical director, which consisted of 24-hour shifts totaling
forty-eight hours each week and which were strictly to be
observed under pain of administrative sanctions.
That petitioner exercised control over respondents
gains light from the undisputed fact that in the
emergency room, the operating room, or any
department or ward for that matter, respondents’
work is monitored through its nursing supervisors,
charge nurses and orderlies. Without the approval or
consent of petitioner or its medical director, no
operations can be undertaken in those areas. For
control test to apply, it is not essential for the
employer to actually supervise the performance of
duties of the employee, it being enough that it has the
right to wield the power.” (emphasis supplied)
 Even in its December 29, 1999 decision41 and April
11, 2002 resolution42in Ramos, the Court found the
control test decisive.
In the present case, it appears to have escaped the
Court’s attention that both the RTC and the CA found
no employment
_______________
ton Community Memorial Hospital, 14 A.L.R. 3D 860 (Ill. September
29, 1965).
40 G.R. No. 176484, 25 November 2008, 571 SCRA 585.
41 Supra at 18.
42 Supra at 20.
293relationship between PSI and Dr. Ampil, and
that the Aganas did not question such finding. In
its March 17, 1993 decision, the RTC found “that
defendant doctors were not employees of PSI in its
hospital, they being merely consultants without any
employer-employee relationship and in the capacity of
independent contractors.”43 The Aganas never
questioned such finding.
PSI, Dr. Ampil and Dr. Fuentes appealed44 from the
RTC decision but only on the issues of negligence,
agency and corporate liability. In its September 6, 1996
decision, the CA mistakenly referred to PSI and Dr.
Ampil as employer-employee, but it was clear in its
discussion on the matter that it viewed their
relationship as one of mere apparent agency.45
The Aganas appealed from the CA decision, but only
to question the exoneration of Dr. Fuentes.46 PSI also
appealed from the CA decision, and it was then that the
70
issue of employment, though long settled, was
unwittingly resurrected.
In fine, as there was no dispute over the RTC finding
that PSI and Dr. Ampil had no employer-employee
relationship, such finding became final and conclusive
even to this Court.47 There was no reason for PSI to have
raised it as an issue in its petition. Thus, whatever
discussion on the matter that may have ensued was
purely academic.
Nonetheless, to allay the anxiety of the intervenors,
the Court holds that, in this particular instance, the
concurrent finding of the RTC and the CA that PSI was
not the employer
_______________
43 Supra at 13, p. 126.
44 Dr. Fuentes filed with the CA a petition for certiorari docketed
as CA-G.R. SP No. 32198 (CA Rollo, p. 1) while Dr. Ampil and PSI
jointly filed an appeal docketed as CA-G.R. CV No. 42062 (CA Rollo,
pp. 40 and 152).
45 Supra at 14, p. 135.
46 Rollo (G.R. No. 126467), p. 8.
47 Elsie Ang v. Dr. Erniefel Grageda, G.R. No. 166239, 8 June
2006, 490 SCRA 424.
294of Dr. Ampil is correct. Control as a determinative
factor in testing the employer-employee relationship
between doctor and hospital under which the hospital
could be held vicariously liable to a patient in medical
negligence cases is a requisite fact to be established by
preponderance of evidence. Here, there was insufficient
evidence that PSI exercised the power of control or
wielded such power over the means and the details of
the specific process by which Dr. Ampil applied his
skills in the treatment of Natividad. Consequently, PSI
cannot be held vicariously liable for the negligence of
Dr. Ampil under the principle of respondeat superior.
There is, however, ample evidence that the hospital
(PSI) held out to the patient (Natividad)48 that the
doctor (Dr. Ampil) was its agent. Present are the two
factors that determine apparent authority: first, the
hospital’s implied manifestation to the patient which
led the latter to conclude that the doctor was the
hospital’s agent; and second, the patient’s reliance upon
the conduct of the hospital and the doctor, consistent
with ordinary care and prudence.49
Enrique testified that on April 2, 1984, he consulted
Dr. Ampil regarding the condition of his wife; that after
the meeting and as advised by Dr. Ampil, he
“asked [his] wife to go to Medical City to be examined
by [Dr. Ampil]”; and that the next day, April 3, he told
his daughter to take her mother to Dr. Ampil.50 This
timeline indicates that it was Enrique who actually
made the decision on whom Natividad should consult
and where, and that the latter merely acceded to it. It
explains the testimony of Natividad that she consulted
Dr. Ampil at the instigation of her daughter.51
Moreover, when asked what impelled him to choose
Dr. Ampil, Enrique testified:
_______________
48 Through the patient’s husband Enrique.
49 Nogales v. Capitol Medical Center, et al., supraat 25.
50 TSN, April 12, 1985, pp. 26-27.
51 Second Motion for Reconsideration, Rollo, pp. 495-496.
295
Atty. Agcaoili
71
On that particular occasion, April 2, 1984, what
was your reason for choosing Dr. Ampil to contact
with in connection with your wife’s illness?
A. First, before that, I have known him to be a
specialist on that part of the body as a
surgeon, second, I have known him to be a staff
member of the Medical City which is
a prominent and known hospital. And third,
because he is a neighbor, I expect more than the
usual medical service to be given to us, than his
ordinary patients.52(emphasis supplied)
Clearly, the decision made by Enrique for Natividad
to consult Dr. Ampil was significantly influenced by the
impression that Dr. Ampil was a staff member of
Medical City General Hospital, and that said hospital
was well known and prominent. Enrique looked upon
Dr. Ampil not as independent of but as integrally
related to Medical City.
PSI’s acts tended to confirm and reinforce, rather
than negate, Enrique’s view. It is of record that PSI
required a “consent for hospital care”53 to be signed
preparatory to the surgery of Natividad. The form
reads:
“Permission is hereby given to the medical, nursing and
laboratory staff of the Medical City General Hospital to
perform such diagnostic procedures and to administer such
medications and treatments as may be deemed necessary
or advisable by thephysicians of this hospital for and
during the confinement of xxx.” (emphasis supplied)
By such statement, PSI virtually reinforced the
public impression that Dr. Ampil was a physician of its
hospital, rather than one independently practicing in it;
that the medications and treatments he prescribed were
necessary and desirable; and that the hospital staff was
prepared to carry them out.
_______________
52 Supra at 50, pp. 25-26.
53 Exh. “D-1,” Exhibit Folder for Plaintiffs, p. 92.
296
PSI pointed out in its memorandum that Dr. Ampil’s
hospital affiliation was not the exclusive basis of the
Aganas’ decision to have Natividad treated in Medical
City General Hospital, meaning that, had Dr. Ampil
been affiliated with another hospital, he would still
have been chosen by the Aganas as Natividad’s
surgeon.54
The Court cannot speculate on what could have been
behind the Aganas’ decision but would rather adhere
strictly to the fact that, under the circumstances at that
time, Enrique decided to consult Dr. Ampil for he
believed him to be a staff member of a prominent and
known hospital. After his meeting with Dr. Ampil,
Enrique advised his wife Natividad to go to the Medical
City General Hospital to be examined by said doctor,
and the hospital acted in a way that fortified Enrique’s
belief.
This Court must therefore maintain the ruling that
PSI is vicariously liable for the negligence of Dr. Ampil
as its ostensible agent.
Moving on to the next issue, the Court notes that PSI
made the following admission in its Motion for
Reconsideration:
72
51. Clearly, not being an agent or employee of petitioner
PSI, PSI [sic] is not liable for Dr. Ampil’s acts during the
operation. Considering further that Dr. Ampil was
personally engaged as a doctor by Mrs. Agana, it is
incumbent upon Dr. Ampil, as “Captain of the Ship,” and as
the Agana’s doctor to advise her on what to do with her
situation vis-à-vis the two missing gauzes. In addition to
noting the missing gauzes, regular check-ups were
made and no signs of complications were exhibited
during her stay at the hospital, which could have
alerted petitioner PSI’s hospital to render and
provide post-operation services to and tread on Dr.
Ampil’s role as the doctor of Mrs. Agana. The absence
of negligence of PSI from the patient’s admission up
to her discharge is borne by the finding of facts in this
case. Likewise evident therefrom is the absence of any
complaint from
_______________
54 Petitioner’s Memorandum with Compliance, pp. 57-58.
297Mrs. Agana after her discharge from the hospital
which had she brought to the hospital’s attention,
could have alerted petitioner PSI to act accordingly
and bring the matter to Dr. Ampil’s attention. But this
was not the case. Ms. Agana complained ONLY to Drs.
Ampil and Fuentes, not the hospital. How then could
PSI possibly do something to fix the negligence
committed by Dr. Ampil when it was not informed
about it at all.55(emphasis supplied)
PSI reiterated its admission when it stated that had
Natividad Agana “informed the hospital of her
discomfort and pain, the hospital would have
been obliged to act on it.”56
 The significance of the foregoing statements is
critical.
First, they constitute judicial admission by PSI that
while it had no power to control the means or method
by which Dr. Ampil conducted the surgery on Natividad
Agana, it had the power to review or cause the
review of what may have irregularly transpired within
its walls strictly for the purpose of determining whether
some form of negligence may have attended any
procedure done inside its premises, with the ultimate
end of protecting its patients.
Second, it is a judicial admission that, by virtue of
the nature of its business as well as its prominence57 in
the hospital industry, it assumed a duty to “tread on”
the “captain of the ship” role of any doctor rendering
services within its premises for the purpose of ensuring
the safety of the patients availing themselves of its
services and facilities.
Third, by such admission, PSI defined the standards
of its corporate conduct under the circumstances of this
case, specifically: (a) that it had a corporate duty to
Natividad even after her operation to ensure her safety
as a patient; (b) that
_______________
55 Motion for Reconsideration, Rollo, pp. 429-430.
56 Id., at p. 434.
57 PSI has not denied its prominent place in the hospital industry
but has in fact asserted such role in its 1967 brochure (Annex “K” to
its Manifestation filed on May 14, 2009).
298its corporate duty was not limited to having its
nursing staff note or record the two missing gauzes and
(c) that its corporate duty extended to determining Dr.
73
Ampil’s role in it, bringing the matter to his attention,
and correcting his negligence.
And finally, by such admission, PSI barred itself
from arguing in its second motion for reconsideration
that the concept of corporate responsibility was not yet
in existence at the time Natividad underwent
treatment;58 and that if it had any corporate
responsibility, the same was limited to reporting the
missing gauzes and did not include “taking an active
step in fixing the negligence committed.”59 An admission
made in the pleading cannot be controverted by the
party making such admission and is conclusive as to
him, and all proofs submitted by him contrary thereto
or inconsistent therewith should be ignored, whether or
not objection is interposed by a party.60
Given the standard of conduct that PSI defined for
itself, the next relevant inquiry is whether the hospital
measured up to it.
PSI excuses itself from fulfilling its corporate duty on
the ground that Dr. Ampil assumed the personal
responsibility of informing Natividad about the two
missing gauzes.61 Dr. Ricardo Jocson, who was part of
the group of doctors that attended to Natividad,
testified that toward the end of the surgery, their group
talked about the missing gauzes but Dr. Ampil assured
them that he would personally notify the patient about
it.62 Furthermore, PSI claimed that there was no
_______________
58 Rollo, p. 505-506.
59 Id., at pp. 506-507.
60 Luciano Tan v. Rodil Enterprises, G.R. No. 168071, 18
December 2006, 511 SCRA 162; Heirs of Pedro Clemena Y. Zurbano v.
Heirs of Irene B. Bien, G.R. No. 155508, 11 September 2006, 501 SCRA
405.
61 Second Motion for Reconsideration, Rollo, pp. 502-503.
62 Id., at p. 503, citing TSN, February 26, 1987, p. 36.
299reason for it to act on the report on the two missing
gauzes because Natividad Agana showed no signs of
complications. She did not even inform the hospital
about her discomfort.63
The excuses proffered by PSI are totally
unacceptable.
To begin with, PSI could not simply wave off the
problem and nonchalantly delegate to Dr. Ampil the
duty to review what transpired during the operation.
The purpose of such review would have been to pinpoint
when, how and by whom two surgical gauzes were
mislaid so that necessary remedial measures could be
taken to avert any jeopardy to Natividad’s recovery.
Certainly, PSI could not have expected that purpose to
be achieved by merely hoping that the person likely to
have mislaid the gauzes might be able to retrace his
own steps. By its own standard of corporate conduct,
PSI’s duty to initiate the review was non-delegable.
While Dr. Ampil may have had the primary
responsibility of notifying Natividad about the missing
gauzes, PSI imposed upon itself the separate and
independent responsibility of initiating the inquiry into
the missing gauzes. The purpose of the first would have
been to apprise Natividad of what transpired during her
surgery, while the purpose of the second would have
been to pinpoint any lapse in procedure that led to the
gauze count discrepancy, so as to prevent a recurrence
thereof and to determine corrective measures that
74
would ensure the safety of Natividad. That Dr. Ampil
negligently failed to notify Natividad did not release
PSI from its self-imposed separate responsibility.
Corollary to its non-delegable undertaking to review
potential incidents of negligence committed within its
premises, PSI had the duty to take notice of medical
records prepared by its own staff and submitted to its
custody, especially when these bear earmarks of a
surgery gone awry. Thus, the record taken during the
operation of Natividad which reported a gauze count
discrepancy should have given PSI sufficient
_______________
63 Supra at 55.
300reason to initiate a review. It should not have waited
for Natividad to complain.
As it happened, PSI took no heed of the record of
operation and consequently did not initiate a review of
what transpired during Natividad’s operation. Rather,
it shirked its responsibility and passed it on to others—
to Dr. Ampil whom it expected to inform Natividad, and
to Natividad herself to complain before it took any
meaningful step. By its inaction, therefore, PSI failed
its own standard of hospital care. It committed
corporate negligence.
It should be borne in mind that the corporate
negligence ascribed to PSI is different from the medical
negligence attributed to Dr. Ampil. The duties of the
hospital are distinct from those of the doctor-consultant
practicing within its premises in relation to the patient;
hence, the failure of PSI to fulfill its duties as a hospital
corporation gave rise to a direct liability to the Aganas
distinct from that of Dr. Ampil.
All this notwithstanding, we make it clear that PSI’s
hospital liability based on ostensible agency and
corporate negligence applies only to this case, pro hac
vice. It is not intended to set a precedent and should not
serve as a basis to hold hospitals liable for every form of
negligence of their doctors-consultants under any and
all circumstances. The ruling is unique to this case, for
the liability of PSI arose from an implied agency with
Dr. Ampil and an admitted corporate duty to
Natividad.64
Other circumstances peculiar to this case warrant
this ruling,65 not the least of which being that the agony
wrought
_______________
64 In Partido ng Manggagawa (PM) and Butil Farmers Party
(Butil) v. Comelec (G.R. No. 164702, March 15, 2006, 484 SCRA 671),
a ruling expressly qualified as pro hac vice is limited in application to
one particular case only; it cannot be relied upon as a precedent to
govern other cases.
65 See Sps. Chua v. Hon. Jacinto Ang, et al., G.R. No. 156164, 4
September 2009, 598 SCRA 229.
301upon the Aganas has gone on for 26 long years, with
Natividad coming to the end of her days racked in pain
and agony. Such wretchedness could have been avoided
had PSI simply done what was logical: heed the report
of a guaze count discrepancy, initiate a review of what
went wrong and take corrective measures to ensure the
safety of Natividad. Rather, for 26 years, PSI hemmed
and hawed at every turn, disowning any such
responsibility to its patient. Meanwhile, the options left
75
to the Aganas have all but dwindled, for the status of
Dr. Ampil can no longer be ascertained.66
Therefore, taking all the equities of this case into
consideration, this Court believes P15 million would be
a fair and reasonable liability of PSI, subject to 12% p.a.
interest from the finality of this resolution to full
satisfaction.
WHEREFORE, the second motion for
reconsideration is DENIED and the motions for
intervention are NOTED.
Professional Services, Inc. is ORDERED pro hac
vice to pay Natividad (substituted by her children
Marcelino Agana III, Enrique Agana, Jr., Emma
Agana-Andaya, Jesus Agana and Raymund Agana) and
Enrique Agana the total amount of P15 million, subject
to 12% p.a. interest from the finality of this resolution
to full satisfaction.
No further pleadings by any party shall be
entertained in this case.
Let the long-delayed entry of judgment be made in
this case upon receipt by all concerned parties of this
resolution.
SO ORDERED.
 G.R. No. 163825. July 13, 2010.*
VIOLETA TUDTUD BANATE, MARY MELGRID M.
CORTEL, BONIFACIO CORTEL, ROSENDO
MAGLASANG, and PATROCINIA MONILAR,
petitioners, vs.PHILIPPINE COUNTRYSIDE RURAL
BANK (LILOAN, CEBU), INC. and TEOFILO SOON,
JR., respondents.
Real Estate Mortgage; Blanket Mortgage Clause
(Dragnet Clause); Cross-Collateral Stipulations; While
generally a mortgage liability is usually limited to the
amount mentioned in the contract, the amounts named as
consideration in a contract of mortgage do not limit the
amount for which the mortgage may stand as security if, from
the four corners of the instrument, the intent to secure future
and other indebtedness can be gathered; A cross-collateral
stipulation in a mortgage contract is simply a variety of a
dragnet clause.—Before we resolve the issues directly posed,
we first dwell on the determination of the nature of the cross-
collateral stipulation in the mortgage contract. As a general
rule, a mortgage liability is usually limited to the amount
mentioned in the contract. However, the amounts named as
consideration in a contract of mortgage do not limit the
amount for which the mortgage may stand as security if,
from the four corners of the instrument, the intent to secure
future and other indebtednesscan be gathered. This
stipulation is valid and binding between the parties and is
known as the “blanket mortgage clause” (also known as the
“dragnet clause).” In the present case, the
_______________
* THIRD DIVISION.
22
76
22 SUPREME COURT
REPORTS ANNOTATED
Banate vs. Philippines Countryside
Rural Bank (Liloan, Cebu), Inc.
mortgage contract indisputably provides that the
subject properties serve as security, not only for the payment
of the subject loan, but also for “such other loans or advances
already obtained, or still to be obtained.” The cross-collateral
stipulation in the mortgage contract between the parties is
thus simply a variety of a dragnet clause. After agreeing to
such stipulation, the petitioners cannot insist that the
subject properties be released from mortgage since the
security covers not only the subject loan but the two other
loans as well.
Novation; Extinctive Novation; Requisites; Novation is
extinctive when an old obligation is terminated by the
creation of a new obligation that takes the place of the former,
and it is merely modificatory when the old obligation subsists
to the extent that it remains compatible with the amendatory
agreement.—Novation, in its broad concept, may either be
extinctive or modificatory. It is extinctive when an old
obligation is terminated by the creation of a new obligation
that takes the place of the former; it is merely modificatory
when the old obligation subsists to the extent that it remains
compatible with the amendatory agreement. An extinctive
novation results either by changing the object or principal
conditions (objective or real), or by substituting the person of
the debtor or subrogating a third person in the rights of the
creditor (subjective or personal). Under this mode, novation
would have dual functions—one to extinguish an existing
obligation, the other to substitute a new one in its place—
requiring a conflux of four essential requisites: (1) a previous
valid obligation; (2) an agreement of all parties concerned to
a new contract; (3) the extinguishment of the old obligation;
and (4) the birth of a valid new obligation.
Same; Same; Corporation Law; As a general rule, no
form of words or writing is necessary to give effect to a
novation, but where either or both parties involved are
juridical entities, proof that the second contract was executed
by persons with the proper authority to bind their respective
principals is necessary.—The second requisite is lacking in
this case. Novation presupposes not only the extinguishment
or modification of an existing obligation but, more
importantly, the creation of a valid new obligation. For the
consequent creation of a new contractual obligation, consent
of both parties is, thus, required. As a general rule, no form
of words or writing is necessary to give effect to a novation.
Nevertheless, where either or both parties involved are
juridical entities, proof that the second contract was
23
VOL. 625, JULY 13, 2010 23
Banate vs. Philippines Countryside
Rural Bank (Liloan, Cebu), Inc.
executed by persons with the proper authority to bind
their respective principals is necessary.
Same; Same; Same; Just as a natural person may
authorize another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its functions
and powers to its officers, committees or agents.—Section 23
of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the
board of directors. The power and the responsibility to decide
whether the corporation should enter into a contract that will
bind the corporation are lodged in the board, subject to the
articles of incorporation, by-laws, or relevant provisions of
law. In the absence of authority from the board of directors,
no person, not even its officers, can validly bind a
77
corporation. However, just as a natural person may
authorize another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its functions
and powers to its officers, committees or agents. The
authority of these individuals to bind the corporation is
generally derived from law, corporate by-laws or
authorization from the board, either expressly or impliedly
by habit, custom or acquiescence in the general course of
business.
Corporation Law; Doctrine of Apparent Authority;
Words and Phrases; The doctrine of “apparent authority,”
with special reference to banks, had long been recognized in
this jurisdiction; The authority to act for and to bind a
corporation may be presumed from acts of recognition in other
instances when the power was exercised without any objection
from its board or shareholders.—The authority of a corporate
officer or agent in dealing with third persons may be actual
or apparent. Actual authority is either express or implied.
The extent of an agent’s express authority is to be measured
by the power delegated to him by the corporation, while the
extent of his implied authority is measured by his prior acts
which have been ratified or approved, or their benefits
accepted by his principal. The doctrine of “apparent
authority,” on the other hand, with special reference to
banks, had long been recognized in this jurisdiction. The
existence of apparent authority may be ascertained through:
1. the general manner in which the corporation holds out an
officer or agent as having the power to act, or in other words,
the apparent authority to act in general, with which it
clothes him; or 2. the acquiescence in his acts of a particular
nature, with actual or construc-
24
24 SUPREME COURT
REPORTS ANNOTATED
 Banate vs. Philippines Countryside
Rural Bank (Liloan, Cebu), Inc.
tive knowledge thereof, within or beyond the scope of his
ordinary powers. Accordingly, the authority to act for and to
bind a corporation may be presumed from acts of recognition
in other instances when the power was exercised without any
objection from its board or shareholders.
Same; Same; Apparent authority is determined only by
the acts of the principal and not by the acts of the agent.—
Under the doctrine of apparent authority, acts and contracts
of the agent, as are within the apparent scope of the
authority conferred on him, although no actual authority to
do such acts or to make such contracts has been conferred,
bind the principal. The principal’s liability, however, is
limited only to third persons who have been led reasonably
to believe by the conduct of the principal that such actual
authority exists, although none was given. In other words,
apparent authority is determined only by the acts of the
principal and not by the acts of the agent. There can be no
apparent authority of an agent without acts or conduct on
the part of the principal; such acts or conduct must have been
known and relied upon in good faith as a result of the
exercise of reasonable prudence by a third party as claimant,
and such acts or conduct must have produced a change of
position to the third party’s detriment.
Same; Same; We would be unduly stretching the doctrine
of apparent authority were we to consider the power to undo
or nullify solemn agreements validly entered into as within
the doctrine’s ambit; Although a branch manager, within his
field and as to third persons, is the general agent and is in
general charge of the corporation, with apparent authority
commensurate with the ordinary business entrusted him and
the usual course and conduct thereof, yet the power to modify
or nullify corporate contracts remains generally in the board
of directors.—We would be unduly stretching the doctrine of
78
apparent authority were we to consider the power to undo or
nullify solemn agreements validly entered into as within the
doctrine’s ambit. Although a branch manager, within his
field and as to third persons, is the general agent and is in
general charge of the corporation, with apparent authority
commensurate with the ordinary business entrusted him
and the usual course and conduct thereof, yet the power to
modify or nullify corporate contracts remains generally in
the board of directors. Being a mere branch manager alone is
insufficient to support the conclusion that Mondigo has
25
VOL. 625, JULY 13, 2010 25
Banate vs. Philippines Countryside
Rural Bank (Liloan, Cebu), Inc.
been clothed with “apparent authority” to verbally alter
terms of written contracts, especially when viewed against
the telling circumstances of this case: the unequivocal
provision in the mortgage contract; PCRB’s vigorous denial
that any agreement to release the mortgage was ever entered
into by it; and, the fact that the purported agreement was
not even reduced into writing considering its legal effects on
the parties’ interests. To put it simply, the burden of proving
the authority of Mondigo to alter or novate the mortgage
contract has not been established.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Ma. Antonnette Brillantes-Bolivar and Gilroy V.
Billones for respondent PCRB.
BRION,** J.:
Before the Court is a petition for review
on certiorari1 assailing the December 19, 2003
decision2 and the May 5, 2004 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 74332. The CA decision
reversed the Regional Trial Court (RTC) decision4 of
June 27, 2001 granting the petitioners’ complaint for
specific performance and damages against the
respondent Philippine Countryside Rural Bank, Inc.
(PCRB).5
_______________
** Designated Acting Chairperson of the Third Division, in view
of the leave of absence of Associate Justice Conchita Carpio-Morales,
per Special Order No. 849 dated June 29, 2010.
1 Under Rule 45 of the Rules of Court.
2 Penned by Associate Justice Remedios A. Salazar-Fernando,
with Associate Justice Eubulo G. Verzola and Associate Justice
Edgardo F. Sundiam, concurring; Rollo, pp. 23-36.
3 Id., at pp. 37-38.
4 Penned by Judge Ulric R. Cañete; id., at pp. 69-75.
5 On December 12, 2008, the Monetary Board of the Bangko
Sentral ng Pilipinas ordered the closure of PCRB, and placed it under
the receivership of the Philippine Deposit Insurance Corporation.
26
26 SUPREME COURT REPORTS
ANNOTATED
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
The Factual Antecedents
On July 22, 1997, petitioner spouses Rosendo
Maglasang and Patrocinia Monilar (spouses
Maglasang) obtained a loan (subject loan) from PCRB
for P1,070,000.00. The subject loan was evidenced by a
promissory note and was payable on January 18, 1998.
To secure the payment of the subject loan, the spouses
Maglasang executed, in favor of PCRB a real estate
79
mortgage over their property, Lot 12868-H-3-
C,6 including the house constructed thereon (collectively
referred to as subject properties), owned by petitioners
Mary Melgrid and Bonifacio Cortel (spouses Cortel), the
spouses Maglasang’s daughter and son-in-law,
respectively. Aside from the subject loan, the spouses
Maglasang obtained two other loans from PCRB which
were covered by separate promissory notes7 and secured
by mortgages on their other properties.
Sometime in November 1997 (before the subject loan
became due), the spouses Maglasang and the spouses
Cortel asked PCRB’s permission to sell the subject
properties. They likewise requested that the subject
properties be released from the mortgage since the two
other loans were adequately secured by the other
mortgages. The spouses Maglasang and the spouses
Cortel claimed that the PCRB, acting through its
Branch Manager, Pancrasio Mondigo, verbally agreed
to their request but required first the full payment of
the subject loan. The spouses Maglasang and the
spouses Cortel thereafter sold to petitioner Violeta
Banate the subject properties for P1,750,000.00. The
spouses Magsalang and the spouses Cortel used the
amount to pay the subject loan with PCRB. After
settling the subject loan, PCRB gave the owner’s
duplicate certificate of title of Lot 12868-H-3-C to
Banate, who was able to secure a new title in her name.
The title, however, carried
_______________
6 Registered under Transfer Certificate of Title No. 82746, with an
area of 275 square meters and situated in Barangay Pitogo,
Consolacion, Cebu City.
 7 Promissory notes dated December 19, 1997 and July 22, 1997.
27
VOL. 625, JULY 13, 2010 27
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
the mortgage lien in favor of PCRB, prompting the
petitioners to request from PCRB a Deed of Release of
Mortgage. As PCRB refused to comply with the
petitioners’ request, the petitioners instituted an action
for specific performance before the RTC to compel
PCRB to execute the release deed.
The petitioners additionally sought payment of
damages from PCRB, which, they claimed, caused the
publication of a news report stating that they
“surreptitiously” caused the transfer of ownership of
Lot 12868-H-3-C. The petitioners considered the news
report false and malicious, as PCRB knew of the sale of
the subject properties and, in fact, consented thereto.
PCRB countered the petitioners’ allegations by
invoking the cross-collateral stipulation in the
mortgage deed which states:
“1. That as security for the payment of the loan or
advance in principal sum of one million seventy thousand
pesos only (P1,070,000.00) and such other loans or
advances already obtained, or still to be obtained by
the MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or
GUARANTOR(s) from the MORTGAGEE plus interest at
the rate of _____ per annum and penalty and litigation
charges payable on the dates mentioned in the corresponding
promissory notes, the MORTGAGOR(s) hereby transfer(s)
and convey(s) to MORTGAGEE by way of first mortgage the
parcel(s) of land described hereunder, together with the
improvements now existing for which may hereafter be made
80
thereon, of which MORTGAGOR(s) represent(s) and
warrant(s) that MORTGAGOR(s) is/are the absolute
owner(s) and that the same is/are free from all liens and
encumbrances;”
TRANSFER CERTIFICATE OF TITLE NO. 827468
Accordingly, PCRB claimed that full payment of the
three loans, obtained by the spouses Maglasang, was
necessary before any of the mortgages could be released;
the settlement
_______________
8 Rollo, p. 62.
28
28 SUPREME COURT REPORTS
ANNOTATED
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
of the subject loan merely constituted partial payment
of the total obligation. Thus, the payment does not
authorize the release of the subject properties from the
mortgage lien.
PCRB considered Banate as a buyer in bad faith as
she was fully aware of the existing mortgage in its favor
when she purchased the subject properties from the
spouses Maglasang and the spouses Cortel. It explained
that it allowed the release of the owner’s duplicate
certificate of title to Banate only to enable her to
annotate the sale. PCRB claimed that the release of the
title should not indicate the corresponding release of the
subject properties from the mortgage constituted
thereon.
 After trial, the RTC ruled in favor of the petitioners.
It noted that the petitioners, as “necessitous men,”
could not have bargained on equal footing with PCRB
in executing the mortgage, and concluded that it was a
contract of adhesion. Therefore, any obscurity in the
mortgage contract should not benefit PCRB.9
The RTC observed that the official receipt issued by
PCRB stated that the amount owed by the spouses
Maglasang under the subject loan was only about P1.2
million; that Mary Melgrid Cortel paid the subject loan
using the check which Banate issued as payment of the
purchase price; and that PCRB authorized the release
of the title further indicated that the subject loan had
already been settled. Since the subject loan had been
fully paid, the RTC considered the petitioners as
rightfully entitled to a deed of release of mortgage,
pursuant to the verbal agreement that the petitioners
made with PCRB’s branch manager, Mondigo. Thus,
the RTC ordered PCRB to execute a deed of release of
mortgage over the subject properties, and to pay the
petitioners moral damages and attorney’s fees.10
_______________
9 Id., at p. 73.
10 Id., at p. 75.
29
VOL. 625, JULY 13, 2010 29
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
On appeal, the CA reversed the RTC’s decision. The CA
did not consider as valid the petitioners’ new agreement
with Mondigo, which would novate the original
81
mortgage contract containing the cross-collateral
stipulation. It ruled that Mondigo cannot orally amend
the mortgage contract between PCRB, and the spouses
Maglasang and the spouses Cortel; therefore, the
claimed commitment allowing the release of the
mortgage on the subject properties cannot bind PCRB.
Since the cross-collateral stipulation in the mortgage
contract (requiring full settlement of all three loans
before the release of any of the mortgages) is clear, the
parties must faithfully comply with its terms. The CA
did not consider as material the release of the owner’s
duplicate copy of the title, as it was done merely to allow
the annotation of the sale of the subject properties to
Banate.11
Dismayed with the reversal by the CA of the RTC’s
ruling, the petitioners filed the present appeal
by certiorari, claiming that the CA ruling is not in
accord with established jurisprudence.
The Petition
The petitioners argue that their claims are
consistent with their agreement with PCRB; they
complied with the required full payment of the subject
loan to allow the release of the subject properties from
the mortgage. Having carried out their part of the
bargain, the petitioners maintain that PCRB must
honor its commitment to release the mortgage over the
subject properties.
The petitioners disregard the cross-collateral
stipulation in the mortgage contract, claiming that it
had been novated by the subsequent agreement with
Mondigo. Even assuming that the cross-collateral
stipulation subsists for lack of authority on the part of
Mondigo to novate the mortgage contract, the
_______________
11 Supra note 2, at p. 35.
30
30 SUPREME COURT REPORTS
ANNOTATED
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
petitioners contend that PCRB should nevertheless
return the amount paid to settle the subject loan since
the new agreement should be deemed rescinded.
The basic issues for the Court to resolve are as
follows:
1. Whether the purported agreement between the
petitioners and Mondigo novated the mortgage
contract over the subject properties and is thus
binding upon PCRB.
2. If the first issue is resolved negatively, whether
Banate can demand restitution of the amount paid
for the subject properties on the theory that the
new agreement with Mondigo is deemed
rescinded.
The Court’s Ruling
We resolve to deny the petition.
The purported agreement did not novate
the mortgage contract, particularly the
cross-collateral stipulation thereon
Before we resolve the issues directly posed, we first
dwell on the determination of the nature of the cross-
82
collateral stipulation in the mortgage contract. As a
general rule, a mortgage liability is usually limited to
the amount mentioned in the contract. However, the
amounts named as consideration in a contract of
mortgage do not limit the amount for which the
mortgage may stand as security if, from the four corners
of the instrument, the intent to secure future and other
indebtedness can be gathered. This stipulation is valid
and bindingbetween the parties and is known as the
“blanket mortgage clause” (also known as the “dragnet
clause).”12
In the present case, the mortgage contract
indisputably provides that the subject properties serve
as security, not only
_______________
12 Prudential Bank v. Alviar, G.R. No. 150197, July 28, 2005, 464
SCRA 353.
31
VOL. 625, JULY 13, 2010 31
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
for the payment of the subject loan, but also for “such
other loans or advances already obtained, or still to be
obtained.” The cross-collateral stipulation in the
mortgage contract between the parties is thus simply a
variety of a dragnet clause. After agreeing to such
stipulation, the petitioners cannot insist that the
subject properties be released from mortgage since the
security covers not only the subject loan but the two
other loans as well.
 The petitioners, however, claim that their agreement
with Mondigo must be deemed to have novated the
mortgage contract. They posit that the full payment of
the subject loan extinguished their obligation arising
from the mortgage contract, including the stipulated
cross-collateral provision. Consequently, consistent
with their theory of a novated agreement, the
petitioners maintain that it devolves upon PCRB to
execute the corresponding Deed of Release of Mortgage.
We find the petitioners’ argument unpersuasive.
Novation, in its broad concept, may either be extinctive
or modificatory. It is extinctive when an old obligation
is terminated by the creation of a new obligation that
takes the place of the former; it is merely modificatory
when the old obligation subsists to the extent that it
remains compatible with the amendatory agreement.
An extinctive novation results either by changing the
object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a
third person in the rights of the creditor (subjective or
personal). Under this mode, novation would have dual
functions—one to extinguish an existing obligation,
the other to substitute a new one in its place—requiring
a conflux of four essential requisites: (1) a previous valid
obligation; (2) an agreement of all parties concerned to a
new contract; (3) the extinguishment of the old
obligation; and (4) the birth of a valid new obligation.13
_______________
13 Fabrigas v. San Franciso Del Monte, Inc., G.R. No. 152346,
November 25, 2005, 476 SCRA 253.
32
83
32 SUPREME COURT REPORTS
ANNOTATED
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
The second requisite is lacking in this case. Novation
presupposes not only the extinguishment or
modification of an existing obligation but, more
importantly, the creation of a valid new obligation.14For
the consequent creation of a new contractual obligation,
consent of both parties is, thus, required. As a general
rule, no form of words or writing is necessary to give
effect to a novation. Nevertheless, where either or both
parties involved are juridical entities, proof that the
second contract was executed by persons with the
proper authority to bind their respective principals is
necessary.15
Section 23 of the Corporation Code16expressly
provides that the corporate powers of all corporations
shall be exercised by the board of directors. The power
and the responsibility to decide whether the corporation
should enter into a contract that will bind the
corporation are lodged in the board, subject to the
articles of incorporation, by-laws, or relevant provisions
of law. In the absence of authority from the board of
directors, no person, not even its officers, can validly
bind a corporation.
However, just as a natural person may authorize
another to do certain acts for and on his behalf, the
board of directors
_______________
14 Art. 1292 of the Civil Code states:
 In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other.
15 De Leon and De Leon, Jr., Comments and Cases on Obligations
and Contracts (2003 ed.), p. 431, citing Garcia, Jr. v. Court of Appeals,
G.R. No. 80201, November 20, 1990, 191 SCRA 493.
16 Section 23. The Board of directors or trustees.—Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by
the board of directors or trustees to be elected from among the holders
of stocks, or where there are no stocks, from among the members of
the corporation, who shall hold office for one (1) year and until their
successors are elected and qualified.
33
VOL. 625, JULY 13, 2010 33
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
may validly delegate some of its functions and powers
to its officers, committees or agents. The authority of
these individuals to bind the corporation is generally
derived from law, corporate by-laws or authorization
from the board, either expressly or impliedly by habit,
custom or acquiescence in the general course of
business.17
The authority of a corporate officer or agent in
dealing with third persons may be actual or apparent.
Actual authority is either express or implied. The extent
of an agent’s express authority is to be measured by the
power delegated to him by the corporation, while the
extent of his implied authority is measured by his prior
acts which have been ratified or approved, or their
benefits accepted by his principal.18 The doctrine of
84
“apparent authority,” on the other hand, with special
reference to banks, had long been recognized in this
jurisdiction. The existence of apparent authority may be
ascertained through:
1. the general manner in which the corporation holds
out an officer or agent as having the power to act, or in other
words, the apparent authority to act in general, with which
it clothes him; or
2. the acquiescence in his acts of a particular nature,
with actual or constructive knowledge thereof, within or
beyond the scope of his ordinary powers.
Accordingly, the authority to act for and to bind a
corporation may be presumed from acts of recognition
in other instances when the power was exercised
without any objection from its board or shareholders.19
Notably, the petitioners’ action for specific
performance is premised on the supposed actual or
apparent authority of the branch manager, Mondigo, to
release the subject properties
_______________
17 People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals,
G.R. No. 117847, October 7, 1998, 297 SCRA 170.
18 19 C.J.S. § 994.
19 Associated Bank v. Spouses Rafael and Monaliza Pronstroller,
G.R. No. 148444, July 14, 2008, 558 SCRA 113.
34
34 SUPREME COURT REPORTS
ANNOTATED
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
from the mortgage, although the other obligations
remain unpaid. In light of our discussion above, proof of
the branch manager’s authority becomes indispensable
to support the petitioners’ contention. The petitioners
make no claim that Mondigo had actual authority from
PCRB, whether express or implied. Rather, adopting
the trial court’s observation, the petitioners posited that
PCRB should be held liable for Mondigo’s commitment,
on the basis of the latter’s apparent authority.
We disagree with this position.
Under the doctrine of apparent authority, acts and
contracts of the agent, as are within the apparent scope
of the authority conferred on him, although no actual
authority to do such acts or to make such contracts has
been conferred, bind the principal.20 The principal’s
liability, however, is limited only to third persons who
have been led reasonably to believe by the conduct of the
principalthat such actual authority exists, although
none was given. In other words, apparent authority is
determined only by the acts of the principal and not by
the acts of the agent.21 There can be no apparent
authority of an agent without acts or conduct on the
part of the principal; such acts or conduct must have
been known and relied upon in good faith as a result of
the exercise of reasonable prudence by a third party as
claimant, and such acts or conduct must have produced
a change of position to the third party’s detriment.22
In the present case, the decision of the trial court was
utterly silent on the manner by which PCRB, as
supposed principal, has “clothed” or “held out” its
branch manager as having the power to enter into an
agreement, as claimed by peti-
_______________
20 2 Am. Jur. §102.
85
21 3 Am. Jur. 2d §79.
22 Yun Kwan Byung v. Philippine Amusement and Gaming
Corporation, G.R. No. 163553, December 11, 2009, 608 SCRA 107, 132.
35
VOL. 625, JULY 13, 2010 35
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
tioners. No proof of the course of business, usages and
practices of the bank about, or knowledge that the board
had or is presumed to have of, its responsible officers’
acts regarding bank branch affairs, was ever adduced to
establish the branch manager’s apparent authority to
verbally alter the terms of mortgage contracts.23 Neither
was there any allegation, much less proof, that PCRB
ratified Mondigo’s act or is estopped to make a contrary
claim.24
Further, we would be unduly stretching the doctrine
of apparent authority were we to consider the power to
undo or nullify solemn agreements validly entered into
as within the doctrine’s ambit. Although a branch
manager, within his field and as to third persons, is the
general agent and is in general charge of the
corporation, with apparent authority commensurate
with the ordinary business entrusted him and the usual
course and conduct thereof,25yet the power to modify or
nullify corporate contracts remains generally in the
board of directors.26 Being a mere branch
manager alone is insufficient to support the conclusion
that Mondigo has been clothed with “apparent
authority” to verbally alter terms of written contracts,
especially when viewed against the telling
circumstances of this case: the unequivocal provision in
the mortgage contract; PCRB’s vigorous denial that any
agreement to release the mortgage was ever entered
into by it; and, the fact that the purported agreement
was not even reduced into writing considering its legal
effects on the parties’ interests. To put it simply, the
burden of proving the authority of Mondigo
_______________
23 Board of Liquidators v. Kalaw, August 14, 1967, No. L-18805,
20 SCRA 987.
24 Rural Bank of Milaor (Camarines Sur) v. Ocfemia, G.R. No.
137686, February 8, 2000, 325 SCRA 99.
25 19 C.J.S. § 1002.
26 No other officer or agent can make such modification even
though he has the power to make the contract, unless authority in this
respect has been specially conferred on him (19 C.J.S. 1044).
36
36 SUPREME COURT REPORTS
ANNOTATED
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
to alter or novate the mortgage contract has not been
established.27
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 the agent’s authority, and in
case either is controverted, the burden of proof is upon
them to establish it.28 As parties to the mortgage
contract, the petitioners are expected to abide by its
terms. The subsequent purported agreement is of no
moment, and cannot prejudice PCRB, as it is beyond
86
Mondigo’s actual or apparent authority, as above
discussed.
Rescission has no legal basis; there can
be no restitution of the amount paid
The petitioners, nonetheless, invoke equity and
alternatively pray for the restitution of the amount
paid, on the rationale that if PCRB’s branch manager
was not authorized to accept payment in consideration
of separately releasing the mortgage, then the
agreement should be deemed rescinded, and the
amount paid by them returned.
PCRB, on the other hand, counters that the
petitioners’ alternative prayer has no legal and factual
basis, and insists that the clear agreement of the parties
was for the full payment of the subject loan, and in
return, PCRB would deliver the title to the subject
properties to the buyer, only to enable the latter to
obtain a transfer of title in her own name.
We agree with PCRB. Even if we were to assume that
the purported agreement has been sufficiently
established, since it is not binding on the bank for lack
of authority of PCRB’s branch manager, then the prayer
for restitution of the amount paid would have no legal
basis. Of course, it will be
_______________
27 San Juan Structural and Steel Fabricators, Inc. v. Court of
Appeals, G.R. No. 129459, September 29, 1998, 296 SCRA 631.
28 Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No.
151319, November 22, 2004, 443 SCRA 377.
37
VOL. 625, JULY 13, 2010 37
 Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
asked: what then is the legal significance of the
payment made by Banate? Article 2154 of the Civil
Code reads:
“Art. 2154. If something is received when there is no
right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.”
Notwithstanding the payment made by Banate, she
is not entitled to recover anything from PCRB under
Article 2154. There could not have been any payment
by mistake to PCRB, as the check which Banate issued
as payment was to her co-petitioner Mary Melgrid
Cortel (the payee), and not to PCRB. The same check
was simply endorsed by the payee to PCRB in payment
of the subject loan that the Maglasangs owed PCRB.29
The mistake, if any, was in the perception of the
authority of Mondigo, as branch manager, to verbally
alter the mortgage contract, and not as to whether the
Cortels, as sellers, were entitled to payment. This
mistake (on Mondigo’s lack of authority to alter the
mortgage) did not affect the validity of the payment
made to the bank as the existence of the loan was never
disputed. The dispute was merely on the effect of the
payment on the security given.30
Consequently, no right to recover accrues in Banate’s
favor as PCRB never dealt with her. The borrowers-
mortgagors, on the other hand, merely paid what was
really owed. Parenthetically, the subject loan was due
on January 18, 1998, but was paid sometime in
November 1997. It appears, however, that at the time
the complaint was filed, the subject loan had already
87
matured. Consequently, recovery of the amount paid,
even under a claim of premature payment, will not
prosper.
_______________
29 Rollo, p. 71.
30 It is necessary that payment be in accordance with the
obligation; the person paying as well as the one receiving payment
should have the requisite capacity; it should be made by the debtor to
the creditor; and at the right time and place. (Tolentino, Civil Code of
the Philippines, Vol. IV (1991 ed.), p. 274.)
8
8 SUPREME COURT REPORTS
ANNOTATED
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc.
In light of these conclusions, the claim for moral
damages must necessarily fail. On the alleged injurious
publication, we quote with approval the CA’s ruling on
the matter, viz.:
“Consequently, there is no rea nson to hold [respondent]
PCRB liable to [petitioners] for damages. x x x [Petitioner]
Maglasang cannot hold [respondent] PCRB liable for the
publication of the extrajudicial sale. There was no evidence
submitted to prove that [respondent] PCRB authored the
words “Mortgagors surreptitiously caused the transfer of
ownership of Lot 12868-H-3-C x x x” contained in the
publication since at the bottom was x x x Sheriff Teofilo C.
Soon, Jr.’s name. Moreover, there was not even an iota of
proof which shows damage on the part of [petitioner] Mary
Melgrid M. Cortel.”31
WHEREFORE, we DENY the petitioners’ petition
for review on certiorari for lack of merit, and AFFIRM
the decision of the Court of Appeals dated December 19,
2003 and its resolution dated May 5, 2004 in CA-G.R.
CV No. 74332. No pronouncement as to costs.
SO ORDERED.
G.R. No. 82978. November 22, 1990. *
THE MANILA REMNANT CO., INC.,
petitioner, vs. THE HONORABLE COURT OF
APPEALS and OSCAR VENTANILLA, JR. and
CARMEN GLORIA DIAZ, respondents.
Civil Law; Sale; Agency; The 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.—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.”
_______________
* THIRD DIVISION.
623
88
VOL. 191, NOVEMBER 22, 623
1990
Manila Remnant Co., Inc. vs. Court of
Appeals
Same; Same; Same; Same; 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.—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.
Same; Same; Same; Estoppel; By the principle of
estoppel, Manila Remnant is deemed to have allowed its
agent to act as though it had plenary powers.—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.
Same; Same; Same; Same; Authority by estoppel has
arisen in the instant case because by its negligence, the
principal, Manila Remnant, has permitted its agent, A.N.
Valencia and Co. to exercise powers not granted to it.—
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.
 Same; Same; Same; Same; The basis for Manila
Remnant’s solidary liability is estoppel; Manila Remnant is
considered estopped from pleading the truth that it had no
direct hand in the deception employed by its agent.—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.
PETITION to review the decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Bede S. Tabalingcos for petitioners.
624
624 SUPREME COURT REPORTS
ANNOTATED
Manila Remnant Co., Inc. vs. Court of
Appeals
Augusto Gatmaytan for private respondent.
FERNAN, C.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.
89
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
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. As thus agreed in the contracts to sell, the
2
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
_______________
1 Exhibit U.
2 Exhibits 1 and 2.
625
VOL. 191, NOVEMBER 22, 1990 625
Manila Remnant Co., Inc. vs. Court of
Appeals
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. Artemio Valencia then transmitted the
3
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
90
account of the considerable amount of discrepancies and
irregularities discovered in its collections and
remittances by virtue of confirmations received from lot
buyers. As a consequence, on June 6, 1973, Artemio
4
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 to impugn the abrogation of their
6
agency agreement. On June
_______________
3 Exhibits 3 and 4.
4 Exhibit Q.
5 Exhibits N to N-37.
6 Civil Case No. 90979.
626
626 SUPREME COURT REPORTS
ANNOTATED
Manila Remnant Co., Inc. vs. Court of
Appeals
10 and July 10, 1973, said court ordered all lot buyers
to deposit their monthly amortizations with the
court. But on July 17, 1973, A.U. Valencia and Co.
7
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. On May 22, 1974, the
8 _______________
trial court issued an order prohibiting A.U. Valencia
and Co. from collecting the monthly installments. On9
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. Valencia complied with the court’s order on
10
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 Journalof
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
91
7 Exhibit I.
8 Exhibit C.
9 Exhibit J.
10 Exhibits K and L.
11 Exhibits 0-6 to 8.
12 Exhibits G and G-1.
13 Civil Case No. 22015; Exhibit H.
627
VOL. 191, NOVEMBER 22, 1990 627
Manila Remnant Co., Inc. vs. Court of
Appeals
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. To their shock and utter consternation, they
14
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. Whereupon, Manila Remnant refused the
15
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. Crisostomo was declared in default for
16
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
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
_______________
14 Exhibits A-7 to Exhibits A-74 and B-8 to B-82; TSN, Valencia,
July 17, 1979, p. 16.
15 Exhibits E and F.
16 Civil Case No. 26411.
628
628 SUPREME COURT REPORTS
ANNOTATED
Manila Remnant Co., Inc. vs. Court of
Appeals
92
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 totothe 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.”
_______________
17 Rollo, p. 44.
18 Rollo, p. 13.
629
VOL. 191, NOVEMBER 22, 19906 29
Manila Remnant Co., Inc. vs. Court of
Appeals
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
93
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.” (Italics 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
jointfeasors 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
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
_______________
See Art. 1910, Civil Code.
19
20 Verzosa vs. Lim, 45 Phil. 416.
630
630 SUPREME COURT REPORTS
ANNOTATED
Manila Remnant Co., Inc. vs. Court of
Appeals
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.” (Italics 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 Journalcame 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
94
the Ventanillas, Manila Remnant could and should
have devised a system whereby it could monitor and
require a regular accounting from A.U. Valencia and
Co., its agent. Not having done so, Manila Remnant has
made itself liable to those who have relied on its agent
and the representation that such agent was clothed
with sufficient powers to act on behalf of the principal.
Even assuming that Manila Remnant was as much a
victim as the other innocent lot buyers, it cannot be
gainsaid that it was precisely its negligence and laxity
in the day to day operations of the real estate business
which made it possible for the agent to deceive
unsuspecting vendees like the Ventanillas.
In essence, therefore, the basis for Manila Remnant’s
solidary
_______________
21 Original Record, p. 164, TSN, October 1, 1979, p. 10.
631
VOL. 191, NOVEMBER 22, 1990 631
Manila Remnant Co., Inc. vs. Court of
Appeals
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.
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.
Gutierrez, Jr. and Bidin, JJ.,concur.
Feliciano, J., On leave.
Decision affirmed.
G.R. No. 144805. June 8, 2006. *
EDUARDO V. LITONJUA, JR. and ANTONIO K.
LITONJUA, petitioners, vs.ETERNIT CORPORATION
(now ETERTON MULTI-RESOURCES
CORPORATION), ETEROUTREMER, S.A. and FAR
EAST BANK & TRUST COMPANY, respondents.
Actions; Pleadings
Practice; Appeals; Certiorari; Exceptions; It must be stressed
that issues of facts may not be raised in the Court under Rule
95
45 of the Rules of Court because the Court is not a trier of
facts.—It must be stressed that issues of facts may not be
raised in the Court under Rule 45 of the Rules of Court
because the Court is not a trier of facts. It is not to re-
examine and assess the evidence on record, whether
testimonial and documentary. There are, however,
recognized exceptions where the Court may delve into and
resolve factual issues, namely: (1) When the conclusion is a
finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly
mistaken, absurd, or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in making its
findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7)
when the findings of the Court of Appeals are contrary to
those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which
they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different
conclusion; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.
Corporation Law; Corporations; Property; Sales; The
general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of law.—A
corporation is a juridical person separate and distinct from
its members or stockholders and is not
_______________
and
* FIRST DIVISION.
205
 VOL. 490, JUNE 8, 2006 205
Litonjua, Jr. vs. Eternit Corporation
affected by the personal rights, obligations and
transactions of the latter. It may act only through its board
of directors or, when authorized either by its by-laws or by
its board resolution, through its officers or agents in the
normal course of business. The general principles of agency
govern the relation between the corporation and its officers
or agents, subject to the articles of incorporation, by-laws, or
relevant provisions of law.
Same; Same; Same; Same; The property of
corporation, however, is not the property of the stockholders
or members, and as such, may not be sold without express
authority from the board of directors.—The property of a
corporation, however, is not the property of the stockholders
or members, and as such, may not be sold without express
authority from the board of directors. Physical acts, like the
offering of the properties of the corporation for sale, or the
acceptance of a counter-offer of prospective buyers of such
properties and the execution of the deed of sale covering such
property, can be performed by the corporation only by officers
or agents duly authorized for the purpose by corporate by-
laws or by specific acts of the board of directors. Absent such
valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs
of the corporation, but not in the course of, or connected with,
the performance of authorized duties of such director, are not
binding on the corporation.
Same; Same; Same; Same; Agency; Any sale of real
property of a corporation by a person purporting to be an
agent thereof but without written authority from the
corporation is null and void.—While a corporation may
appoint agents to negotiate for the sale of its real properties,
the final say will have to be with the board of directors
through its officers and agents as authorized by a board
96
resolution or by its by-laws. An unauthorized act of an officer
of the corporation is not binding on it unless the latter
ratifies the same expressly or impliedly by its board of
directors. Any sale of real property of a corporation by a
person purporting to be an agent thereof but without written
authority from the corporation is null and void. The
declarations of the agent alone are generally insufficient to
establish the fact or extent of his/her authority.
Same; Same; Same; Same; Same; Consent of both
principal and agent is necessary to create an agency.—By the
a contract of agency, a person binds himself to render some
service or to do something in
206
206 SUPREME COURT
REPORTS ANNOTATED
Litonjua, Jr. vs. Eternit Corporation
representation on behalf of another, with the consent or
authority of the latter. Consent of both principal and agent
is necessary to create an agency. The principal must intend
that the agent shall act for him; the agent must intend to
accept the authority and act on it, and the intention of the
parties must find expression either in words or conduct
between them.
Same; Same; Same; Same; Same; An agency may be
expressed or implied from the act of the principal, from his
silence or lack of action, or failure to repudiate the agency.—
An agency may be expressed or implied from the act of the
principal, from his silence or lack of action, or his failure to
repudiate the agency knowing that another person is acting
on his behalf without authority. Acceptance by the agent
may be expressed, or implied from his acts which carry out
the agency, or from his silence or inaction according to the
circumstances. Agency may be oral unless the law requires a
specific form. However, to create or convey real rights over
immovable property, a special power of attorney is necessary.
Thus, when a sale of a piece of land or any portion thereof is
through an agent, the authority of the latter shall be in
writing, otherwise, the sale shall be void.
Same; Same; Same; Same; Same; A person dealing with
a known agent is not authorized, under any circumstances,
blindly to trust the agents—statements as to the extent of his
powers—such person must not act negligently but must use
reasonable diligence and prudence to ascertain whether the
agent acts within the scope of his authority.—A person
dealing with a known agent is not authorized, under any
circumstances, blindly to trust the agents; statements as to
the extent of his powers; such person must not act
negligently but must use reasonable diligence and prudence
to ascertain whether the agent acts within the scope of his
authority. The settled rule is that, persons dealing with an
assumed agent are bound at their peril, and if they would
hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon them
to prove it.
Same; Same; Same; Same; Same; Agency by Estoppel;
Requisites; For an agency by estoppel to exist, the following
must be established.—For an agency by estoppel to exist, the
following must be established: (1) the principal manifested a
representation of the agent’s authority or knowingly allowed
the agent to assume such
207
VOL. 490, JUNE 8, 2006 207
Litonjua, Jr. vs. Eternit Corporation
authority; (2) the third person, in good faith, relied upon
such representation; (3) relying upon such representation,
such third person has changed his position to his detriment.
An agency by estoppel, which is similar to the doctrine of
97
apparent authority, requires proof of reliance upon the
representations, and that, in turn, needs proof that the
representations predated the action taken in reliance.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Jimenez, Gonzales, Liwanag, Bello, Valdez, Calu
ya & Fernandez for petitioners.
Eufemio Law Offices for respondents Eternit
Corporation and Eteroutremer, S.A.
Carlito P. Viniegra for FEBTC (now BPI).
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the
Decision of the Court of Appeals (CA) in CA-G.R. CV
1
No. 51022, which affirmed the Decision of the Regional
Trial Court (RTC), Pasig City, Branch 165, in Civil Case
No. 54887, as well as the Resolution of the CA denying
2
the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly
organized and registered under Philippine laws. Since
1950, it had been engaged in the manufacture of roofing
materials and pipe products. Its manufacturing
operations were conducted on eight parcels of land with
a total area of 47,233 square meters. The properties,
located in Mandaluyong City, Metro Manila, were
covered by Transfer Certificates of Title Nos.
_______________
1 Penned by Associate Justice Remedios A. Salazar-Fernando, with
Associate Justices Fermin A. Martin, Jr. and Salvador J. Valdez, Jr.
(retired), concurring; Rollo, pp. 40-53.
 2 Rollo, pp. 54-55.
208
208 SUPREME COURT REPORTS
ANNOTATED
Litonjua, Jr. vs. Eternit Corporation
451117, 451118, 451119, 451120, 451121, 451122,
451124 and 451125 under the name of Far East Bank
& Trust Company, as trustee. Ninety (90%) percent of
the shares of stocks of EC were owned by Eteroutremer
S.A. Corporation (ESAC), a corporation organized and
registered under the laws of Belgium. Jack Glanville, an
3
Australian citizen, was the General Manager and
President of EC, while Claude Frederick Delsaux was
the Regional Director for Asia of ESAC. Both had their
offices in Belgium.
In 1986, the management of ESAC grew concerned
about the political situation in the Philippines and
wanted to stop its operations in the country. The
Committee for Asia of ESAC instructed Michael Adams,
a member of EC’s Board of Directors, to dispose of the
eight parcels of land. Adams engaged the services of
realtor/broker Lauro G. Marquez so that the properties
could be offered for sale to prospective buyers. Glanville
later showed the properties to Marquez. Marquez
thereafter offered the parcels of land and the
improvements thereon to Eduardo B. Litonjua, Jr. of
the Litonjua & Company, Inc. In a Letter dated
September 12, 1986, Marquez declared that he was
authorized to sell the properties for P27,000,000.00 and
that the terms of the sale were subject to negotiation. 4
Eduardo Litonjua, Jr. responded to the offer.
Marquez showed the property to Eduardo Litonjua, Jr.,
98
and his brother Antonio K. Litonjua. The Litonjua
siblings offered to buy the property for P20,000,000.00
cash. Marquez apprised Glanville of the Litonjua
siblings’ offer and relayed the same to Delsaux in
Belgium, but the latter did not respond. On October 28,
1986, Glanville telexed Delsaux in Belgium, inquiring
on his position/counterproposal to the offer of the
Litonjua siblings. It was only on February 12, 1987 that
Delsaux sent a telex to Glanville stating that, based on
the “Belgian/Swiss decision,”
_______________
3 Id., at pp. 11, 61.
4 Id., at pp. 394-395.
209
VOL. 490, JUNE 8, 2006 209
Litonjua, Jr. vs. Eternit Corporation
the final offer was “US$1,000,000.00 and P2,500,000.00
to cover all existing obligations prior to final
liquidation.” 5
Marquez furnished Eduardo Litonjua, Jr. with a copy
of the telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with
Glanville, and in a Letter dated February 26, 1987,
confirmed that the Litonjua siblings had accepted the
counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90
days after execution and preparation of all documents
of sale, together with the necessary governmental
clearances. 6
The Litonjua brothers deposited the amount of
US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow Delsaux himself later sent a letter dated May 22,
Agreement to expedite the sale. 7 1987, confirming that the ESAC Regional Office had
Sometime later, Marquez and the Litonjua brothers decided not to proceed with the sale of the subject land,
inquired from Glanville when the sale would be to wit:
implemented. In a telex dated April 22, 1987, Glanville May 22, 1987
informed Delsaux that he had met with the buyer, Mr. L.G. Marquez
which had given him the impression that “he is L.G. Marquez, Inc.
prepared to press for a satisfactory conclusion to the
334 Makati Stock Exchange Bldg.
sale.” He also emphasized to Delsaux that the buyers
8
6767 Ayala Avenue
were concerned because they would incur expenses in Makati, Metro Manila
bank commitment fees as a consequence of prolonged Philippines
period of inaction. 9

Meanwhile, with the assumption of Corazon C. Dear Sir:

Aquino as President of the Republic of the Philippines,
the political situation in the Philippines had improved. Re: Land of Eternit Corporation
Marquez received a telephone call from Glanville, I would like to confirm officially that our Group has
decided not to proceed with the sale of the land which was
advising that the sale would no longer proceed.
proposed to you.
Glanville followed it up with a Letter dated May 7,
The Committee for Asia of our Group met recently
1987, confirming that he had been instructed by his (meeting every six months) and examined the position as far
_______________
as the Philippines are (sic) concerned. Considering [the]
5 Id., at p. 396. new political situation since the departure of MR.
6 Id., at pp. 397-398. MARCOS and a certain stabilization in the
7 Id., at p. 240. Philippines, the Committee has decided not to stop our
8 Id., at p. 241.
operations in Manila. In fact, production has
9 Id.
started again last week, and (sic) to recognize the
210 participation in the Corporation.
210 SUPREME COURT REPORTS We regret that we could not make a deal with you this
ANNOTATED time, but in case the policy would change at a later state, we
would consult you again.
Litonjua, Jr. vs. Eternit Corporation xxx
principal to inform Marquez that “the decision has been
taken at a Board Meeting not to sell the properties on
which Eternit Corporation is situated.” 10

99
Yours sincerely, subject properties nor authorized Marquez to sell the
(Sgd.) same; and the telex dated October 28, 1986 of Jack
C.F. DELSAUX Glanville was his own personal making which did not
bind EC.
cc. To: J. GLANVILLE (Eternit Corp.) 11

On July 3, 1995, the trial court rendered judgment in

_______________ favor of defendants and dismissed the amended
complaint. The fallo of the decision reads:
12
10 Id., at p. 399.
11 Id., at pp. 349-400.
“WHEREFORE, the complaint against Eternit Corporation
now Eterton Multi-Resources Corporation and
211 Eteroutremer, S.A. is dismissed on the ground that there is
VOL. 490, JUNE 8, 2006 211 no valid and binding sale between the plaintiffs and said
Litonjua, Jr. vs. Eternit Corporation defendants.
When apprised of this development, the Litonjuas, The complaint as against Far East Bank and Trust
through counsel, wrote EC, demanding payment for Company is likewise dismissed for lack of cause of action.
The counterclaim of Eternit Corporation now Eterton
damages they had suffered on account of the aborted
Multi-Resources Corporation and Eteroutremer, S.A. is also
sale. EC, however, rejected their demand. dismissed for lack of merit.” 13

The Litonjuas then filed a complaint for specific

performance and damages against EC (now the Eterton _______________
Multi-Resources Corporation) and the Far East Bank & 13 Id., at pp. 174-175.
Trust Company, and ESAC in the RTC of Pasig City. An 12 Id., at pp. 163-175.
amended complaint was filed, in which defendant EC
212
was substituted by Eterton Multi-Resources
212 SUPREME COURT REPORTS
Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha
ANNOTATED
T. Tan and Deogracias G. Eufemio were impleaded as
additional defendants on account of their purchase of Litonjua, Jr. vs. Eternit Corporation
ESAC shares of stocks and were the controlling The trial court declared that since the authority of the
stockholders of EC. agents/realtors was not in writing, the sale is void and
In their answer to the complaint, EC and ESAC not merely unenforceable, and as such, could not have
alleged that since Eteroutremer was not doing business been ratified by the principal. In any event, such
in the Philippines, it cannot be subject to the ratification cannot be given any retroactive effect.
jurisdiction of Philippine courts; the Board and Plaintiffs could not assume that defendants had agreed
stockholders of EC never approved any resolution to sell to sell the property without a clear authorization from

100
the corporation concerned, that is, through resolutions
of the Board of Directors and stockholders. The trial
court also pointed out that the supposed sale involves
substantially all the assets of defendant EC which
would result in the eventual total cessation of its
operation. 14
The Litonjuas appealed the decision to the CA,
alleging that “(1) the lower court erred in concluding
that the real estate broker in the instant case needed a
written authority from appellee corporation and/or that
said broker had no such written authority; and (2) the
lower court committed grave error of law in holding that
appellee corporation is not legally bound for specific
performance and/or damages in the absence of an
enabling resolution of the board of directors.” They
15
averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it
was not necessary for him to be empowered as such by
any written authority. They further claimed that an
agency by estoppel was created when the corporation
clothed Marquez with apparent authority to negotiate
for the sale of the properties. However, since it was a
bilateral contract to buy and sell, it was equivalent to a
perfected contract of sale, which the corporation was
obliged to consummate.
In reply, EC alleged that Marquez had no written
authority from the Board of Directors to bind it; neither
were Glanville and Delsaux authorized by its board of
directors to offer the property for sale. Since the sale
involved substantially all of
_______________
14 Id., at pp. 173-174.
101
15 Id., at pp. 47-48.
213
VOL. 490, JUNE 8, 2006 213
Litonjua, Jr. vs. Eternit Corporation
the corporation’s assets, it would necessarily need the
authority from the stockholders.
On June 16, 2000, the CA rendered judgment
affirming the decision of the RTC. The Litonjuas filed
16
a motion for reconsideration, which was also denied by
the appellate court.
The CA ruled that Marquez, who was a real estate
broker, was a special agent within the purview of
Article 1874 of the New Civil Code. Under Section 23 of
the Corporation Code, he needed a special authority
from EC’s board of directors to bind such corporation to
the sale of its properties. Delsaux, who was merely the
representative of ESAC (the majority stockholder of
EC) had no authority to bind the latter. The CA pointed
out that Delsaux was not even a member of the board of
directors of EC. Moreover, the Litonjuas failed to prove
that an agency by estoppel had been created between
the parties.
In the instant petition for review, petitioners aver
that:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS NO PERFECTED CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE
ERROR OF LAW IN HOLDING THAT MARQUEZ
NEEDED A WRITTEN AUTHORITY FROM Petitioners assert that there was no need for a
RESPONDENT ETERNIT BEFORE THE SALE CAN BE written authority from the Board of Directors of EC for
PERFECTED. Marquez to validly act as
broker/middleman/intermediary. As broker, Marquez
III
was not an ordinary agent because his authority was of
THE COURT OF APPEALS ERRED IN NOT HOLDING a special and limited character in most respects. His
THAT GLANVILLE AND DELSAUX HAVE THE only job as a broker was to look for a buyer and to bring
NECESSARY AUTHORITY TO SELL THE SUBJECT together the parties to the transaction. He was not
PROPERTIES, OR AT THE VERY LEAST, WERE authorized to sell the properties or to make a binding
KNOWINGLY PERMITTED BY RESPONDENT ETERNIT contract to respondent EC; hence, petitioners argue,
TO DO ACTS WITHIN THE SCOPE OF AN APPARENT Article 1874 of the New Civil Code does not apply.
_______________ In any event, petitioners aver, what is important and
decisive was that Marquez was able to communicate
16 Id., at pp. 40-53. both the offer and counter-offer and their acceptance of
214 respondent EC’s counter-offer, resulting in a perfected
214 SUPREME COURT REPORTS contract of sale.
ANNOTATED Petitioners posit that the testimonial and
Litonjua, Jr. vs. Eternit Corporation documentary evidence on record amply shows that
AUTHORITY, AND THUS HELD THEM OUT TO THE Glanville, who was the President and General Manager
PUBLIC AS POSSESSING POWER TO SELL THE SAID of respondent EC, and Delsaux, who was the Managing
PROPERTIES. 17 Director for ESAC Asia, had the necessary authority to
sell the subject property or, at least, had been allowed
Petitioners maintain that, based on the facts of the case, by respondent EC to hold themselves out in the public
there was a perfected contract of sale of the parcels of as having the power to sell the subject properties.
land and the improvements thereon for Petitioners identified such evidence, thus:
“US$1,000,000.00 plus P2,500,000.00 to cover _______________
obligations prior to final liquidation.” Petitioners insist
that they had accepted the counter-offer of respondent 17 Id., at p. 15.
EC and that before the counter-offer was withdrawn by 215
respondents, the acceptance was made known to them VOL. 490, JUNE 8, 2006 215
through real estate broker Marquez. Litonjua, Jr. vs. Eternit Corporation

102
 1. 1.The testimony of Marquez that he was
chosen by Glanville as the then President and
General Manager of Eternit, to sell the
properties of said corporation to any interested
party, which authority, as hereinabove
discussed, need not be in writing.
2. 2.The fact that the NEGOTIATIONS for the sale
of the subject properties spanned SEVERAL
MONTHS, from 1986 to 1987;
3. 3.The COUNTER-OFFER made by Eternit
through GLANVILLE to sell its properties to
the Petitioners;
4. 4.The GOOD FAITH of Petitioners in believing
Eternit’s offer to sell the properties as evidenced
by the Petitioners’ ACCEPTANCE of the
counter-offer;
5. 5.The fact that Petitioners DEPOSITED the
price of [US]$1,000,000.00 with the Security
Bank and that an ESCROW agreement was
drafted over the subject properties;
6. 6.Glanville’s telex to Delsaux inquiring
“WHEN WE(Respondents) WILL IMPLEMENT
ACTION TO BUY AND SELL”;
7. 7.More importantly, Exhibits “G” and “H” of the
Respondents, which evidenced the fact that
Petitioners’ offer was allegedly REJECTED by
both Glanville and Delsaux. 18
Petitioners insist that it is incongruous for Glanville
and Delsaux to make a counter-offer to petitioners’ offer
and thereafter reject such offer unless they were
authorized to do so by respondent EC. Petitioners insist
103
that Delsaux confirmed his authority to sell the
properties in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has
decided not to proceed with the sale of the land which
was proposed to you.
The Committee for Asia of our Group met recently
(meeting every six months) and examined the position
as far as the Philippines are (sic) concerned.
Considering the new political situation since the
departure of MR. MARCOS and a certain stabilization
in
_______________
18 Id., at pp. 29-30.
216
216 SUPREME COURT REPORTS
ANNOTATED
Litonjua, Jr. vs. Eternit Corporation
the Philippines, the Committee has decided not to stop
our operations in Manila[.] [I]n fact production started
again last week, and (sic) to reorganize the
participation in the Corporation.
We regret that we could not make a deal with
you this time, but in case the policy would change
at a later stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX 19
Petitioners further emphasize that they acted in good
faith when Glanville and Delsaux were knowingly
permitted by respondent EC to sell the properties
within the scope of an apparent authority. Petitioners
insist that respondents held themselves to the public as
possessing power to sell the subject properties.
By way of comment, respondents aver that the issues
raised by the petitioners are factual, hence, are
proscribed by Rule 45 of the Rules of Court. On the
merits of the petition, respondents EC (now EMC) and
ESAC reiterate their submissions in the CA. They
maintain that Glanville, Delsaux and Marquez had no
authority from the stockholders of respondent EC and
its Board of Directors to offer the properties for sale to
the petitioners, or to any other person or entity for that
matter. They assert that the decision and resolution of
the CA are in accord with law and the evidence on
record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that
respondent EC, through Glanville and Delsaux,
conformed to the written authority of Marquez to sell
the properties. The authority of Glanville and Delsaux
to bind respondent EC is evidenced by the fact that
Glanville and Delsaux negotiated for the sale of 90% of
stocks of respondent EC to Ruperto Tan on June 1,
1997. Given the significance of their positions and
_______________
19 Id., at pp. 30-31.
217
VOL. 490, JUNE 8, 2006 217
Litonjua, Jr. vs. Eternit Corporation
104
their duties in respondent EC at the time of the
transaction, and the fact that respondent ESAC owns
90% of the shares of stock of respondent EC, a formal
resolution of the Board of Directors would be a mere
ceremonial formality. What is important, petitioners
maintain, is that Marquez was able to communicate the
offer of respondent EC and the petitioners’ acceptance
thereof. There was no time that they acted without the
knowledge of respondents. In fact, respondent EC never
repudiated the acts of Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of
respondents that the issues raised by petitioner in this
case are factual. Whether or not Marquez, Glanville,
and Delsaux were authorized by respondent EC to act
as its agents relative to the sale of the properties of
respondent EC, and if so, the boundaries of their
authority as agents, is a question of fact. In the absence
of express written terms creating the relationship of an
agency, the existence of an agency is a fact
question. Whether an agency by estoppel was created
20
or whether a person acted within the bounds of his
apparent authority, and whether the principal is
estopped to deny the apparent authority of its agent are,
likewise, questions of fact to be resolved on the basis of
the evidence on record. The findings of the trial court
21
on such issues, as affirmed by the CA, are conclusive on
the Court, absent evidence that the trial and appellate
courts ignored, misconstrued, or misapplied facts and
circumstances of substance which, if considered, would
warrant a modification or reversal of the outcome of the
case.22
_______________
20 Weathersby v. Gore, 556 F.2d 1247 (1977).
21 Cavic v. Grand Bahama Development Co., Ltd., 701 F.2d 879
(1983).
22 Culaba v. Court of Appeals, G.R. No. 125862, April 15, 2004, 427
SCRA 721, 729; Litonjua v. Fernandez, G.R. No. 148116, April 14,
2004, 427 SCRA 478, 489.
218
218 SUPREME COURT REPORTS
ANNOTATED
Litonjua, Jr. vs. Eternit Corporation
It must be stressed that issues of facts may not be raised
in the Court under Rule 45 of the Rules of Court because
the Court is not a trier of facts. It is not to re-examine
and assess the evidence on record, whether testimonial
and documentary. There are, however, recognized
exceptions where the Court may delve into and resolve
factual issues, namely:
“(1) When the conclusion is a finding grounded entirely on
speculations, surmises, or conjectures; (2) when the inference
made is manifestly mistaken, absurd, or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when the Court of Appeals, in making
its findings, went beyond the issues of the case and the same
is contrary to the admissions of both appellant and appellee;
(7) when the findings of the Court of Appeals are contrary to
those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which
they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different
conclusion; and (10) when the findings of fact of the Court of
105
Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.” 23
We have reviewed the records thoroughly and find that
the petitioners failed to establish that the instant case
falls under any of the foregoing exceptions. Indeed, the
assailed decision of the Court of Appeals is supported
by the evidence on record and the law.
It was the duty of the petitioners to prove that
respondent EC had decided to sell its properties and
that it had empowered Adams, Glanville and Delsaux
or Marquez to offer the properties for sale to prospective
buyers and to accept any counter-offer. Petitioners
likewise failed to prove that their counter-offer had
been accepted by respondent EC, through Glanville and
Delsaux. It must be stressed that when specific
performance is sought of a contract made with an agent,
the
_______________
23 Nokom v. National Labor Relations Commission, 390 Phil. 1228,
1242-1243; 336 SCRA 97, 110 (2000) (citations omitted).
219
VOL. 490, JUNE 8, 2006 219
Litonjua, Jr. vs. Eternit Corporation
agency must be established by clear, certain and
specific proof. 24
Section 23 of Batas Pambansa Bilang68, otherwise
known as the Corporation Code of the Philippines,
provides:
SEC. 23. The Board of Directors or Trustees.—Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be
elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation, who
shall hold office for one (1) year and until their successors are
elected and qualified.
Indeed, a corporation is a juridical person separate and
distinct from its members or stockholders and is not
affected by the personal rights, obligations and
transactions of the latter. It may act only through its
25
board of directors or, when authorized either by its by-
laws or by its board resolution, through its officers or
agents in the normal course of business. The general
principles of agency govern the relation between the
corporation and its officers or agents, subject to the
articles of incorporation, by-laws, or relevant provisions
of law. 26
Under Section 36 of the Corporation Code, a
corporation may sell or convey its real properties,
subject to the limitations prescribed by law and the
Constitution, as follows:
SEC. 36. Corporate powers and capacity.—Every corporation
incorporated under this Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such real
and per-
_______________
24Blair v. Sheridan, 10 S.E. 414 (1889).
25Philippine National Bank v. Ritratto Group, Inc., 414 Phil. 494,
503; 362 SCRA 216, 223 (2001).
106
San Juan Structural and Steel Fabricators, Inc. v. Court of
26
Appeals, 357 Phil. 631, 644; 296 SCRA 631, 645 (1998).
220
220 SUPREME COURT REPORTS
ANNOTATED
Litonjua, Jr. vs. Eternit Corporation
sonal property, including securities and bonds of other
corporations, as the transaction of a lawful business of the
corporation may reasonably and necessarily require, subject
to the limitations prescribed by the law and the
Constitution.”
The property of a corporation, however, is not the
property of the stockholders or members, and as such,
may not be sold without express authority from the
board of directors. Physical acts, like the offering of the
27
properties of the corporation for sale, or the acceptance
of a counter-offer of prospective buyers of such
properties and the execution of the deed of sale covering
such property, can be performed by the corporation only
by officers or agents duly authorized for the purpose by
corporate by-laws or by specific acts of the board of
directors. Absent such valid delegation/authorization,
28
the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the
course of, or connected with, the performance of
authorized duties of such director, are not binding on
the corporation. 29
While a corporation may appoint agents to negotiate
for the sale of its real properties, the final say will have
to be with the board of directors through its officers and
agents as authorized by a board resolution or by its by-
laws. An unauthorized act of an officer of the
30
corporation is not binding on it unless the latter ratifies person is acting on his behalf without authority.
the same expressly or impliedly by its board of directors. Acceptance by the agent may be expressed, or implied
Any sale of real property of a corporation by a person from his acts which carry out the agency, or from his
purporting to be an agent thereof but without written silence or inaction according to the
authority from the corporation is null and void. The circumstances. Agency may be oral unless the law
34

_______________ requires a specific form. However, to create or convey

35

real rights over immovable property, a special power of

27 Traders Royal Bank v. Court of Appeals, G.R. No. 78412,
September 26, 1989, 177 SCRA 788, 792. attorney is necessary. Thus, when a sale of a piece of
36

28 BPI Leasing Corporation v. Court of Appeals, G.R. No. 127624,
November 18, 2003, 416 SCRA 4, 11.
29 AF Realty & Development, Inc. v. Dieselman Freight Services,
Co., 424 Phil. 446, 454; 373 SCRA 385, 391 (2002).
30 De Liano v. Court of Appeals, 421 Phil. 1033, 1052; 370 SCRA
349, 372 (2001).
221
VOL. 490, JUNE 8, 2006 221
Litonjua, Jr. vs. Eternit Corporation
declarations of the agent alone are generally
insufficient to establish the fact or extent of his/her
authority. 31
By the contract of agency, a person binds himself to
land or any portion thereof is through an agent, the
authority of the latter shall be in writing, otherwise, the
sale shall be void. 37
In this case, the petitioners as plaintiffs below, failed
to adduce in evidence any resolution of the Board of
Directors of respondent EC empowering Marquez,
Glanville or Delsaux as its agents, to sell, let alone offer
for sale, for and in its behalf, the eight parcels of land
owned by respondent EC including
_______________
31 Litonjua v. Fernandez, supra note 22, at p. 493.
32 Article 1868, NEW CIVIL CODE.
33 Ellison v. Hunsinger, 75 S.E. 2d. 884 (1953); Dominion Insurance

render some service or to do something in Corporation v. Court of Appeals, 426 Phil. 620, 626; 376 SCRA 239, 243
representation on behalf of another, with the consent or (2002).
authority of the latter. Consent of both principal and
32 34 CIVIL CODE, Art. 1870.

35 CIVIL CODE, Art. 1869, paragraph 2.

agent is necessary to create an agency. The principal 36 CIVIL CODE, Art. 1878(12).

must intend that the agent shall act for him; the agent 37 CIVIL CODE, Art. 1874.

must intend to accept the authority and act on it, and

222
the intention of the parties must find expression either
in words or conduct between them. 33
222 SUPREME COURT REPORTS
An agency may be expressed or implied from the act ANNOTATED
of the principal, from his silence or lack of action, or his Litonjua, Jr. vs. Eternit Corporation
failure to repudiate the agency knowing that another the improvements thereon. The bare fact that Delsaux
may have been authorized to sell to Ruperto Tan the
107
shares of stock of respondent ESAC, on June 1, 1997,
cannot be used as basis for petitioners’ claim that he
had likewise been authorized by respondent EC to sell
the parcels of land.
Moreover, the evidence of petitioners shows that
Adams and Glanville acted on the authority of Delsaux,
who, in turn, acted on the authority of respondent
ESAC, through its Committee for Asia, the Board of
38
Directors of respondent ESAC, and the Belgian/Swiss
39
component of the management of respondent ESAC. As 40
such, Adams and Glanville engaged the services of
Marquez to offer to sell the properties to prospective
buyers. Thus, on September 12, 1986, Marquez wrote
the petitioner that he was authorized to offer for sale
the property for P27,000,000.00 and the other terms of
the sale subject to negotiations. When petitioners
offered to purchase the property for P20,000,000.00,
through Marquez, the latter relayed petitioners’ offer to
Glanville; Glanville had to send a telex to Delsaux to
inquire the position of respondent ESAC to petitioners’
offer. However, as admitted by petitioners in their
Memorandum, Delsaux was unable to reply
immediately to the telex of Glanville because Delsaux
had to wait for confirmation from respondent
ESAC. When Delsaux finally responded to Glanville on
41
February 12, 1987, he made it clear that, based on the
“Belgian/Swiss decision” the final offer of respondent
ESAC was US$1,000,000.00 plus P2,500,000.00 to cover
all existing obligations prior to final liquidation. The
42
offer of Delsaux emanated only from the “Belgian/Swiss
decision,” and not the entire management or Board of
Directors of respondent ESAC. While it is true that
108
petitioners accepted the counter-offer of respondent
ESAC, respondent EC was not
_______________
38 Exhibits “H” and “H-1,” Rollo, p. 166.
39 Exhibits “G” and “G-1,” Id.
40 Exhibits “C” and “C-1,” Id., at p. 165.
41 Rollo, p. 396.
42 Exhibits “C” and “C-1,” Rollo, p. 165.
223
VOL. 490, JUNE 8, 2006 223
Litonjua, Jr. vs. Eternit Corporation
a party to the transaction between them; hence, EC was
not bound by such acceptance.
While Glanville was the President and General
Manager of respondent EC, and Adams and Delsaux
were members of its Board of Directors, the three acted
for and in behalf of respondent ESAC, and not as duly
authorized agents of respondent EC; a board resolution
evincing the grant of such authority is needed to bind
EC to any agreement regarding the sale of the subject
properties. Such board resolution is not a mere
formality but is a condition sine qua non to bind
respondent EC. Admittedly, respondent ESAC owned
90% of the shares of stocks of respondent EC; however,
the mere fact that a corporation owns a majority of the
shares of stocks of another, or even all of such shares of
stocks, taken alone, will not justify their being treated
as one corporation. 43
It bears stressing that in an agent-principal
relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent,
by legal fiction, becomes the principal, authorized to
perform all acts which the latter would have him do.
Such a relationship can only be effected with the
consent of the principal, which must not, in any way, be
compelled by law or by any court. 44
The petitioners cannot feign ignorance of the absence
of any regular and valid authority of respondent EC
empowering Adams, Glanville or Delsaux to offer the
properties for sale and to sell the said properties to the
petitioners. A person dealing with a known agent is not
authorized, under any circumstances, blindly to trust
the agents; statements as to the extent of his powers;
such person must not act negligently but must use
reasonable diligence and prudence to ascertain
_______________
43 Philippine National Bank v. Ritratto Group, Inc., supra note 25,
at p. 503; p. 223.
44 Orient Air Services and Hotel Representatives v. Court of
Appeals, 274 Phil. 927, 939; 197 SCRA 645, 656 (1991).
224
224 SUPREME COURT REPORTS
ANNOTATED
Litonjua, Jr. vs. Eternit Corporation
whether the agent acts within the scope of his
authority. The settled rule is that, persons dealing
45
with an assumed agent are bound at their peril, and if
they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden
of proof is upon them to prove it. In this case, the
46
petitioners failed to discharge their burden; hence,
petitioners are not entitled to damages from respondent
EC.
109
It appears that Marquez acted not only as real estate
broker for the petitioners but also as their agent. As
gleaned from the letter of Marquez to Glanville, on
February 26, 1987, he confirmed, for and in behalf of the
petitioners, that the latter had accepted such offer to
sell the land and the improvements thereon. However,
we agree with the ruling of the appellate court that
Marquez had no authority to bind respondent EC to sell
the subject properties. A real estate broker is one who
negotiates the sale of real properties. His business,
generally speaking, is only to find a purchaser who is
willing to buy the land upon terms fixed by the owner.
He has no authority to bind the principal by signing a
contract of sale. Indeed, an authority to find a purchaser
of real property does not include an authority to sell. 47
Equally barren of merit is petitioners’ contention
that respondent EC is estopped to deny the existence of
a principalagency relationship between it and Glanville
or Delsaux. For an agency by estoppel to exist, the
following must be established: (1) the principal
manifested a representation of the agent’s authority or
knowingly allowed the agent to assume such authority;
(2) the third person, in good faith, relied upon such
representation; (3) relying upon such representation,
_______________
45 Hill v. Delta Loan and Finance Company, 277 S.W. 2d 63, 65.
46 Litonjua v. Fernandez, supra note 22, at p. 494; Culaba v. Court
of Appeals, supra note 22, at p. 730; BA Finance Corporation v. Court
of Appeals, G.R. No. 94566, July 3, 1992, 211 SCRA 112, 116.
47 Donnan v. Adams, 71 S.W. 580.
225
VOL. 490, JUNE 8, 2006 225
 Litonjua, Jr. vs. Eternit Corporation
such third person has changed his position to his
detriment. An agency by estoppel, which is similar to
48
the doctrine of apparent authority, requires proof of
reliance upon the representations, and that, in turn,
needs proof that the representations predated the
action taken in reliance. Such proof is lacking in this
49
case. In their communications to the petitioners,
Glanville and Delsaux positively and unequivocally
declared that they were acting for and in behalf of
respondent ESAC.
Neither may respondent EC be deemed to have
ratified the transactions between the petitioners and
respondent ESAC, through Glanville, Delsaux and
Marquez. The transactions and the various
communications inter se were never submitted to the
Board of Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition
is DENIED for lack of merit. Costs against the
petitioners.
SO ORDERED.
Panganiban (C.J., Chairperson), Austria-
Martinez and Chico-Nazario, JJ., concur.
Ynares-Santiago, J., On Leave.
Petition denied.
110
Article 1912 – 1918
G.R. No. 113074. January 22, 1997. *
ALFRED HAHN, petitioner, vs. COURT OF APPEALS
and BAYERISCHE MOTOREN WERKE
AKTIENGESELLSCHAFT (BMW), respondents.
Agency; Words and Phrases; “Agent” and “Broker,”
Distinguished.—An agent receives a commission upon the
successful conclusion of a sale. On the other hand, a broker
earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made.
Same; The fact that a person invested his own money to
put service centers and showrooms does not necessarily prove
that he is not an agent of a car manufacturer.—As to the
service centers and showrooms which he said he had put up
at his own expense, Hahn said that he had to follow BMW
specifications as exclusive dealer of BMW in the Philippines.
According to Hahn, BMW periodically inspected the service
centers to see to it that BMW standards were maintained.
Indeed, it would seem from BMW’s letter to Hahn that
_______________
* SECOND DIVISION.
538
538 SUPREME COURT REPORTS
ANNOTATED
Hahn vs. Court of Appeals
it was for Hahn’s alleged failure to maintain BMW
standards that BMW was terminating Hahn’s dealership.
The fact that Hahn invested his own money to put up these
service centers and showrooms does not necessarily prove
that he is not an agent of BMW. For as already noted, there
are facts in the record which suggest that BMW exercised
control over Hahn’s activities as a dealer and made regular
inspections of Hahn’s premises to enforce compliance with
BMW standards and specifications.
Evidence; A mere allegation in a motion to dismiss
which has been denied by the other party should not be cited
by the court as if it were a fact.—The Court of Appeals also
found that petitioner Alfred Hahn dealt in other products,
and not exclusively in BMW products, and, on this basis,
ruled that Hahn was not an agent of BMW. This finding is
based entirely on allegations of BMW in its motion to dismiss
filed in the trial court and in its petition for certiorari before
the Court of Appeals. But this allegation was denied by Hahn
and therefore the Court of Appeals should not have cited it
as if it were the fact.
Foreign Corporations; Motions to Dismiss; Rule 16, §3 of
the Rules of Court authorizes courts to defer the resolution of
a motion to dismiss until after the trial if the ground on which
the motion is based does not appear to be indubitable.—It is
not true then that the question whether BMW is doing
business could have been resolved simply by considering the
parties’ pleadings. There are genuine issues of facts which
can only be determined on the basis of evidence duly
presented. BMW cannot short circuit the process on the plea
that to compel it to go to trial would be to deny its right not
to submit to the jurisdiction of the trial court which precisely
it denies. Rule 16, §3 authorizes courts to defer the resolution
of a motion to dismiss until after the trial if the ground on
which the motion is based does not appear to be indubitable.
Here the record of the case bristles with factual issues and it
is not at all clear whether some allegations correspond to the
proof.
Same; Actions; Pleadings and Practice; It is now settled
that, for purposes of having summons served on a foreign
111
corporation in accordance with Rule 14, §14, it is sufficient
that it be alleged in the complaint that the foreign corporation
is doing business in the Philippines.—Anyway, private
respondent need not apprehend that by responding to the
summons it would be waiving its objection to the
539
VOL. 266, JANUARY 22, 1997 539
Hahn vs. Court of Appeals
trial court’s jurisdiction. It is now settled that, for
purposes of having summons served on a foreign corporation
in accordance with Rule 14, §14, it is sufficient that it be
alleged in the complaint that the foreign corporation is doing
business in the Philippines. The court need not go beyond the
allegations of the complaint in order to determine whether it
has jurisdiction. A determination that the foreign
corporation is doing business is only tentative and is made
only for the purpose of enabling the local court to acquire
jurisdiction over the foreign corporation through service of
summons pursuant to Rule 14, §14. Such determination does
not foreclose a contrary finding should evidence later show
that it is not transacting business in the country.
PETITION for review on certiorari of a decision of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Siguion Reyna, Montecillo & Ongsiako for
petitioner.
Castillo, Laman, Tan & Pantaleonfor private
respondent.
MENDOZA, J.:

This is a petition for review of the decision of the
Court of Appeals dismissing a complaint for specific
performance which petitioner had filed against private
respondent on the ground that the Regional Trial Court
of Quezon City did not acquire jurisdiction over private
respondent, a nonresident foreign corporation, and of
the appellate court’s order denying petitioner’s motion
for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing
business under the name and style “Hahn-Manila.” On
the other hand, private respondent Bayerische Motoren
Werke Aktiengesellschaft (BMW) is a nonresident
foreign corporation existing
_______________
1Per Justice Cancio C. Garcia and concurred in by Justices Ramon
U. Mabutas and Antonio M. Martinez, chairman.
540
540 SUPREME COURT REPORTS
ANNOTATED
Hahn vs. Court of Appeals
under the laws of the former Federal Republic of
Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of
private respondent a “Deed of Assignment with Special
Power of Attorney,” which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and
holder of the BMW trademark and device in the Philippines
which ASSIGNOR uses and has been using on the products
manufactured by ASSIGNEE, and for which ASSIGNOR is
the authorized exclusive Dealer of the ASSIGNEE in the
112
Philippines, the same being evidenced by certificate of
1 registration issued by the Director of Patents on 12
December 1963 and is referred to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and
consequently record said transfer of the said BMW
trademark and device in favor of the ASSIGNEE herein with
the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in
consideration of the stipulations hereunder stated, the
ASSIGNOR hereby affirms the said assignment and transfer
in favor of the ASSIGNEE under the following terms and
conditions:
1. 1.The ASSIGNEE shall take appropriate steps
against any user other than ASSIGNOR or infringer
of the BMW trademark in the Philippines; for such
purpose, the ASSIGNOR shall inform the
ASSIGNEE immediately of any such use or
infringement of the said trademark which comes to
his knowledge and upon such information the
ASSIGNOR shall automatically act as Attorney-In-
Fact of the ASSIGNEE for such case, with full
power, authority and responsibility to prosecute
unilaterally or in concert with ASSIGNEE, any such
infringer of the subject mark and for purposes hereof
the ASSIGNOR is hereby named and constituted as
ASSIGNEE’s Attorney-In-Fact, but any such suit
without ASSIGNEE’s consent exclusively be the
responsibility and for the account of the ASSIGNOR.
2. 2.That the ASSIGNOR and the ASSIGNEE shall
continue business relations as has been usual in the
past without a formal contract, and for that purpose,
the dealership of ASSIGNOR shall cover the
ASSIGNEE’s complete production program with the
only limitation that, for the present, in view of
 ASSIGNEE’s limited production, the latter shall not
be able to supply automobiles to ASSIGNOR.
541
VOL. 266, JANUARY 22, 1997 541
Hahn vs. Court of Appeals
Per the agreement, the parties “continue[d] business
relations as has been usual in the past without a formal
contract.” But on February 16, 1993, in a meeting with
a BMW representative and the president of Columbia
Motors Corporation (CMC), Jose Alvarez, petitioner
was informed that BMW was arranging to grant the
exclusive dealership of BMW cars and products to CMC,
which had expressed interest in acquiring the same. On
February 24, 1993, petitioner received confirmation of
the information from BMW which, in a letter, expressed
dissatisfaction with various aspects of petitioner’s
business, mentioning among other things, decline in
sales, deteriorating services, and inadequate showroom
and warehouse facilities, and petitioner’s alleged failure
to comply with the standards for an exclusive BMW
dealer. Nonetheless, BMW expressed willingness to
2
continue business relations with the petitioner on the
basis of a “standard BMW importer” contract,
otherwise, it said, if this was not acceptable to
petitioner, BMW would have no alternative but to
terminate petitioner’s exclusive dealership effective
June 30, 1993.
Petitioner protested, claiming that the termination
of his exclusive dealership would be a breach of the
Deed of Assignment. Hahn insisted that as long as the
3 exclusive dealership. Later he filed an amended
113
assignment of its trademark and device subsisted, he
remained BMW’s exclusive dealer in the Philippines
because the assignment was made in consideration of
the exclusive dealership. In the same letter petitioner
explained that the decline in sales was due to lower
prices offered for BMW cars in the United States and
the fact that few customers returned for repairs and
servicing because of the durability of BMW parts and
the efficiency of petitioner’s service.
Because of Hahn’s insistence on the former business
relation, BMW withdrew on March 26, 1993 its offer of
a “standard importer contract” and terminated the
exclusive dealer relationship effective June 30,
1993. At a conference of BMW
4
_______________
2 Rollo, pp. 75-78.
3 Rollo, pp. 79-82.
4 Rollo, pp. 83-84.
542
542 SUPREME COURT REPORTS
ANNOTATED
Hahn vs. Court of Appeals
Regional Importers held on April 26, 1993 in Singapore,
Hahn was surprised to find Alvarez among those
invited from the Asian region. On April 29, 1993, BMW
proposed that Hahn and CMC jointly import and
distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14,
1993, he filed a complaint for specific performance and
damages against BMW to compel it to continue the
complaint to include an application for temporary
restraining order and for writs of preliminary,
mandatory and prohibitory injunction to enjoin BMW
from terminating his exclusive dealership. Hahn’s
amended complaint alleged in pertinent parts:
1. 2.Defendant [BMW] is a foreign corporation doing
business in the Philippines with principal offices at
Munich, Germany. It may be served with summons
and other court processes through the Secretary of
the Department of Trade and Industry of the
Philippines . . . .
2. . . . .
3. 5.On March 7, 1967, Plaintiff executed in favor of
defendant BMW a Deed of Assignment with Special
Power of Attorney covering the trademark and in
consideration thereof, under its first whereas clause,
Plaintiff was duly acknowledged as the “exclusive
Dealer of the Assignee in the Philippines” . . . .
4. . . . .
5. 8.From the time the trademark “BMW & DEVICE”
was first used by the Plaintiff in the Philippines up
to the present, Plaintiff, through its firm name
“HAHN MANILA” and without any monetary
contribution from defendant BMW, established
BMW’s goodwill and market presence in the
Philippines. Pursuant thereto, Plaintiff has invested
a lot of money and resources in order to single-
handedly compete against other motorcycle and car
companies . . . . Moreover, Plaintiff has built
buildings and other infrastructures such as service
centers and showrooms to maintain and promote the
car and products of defendant BMW.
6. . . . .
114
7. 10.In a letter dated February 24, 1993, defendant
BMW advised Plaintiff that it was willing to
maintain with Plaintiff a relationship but only “on
the basis of a standard BMW importer
543
VOL. 266, JANUARY 22, 1997 543
Hahn vs. Court of Appeals
contract as adjusted to reflect the particular situation in the
Philippines” subject to certain conditions, otherwise,
defendant BMW would terminate Plaintiff’s exclusive
dealership and any relationship for cause effective June 30,
1993 . . . .
1. . . . .
2. 15.The actuations of defendant BMW are in breach of
the assignment agreement between itself and
plaintiff since the consideration for the assignment
of the BMW trademark is the continuance of the
exclusive dealership agreement. It thus, follows that
the exclusive dealership should continue for so long
as defendant BMW enjoys the use and ownership of
the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933
and raffled to Branch 104 of the Quezon City Regional
Trial Court, which on June 14, 1993 issued a temporary
restraining order. Summons and copies of the complaint
and amended complaint were thereafter served on the
private respondent through the Department of Trade
and Industry, pursuant to Rule 14, §14 of the Rules of
Court. The order, summons and copies of the complaint
and amended complaint were later sent by the DTI to
BMW via registered mail on June 15, 1993 and received
5 through him as its agent, as shown by the fact that
by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW,
the hearing on the application for the writ of
preliminary injunction proceeded ex parte, with
petitioner Hahn testifying. On June 30, 1993, the trial
court issued an order granting the writ of preliminary
injunction upon the filing of a bond of P100,000.00. On
July 13, 1993, following the posting of the required
bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case,
contending that the trial court did not acquire
jurisdiction over it through the service of summons on
the Department of Trade and Industry, because it
(BMW) was a foreign corporation and it was not doing
business in the Philippines. It contended that the
execution of the Deed of Assignment was an isolated
_______________
5 Rollo, p. 593.
544
544 SUPREME COURT REPORTS
ANNOTATED
Hahn vs. Court of Appeals
transaction; that Hahn was not its agent because the
latter undertook to assemble and sell BMW cars and
products without the participation of BMW and sold
other products; and that Hahn was an indentor or
middleman transacting business in his own name and
for his own account.
Petitioner Alfred Hahn opposed the motion. He
argued that BMW was doing business in the Philippines
115
BMW invoices and order forms were used to document
his transactions; that he gave warranties as exclusive
BMW dealer; that BMW officials periodically inspected
standards of service rendered by him; and that he was
described in service booklets and international
publications of BMW as a “BMW Importer” or “BMW
Trading Company” in the Philippines.
The trial court deferred resolution of the motion to
6
dismiss until after trial on the merits for the reason that
the grounds advanced by BMW in its motion did not
seem to be indubitable.
Without seeking reconsideration of the
aforementioned order, BMW filed a petition for
certiorari with the Court of Appeals alleging that:
1. I.THE RESPONDENT JUDGE ACTED WITH
UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING
TOWARD THE ISSUANCE OF THE WRIT OF
PRELIMINARY INJUNCTION, AND IN
PRESCRIBING THE TERMS FOR THE
ISSUANCE THEREOF.
2. II.THE RESPONDENT JUDGE PATENTLY ERRED
IN DEFERRING RESOLUTION OF THE MOTION
TO DISMISS ON THE GROUND OF LACK OF
JURISDICTION, AND THEREBY FAILING TO
IMMEDIATELY DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary
restraining order and, after hearing, for a writ of
preliminary injunction, to enjoin the trial court from
proceeding further in Civil Case No. Q-93-15933.
Private respondent pointed out
_______________
6 Per Judge Maximiano Asuncion.
545
VOL. 266, JANUARY 22, 1997 545
Hahn vs. Court of Appeals
that, unless the trial court’s order was set aside, it
would be forced to submit to the jurisdiction of the court
by filing its answer or to accept judgment in default,
when the very question was whether the court had
jurisdiction over it.
The Court of Appeals enjoined the trial court from
hearing petitioner’s complaint. On December 20, 1993,
it rendered judgment finding the trial court guilty of
grave abuse of discretion in deferring resolution of the
motion to dismiss. It stated:
Going by the pleadings already filed with the respondent
court before it came out with its questioned order of July 26,
1993, we rule and so hold that petitioner’s (BMW) motion to
dismiss could be resolved then and there, and that the
respondent judge’s deferment of his action thereon until after
trial on the merit constitutes, to our mind, grave abuse of
discretion.
...
. . . [T]here is not much appreciable disagreement as
regards the factual matters relating to the motion to dismiss.
What truly divide (sic) the parties and to which they greatly
differ is the legal conclusions they respectively draw from
such facts, (sic) with Hahn maintaining that on the basis
thereof, BMW is doing business in the Philippines while the
latter asserts that it is not.
116
Then, after stating that any ruling which the trial
court might make on the motion to dismiss would
anyway be elevated to it on appeal, the Court of Appeals
itself resolved the motion. It ruled that BMW was not
doing business in the country and, therefore,
jurisdiction over it could not be acquired through
service of summons on the DTI pursuant to Rule 14,
§14. The court upheld private respondent’s contention
that Hahn acted in his own name and for his own
account and independently of BMW, based on Alfred
Hahn’s allegations that he had invested his own money
and resources in establishing BMW’s goodwill in the
Philippines and on BMW’s claim that Hahn sold
products other than those of BMW. It held that
petitioner was a mere indentor or broker and not an
agent through whom private respondent BMW
transacted
546
546 SUPREME COURT REPORTS
ANNOTATED
Hahn vs. Court of Appeals
business in the Philippines. Consequently, the Court of
Appeals dismissed petitioner’s complaint against BMW.
Hence, this appeal. Petitioner contends that the
Court of Appeals erred (1) in finding that the trial court
gravely abused its discretion in deferring action on the
motion to dismiss and (2) in finding that private
respondent BMW is not doing business in the
Philippines and, for this reason, dismissing petitioner’s
case.
 Petitioner’s appeal is well taken. Rule 14, §14
provides:
§14. Service upon private foreign corporations.—If the
defendant is a foreign corporation, or a nonresident joint
stock company or association, doing business in the
Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if
there be no such agent, on the government official designated
by law to that effect, or on any of its officer or agents within
the Philippines. (Emphasis added)
What acts are considered “doing business in the
Philippines” are enumerated in §3(d) of the Foreign
Investments Act of 1991 (R.A. No. 7042) as follows: 7
d) the phrase “doing business” shall include soliciting orders,
service contracts, opening offices, whether called “liaison”
offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods
totalling one hundred eighty (180) days or more;
participating in the management, supervision or control of
any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity
of commercial dealings or arrangements, and contemplate to
that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object
of the business organization: Provided, however, That the
phrase “doing business” shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the
_______________
117
7 The Foreign Investments Act of 1991 superseded Arts. 44-56 of the
Omnibus Investments Code.
547
VOL. 266, JANUARY 22, 1997 547
Hahn vs. Court of Appeals
exercise of rights as such investor; nor having a nominee
director or officer to represent its interests in such
corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its
own name and for its own account (Emphasis supplied)
Thus, the phrase includes “appointing
representatives or distributors in the Philippines” but
not when the representative or distributor “transacts
business in its name and for its own account.” In
addition, §1(f)(1) of the Rules and Regulations
implementing (IRR) the Omnibus Investment Code of
1987 (E.O. No. 226) provided:
(f) “Doing business” shall be any act or combination of
acts, enumerated in Article 44 of the Code. In particular,
“doing business” includes:
(1) . . . . A foreign firm which does business through middlemen
acting in their own names, such as indentors, commercial brokers
or commission merchants, shall not be deemed doing business in
the Philippines. But such indentors, commercial brokers or
commission merchants shall be the ones deemed to be doing
business in the Philippines.
The question is whether petitioner Alfred Hahn is
the agent or distributor in the Philippines of private
respondent BMW. If he is, BMW may be considered
doing business in the Philippines and the trial court
acquired jurisdiction over it (BMW) by virtue of the
service of summons on the Department of Trade and
Industry. Otherwise, if Hahn is not the agent of BMW
but an independent dealer, albeit of BMW cars and
products, BMW, a foreign corporation, is not considered
doing business in the Philippines within the meaning of
the Foreign Investments Act of 1991 and the IRR, and
the trial court did not acquire jurisdiction over it
(BMW).
The Court of Appeals held that petitioner Alfred
Hahn acted in his own name and for his own account
and not as agent or distributor in the Philippines of
BMW on the ground that “he alone had contacts with
individuals or entities interested in acquiring BMW
vehicles. Independence charac-
548
548 SUPREME COURT REPORTS
ANNOTATED
Hahn vs. Court of Appeals
terizes Hahn’s undertakings, for which reason he is to
be considered, under governing statutes, as doing
business.” (p. 13) In support of this conclusion, the
appellate court cited the following allegations in Hahn’s
amended complaint:
8. From the time the trademark “BMW & DEVICE” was
first used by the Plaintiff in the Philippines up to the
present, Plaintiff, through its firm name “HAHN MANILA”
and without any monetary contributions from defendant
BMW, established BMW’s goodwill and market presence in
the Philippines. Pursuant thereto, Plaintiff invested a lot of
money and resources in order to single-handedly compete
against other motorcycle and car companies . . . . Moreover,
118
Plaintiff has built buildings and other infrastructures such
as service centers and showrooms to maintain and promote
the car and products of defendant BMW.
As the above quoted allegations of the amended
complaint show, however, there is nothing to support
the appellate court’s finding that Hahn solicited orders
alone and for his own account and without “interference
from, let alone direction of, BMW.” (p. 13) To the
contrary, Hahn claimed he took orders for BMW cars
and transmitted them to BMW. Upon receipt of the
orders, BMW fixed the downpayment and pricing
charges, notified Hahn of the scheduled production
month for the orders, and reconfirmed the orders by
signing and returning to Hahn the acceptance sheets.
Payment was made by the buyer directly to BMW. Title
to cars purchased passed directly to the buyer and Hahn
never paid for the purchase price of BMW cars sold in
the Philippines. Hahn was credited with a commission
equal to 14% of the purchase price upon the invoicing of
a vehicle order by BMW. Upon confirmation in writing
that the vehicles had been registered in the Philippines
and serviced by him, Hahn received an additional 3% of
the full purchase price. Hahn performed after-sale
services, including warranty services, for which he
received reimbursement from BMW. All orders were on
invoices and forms of BMW. 8
_______________
8 Rollo, pp. 96, 140-141.
549
VOL. 266, JANUARY 22, 1997 549
 Hahn vs. Court of Appeals
These allegations were substantially admitted by
BMW which, in its petition for certiorari before the
Court of Appeals, stated: 9 periodically inspected the service centers to see to it
1. 9.4.As soon as the vehicles are fully manufactured
and full payment of the purchase prices are made,
the vehicles are shipped to the Philippines. (The
payments may be made by the purchasers or third-
persons or even by Hahn). The bills of lading are
made up in the name of the purchasers, but Hahn-
Manila is therein indicated as the person to be
notified.
2. 9.5.It is Hahn who picks up the vehicles from the
Philippine ports, for purposes of conducting pre-
delivery inspections. Thereafter, he delivers the
vehicles to the purchasers.
3. 9.6.As soon as BMW invoices the vehicle ordered,
Hahn is credited with a commission of fourteen
percent (14%) of the full purchase price thereof, and
as soon as he confirms in writing that the vehicles
have been registered in the Philippines and have
been serviced by him, he will receive an additional
three percent (3%) of the full purchase prices as
commission.
Contrary to the appellate court’s conclusion, this
arrangement shows an agency. An agent receives a
commission upon the successful conclusion of a sale. On
the other hand, a broker earns his pay merely by
bringing the buyer and the seller together, even if no
sale is eventually made.
119
As to the service centers and showrooms which he
said he had put up at his own expense, Hahn said that
he had to follow BMW specifications as exclusive dealer
of BMW in the Philippines. According to Hahn, BMW
that BMW standards were maintained. Indeed, it would
seem from BMW’s letter to Hahn that it was for Hahn’s
alleged failure to maintain BMW standards that BMW
was terminating Hahn’s dealership.
The fact that Hahn invested his own money to put up
these service centers and showrooms does not
necessarily prove that he is not an agent of BMW. For
as already noted, there are facts in the record which
suggest that BMW exercised
_______________
9 Id., p. 141.
550
550 SUPREME COURT REPORTS
ANNOTATED
Hahn vs. Court of Appeals
control over Hahn’s activities as a dealer and made
regular inspections of Hahn’s premises to enforce
compliance with BMW standards and
specifications. For example, in its letter to Hahn dated
10
February 23, 1996, BMW stated:
In the last years we have pointed out to you in several
discussions and letters that we have to tackle in the
Philippine market more professionally and that we are
through your present activities not adequately prepared to
cope with the forthcoming challenges.
11
In effect, BMW was holding Hahn accountable to it
under the 1967 Agreement.
This case fits into the mould of Communications
Materials, Inc. v. Court of Appeals, in which the foreign
12
corporation entered into a “Representative Agreement”
and a “Licensing Agreement” with a domestic
corporation, by virtue of which the latter was appointed
“exclusive representative” in the Philippines for a
stipulated commission. Pursuant to these contracts, the
domestic corporation sold products exported by the
foreign corporation and put up a service center for the
products sold locally. This Court held that these acts
constituted doing business in the Philippines. The
arrangement showed that the foreign corporation’s
purpose was to penetrate the Philippine market and
establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn
as its exclusive distributor in the Philippines, even as it
announced in the Asian region that Hahn was the
“official BMW agent” in the Philippines. 13
The Court of Appeals also found that petitioner
Alfred Hahn dealt in other products, and not exclusively
in BMW products, and, on this basis, ruled that Hahn
was not an agent of BMW. (p. 14) This finding is based
entirely on
_______________
10 Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44 (1987).
11 Rollo, p. 75.
12 G.R. No. 102223, Aug. 22, 1996.
13 Rollo, p. 213.
551
VOL. 266, JANUARY 22, 1997 551
120
Hahn vs. Court of Appeals
allegations of BMW in its motion to dismiss filed in the
trial court and in its petition for certiorari before the
Court of Appeals. But this allegation was denied by
14
Hahn and therefore the Court of Appeals should not
15
have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which
should have indicated to the Court of Appeals the
necessity of affirming the trial court’s order deferring
resolution of BMW’s motion to dismiss. Petitioner
alleged that whether or not he is considered an agent of
BMW, the fact is that BMW did business in the
Philippines because it sold cars directly to Philippine
buyers. This was denied by BMW, which claimed that
16
Hahn was not its agent and that, while it was true that
it had sold cars to Philippine buyers, this was done
without solicitation on its part. 17
It is not true then that the question whether BMW is
doing business could have been resolved simply by
considering the parties’ pleadings. There are genuine
issues of facts which can only be determined on the
basis of evidence duly presented. BMW cannot short
circuit the process on the plea that to compel it to go to
trial would be to deny its right not to submit to the
jurisdiction of the trial court which precisely it denies.
Rule 16, §3 authorizes courts to defer the resolution of
a motion to dismiss until after the trial if the ground on
which the motion is based does not appear to be
indubitable. Here the record of the case bristles with
factual issues and it is not at all clear whether some
allegations correspond to the proof.
 Anyway, private respondent need not apprehend
that by responding to the summons it would be waiving
its objection to the trial court’s jurisdiction. It is now
settled that, for purposes of having summons served on
a foreign corporation in accordance with Rule 14, §14, it
is sufficient that it be
_______________
14 Rollo, pp. 91, 163.
15 Rollo, p. 124.
16 Rollo, pp. 245, 292.
17 Rollo, pp. 177, 284, 600.
552
552 SUPREME COURT REPORTS
ANNOTATED
Hahn vs. Court of Appeals
alleged in the complaint that the foreign corporation is
doingbusiness in the Philippines. The court need not go
beyond theallegations of the complaint in order to
determine whether ithas jurisdiction. A determination
18
that the foreign corporationis doing business is only
tentative and is made only for thepurpose of enabling
the local court to acquire jurisdiction overthe foreign
corporation through service of summons pursuantto
Rule 14, §14. Such determination does not foreclose
acontrary finding should evidence later show that it is
nottransacting business in the country. As this Court
has explained:
This is not to say, however, that the petitioner’s right to
question the jurisdiction of the court over its person is now
to be deemed a foreclosed matter. If it is true, as Signetics
claims, that its only involvement in the Philippines was
through a passive investment in Sigfil, which it even later
121
disposed of, and that TEAM Pacific is not its agent, then it
cannot really be said to be doing business in the Philippines.
It is a defense, however, that requires the contravention of
the allegations of the complaint, as well as a full ventilation,
in effect, of the main merits of the case, which should not
thus be within the province of a mere motion to dismiss. So,
also, the issue posed by the petitioner as to whether a foreign
corporation which has done business in the contrary, but
which has ceased to do business at the time of the filing of a
complaint, can still be made to answer for a cause of action
which accrued while it was doing business, is another matter
that would yet have to await the reception and admission of
evidence. Since these points have seasonably been raised by
the petitioner, there should be no real cause for what may
understandably be its apprehension, i.e., that by its
participation during the trial on the merits, it may, absent
an invocation of separate or independent reliefs of its own,
be considered to have voluntarily submitted itself to the
court’s jurisdiction. 19
Far from committing an abuse of discretion, the trial
court properly deferred resolution of the motion to
dismiss and thus
_______________
18 Litton Mills, Inc. v. Court of Appeals, G.R. No. 94980, May 15,
1996; Signetics Corp. v. Court of Appeals, 225 SCRA 737 (1993).
19 Signetics Corp. v. Court of Appeals, 225 SCRA at 746.
553
VOL. 266, JANUARY 22, 1997 553
Hahn vs. Court of Appeals
avoided prematurely deciding a question which
requires a factual basis, with the same result if it had
denied the motion and conditionally assumed
jurisdiction. It is the Court of Appeals which, by ruling
that BMW is not doing business on the basis merely of
uncertain allegations in the pleadings, disposed of the
whole case with finality and thereby deprived petitioner
of his right to be heard on his cause of action. Nor was
there justification for nullifying the writ of preliminary
injunction issued by the trial court. Although the
injunction was issued ex parte, the fact is that BMW
was subsequently heard on its defense by filing a
motion to dismiss.
WHEREFORE, the decision of the Court of Appeals
is REVERSED and the case is REMANDED to the trial
court for further proceedings.
SO ORDERED.
[No. 2344. February 10, 1906.]
GONZALO TUASON, plaintiff and
appellee, vs. DOLORES OROZCO, defendant and
appellant.
1. 1.LOAN; CREDITORS; AGENCY.—Under the
provisions of article 1727 of the Civil Code the
principal is directly liable to the creditor for the
payment of a debt incurred by his agent acting
within the scope of his authority.
122
1. 2.ID.; ID.; ID.—Irrespective of such liability on the
part of the principal, the agent may bind himself
personally to the payment of the debt incurred for
the benefit and in behalf of his principal. (Art. 1725
of the Civil Code.) In such a case the liability
expressly incurred by the agent does not preclude
the personal liability of the principal but constitutes
a further security in favor of the creditor.
1. 3.ID.; ID.; ID.; MORTGAGE; ACTION.—Where a
debt is secured by a mortgage upon property
belonging to the principal, duly recorded in the
Registry of property, the creditor may bring his
action directly against the mortgaged property,
notwithstanding the liability personally incurred by
the agent and the fact the agent delivered to the
reditor certain shares of stock as security for the
liability incurred by himself. A mortgage directly
subjects the encumbered property, whoever its
possessor may be, to the fulfillment of the obligation
for the security of which it was created. (Art. 1876 of
the Civil Code and art. 105 of the Mortgage Law.)
APPEAL from a judgment of the Court of First Instance
of Manila.
The facts are stated in the opinion of the court
Hartigan, Marple, Rohde & Gutierrez,for appellant.
Ledesma, Sumulong & Quintos, for appellee.
MAPA, J.:
On November 19, 1888, Juan de Vargas y Amaya, the
defendant's husband, executed a power of attorney to
Enrique Grupe, authorizing him, among other things,
to
597
VOL. 5, FEBRUARY 10, 1906 597
Tuason vs. Orozco
dispose of all his property, and particularly of a certain
house and lot known as No. 24 Calle Nueva, Malate, in
the city of Manila, for the price at which it was actually
sold. He was also authorized to mortgage the house for
the purpose of securing the payment of any amount
advanced to his wife, Dolores Orozco de Rivero, who,
inasmuch as the property had been acquired with funds
belonging to the conjugal partnership, was a necessary
party to its sale or incumbrance.
On the 21st of January, 1890, Enrique Grupe and
Dolores Orozco de Rivero obtained a loan from the
plaintiff secured by a mortgage on the property referred
to in the power of attorney. In the caption of the
instrument evidencing the debt it is stated that Grupe
and Dolores Orozco appeared as the parties of the first
part and Gonzalo Tuason, the plaintiff, as the party of
the second part; that Grupe acted for himself and also
in behalf of Juan Vargas by virtue of the power granted
him by the latter, and that Dolores Orozco appeared
merely for the purpose of complying with the
requirement contained in the power of attorney. In the
body of the instrument the following appears:
1. "1.Enrique Grupe acknowledges to have this day
received from Gonzalo Tuason as a loan, after
deducting therefrom the interest agreed upon,
the sum of 3, 500 pesos in cash, to his entire
123
satisfaction, which sum he promises to pay
within one year from the date hereof.
2. "2.Grupe also declares that of the 3, 500 pesos, he
has delivered to Dolores Orozco the sum of 2,200
pesos, having retained the remaining 1,300
pesos for use in his business; that
notwithstanding this distribution of the amount
borrowed, he assumes liability for the whole
sum of 3, 500 pesos, which he promises to repay
in current gold or silver coin, without discount,
in this city on the date of the maturity of the
loan, he otherwise to be liable for all expenses
incurred and damages suffered by his creditor
by reason of his failure to comply with any or all
of the conditions stipulated herein, and to pay
further interest at the rate of 1 per cent per
month from the date of default until the debt is
fully paid.
598
598 PHILIPPINE REPORTS
ANNOTATED
Tuason vs. Orozco
1. "3.Grupe pledges as special security for the
payment of the debt 13 shares of stock in the
'Compañía de los Tranvías de Filipinas,' which
shares he has delivered to his creditor duly
indorsed so that the latter in case of his
insolvency may dispose of the same without any
further formalities.
 2. "4.To secure the payment of the 2,200 pesos
delivered to Dolores Orozco as aforesaid he
specially mortgages the house and lot No. 24,
Calle Nueva, Malate, in the city of Manila (the
same house referred to in the power of attorney
executed by Vargas to Grupe).
3. "5.Dolores Orozco states that, in accordance with
the requirement contained in the power of
attorney executed by Vargas to Grupe, she
appears for the purpose of confirming the
mortgage created upon the property in question.
4. "6.Gonzalo Tuason does hereby accept all rights
and actions accruing to him under this contract"
This instrument was duly recorded in the Registry of
Property, and it appears therefrom that Enrique Grupe,
as attorney in fact for Vargas, received from the
plaintiff a loan of 2,200 pesos and delivered the same to
the defendant; that to secure its payment he mortgaged
the property of his principal with defendant's consent
as required in the power of attorney. He also received
1,300 pesos. This amount he borrowed for his own use.
The recovery of this sum not being involved in this
action, it will not be necessary to refer to it in this
decision. The complaint refers only to the 2,200 pesos
delivered to the defendant under the terms of the
agreement.
The defendant denies having received this sum, but
her denial can not overcome the proof to the contrary
contained in the agreement She was one of the parties
to that instrument and signed it. This necessarily
implies an admission on her part that the statements in
124
the agreement relating to her are true. She executed
another act which corroborates the delivery to her of the
money in question—that is, her personal intervention
in the execution of the mortgage and her statement in
the deed that the mortgage had been created with her
knowledge and
599
VOL. 5, FEBRUARY 10, 1906 599
Tuason vs. Orozco
consent. The lien was created precisely upon the
assumption that she had received that amount and for
the purpose of securing its payment.
In addition to this the defendant wrote a letter on
October 23,1903, to the attorneys for the plaintiff
promising to pay the debt on or before the 5th day of
November following. The defendant admits the
authenticity of this letter, which is a further evidence of
the fact that she had received the amount in question.
Thirteen years had elapsed since she signed the
mortgage deed. During all this time she never denied
having received the money. On the contrary, she
promised to settle within a short time. The only
explanation that we can find for this is that she actually
received the money as set forth in the instrument.
The fact that the defendant received the money from
her husband's agent and not from the creditor does not
affect the validity of the mortgage in view of the
conditions contained in the power of attorney under
which the mortgage was created. Nowhere does it
appear in this power that the money was to be delivered
to her by the creditor himself and not through the agent
or any other person. The important thing was that she
should have received the money. This we think is fully
established by the record.
This being an action for the recovery of the debt
referred to, the court below properly admitted the
instrument executed January 21, 1890, evidencing the
debt.
The appellant claims that the instrument is evidence
of a debt personally incurred by Enrique Grupe for his
own benefit, and not incurred for the benefit of his
principal, Vargas, as alleged in the complaint. As a
matter of fact, Grupe, by the terms of the agreement,
bound himself personally to pay the debt. The
appellant's contention, however, can not be sustained.
The agreement, so far as that amount is concerned, was
signed by Grupe as attorney in fact for Vargas.
Pursuant to instructions contained in the power of
attorney the money was delivered to Varga's wife, the
defendant in this case. To secure the payment of the
debt, Varga's property was mortgaged. His wife took
part in the execution of the mortgage as required in the
power of attorney. A debt thus incurred by the agent
600
600 PHILIPPINE REPORTS
ANNOTATED
Tuason vs. Orozco
is binding directly upon the principal, provided the
former acted, as in the present case, within the scope of
his authority. (Art. 1727 of the Civil Code.) The fact that
the agent has also bound himself to pay the debt does
not relieve from liability the principal for whose benefit
the debt was incurred. The individual liability of the
agent constitutes in the present case a further security
125
in favor of the creditor and does not affect or preclude
the liability of the principal. In the present case the
latter's liability was further guaranteed by a mortgage
upon his property. The law does not provide that the
agent can not bind himself personally to the fulfillment
of an obligation incurred by him in the name and on
behalf of his principal. On the contrary, it provides that
such act on the part of an agent would be valid. (Art.
1725 of the Civil Code.)
The above mortgage being valid and having been
duly recorded in the Register of Property, directly
subjects the property thus encumbered, whoever its
possessor may be, to the fulfillment of the obligation for
the security of which it was created, (Art. 1876 of the
Civil Code and art. 105 of the Mortgage Law.) This
presents another phase of the question. Under the view
we have taken of the case it is practically of no
importance whether or not Enrique Grupe bound
himself personally to pay the debt in question. Be this
as it may and assuming that Vargas, though principal
in the agency, was not the principal debtor, the right in
remarising from the mortgage would have justified the
creditor in bringing his action directly against the
property encumbered had he chosen to foreclose the
mortgage rather than to sue Grupe, the alleged
principal debtor. This would be true irrespective of the
personal liability incurred by Grupe. The result would
be practically the same even though it were admitted
that appellant's contention is correct.
The appellant also alleges that Enrique Grupe
pledged to the plaintiff thirteen shares of stock in the
"Compañía de los Tranvías de Filipinas" to secure the
payment of the entire debt, and contends that it must
be shown what has become of these shares, the value of
which might be amply safficient to pay the debt, before
proceeding to foreclose
601
VOL. 5, FEBRUARY 10, 1906 601
Tuason vs. Orozco
the mortgage. This contention can not be sustained in
the face of the law above quoted to the effect that a
mortgage directly subjects the property encumbered,
whoever its possessor may be, to the fulfillment of the
obligation for the security of which it was created.
Moreover it was incumbent upon the appellant to show
that the debt had been paid with those shares. Payment
is not presumed but must be proved. It is a defense
which the defendant may interpose. It was therefore her
duty to show this fact affirmatively. She failed,
however, to do so.
The appellant's final contention is that in order to
render judgment against the mortgaged property it
would be necessary that the minor children of Juan de
Vargas be made parties defendant in this action, they
having an interest in the property. Under article 154 of
the Civil Code, which was in force at the time of the
death of Vargas, the defendant had the parental
authority over her children and consequently the legal
representation of their persons and property. (Arts. 155
and 159 of the Civil Code.) It can not be said, therefore,
that they were not properly represented at the trial.
Furthermore this action was brought against the
defendant in her capacity as administratrix of the
126
estate of the deceased Vargas. She did not deny in her
answer that she was such administratrix.
Vargas having incurred this debt during his
marriage, the same should not be paid out of property
belonging to the defendant exclusively but from that
pertaining to the conjugal partnership. This fact should
be borne in mind in case the proceeds of the mortgaged
property be not sufficient to pay the debt and interest
thereon. The judgment of the court below should be
modified in so far as it holds the defendant personally
liable for the payment of the debt.
The judgment thus modified is affirmed and the
defendant is hereby ordered to pay to the plaintiff the
sum of 2,200 pesos as principal, together with interest
thereon from the 21st day of January, 1891, until the
debt shall have been fully discharged. The appellant
shall pay the costs of this appeal.
After the expiration of ten days let judgment be
entered
602
602 PHILIPPINE REPORTS
ANNOTATED
United States vs. Macasadia
in accordance herewith and let the case be remanded to
the court below for execution. So ordered.
 [No. 22604. February 3, 1925]
GUADALUPE GONZALEZ and Luis GOMEZ,
plaintiffs and appellants, vs. E. J. HABERER,
defendant and appellee.
1. 1.REAL PROPERTY; CONTRACT TO
SELL; INABILITY TO PLACE VENDOR IN
POSSESSION GROUND FOR RESCISSION.—A
contract f or the sale of land which provides that the
purchaser "shall have the right to take possession of
the aforesaid land immediately after the execution
of this document, together with all the
improvements now existing on the same land, such
as palay plantations and others" renders it
incumbent upon the vendor to place the purchaser
in possession and his inability to do so constitutes a
breach of the contract sufficient to justify its
rescission.
1. 2.ID.; ID.; MlSREPRESENTATIONS BY VENDOR'S
AGENT.—Where a sale of land is effected on the
strength of misrepresentations of the agent of the
vendor, the latter cannot accept the benefit of such
representations and at the same time deny the
responsibility for them.
APPEAL from a judgment of the Court of First Instance
of Manila. Concepcion, J.
The facts are stated in the opinion of the court.
Feria & La O for appellants.
Paredes, Buencamino & Yulo for appellee.
OSTRAND, J.:
127
This action is brought to recover the sum of P34,260
alleged to be due the plaintiffs from the defendant upon
a written agreement for the sale of a tract of land
situated in the Province of Nueva Ecija. The plaintiffs
also ask for damages in the sum of P10,000 for the
alleged failure of the defendant to comply with his part
of the agreement.
381
VOL. 47, FEBRUARY 3, 1925 381
Gonzalez and Gomez vs. Haberer
The defendant in his answer admits that of the
purchase price stated in the agreement a balance of
P31,000 remains unpaid, but by way of special defense,
cross-complaint and counter-claim alleges that at the
time of entering into the contract the plaintiffs through
false representations lead him to believe that they were
in possession of the land and that the title to the greater
portion thereof was not in dispute; that on seeking to
obtain possession he found that practically the entire
area of the land was occupied by adverse claimants and
the title thereto disputed; that he consequently has
been unable to obtain possession of the land; and that
the plaintiffs have made no efforts to prosecute the
proceedings for the registration of the land. He
therefore asks that the contract be rescinded; that the
plaintiffs be ordered to return to him the P30,000
already paid by him to them and to pay P25,000 as
damages for breach of the contract.
The court below dismissed the plaintiffs' complaint,
declared the contract rescinded and void and gave the
defendant judgment upon his counterclaim for the sum
of P30,000, with interest from the date upon which the
judgment becomes final. The case is now before this
court upon appeal by the plaintiffs from that judgment.
The contract in question reads as follows:
"Know all men by these presents:
"That I, Guadalupe Gonzalez y Morales de Gomez,
married with Luis Gomez, of age, and resident of the
municipality of Bautista, Province of Pangasinan,
Philippine Islands, do hereby state:
1. "1.That I am the absolute and exclusive owner of
a parcel of land situated in the barrio of Partida,
municipality of Guimba, Nueva Ecija, described
as follows:
"Bounded on the north by the land of Don Marcelino
Santos; on the east, by the land of Doña Cristina
Gonzalez; on the south by the Binituan River; and on
the west, by the land of Doña Ramona Gonzalez;
containing an area of 488 hectares approximately.
382
382 PHILIPPINE REPORTS
ANNOTATED
Gonzalez and Gomez vs. Haberer
1. "2.That an application was filed for .the
registration of the above described land in the
registry of property of Nueva Ecija, which
application is still pending in the Court of First
Instance of Nueva Ecija.
128
2. "3.That in consideration of the sum of P125 per
hectare I do hereby agree and bind myself to sell
and transfer by way of real and absolute sale the
land above described to Mr. E. J. Haberer,
binding myself to execute the deed of sale
immediately after the decree of the court
adjudicating said land in my favor is registered
in the registry of property of the Province of
Nueva Ecija. The conditions of this obligation to
sell are as follows:
1. " '1.That Mr. E. J. Haberer has at this moment
paid me the sum of P30,000 on account of the
price of the aforesaid land.
2. " '2.That said Mr. E. J. Haberer agrees and binds
himself to pay within six months from the date
of the execution of this' document the unpaid
balance of the purchase price.
3. " '3.That said Mr. E. J. Haberer shall have the
right to take possession of the aforesaid land
immediately after the execution of this
document together with all the improvements
now existing on the same land, such
as palayplantations and others.
4. " '4.That said Mr. E. J. Haberer agrees and binds
himself to pay the expenses to be incurred from
this date in the registration of the aforesaid land
up to the filing of the proper decree in the office
of the register of deeds of the Province of Nueva
Ecija.
5. " '5.That in the event that the court should hold
that I am not the owner of all or any part of the
 aforesaid land, I agree and bind myself to return
without interest all such amounts of money as I
have received or may receive from Mr. E. J.
Haberer as the purchase price of said land, but,
in the event that the court should adjudicate a
part of the aforesaid land to me, then I agree
and bind myself to sell said portion adjudicated
to me, return
383
VOL. 47, FEBRUARY 3, 1925 383
Gonzalez and Gomez vs. Haberer
1. ing all the amounts received from Mr. E. J.
Haberer in excess of the price of said portion at
the rate of P125 per hectare.
2. " '6.That Mr. E. J. Haberer does hereby waive any
interest or indemnity upon the amount that I
am to return to him and which I have received
from Mr. E. J. Haberer as the purchase price of
the aforesaid land.'
"I, E. J. Haberer, married, of age, and resident of the
municipality of Talavera, Nueva Ecija, do hereby state
that, having known the contents of this document, I
accept the same with all the stipulations and conditions
thereof.
"I, Luis Gomez, married, of age, and resident of the
municipality of Bautista, Province of Pangasinan, do
hereby grant my wife, Dña. Guadalupe Gonzalez y
Morales de Gomez, the due marital license to execute
this document and make effective the definite sale of
129
the land as above stipulated, she being empowered to
execute the deed of sale and other necessary documents
in order that the full ownership over the aforesaid land
may be transferred to Mr. E. J. Haberer, as stipulated
in this document.
"In testimony whereof, we hereunto set our hands at
Manila, this 7th day of July, 1920.
(Sgd.) "GUADALUPE G. DE GOMEZ
"E. J. HABERER
"Luis GOMEZ
"Signed in the presence of the witnesses:
(Sgd.) "EMIGDIO DOMINGO
"L. G. ALVAREZ
"(Acknowledged before notary.)"
It is conceded by the plaintiffs that the defendant never
obtained actual or physical possession of the land, but
it is argued that under the contract quoted the plaintiffs
were under no obligation to place him in possession.
This contention cannot be sustained. Cause 3 of
paragraph 3 of the contract gave the defendant the right
to take pos-
384
384 PHILIPPINE REPORTS
ANNOTATED
Gonzalez and Gomez vs. Haberer
session of the land immediately upon the execution of
the contract and necessarily created the obligation on
the part of the plaintiffs to make good the right thus
granted; it was one of the essential conditions of the
agreement and the failure of the plaintiffs to comply
with this condition, without fault on the part of the
defendant, is in itself sufficient ground for the
rescission, even in the absence of any misrepresentation
on their part. (Civil Code, art.
1124; Pabalan vs.Velez, 22 Phil., 29.)
It is therefore unnecessary to discuss the question
whether the defendant was induced to enter into the
agreement through misrepresentations made by the
plaintiff Gomez. We may say, however, that the
evidence leaves no doubt that some misrepresentations
were made and that but for such misrepresentations the
defendant would not have been likely to enter into the
agreement in the form it appeared. As to the contention
that the plaintiff Gonzalez cannot be charged with the
misrepresentations of Gomez, it is sufficient to say that
the latter in negotiating for the sale of the land acted as
the agent and representative of the other plaintiff, his
wife; having accepted the benefit of the representations
of her agent she cannot, of course, escape liability for
them. (Haskell vs. Starbird, 152 Mass., 117; 23 A. S. E.,
809.)
The contention of the appellants that the symbolic
delivery effected by the execution and delivery of the
agreement was a sufficient delivery of the possession of
the land, is also without merit. The possession referred
to in the contract is evidently physical; if it were
otherwise it would not have been necessary to mention
it in the contract. (See Cruzado vs. Bustos and
Escaler, 34 Phil., 17.)
The judgment appealed from is in accordance with
the law, is fully sustained by the evidence, and is
130
therefore affirmed, with the costs against the
appellants. So ordered.
Johnson, Street, Malcolm, Villamor, Johns, and R
omualdez, JJ., concur.
Judgment affirmed.
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.
Civil Law; Agency; 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; The acts of an agent beyond the scope of his authority
do not bind the principal, unless the principal ratifies them,
expressly or impliedly.—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. 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. When the agent
exceeds his authority, the agent becomes personally liable for
the damage. 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. In other words, the acts of an agent beyond
the scope of his authority do not bind the principal, unless
the principal ratifies them, expressly or impliedly.
Ratification in agency is the adoption or confirmation by one
person of an act performed on his behalf by another without
authority.
Same; Same; Innocent third persons should not be
prejudiced if the principal failed to adopt the needed
measures to prevent misrepresentation, much more so if the
principal ratified his agent’s acts beyond the latter’s
authority.—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
_______________
* SECOND DIVISION.
543
VOL. 543, FEBRUARY 4, 543
2008
Filipinas Life Assurance Company vs.
Pedroso
view, Filipinas Life had clothed Valle with apparent
authority; hence, it is now estopped to deny said authority.
Innocent third persons should not be prejudiced if the
principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal ratified his
agent’s acts beyond the latter’s authority. The act of the
agent is considered that of the principal itself. Qui per alium
131
facit per seipsum facere videtur. “He who does a thing by an
agent is considered as doing it himself.”
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Benedicto, Verzosa, Gealogo, Burkley &
Associates for petitioner.
Engelbert C. Caronan, Jr. for respondents.
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal
of the Decision and Resolution, dated November 29,
1 2
2002 and August 5, 2003, respectively, of the Court of
Appeals in CAG.R. CV No. 33568. The appellate court
had affirmed the Decision dated October 10, 1989 of the
3
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 20year endowment life insurance issued by petitioner
Filipinas Life Assurance Company (Filipinas Life).
Pedroso claims Renato Valle was her insurance agent
since 1972 and Valle
_______________
1 Rollo, pp. 43-55. Penned by Associate Justice Renato C. Dacudao,
with Associate Justices Eugenio S. Labitoria and Danilo B. Pine
concurring.
2 Id., at p. 56.
 3 Id., at pp. 57-63. Penned by Judge Clemente M. Soriano.
544
544 SUPREME COURT REPORTS
ANNOTATED
Filipinas Life Assurance Company vs.
Pedroso
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. In return, Valle issued Pedroso his personal
4
check for P800 for the 8% prepaid interest and a
5 545
Filipinas Life “Agent’s Receipt” No. 807838. 6
Subsequently, she called the Escolta office and
talked to Francisco Alcantara, the administrative
assistant, who referred her to the branch manager,
Angel Apetrior. Pedroso inquired about the promotional
investment and Apetrior confirmed that there was such
a promotion. She was even told she could “push through
with the check” she issued. From the records, the check,
with the endorsement of Alcantara at the back, was
deposited in the account of Filipinas Life with the
Commercial Bank and Trust Company (CBTC), Escolta
Branch.
Relying on the representations made by the
petitioner’s duly authorized representatives Apetrior
and Alcantara, as well as having known agent Valle for
quite some time, Pedroso waited for the maturity of her
initial investment. A month after, her investment of
132
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. To collect the amount, Pedroso personally
7
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
_______________
4 Records, p. 246.
5 TSN, October 7, 1983, pp. 9-10.
6 Records, p. 248.
7 Id., at p. 247.
VOL. 543, FEBRUARY 4, 2008 545
Filipinas Life Assurance Company vs.
Pedroso
lower rate of 5% prepaid interest a month. Upon
8
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
P49,550 but at only 5% prepaid interest. However,
9
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
_______________
8 Supra note 5.
9 Records, pp. 253-264.
10 Rollo, p. 108.
546
546 SUPREME COURT REPORTS
ANNOTATED
Filipinas Life Assurance Company vs.
Pedroso
Simply put, did the Court of Appeals err in holding
petitioner and its co-defendants jointly and severally
liable to the herein respondents?
133
Filipinas Life does not dispute that Valle was its
agent, but claims that it was only a life insurance
company and was not engaged in the business of
collecting investment money. It contends that the
investment scheme offered to respondents by Valle,
Apetrior and Alcantara was outside the scope of their
authority as agents of Filipinas Life such that, it cannot
be held liable to the respondents. 11
On the other hand, respondents contend that
Filipinas Life authorized Valle to solicit investments
from them. In fact, Filipinas Life’s official documents
and facilities were used in consummating the
transactions. These transactions, according to
respondents, were confirmed by its officers Apetrior and
Alcantara. Respondents assert they exercised all the
diligence required of them in ascertaining the authority
of petitioner’s agents; and it is Filipinas Life that failed
in its duty to ensure that its agents act within the scope
of their authority.
Considering the issue raised in the light of the
submissions of the parties, we find that the petition
lacks merit. The Court of Appeals committed no
reversible error nor abused gravely its discretion in
rendering the assailed decision and resolution.
It appears indisputable that respondents Pedroso
and Palacio had invested P47,000 and P49,550,
respectively. These were received by Valle and remitted
to Filipinas Life, using Filipinas Life’s official receipts,
whose authenticity were not disputed. Valle’s authority
to solicit and receive investments was also established
by the parties. When respondents sought confirmation,
Alcantara, holding a supervisory position, and Apetrior,
the branch manager, confirmed that Valle had
authority. While it is true that a person deal-
_______________
11 Id., at p. 109.
547
VOL. 543, FEBRUARY 4, 2008 547
Filipinas Life Assurance Company vs.
Pedroso
ing 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. The general rule is that the principal is
12
responsible for the acts of its agent done within the
scope of its authority, and should bear the damage
caused to third persons. When the agent exceeds his
13
authority, the agent becomes personally liable for the
damage. But even when the agent exceeds his
14
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. In other words,
15
the acts of an agent beyond the scope of his authority do
not bind the principal, unless the principal ratifies
them, expressly or impliedly. Ratification in agency is
16
134
the adoption or confirmation by one person of an act
performed on his behalf by another without authority. 17
_______________
12 CIVIL CODE, Art. 1868.
13 Lopez, et al. v. Hon. Alvendia, et al., 120 Phil. 1424, 14311432; 12
SCRA 634, 641 (1964).
14 BA Finance Corporation v. Court of Appeals, G.R. No. 94566, July
3, 1992, 211 SCRA 112, 118.
15 CIVIL CODE, Art. 1911.
16 Id., Art. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power,
the principal is not bound except when he ratifies it expressly or
tacitly.
17 Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No.
151319, November 22, 2004, 443 SCRA 377, 394.
548
548 SUPREME COURT REPORTS
ANNOTATED
Filipinas Life Assurance Company vs.
Pedroso
Filipinas Life cannot profess ignorance of Valle’s acts.
Even if Valle’s representations were beyond his
authority as a debit/insurance agent, Filipinas Life thru
Alcantara and Apetrior expressly and knowingly
ratified Valle’s acts. It cannot even be denied that
Filipinas Life benefited from the investments deposited
by Valle in the account of Filipinas Life. In our
considered view, Filipinas Life had clothed Valle with
apparent authority; hence, it is now estopped to deny
said authority. Innocent third persons should not be
prejudiced if the principal failed to adopt the needed
measures to prevent misrepresentation, much more so
if the principal ratified his agent’s acts beyond the
latter’s authority. The act of the agent is considered
that of the principal itself. Qui per alium facit per
seipsum facere videtur. “He who does a thing by an
agent is considered as doing it himself.” 18
WHEREFORE, the petition is DENIED for lack of
merit. The Decision and Resolution, dated November
29, 2002 and August 5, 2003, respectively, of the Court
of Appeals in CAG.R. CV No. 33568 are AFFIRMED.
Costs against the petitioner.
SO ORDERED.
Carpio, Carpio-Morales, Tingaand Velasco, Jr.,
JJ., concur.
Petition denied, judgment and resolution affirmed.
WlSE & Co., INC., plaintiff and appellee, vs. DIONISIO
P. TANGLAO, defendant and appellant.
1. 1.SURETYSHIP AND GUARANTY; THE
SURETYSHIP MUST BE EXPRESS.—An
obligation of suretyship, under the law, must be
express. It is not inferable from any of the clauses of
the contract that T became D's surety for the
payment of the latter's indebtedness to the plaintiff.
Therefore, T could not have con
373
135
VOL. 63, AUGUST 29, 1936 373
Wise & Co. vs. Tanglao
1. tracted any personal responsibility for the payment of
said debt.
1. 2.ID.; BENEFIT OF EXHAUSTION.—Granting that
defendant T may be considered as a surety under the
contract, even then the action against him does not
lie on the ground that all the legal remedies against
the debtor have not previously been exhausted (art.
1830, Civil Code, and decision of the Supreme Court
of Spain of March 2, 1891).
APPEAL from a judgment of the Court of First Instance
of Manila. Sison, J.
The facts are stated in the opinion of the court.
The appellant in his own behalf.
Franco & Reinoso for appellee.
AVANCEÑA, C. J.:
In the Court of First Instance of Manila, Wise & Co.
instituted civil case No. 41129 against Cornelio C.
David for the recovery of a certain sum of money. David
was an agent of Wise & Co. and the amount claimed
from him was the result of a liquidation of accounts
showing that he was indebted in said amount. In said
case Wise & Co. asked and obtained a preliminary
attachment of David's property. To avoid the execution
of said attachment, David succeeded in having his
Attorney Tanglao execute on January 16, 1932, a power
of attorney (Exhibit A) in his favor, with the following
clause:
"To sign for me as guarantor for himself in his indebtedness
to Wise & Company of Manila, which indebtedness appears
in civil case No. 41129, of the Court of First Instance of
Manila, and to mortgage my lot (No. 517-F of the subdivision
plan Psd-20, being a portion of lot No. 517 of the cadastral
survey of Angeles, G. L. R. O. Cad. Rec. No. 124), to
guarantee the said obligations to the Wise & Company, Inc.,
of Manila."
374
374 PHILIPPINE REPORTS
ANNOTATED
Wise & Co. vs. Tanglao
On the 18th of said month David subscribed and on the
23d thereof, filed in court, the following document
(Exhibit B) :
"COMPROMISE
"Come now the parties, plaintiff by the undersigned
attorneys and defendant in his own behalf and respectfully
state:
1. "1.House of light materials described under tax
declaration No. 9650 of the municipality of Angeles,
Province of Pampanga, assessed at P320.
2. "2.Accesoria apartments with a ground floor of 180 sq.
m. with the first story of cement and galvanized of
iron roofing located on the lot belonging to Mariano
Tablante Geronimo, said accesoria is described
under tax declaration No. 11164 of the municipality
of Angeles, Pampanga, assessed at P800.
3. "3.Parcel of land described under Transfer Certificate
of Title No. 2307 of the Province of Pampanga
recorded in the name of Dionisio Tanglao of which
defendant herein holds a special power of attorney
to pledge the same in favor of Wise & Co., Inc., as a
guarantee for the payment of the claim against him
in the above entitled cause. The said parcel of land
is bounded as follows: NE. lot No. 517 'Part' de
Narciso Garcia; SE. Calle Rizal; SW. lot No. 517
'Part' de Bernardino Tiongco; NW. lot No. 508 de
Clemente Dayrit; containing 431 sq. m. and
described in tax declaration No. 11977 of the
municipality of Angeles, Pampanga, assessed at
P423

1. "I.That defendant confesses judgment for the sum of .

six hundred forty pesos (P640), payable at the rate 375
of eighty pesos (P80) per month, the first payment to VOL. 63, AUGUST 29, 1936 375
be made on February 15, 1932 and successively Wise & Co. vs. Tanglao
thereafter until the full amount is paid; that plaintiff
"That this guaranty is attached to the properties above
accepts this stipulation.
mentioned as first lien and for this reason the parties agree
2. "II.That as security for the payment of the said sum
to register this compromise with the Register of Deeds of
of P640, defendant binds in favor of, and pledges to
Pampanga, said lien to be cancelled only on the payment of
the plaintiff, the following real properties:
the full amount of the judgment in this ,case.

136
 "Wherefore, the parties pray that the above compromise
be admitted and that an order issue requiring the Register
of Deeds of Pampanga to register this compromise previous
to the filing of the legal fees."
David paid the sum of P343.47 to Wise & Co., on account
of the P640 which he bound himself to pay under
Exhibit B, leaving an unpaid balance of P296.53.
Wise & Co. now institutes this case against Tanglao
for the recovery of said balance of P296.53.
There is no doubt that under Exhibit A, Tanglao
empowered David, in his name, to enter into a contract
of suretyship and a contract of mortgage of the property
described in the document, with Wise & Co. However,
David used said power of attorney only to mortgage the
property and did not enter into the contract of
suretyship. Nothing is stated in Exhibit B to the effect
that Tanglao became David's surety for the payment of
the sum in question. Neither is this inferable from any
of the clauses thereof, and even if this inference might
be made, it would be insufficient to create an obligation
of suretyship which, under the law, must be express and
cannot be presumed.
It appears from the foregoing that defendant
Tanglao could not have contracted any personal
responsibility for the payment of the sum of P640. The
only obligation which Exhibit B, in connection with
Exhibit A, has created on the part of Tanglao, is that
resulting from the mortgage of a property belonging to
him to secure the payment of said P640. However, a
foreclosure suit is not instituted in this case against
Tanglao, but a purely personal action for the recovery
of the amount still owed by David.
137
At any rate, even granting that defendant Tanglao
may be considered as a surety under Exhibit B, the
action does
376
376 PHILIPPINE REPORTS
ANNOTATED
People vs. Makabangan
not yet lie against him on the ground that all the legal
remedies against the debtor have not previously been
exhausted (art. 1830 of the Civil Code, and decision of
the Supreme Court of Spain of March 2, 1891). The
plaintiff has in its favor a judgment against debtor
David for the payment of the debt. It does not appear
that the execution of this judgment has been asked for
and Exhibit B, on the other hand, shows that David has
two pieces of property the value of which is in excess of
the balance of the debt the payment of which is sought
of Tanglao in his alleged capacity as surety.
For the foregoing considerations, the appealed
judgment is reversed and the defendant is absolved
from the complaint, with the costs to the plaintiff. So
ordered.
Villa-Real, Abad
Santos, Imperial, Diaz, Recto, and Laurel, JJ., concur.
judgment reversed.
 No. L-20697. December 24, 1964.
EUSEBIO M. LOPEZ, EUSEBIO LOPEZ, JR.,
DEOGRACIAS P. LlRIO, SOLEDAD LIRIO-DOLOR
and RENATO C. DOLOR, in his capacity as Judicial
Administrator of the Intestate Estate of the late
Faustino Dolor, petitioners, vs. HON. CARMELINO G.
ALVENDIA as presiding judge of branch XVI, CFI
Manila, DAVID MINSBERG, ADELAIDA S.
MINSBERG, and CITY SHERIFF OF MANILA,
respondents.
Certiorari; Mistakes of fact or of law not within the reach
of certiorari; Appeal the proper remedy.—Mere mistakes of
fact or errors of judgment and/or of law by a trial court are
not within the reach of a writ of certiorari. If petitioners did
not agree with the orders complained of, they could have
appealed them. Certiorari is not a substitute for appeal.
Agency; Principal liable for acts of agent within scope of
authority.—The principal is responsible for the acts of the
635
VOL. 12, DECEMBER 24, 635
1964
Lopez vs. Alvendia
agent, done within the scope of his authority, and should
bear the damages caused to third parties.
ORIGINAL PETITION in the Supreme Court.
Certiorari, mandamus and prohibition with
preliminary injunction.
The facts are stated in the opinion of the Court.
R.V. Victoriano & W.S. Fajardo for petitioners.
Aguila & Macasaet for respondents.
138
PAREDES, J.:
Sometime in March, 1957, David and Adelaida
Minsberg, private-parties respondents herein, bought a
parcel of residential land from the petitioners. On
March 25, 1957, the first payment in the amount of
P900.00 was handed and on April 1, 1957, the amount
of P1, 100.00 was paid to complete the down payment.
On the latter date, a written contract was executed,
wherein it was covenanted that upon completion of the
payment of P7,560.00, the certificate of title on the lot
will be issued to private-parties respondents. In July,
1958, the Minsbergs received from petitioners a written
notice, to the effect that if they (private-parties
respondents) fail to pay the balance of P5,560.00 in two
weeks’ time, the down payment 01 P2,000.00 will be
forfeited and they would lose all their rights over the
lot. On July 31, 1958, the Minsbergs paid the balance
and, in turn, demanded the title. The petitioners,
however, failed to deliver the title, in spite of the full
payment of the purchase price, but told the respondents
to wait for a few days, inasmuch as the necessary
papers were in the process of preparation. In 1960, the
Minsbergs began the construction of their house on the
lot, and when their estimates failed to complete the
house, they again sought the issuance of the title, in
order to enable them to mortgage the same and obtain
funds. Instead of giving the title, petitioners issued a
mere certification, stating that they (Minsbergs) have
paid in full the purchase price of the lot. The
certification did not merit the acceptance by the banks
of the application for loan. with the lot as security.
 636
636 SUPREME COURT REPORTS
ANNOTATED
Lopez vs. Alvendia
Claiming that they suffered damages due to the failure
of the petitioners to issue to them the title of the lot, the
Minsbergs instituted Civil Case No. 49628 with the CFI
of Manila, presided by respondent, the Hon. Carmelino
Alvendia, with the following petitoria:
“WHEREFORE, in view of all the foregoing, it is respectfully
prayed that in the case judgment be rendered against
defendants and in favor of the plaintiffs:
1. 1.Ordering the defendants to deliver to plaintiffs the
certificate of title on Lot No. 5, Block No. 7, St.
Ignacius Village Subdivision Plan SIVS;
2. 2.Ordering defendants to pay plaintiffs damages in
the sum of P45,000.00 and attorney’s fee in the sum
of P4,500.00;
3. 3.Ordering defendants to pay the costs of suit;
4. 4.And granting to plaintiffs such other reliefs and
remedies which may be warranted by the
circumstances.”
In the same complaint, it was alleged that the reason
why petitioners herein were not able to deliver the title
upon demand, was the f act that the title of the whole
subdivision was with the GSIS, the land, part of which
is the lot in question, having been mortgaged to secure
a loan of P1,600, 000.00, a fact not communicated to the
Minsbergs.
Petitioners herein presented separate answers and
various defenses, which We shall refrain from
139
discussing, since they are not necessary for the
resolution of the present proceedings. After the joining
of the issues, an agreement was reached by the parties,
thru the intervention of the Court, which was made the
basis of a decision in the case. The dispositive part of
the decision, dated August 24, 1962, states:
“While this case was being tried and after the plaintiffs have
rested their case, the parties through the intervention of the
Court, having arrived at the following agreement:
“That the defendants shall deliver to the plaintiffs the
torrens title to Lot No. 5, Block No. 7 of the consolidated
subdivision plan (LRC) Pcs-359, containing 540 square
meters, more or less and described as follows:
x x x x
x x
WHEREFORE, judgment is rendered, sentencing the
defendants jointly and severally to deliver to the plaintiffs a
637
VOL. 12, DECEMBER 24, 1964 637
Lopez vs. Alvendia
torrens title issued in the name of Adelaida Saguban-
Minsberg of legal age, Filipino, married to David Minsberg
and with postal address at Room 408 Maria Dolores
Building, Manila, covering Lot 5, Block 7 of the Consolidated
Subdivision plan (LRC) Pcs-359 and to jointly and severally
pay the plaintiffs the sum of P3,500.00 as damages. Both
said title and damages should be delivered to the plaintiffs
not later than September 21, 1962. Should the defendants fail
to deliver the title and/or the amount of P3,500.00, the
amount of damages shall be automatically raised
toP10,000.00 and a, writ of execution of this decision with the
damages raised to P 0,000.00 shall immediately be issued.”
Under date of September 28, 1962, the Minsbergs
presented a “Motion for Execution,” it appearing that
although the title was delivered, one of the checks
issued to cover the P3,500.00 damages was dishonored
by the drawee bank with the notation “no
arrangement,” when presented on September 26, 1962.
There was failure to live up to the conditions of the
agreement as embodied in the decision and, therefore, a
motion for execution, for P10,000.00 was presented.
Petitioners herein filed on October 4, 1962, a
Manifestation and/or Opposition, contending that they
have substantially complied with the judgment; that
the noncashing of the check by the drawee bank, was
due to a mere “oversight”, on the part of the cashier of
the bank. A statement dated October 4,1962 showing
that there was an oversight, was attached to the
manifestation and/or opposition, the contents of which
read:
“This is to certify that Republic Bank Check No. 152597,
drawn by Mr. Eusebio Lopez, Jr., in favor of Mr. David
Minsberg on September 21, 1962 in the sum of P3,277.38, is
a good and valid check and the dishonor of the said check is
a pure case of oversight. The herein described check can,
therefore, be presented to us for payment anytime and/or
redeposited by the payee, Mr. David Minsberg.
“This certification is issued upon the request of Mr. Lopez.
(Sgd.) SIMPLICIO MANALO
Cashier”
Simultaneously with the f iling of the Manif estation
and/or Opposition, the petitioners herein deposited with
the trial court the amount of P3,277.38, in cash, the
value of the dis-
140
638
638 SUPREME COURT REPORTS
ANNOTATED
Lopez vs. Alvendia
honored check, to show good faith, and prayed that the
motion for execution be denied.
On December 4, 1962, the respondent Judge issued
an Order, the pertinent portions of which state:
“In view of the foregoing considerations, the Court holds that
the defendants failed to comply with the requirements in the
decision that they pay the plaintiffs as damages the sum of
P3,500.00 not later than September 21, 1962. Having failed
in the said requirement, the second portion of the decision
automatically comes into effect, namely, that the amount of
the damages should be raised to P10,000.00.
WHEREFORE, let a writ of execution for the sum of
P10,000.00 be issued against the defendants in the above-
entitled case.”
Against the above Order, petitioners presented on
December 11,1962, an Urgent Motion for
Reconsideration and to Lift the Writ of Execution,
stating that at the time of the issuance, delivery and
presentment of the dishonored check, there was already
an arrangement between the petitioners and the
Republic Bank, thru Atty. Eusebio Lopez, Jr.; that the
dishonor was due to an oversight and/or honest
mistake; that upon learning of the dishonor, they
informed private-parties respondents, thru counsel, to
redeposit or present for payment the check with drawee
bank; and that on October 5, 1962, before the issuance
of the execution, they deposited with the Court the full
amount of the dishonored check; that there was a
substantial compliance with the decision. In the same
motion, petitioners prayed that they be allowed to
present evidence. to prove an honest mistake or
oversight and/or excusable negligence. On December
12, 1962, an Urgent Ex-Parte Motion to
Suspend Proceedings on Writ of Execution was filed by
petitioners, claiming that, with the death of Faustino
Dolor, his ownership over the Dolor’s Pharmacy, which
was being levied upon, had ceased, and, therefore, could
not be reached by the Writ of Execution and the Writ
should be lifted over the properties of said Pharmacy.
On December 14, 1962, the respondent Judge issued an
Order, denying the motion to suspend proceedings on
the writ of execution. On December 15, 1962, the
respondent Court issued the following Order:
639
VOL. 12, DECEMBER 24, 1964 639
Lopez vs. Alvendia
“In issuing a check, the defendants have decided to effect a
method of satisfying their obligation which is fraught with
danger, to say the least. This is because plaintiffs could have
refused to accept the check. The check not being currency is
not a legal tender and a creditor could not be compelled to
accept it in payment of his credit.
“Finally, the Civil Code of the Philippines, provides:
x x x x x
x
“The delivery of the promissory notes payable to order, or
bills of exchange or other mercantile documents shall
produce the effect’ of payment only when they have been
cashed, or when through the fault of the creditor they have
141
been impaired.” (Art. 1249, pars. 1 & 2, Civil Code of the
Philippines.)
“The foregoing legal provision, applied to the undisputed
facts in this case, will clearly indicate that it is immaterial
whether or not the defendants had money with the drawee
bank sufficient to cover the value of the check they have
issued for P3,500.00 on September 21, 1962. Hence, the offer
to introduce evidence to substantiate this alleged fact should
be as it is hereby denied.
“In view of the foregoing considerations, the Court hereby
denies the motion for reconsideration and to lift the writ of
execution.”
Petitioners came to this Court, on a Petition for
Certiorari, Mandamus and/or Prohibition with
Preliminary Injunction. They claim that the respondent
Court in issuing the order of December 4, 1962,
directing the issuance of a writ of execution; the Order
of December 12, 1962, denying the motion for
reconsideration and to lift the writ of execution; the
Order denying the motion to suspend the proceedings
and in not allowing them to introduce evidence to show
the oversight by the cashier of the drawee bank, in not
honoring the checks issued in payment of the damages,
acted with grave abuse of discretion and/or committed
an oppresive exercise of authority, for which they could
not appeal, or have any other plain, speedy and
adequate remedy in the ordinary course of law. They
prayed that a Writ of Preliminary Injunction be issued,
directed against the respondent Sheriff of Manila, to
desist from further proceeding on the Writ of Execution
dated December 8, 1962 and enjoining the respondent
Judge to refrain
640
640 SUPREME COURT REPORTS
ANNOTATED
Lopez vs. Alvendia
from issuing an alias Writ of Execution; and for the
annulment of the orders complained of.
On January 17, 1963, this Court gave due course to
the petition at bar and issued a preliminary writ, as
prayed for. Thereafter, an Urgent Petition to Lift
Garnishment was granted by this Court, upon the
posting of an increased bond of P10,000.00.
The respondents, answering the petition, after the
usual admissions and denials, contended that there was
no grave abuse of discretion practiced by the respondent
Judge, in issuing the orders complained of, claiming
that the decision was based on a compromise agreement
entered into by the parties, after the respondents had
rested their case. They also point out that they claimed
P49,590.00 as damages and attorney’s fees, and the sum
of P10,000.00 was provided in the decision as damages
upon the failure of the petitioners, to comply with the
conditions of the compromise agreement and said
decision.
Under the facts obtaining in the case, We find no
abuse of discretion, much less a grave one, committed
by respondent judge, in issuing the Orders complained
of. The jurisdiction of the trial court to take cognizance
of the case is conceded. Petitioners admit their failure
to live up to the terms of the judgment, which was
rendered, pursuant to a compromise agreement and
where time was of the essence. They attribute, however,
their failure, to an alleged “mere oversight” on the part
of the cashier of the drawee bank, in not cashing the
142
check when presented, and contend, by such “mere
oversight”, that they have substantially complied with
the judgment. We find the contention untenable. From
the rendition of the decision, to the date they were to
comply with the same, one (1) month transpired. Within
the span of such time, petitioners could have
ascertained that the arrangement they now claim to
have made with the Bank, was known to its cashier who
did not state at all in his certification that there was
such a previous arrangement. The respondent Court did
not simply believe that there was an arrangement; and
this disbelief is strengthened by the facts and
circumstances of record. Likewise, petitioners asked the
respondent Court to allow them to
641
VOL. 12, DECEMBER 24, 1964 641
Socorro vs. Ortiz
submit evidence to show the supposed “oversight,” but
said court did not deem it necessary to do so. Granting
for the purposes of argument, that the said acts were
erroneous, still, they were merely mistakes of fact or
errors of judgment and/or of law, not within the reach
of a writ of certiorari, much less a writ of mandamus.
Having failed to comply with the decision, petitioners
have no cause to lament. If petitioners did not agree
with the orders complained of, they could have appealed
them. Certiorari is not a substitute f or appeal. And, the
bank, having accepted the alleged arrangement, had
constituted itself as the agent of the petitioners. The
principal is responsible for the acts of the agent, done
within the scope of his authority, and should bear the
damages caused upon third parties. If the fault
(oversight) lies on the bank, petitioners are free to sue
said bank for damages occasioned thereby.
PREMISES CONSIDERED, the petition should be,
as it is hereby dismissed, for lack of merits. The Writ of
Preliminary Injunction earlier issued, is dissolved.
Costs against petitioners in both instances.
1. that in violation of instructions and regulations of the
bank, the defendants released large crop loans
aggregating P348,768 to about 103 borrowers who
were neither landowners nor tenants but only public
land sales applicants. Held: The defendants are
civilly liable, under articles 1718, 1719 and 1902 of
the Civil Code and under article 259 of the Code of
Commerce.

1. 2.ID.; ID.; ID.; ALLEGED RATIFICATION BY

PHILIPPINE NATIONAL BANK.—Although the
PHILIPPINE NATIONAL BANK, plaintiff and Philippine National Bank filed suits against said
appellee vs. BERNARDO BAGAMASPAD and borrowers, resulting in the payment of part of said
BIENVENIDO M. FERRER, defendants and loans thereby reducing the original claim of the bank
appellants. from P704,903 to P699,803, such filing of suits is not
a ratification of the acts of the defendants, as there
1. 1.PRINCIPAL AND AGENT; CROP was no intention on the part of the bank to ratify
LOANS; UNAUTHORIZED AND CARELESS those unauthorized acts. The plaintiff was merely
GRANTS OF LOANS TO FICTITIOUS OR trying to diminish as much as possible the loss to
INSOLVENT BORROWERS.—The acts of laxity, itself and decrease the defendants' financial
liability.
negligence and carelessness of the defendants are
amply established by the evidence. The evidence
also shows 1. 3.ID.; ID.; ID.; NECESSITY OF GOING FIRST
AGAINST THE BORROWERS.—It is not necessary
________________ for plaintiff bank to go against the individual
borrowers first, exhaust all remedies against them,
* 78 Phil., 661. and then hold the defendants liable only for the
366
balance which cannot be collected. The Bank's cause
of action accrued, and the injury to it was complete,
366 PHILIPPINE REPORTS on the very day that the amounts of the
ANNOTATED unauthorized loans were released by the erring
Philippine Nat. Bank vs. Bagamaspad officials. (Corsicana National Bank vs. Johnson, 64
L. ed., 141.)
and Ferrer

143
APPEAL from judgment of the Court of First Instance
of Cotabato. Solidum, J.
The facts are stated in the opinion of the Court.
Jose G. Flores, for appellants.
Nemesio P. Labunao for appellee.
MONTEMAYOR, J.:
On May 25, 1948, the plaintiff Philippine National
Bank, a banking corporation organized and operating
under the laws of the Philippines, with main office in
the City of Manila and agencies in different provinces
like the province of Cotabato, initiated this suit in the
Court of First Instance of Cotabato for the purpose of
collecting from the defendants Bernardo Bagamaspad
and Bienvenido M. Ferrer who, in the years 1946 and
1947, were its Agent and Assistant Agent, respectively,
in its Cotabato Agency, the sum of P704,903.18, said to
have been disbursed and released by them as special
crop loans, without authority and in a
367
VOL. 89, JUNE 29, 1951 367
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
careless manner to manifestly insolvent, unqualified or
fictitious borrowers, all contrary to the rules and
regulations of the plaintiff Bank. In the course of the
trial, upon petition of plaintiff's counsel, the amount of
the claim was reduced to P699,803.57, due to payments
made by some of the borrowers. On March 31, 1949, the
trial court rendered judgment in favor of the plaintiff,
ordering both defendants to pay jointly and severally to
144
it the sum of P699,803.57, representing the uncollected
balance of the special crop loans improperly released by
said defendants, with legal interest thereon from the
date of the filing of the complaint, plus costs. The two
defendants appealed from that decision. The appeal was
first taken to the Court of Appeals but in view of the
amount involved it was certified to this Tribunal by the
said Court of Appeals.
The uncontroverted facts in the present case may be
briefly stated as follows. Because of the Pacific War and
by reason of the destruction and loss of animals of labor,
farm implements, and damage to or abandonment of
farm lands, after liberation there was acute shortage of
foodstuffs. President Roxas in order to foment and
encourage f ood production, instructed the plaintiff
Philippine National Bank to extend special facilities to
farmers in the form of crop loans in order to enable them
to rehabilitate their farms. In pursuance of said
instructions and to cooperate with the Administration,
the plaintiff Bank passed the corresponding resolution
(Exhibit B) authorizing the granting of ten-month
special crop loans to bona fide food producers, land-
owners or their tenants, under certain conditions.
Delfin Buencamino, one of the Vice-Presidents of the
Bank and head of the Branches and Agencies
Department of said institution, was entrusted with the
supervision of the granting of these loans. Juan Tueres,
one of the Assistant Managers of said Department
drafted the corresponding rules and regulations
regarding the granting of said special crop loans. After
approval by Buencamino, these rules and regulations
were embodied in a circular letter (Exhibit C), a copy of
which was personally de-
368
368 PHILIPPINE REPORTS
ANNOTATED
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
livered to defendant Ferrer. These rules and
regulations were later amplified by another circular
letter (Exhibit D). Besides circularizing its branches
and agencies with these rules and regulations, on June
14, 1946, the Bank held in Manila a conference of all its
Managers and Agents. Defendant Ferrer, Assistant
Agent of the Cotabato Agency attended the conference
in representation of said Agency. He arrived late but
Tueres explained to him what had been discussed
during the conference, emphasizing to him the necessity
of exercising diligence and care in the granting of the
crop loans to see to it that they are granted only to bona
fide planters, land-owners or tenants, as well as
repeating to him the advice of Vicente Carmona,
President of the bank, that the Managers and Agents of
the Bank should not allow themselves to be fooled.
The Cotabato Agency under the management of the
two def endants began granting these special crop loans
in July, 1946, and by March of the following year, 1947,
said Agency had granted to over 5,000 borrowers, loans
in the total amount of a little over eight and a half
million pesos.
The theory on which the Bank's claim and complaint
are based is that the two defendants Bagamaspad and
Ferrer acting as Agent and Assistant Agent of the
145
Cotabato Agency, in granting new crop loans after
November 13, 1946, violated the instructions of the
Bank, and that furthermore, in granting said crop
loans, they acted negligently and did not exercise the
care and precaution required of them in .order to
prevent the release of crop loans to persons who were
neither qualified borrowers nor entitled to the
assistance being rendered by the Government and the
Bank, all contrary to the rules and regulations issued
by the Bank.
Because of the heavy disbursements made by the
Cotabato Agency in the form of crop loans and because
of exhaustion of its f unds, said agency sent a telegram,
Exhibit 11, dated November 11,1946, requesting
authority from the central office to secure cash from the
Zamboanga Agency. Replying to this telegram, Delfin
Buencamino sent a letter,
369
VOL. 89, JUNE 29, 1961 369
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
Exhibit E, dated November 13, 1946, addressed to the
Cotabato Agency stating among other things that the
purpose of these funds (to be obtained from the
Zamboanga Agency) was to meet the releases of the
second installment crop loans being granted which
according to the telegram aggregated P60,000 daily.
The letter reminded the Agency that the central office
had not yet received the Agency's monthly reports on
special crop loans granted, as required by the
regulations, and it emphasized the necessity of
performing inspection of the field to verify whether the
amount released as first installment was actually used
f or the purpose f or which it was granted, before
releasing the second installment. In relation with said
letter, Exhibit E, defendant Bagamaspad wrote a letter,
Exhibit F, dated November 18, 1946, to the central
office making reference to said Exhibit E, reiterating
the Agency's heavy disbursements on second
installments for crop loans and stating that Ferrer had
been instructed to proceed to Zamboanga to secure the
needed cash, and that Ferrer was able to secure
P300,000 from the Zamboanga Agency. Then making
reference to and quoting a portion of the letter of
Buencamino, Exhibit E, Bagamaspad in his letter said:
"In connection with. the following portion:
'In this connection, we would like to state that the purpose
of these funds is to meet the release of the second installment
of crop loans being granted by that agency, which, according
to your said telegram, will run to P 600,000 daily.'
of your above mentioned letter, may we know if we could
still entertain new applicants on Special Crop Loans? We are
constrained to request f or this matter because there are now
on file no less than 1,000 new applicants which we could not
entertain because of your above quoted statement. Yesterday
they held a demonstration and copy of the picture is hereto
attached. In addition, there are about 6,000 settlers in
Koronadal Valley who, according to your indorsement of Oct.
81, 1946 to the Technical Assistant to the President of the
Philippines, could be given crop loans. If we could not
therefore disburse from the funds taken from Zamboanga
Agency against first installment of applicants on crop loans,
we shall appreciate if you
370
146
370 PHILIPPINE REPORTS
ANNOTATED
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
could give us definite course of action towards the
clarification of our stand to the public.
"We are again sending Asst. Agent B. M. Ferrer to
Zamboanga to despatch this letter without delay and wait
there for whatever instruction that you may give with
reference to our desire to secure more cash from our
Zamboanga Agency, say P1,000,000 and whether we shall
continue granting special crop loans or not.
"With reference to the cash that we desire to secure more,
we could tell you with assurance that the same shall arrive
there safely under guard on a chartered plane which will cost
not more than P300 only."
From this letter of Bagamaspad of which his co-
defendant Ferrer must have been aware, because he
himself prepared it upon order of Bagamaspad (pp. 340-
344, t. s. n.), particularly the portion above-quoted, it
will be seen that without waiting for authority to secure
funds f rom the Zamboanga Agency, Ferrer obtained
P300,000 from said Agency, and that Bagamaspad
again had sent Ferrer to Zamboanga to await
instruction f rom the central office regarding their
desire and intention to secure in additional P1,000,000
for the Cotabato Agency. As a matter of fact, however,
once in Zamboanga, and without waiting for
instructions, Ferrer again secured P500,000 f rom the
Zamboanga Agency. It was while Ferrer already
carrying the P500,000 was about to board the plane that
was to take him to Cotabato, that he received the
answer from the central office, Exhibit G, authorizing
him to obtain only P300,000 from the Zamboanga
Agency, with the statement that as soon as the said
amount was exhausted, the Cotabato Agency may again
request for replenishment. This letter of the Central
Office again emphasized the necessity of strict
compliance with the rules and regulations regarding
the required field inspection before releasing the second
installment. The said letter, Exhibit G, ended with the
following:
"Concerning the new special crop loan applications
numbering about 1,000, we would like to be informed
whether the farms of the said applicants have already been
actually planted, considering that at this advanced
period planting season in low-land palay region is now
over. As the purpose for which special crop loans are being
371
VOL. 89, JUNE 29, 1951 371
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
granted by the Bank is to provide the farmers with funds to
meet the expenses of their farms and if said farms have
already been planted, we believe that the farmers may not
need said credit facilities unless it has been found out by
actual investigation and verification that said loans are
needed by them.
"Please, therefore, let us hear from you regarding this
matter." (Italics ours)
In answer to this letter, Exhibit G, defendants sent a
telegram, Exhibit H, dated November 25, 1946, to the
central office in Manila, stating that for Cotabato, the
planting season for second crops ended December. In
147
answer to Exhibit H, the central office sent a telegram,
Exhibit If dated November 28, 1946, expressly
instructing the Cotabato Agency to discontinue
granting new crop loans. The defendants claim that this
telegram, Exhibit I, was received by them by mail on
December 7, 1946.
In their brief the appellants contend that the trial
court erred in finding and holding that in extending new
special crop loans after November 26,1946, amounting
to P726,680, they as Agent and Assistant Agent,
respectively, of the Cotabato Agency, did so at their own
risk and in violation of the instructions received from
the Manila office; also that the court erred in holding
that they (appellants) acted with extreme laxity,
negligence and carelessness in granting said new
special crop loans. On the first assigned error
appellants maintain that outside of the telegram,
Exhibit I, which they claim to have received only on
December 7, 1946, there was no instruction by the
central office stopping the granting of new special crop
loans.
It may be that there was no such express instruction
couched in so many words directly ordering the
defendants to stop granting new special crop loans, but
that said idea of the central office could be gathered
from its letter, Exhibit E, and that it was understood
and clearly, by the def endants, is evident. If def
endants did not so understand it, namely, that they
were no longer authorized to grant new special crop
loans, how else may we interpret
372
372 PHILIPPINE REPORTS
ANNOTATED
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
the contents of the letter of Bagamaspad, Exhibit F,
particularly that portion wherein after quoting a
portion of the central office letter Exhibit E, he asks if
they (defendants) could still entertain new applications
for special crop loans? At least, they then doubted their
authority to grant new special crop loans and until that
doubt was cleared up and determined by new
instructions f rom their superiors, it was their bounden
duty to stop granting new loans. Appellant Ferrer
himself, in response to questions asked by the trial
court during the hearing, said that in case of doubt as
to whether or not to disburse f unds of the bank, he
should consult and await instructions. Appellants
asked f or instructions as to whether or not they should
grant new special crop loans. This request for instruc-
tions is contained clearly in Bagamaspad's letter,
Exhibit F, where in one paragraph he asks: "May we
know if we could still entertain new applications on
special crop loans?" And, in another paragraph he says:
"We are again sending Asst. Agent B. M. Ferrer to
Zamboanga * * * and wait there for further
instructions that you may give * * * and whether we
shall continue granting special crops loans or not/' The
trouble is that without waiting for said requested
instructions, appellants proceeded to grant new special
crop loans from November 26, 1946 to January 4, 1947.
Appellants not only granted new special crop loans
after they were given to understand by the central office
148
that they should no longer grant said new loans and
before appellants received instructions as to what they
should do in that regard, but they also violated the
express instructions of the Bank to the effect that funds
received from the Zamboanga Agency should be utilized
only to pay second installments on special crop loans.
Of course, defendants contend that the total of P800,000
secured from the Zamboanga Agency were all used in
paying second installments, but the contrary is amply
established by Exhibit T, a statement prepared by
Felicisimo Lopez, Chief Examiner of the Bank
373
VOL. 89, JUNE 29, 1951 373
Philippine Nat Bank vs. Bagamaspad and
Ferrer
showing that out of the P500,000 secured from the
Zamboanga Agency on or about November 18,1946, the
amount of P232,931.58 was paid on account of new
special crop loans or first installments. The plaintiff-
appellee Bank in its brief explains in details this use of
part of the Zamboanga f unds in paying first
installments on new crop loans.
As to the alleged error committed by the trial court
in finding and holding that the appellants were
extremely lax, negligent and careless in granting new
special crop loans, we quote with approval a portion of
the well considered decision of the trial Judge, Hon.
Arsenio Solidum, on this point:
"From the evidence of record, one cannot help but be amazed
at the extreme laxity, negligence and carelessness on the
part of the defendants in the granting of the special crop
loans. It seems that all precautions to protect the interest of
the Philippine National Bank as the principal of the
defendants were thrown overboard. From all appearances,
the door of the Cotabato Agency was lef t wide open by the
defendants as an invitation for all persons to come in and
secure from them special crop loans regardless of whether or
not under the rules prescribed therefor they were rightfully
entitled thereto. * * *" (p. 165, Record on Appeal)
* * * * * * * which contain instructions and rules and regulations
"What really happened was that in those days of crop loan
boom, the borrowers made a holiday of the funds of the
Cotabato Agency of the Philippine National Bank with the
indulgence and tolerance of the defendants as the managing
officials of the Agency. And the saddest part of it all was that
the money did not go to the farmers who needed it the most
but to unscrupulous persons, who, taking undue advantage
of the laxity and looseness of the defendants in doling out
these loans, secured special crop loan funds without the least
idea of investing them in food production campaign for which
they were primarily intended. Part of the booty went to the
pockets of those who acted as intermediaries in the
procurement of the loans under the very noses of the
defendants fully knowing that such practice was prohibited
by the rules and regulations of the Philippine National Bank
governing the operation of provincial agencies (Exhibits 'W',
'T', 'T-1', to 'T-11', 'U', 'U-1' to 'U-2') * * *" (pp. 176-177, Record
on Appeal)
374
374 PHILIPPINE REPORTS
ANNOTATED
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
149
The lower court as may be seen, severely criticised and
condemned the acts of laxity, negligence and
carelessness of the appellants. But the severity of this
criticism and condemnation would appear to be amply
warranted by the evidence. Out of the numerous acts of
laxity, negligence and carelessness established by the
record, a few cases may be cited. Exhibits C and D
governing the granting of special crop loans, provide
that before a crop loan is granted the Agent or Sub-
Agent of the Bank must be satisfied that the applicant
is either a landowner well known to be possessing the
particular property on which the crop is to be produced,
or if the applicant be a tenant he must be recommended
by the landowner concerned or in the absence of said
landowner must be properly identified that he is
the bona fide tenant actually tilling the land from
which the crop to be mortgaged would be harvested.
The evidence shows that in violation of these
instructions and regulations, the defendants released
large loans aggregating P348,768.22 to about 103
borrowers who were neither landowners or tenants but
only public land sales applicants, that is to say, persons
who have merely filed applications to buy public lands.
It is a well known fact that when a person desires to
apply f or the purchase of public lands usually
containing trees, underbrush, cogon or other wild
vegetation, and never previously cultivated, he merely
goes over the land, stakes it out and then files his
application with the Public Land Office. Subsequently
and in due time the Bureau of Lands examines the
application, tries to determine the location of the land,
its identity, proceeds to classify it to see if it is open to
sale and if so, perhaps makes a rough survey of it to
establish its exact location and fix boundaries with
respect to the entire area of the public domain. The
application naturally carries no implication of
occupancy, possession, much less cultivation and
dominion. And yet, in spite of all this, the appellants
had been granting loans to these public lands sale
applicants who were neither landowners or tenants.
375
VOL. 89, JUNE 29, 1951 375
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
The record further shows that Mr. Villamarzo, District
Land Officer for Cotabato with whom these sale
applications had been filed, came to know that the
certificates that he had been issuing to the applicants,
which were nothing but acknowledgments of the filing
of the applications, had been used by said applicants to
secure special crop loans, and so he went to see the
appellants as early as the middle of August of 1946 and
advised them that those certificates were issued merely
to show that the applications had been filed with him
but that it did not mean that said applications had
already been investigated, much less that the lands
covered by them had been surveyed. Then about the end
of the same month Villamarzo accompanied by
Almonte, a Division Land Inspector of the Bureau of
Lands, again went to the defendants and repeated the
advice and warning. Despite all these, as already
stated, appellants granted new special crop loans to 103
of these public land sales applicants, knowing as they
150
must have known that the borrowers were neither
landowners nor tenants. Furthermore, it should be
remembered that these special crop loans according to
regulations were payable in ten (10) months, and were
to be secured by chattel mortgages on the crops to be
produced. A virgin land, especially if covered with trees
or underbrush, needs to be cleared and placed in
condition for cultivation before crops may be produced.
That work of clearing would take some time. A public
land sale applicant, even assuming that he immediately
began to clear the land applied for even before favorable
action on his application is taken, is hardly in a position
to meet the requirements of the regulations governing
the granting of special crop loans, namely, to mortgage
the crop he is going to produce, and pay the loan within
ten months.
Appellants in their over-enthusiasm and seemingly
inordinate desire to grant as many loans as possible and
in amounts disproportionate to the needs of the
borrowers, admitted and passed upon more loan
applications than they could properly handle. From
July, 1946 to March, 1947
376
376 PHILIPPINE REPORTS
ANNOTATED
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
the total amount of about eight and a half (8½) million
pesos was released in the form of special crop loans to
about 5,105 borrowers and this, in a relatively sparsely
populated province like Cotabato. As a consequence of
this big volume of business the bookkeeper of the
Agency could not keep up with the posting of the daily
transactions in his books and ledgers and he was
several months behind. There were so many
applications acted upon and accepted that they could
not all be carefully examined and many of them do not
even bear the initials or signatures of the appellants as
required by regulations. Some of the chattel mortgages
given to secure the payments of the loans, contrary to
regulations, do not show the number of cavans of palay
to be produced on the land and to be mortgaged in favor
of the Bank.
Contrary to the Bank's rules and regulations
regarding the granting of special crop loans, the
defendants allowed intermediaries to intervene in the
granting of special crop loans. Many lawyers, business
agents and other persons intervened in the granting of
the loans. We may have an idea of the part played by
these intermediaries by referring to a portion of the
report, Exhibit V, prepared by Mr. Lagdameo, one of the
Assistant Managers of the Agencies and Branches
Department of the plaintiff Bank, sent to Cotabato to
investigate the crop loan anomalies in the Cotabato
Agency, which portion we quote below:
"On top of this, were the heavy expenses incurred by the
borrowers to secure crop loans. The rush was so
unprecedented that applicants had to stay for weeks in
hotels in Cotabato to lobby for the approval of their
applications. They even went to the extent of engaging
intermediaries who in the words of some borrowers were the
best ones to fix things with the agency for the approval and
immediate release of the loan. These intermediaries are
government employees and business agents and particularly
practicing attorneys who charged fees up to 5 per cent of the
151
total loans approved. Instances have been shown that the
Agency itself collected the attorney's fees and delivered them
to the parties concerned. In other cases, the intermediaries
themselves were the ones
377
VOL. 89, JUNE 29, 1951 377
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
who received the proceeds of the loans and distributed them
to the borrowers. It has also been found that loan papers
including the preparation of promissory notes, debit tickets,
etc., were prepared by said intermediaries and submitted to
the Agency already executed. * * *."
There is evidence to the effect that sometimes the fees
of these intermediaries were collected by the Agency
itself and were later turned over to appellant Ferrer,
perhaps to be later given by him to said intermediaries.
One of the provisions of the rules and regulations
concerning the granting of loans is to the effect that
loans to be released by a Provincial Agency like that of
the appellants' should be approved by a Loan Board to
be composed of the Agent, like defendant Bagamaspad;
the Assistant Agent, like Ferrer or the Inspector if there
is no Assistant Agent; and the Municipal Treasurer
where the borrower resides. The evidence, however,
shows that many of the special crop loans released by
the appellants have not been approved by this Board
and others have not even been approved by anyone of
them.
It will be remembered that in the letter of Vice
President Buencamino, Exhibit G, dated November 19,
1946, speaking of the new special crop loan applications
numbering about 1,000 mentioned by appellant
Bagamaspad in his letter, Exhibit F, the plaintiff Bank
wanted to know whether on that date, November 19th,
the farmers in Cotabato had already planted their
farms in which case there was no need f or their
obtaining crop loans to meet the expenses of planting.
Answering this query, the Cotabato Agency under the
appellants, sent a telegram (Exhibit H) dated
November 25, 1946, to the plaintiff Bank saying that
the planting season for Cotabato for second crops ends
in December. This was evidently intended to justify the
granting of special crop loans even at the end of the
year. The evidence however, belies the correctness of
this statement and inf ormation. Mr. Aniceto Padilla,
Assistant Provincial Agricultural Supervisor, a
graduate of the College of Agriculture of the University
of the Philippines, told the court
378
378 PHILIPPINE REPORTS
ANNOTATED
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
that his office, which is the Provincial Agricultural
Station in Cotabato, has determined the proper period f
or planting crops raised in that province, and that for
upland palay, the planting season is during the months
of March, April up to May; that for lowland palay is
June and July; and that second crops may be planted in
September even as late as October. From this, one may
conclude that it is not true as the appellants informed
the Bank that the planting season for palay (second
crop) in Cotabato ends in December. Whether this
152
incorrect information was given deliberately or thru
negligence and carelessness, we deem it unnecessary to
determine.
To give a further idea of the confusion, lack of care
and method with which the Cotabato Agency was
managed by the appellants, the record 'shows that in
January, 1947, Mr. Simeon Intal, Traveling Auditor of
the Philippine National Bank, was sent to Cotabato
with instructions to make an audit of the accounts of
the Cotabato Agency and to see for himself the reported
irregularities being committed in said Agency with
respect to the granting of special crop loans. According
to Mr. Intal he f ound the Cotabato Agency like a
market place f ull of people. He saw crop loan papers
like promissory notes, loan applications and chattel
mortgages scattered all over the office of the Agency,
some on the desks of employees, on open shelves or on
top of filing cabinets, and others on the floor. He found
that transactions which had taken place five months
before were not yet posted in the books of the Agency.
In February, 1947, Mr. Amado Lagdameo, then one of
the Assistant Managers of the Branches and Agencies
Department of the Bank, was also sent to Cotabato and
there he f ound the same conditions found and reported
by Intal. In order to make thorough investigation of the
anomalies reportedly obtaining in the Cotabato Agency,
Felicisimo Lopez, a certified public accountant and
Chief Examiner of the plaintiff Bank, was sent to
Cotabato in June, 1947. He checked up the findings of
Intal about the deplorable condition of the books and
records of the Agency and he agreed with said findings.
379
 VOL. 89, JUNE 29, 1951 379
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
Lopez and Intal assisted by Benjamin de Guzman,
Branch Auditor of the Bank at the Davao Branch, Mr.
Macuja (who later succeeded Benjamin de Guzman),
Mr. Juan B. Sanchez, now Branch Auditor in Legaspi,
Mr. Antonio Cruz of the Head Office, Mr. Danao from
Oriental Misamis, Mr. Fernandez f rom Zamboanga and
Mr. Romena of the Davao Branch, went to work on the
books and records of the Cotabato Agency and it took
them almost four months to straighten out the special
crop loan accounts and bring the books up-to-date, after
which, they found that as of June 10, 1947, the Cotabato
Agency had released special crop loans in the aggregate
sum of P8,688,864.
To us who have always had the impression and the
idea that the business of a Bank is conducted in an
orderly, methodical and businesslike manner, that its
papers, especially those relating to loans with their
corresponding securities, are properly filed, well-kept
and in a safe place, its books kept up-to-date, and that
its funds are not given out in loans without caref ul and
scrupulous scrutiny of the responsibility and solvency of
the borrowers and the sufficiency of the security given
by them, the conditions obtaining in the Cotabato
Agency due to the apparent indifference, carelessness
or negligence of the appellants, is indeed shocking. And
it is because of these shortcomings of the appellants,
their disregard of the elementary rules and practice of
banking and their violation of instructions of their
153
superiors, that these anomalies resulting in financial
losses to the Bank were made possible.
The trial court based the civil liability of the
appellants herein on the provisions of Arts. 1718 and
1719 of the Civil Code, defining and enumerating the
duties and obligations of an agent and his liability f or
failure to comply with such duties, and Art. 259 of the
Code of Commerce which provides that an agent must
observe the provisions of law and regulations with
respect to business transactions entrusted to him
otherwise he shall be responsible for the consequences
resulting from their breach or omissions; and
380
380 PHILIPPINE REPORTS
ANNOTATED
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
also Art. 1902 of the Civil Code which provides for the
liability of one for his tortious act, that is to say, any act
or omission which causes damage to another by his fault
or negligence. Appellants white agreeing with the
meaning and scope of the legal provisions cited,
nevertheless insist that those provisions are not
applicable to them inasmuch as they are not guilty of
any violation of instructions or regulations of the
plaintiff Bank; and that neither are they. guilty of
negligence of carelessness as found by the trial court. A
careful study and consideration of the record, however,
convinces us and we agree with the trial court that the
defendants-appellants have not only violated
instructions of the plaintiff Bank, including things
which said Bank wanted done or not done, all of which
were fully understood by them, but they (appellants)
also violated standing regulations regarding the
granting of loans; and, what is more, thru their
carelessness, laxity and negligence, they allowed loans
to be granted to persons who were not entitled to receive
loans.
It is the contention of the appellants that the act of
plaintiff Bank in filing suits against the borrowers to
whom appellants were said to have granted loans
without authority, which suits resulted in the payment
of part of said loans resulting in the reduction of the
original claim of the plaintiff Bank from P704,903.18 to
P699,803.57, should be interpreted and considered as a
ratification of the acts of the appellants. What is more,
it is contended that it would be iniquitous f or the
plaintiff to go against the defendants for whatever
amounts may have been loaned by the latter and at the
same time go against the individual borrowers for
collection of the respective sums borrowed by them.
That would be enriching the plaintiff at the expense of
the defendants." We cannot subscribe to this theory. As
pointed out by Counsel for appellee, ordinarily, a
principal who collects either judicially or extrajudicially
a loan made by an agent without authority, thereby
ratifies the said act of the agent In the present case,
however.
381
VOL. 89, JUNE 29, 1951 381
Philippine Nat. Bank vs. Bagamaspad and
Ferrer
in filing suits against some of the borrowers to collect at
least part of the unauthorized loans, there was no
154
intention on the part of the plaintiff Bank to ratify the
acts of appellants. Neither did the plaintiff receive any
substantial benefit by its act of filing these suits if we
consider the fact that the collections so far made, form
a small or insignificant portion of the entire principal
and interest And, we f ail to see any iniquity in this act
of the plaintiff in suing some of the borrowers to collect
what it could at the same time holding the appellants
liable for the balance, because the plaintiff Bank is not
trying to enrich itself at the expense of the defendants
but is merely trying to diminish as much as possible the
loss to itself and automatically decrease the financial
liability of appellants. Considering the large amount for
which appellants are found liable, it is a matter of
serious doubt if they are in a position to pay it.
Moreover, whatever amount is collected by the plaintiff
Bank from borrowers, serves to diminish the financial
liability of the appellants, in the same way that the
original claim of P704,903.18, at the very instance of
plaintiff was reduced to P699,803.57. In other words,
the act of the plaintiff Bank in this matter, far from
being iniquitous, is really beneficial to the appellants.
Appellants further contend that the present action is
rather premature for the reason that there is no
showing that the borrowers to whom they allegedly
gave loans without authority, are manifestly insolvent
or unqualified, and that the loans granted to them are
uncollectible and have been written off the books of the
Bank as "bad debts". We find this contention untenable.
It is not necessary for the plaintiff Bank to first go
against the individual borrowers, exhaust all remedies
against them and then hold the defendants liable only
for the balance which cannot be collected. The case
of Corsicana National Bank vs. Johnson, 64 L. ed. 141,
cited by the trial court and by the plaintiff Bank is in
point. The issue in that case whether or not a bank
could proceed against one of its
382
382 PHILIPPINE REPORTS
ANNOTATED
People vs. Lee Kiat
officials for losses which it had sustained in
consequence of the unauthorized loans released by said
official, or whether it should first pursue its remedies
against the borrowers or await the liquidation of their
estates. The Supreme Court of the United States in said
case held that the cause of action of the Bank accrued
and the injury to it was complete on the very day that
the amounts of the unauthorized loans were released by
the erring official. We quote a part of that decision:
"Assuming the Fleming and Templeton notes were found to
represent an excessive loan, knowingly participated in or
assented to by defendant as a director of the Bank, in our
opinion the cause of action against him accrued on or about
June 10, 1907, when the Bank, through his act, parted with
the money loaned, receiving in return only negotiable paper
that it could not lawfully accept because the transaction was
prohibited by section 5200, Rev. Stat. (Comp. Stat. section
9761, 6 Fed. Stat. Anno. 2d ed., p. 761). The damage as well
as the injury was complete at that time, and the Bank was
not obliged to await the maturity of the notes, because
immediately it became the duty of the officers or directors
who knowingly participated in making the excessive loan to
undo the wrong done by taking the notes off the hands of the
Bank and restoring to it the money that had been loaned. Of
155
course, whatever of value the Bank recovered from the
borrowers on account of the loan would go in diminution of
the damages; but the responsible officials would have no
right to require the Bank to pursue its remedies against the
borrowers or await the liquidation of their estates. The
liability imposed by the statute upon the director is a direct
liability, not contingent or collateral."
In view of all the f oregoing, and finding no reversible
error in the decision appealed from, the same is hereby
affirmed with costs against the appellants. So ordered.
Parás, C.
J., Feria, Pablo, Bengzon, Tuason, Jugo and Bautista
Angelo, JJ.,concur.
Judgment affirmed.
[No. 41377. July 26, 1935]
ANGELA BLONDEAU and FERNANDO DE LA
CANTERA Y UzQUIANO, plaintiffs and
appellants, vs. AGUSTIN NANO and JOSE VALLEJO,
defendants and appellees.
1. 1.LAND REGISTRATION; TORRENS
SYSTEM; FORGERY.—The Torrens Act permits a
forged transfer, when duly entered in the registry, to
become the root of a valid title in a bona
fidepurchaser, The act erects a safeguard against a
forged transfer being registered, by the requirement
that no transfer shall be registered unless the
 owner's certificate was produced along with the
instrument of transfer. An executed transfer of
registered lands placed by the registered owner
thereof in the hands of another operates as a
representation to a third party that the holder of the
transfer is authorized to deal with the lands.
1. 2.ID.; ID.; ID.; MAXIM.—As between two innocent
persons, one of whom must suffer the consequence of
a breach of trust, the one who made it possible by his
act of confidence must bear the loss.
1. 3.ID.; ID.; ID.; ID.; SIGNATURE OF MORTGAGOR
FORGED.—When a mortgagee relies upon a
Torrens title and loans money in all good faith on the
basis of the title standing in the name of the
mortgagor, only thereafter to discover one defendant
to be an alleged forger and the other defendant to
have by his negligence or acquiescence made it
possible for the fraud to transpire, as between two
innocent persons, the mortgagee and one of the
mortgagors, the latter who made the fraud possible
by his act of confidence must bear the loss.
626
626 PHILIPPINE REPORTS
ANNOTATED
Blondeau and De la Cantera vs. Nano and
Vallejo
APPEAL from a judgment of the Court of First Instance
of Manila. Diaz, J.
The facts are stated in the opinion of the court.
John R. McFie, jr., for appellants.
Evangelista & Santos for appellee Vallejo.
156
No appearance for the other appellee.
MALCOLM, J.:
This action was brought in the Court of First Instance
of Manila to f oreclose a mortgage alleged to have been
made by the defendants Agustin Nano and Jose Vallejo
to the plaintiff Angela Blondeau, bearing date
November 5, 1931, to secure the payment of the sum of
P12,000, and covering property situated on Calle
Georgia, Manila. Nano, purporting to represent both
defendants, after filing an answer, was found in
contempt of court. The other defendant Vallejo
thereupon presented an amended answer in which it
was alleged that his signature to the mortgage was a
forgery. Following the trial, judgment was rendered
against Nano but not against Vallejo. From this
judgment the plaintiffs have taken an appeal.
With all due deference to the findings of the trial
judge, now an honored member of this court, we are
inclined to the view, first, that the accesorias bearing
Nos. 905A to 905F, Calle Georgia, Manila, were as
indicated in the mortgage, the property of the defendant
Agustin Nano, and second, that the purported signature
of the defendant Vallejo to the mortgage was not a
forgery. In support of the first of our statements,
attention need only be invited to a series of documents,
including the transfer certificate of title, showing that
Vallejo was considered the owner of the land only. As to
the second statement, it needs be recalled that the
mortgage was executed in the home of the plaintiffs,
and that of those present, the principal plaintiff Angela
Blondeau and her husband Fernando de la Cantera,
together with the instrumental witness Pedro Jimenez
Zoboli, iden-
627
VOL. 61, JULY 26, 1935 627
Blondeau and De la Cantera vs. Nano and
Vallejo
tified Vallejo as the person who signed the document.
As against their testimony stands the alibi of Vallejo,
partially corroborated by the testimony of the notary
public Gregorio Bilog. It is expecting a great deal to
have us believe that not only the mortgage but the
power of attorney of Vallejo in favor of Nano and a series
of documents were the product of the evil machinations
of Nano, and that although Nano and Vallejo, members
of the same family, lived together, Vallejo was entirely
unacquainted with the activities of Nano in dealing
with their joint property. It is significant that the
proper cedulas of Vallejo were presented for the
accomplishment of the documents, and that if there was
fraud, not one but a number of notaries public were
deceived thereby.
We repeat that upon its face, the mortgage appears
to be regular and to have been duly executed and
accepted by Vallejo on November 5, 1931. The evidence
then resolves itself into a question of the execution of
the mortgage by Vallejo on the one hand, and the denial
of its execution on the other hand. That there was a
conflict between experts as to the handwriting, one
being of the opinion that the signatures of Vallejo were
genuine, and the other being of the opinion that they
were not genuine, is not unexpected. Under such
157
conditions, the question is, which side pro duced the
weightier testimony, and as hereinbefore indicated, we
are of the opinion that the balance inclined in favor of
the plaintiffs.
But there is a narrower ground on which the
defenses of the defendant-appellee must be overruled.
Agustin Nano had possession of Jose Vallejo's title
papers. Without those title papers handed over to Nano
with the acquiescence of Vallejo, a fraud could not have
been perpetrated. When Fernando de la Cantera, a
member of the Philippine bar and the husband of
Angela Blondeau, the principal plaintiff, searched the
registration records, he found them in due form,
including the power of attorney of Vallejo in favor of
Nano. If this had not been so and if thereafter
628
628 PHILIPPINE REPORTS
ANNOTATED
Blondeau and De la Cantera vs. Nano and
Vallejo
the proper notation of the encumbrance could not have
been made, Angela Blondeau would not have lent
P12,000 to the defendant Vallejo.
The Torrens system is intended for the registration
of title, rather than the muniments of title. It represents
a departure from the orthodox principles of property
law. Under the common law, if the pretended signature
of the mortgagor is a forgery, the instrument is invalid
for every purpose and will pass no title or rights to
anyone, unless the spurious document is ratified and
accepted by the mortgagor. The Torrens Act on the
contrary permits a forged transfer, when duly entered
in the registry, to become the root of a valid title in
a bona fidepurchaser. The act erects a safeguard
against a forged transfer being registered, by the
requirement that no transfer shall be registered unless
the owner's certificate was produced along with the
instrument of transfer. An executed transfer of
registered lands placed by the registered owner thereof
in the hands of another operates as a representation to
a third party that the holder of the transfer is
authorized to deal with the lands. (53 C. J., 1141, 1142;
Act No. 496, as amended, secs. 47, 51, 55.)
With respect to the conclusiveness of the Torrens
title and the binding force and effect of annotations
thereon even when through a forged deed the land
passes into the possession of an innocent purchaser for
value, the basic rule is found in the opinion delivered by
Mr. Chief Justice Arellano in De la
Cruz vs.Fabie ([1916], 35 Phil., 144). The history of the
case was as follows:
"Vedasto Velazquez was the attorney in fact of
Gregoria Hernandez. Gregoria Hernandez registered
her title of ownership to the land in question in the
property registry and was issued certificate of title No.
121. Vedasto Velazquez, being the attorney in fact of
Gregoria Hernandez, had in. his possession all the
muniments of title of the land, including the certificate
of title No. 121, and, abusing her confidence in him, a
few days after the registration of the
629
VOL. 61, JULY 26, 1935 629
Blondeau and De la Cantera vs. Nano and
Vallejo
158
land, forged a notarial instrument wherein he made it
appear that she had sold the said land to him for the
price of P8,000.
"Vedasto Velazquez then went to the register of
deeds and applied for the registration of the land in his
own name, presenting Gregoria Hernandez' certificate
of title No. 121 for cancellation, and the deed of
conveyance which was purported to have been made by
Gregoria Hernandez in his favor in order that he might
be registered as the true owner of the land. All this was
done; Gregoria Hernandez' title was cancelled and
certificate of title No. 43 was issued to Vedasto
Velazquez.
* * * * * * *
"On May 31, 1907, Vedasto Velazquez sold the land
finally and absolutely to Ramon Fabie, who presented
to the register of deeds the notarial instrument
executed for the purpose and was thereupon furnished
with the certificate of title No. 766." On these facts, it
was held that Fabie was an innocent holder of a title for
value and that, under section 55 of the Land
Registration Law, he was the absolute owner of the
land.
The decision above cited has repeatedly been
reexamined by this court, one of the most recent
instances being found in the case of El Hogar
Filipino vs.Olviga ([1934], 60 Phil., 17). While counsel
for the appellee is undoubtedly correct in his contention
that neither the case of Fabie nor the case of Olviga nor
any other case relied upon by the appellants is on all
fours with the present facts, the principle on which
these cases rest should here be carried forward and
given application.
The recent decision of the United States Supreme
Court in the case of Eliason vs. Wilborn ([1930], 281 U.
S., 457), is of enlightening interest. Plaintiffs in this
case, purchasers of land previously brought under the
Illinois Torrens Act, delivered the certificate of title to a
party under an agreement to sell, who forged a deed to
himself, had a certificate issued in his name, and then
conveyed to
630
630 PHILIPPINE REPORTS
ANNOTATED
Blondeau and De la Cantera vs. Nano and
Vallejo
defendants who were good faith purchasers for value.
Plaintiffs informed the registrar of the forgery after the
defendants had bought, and demanded the cancellation
of the deeds and certificates, and the reissue of a
certificate to themselves. The registrar refused, and a
petition was brought to compel such action. The Circuit
Court for Cook County, Illinois, the Supreme Court of
Illinois, and the United States Supreme Court, united
in dismissing the petition. Mr. Justice Holmes,
delivering the opinion of the latter court, said:
"* * * The statute requires the production of
the outstanding certificate, as a condition to the issue of
a new one. The appellants saw fit to entrust it to
Napletone and they took the risk. They say that
according to the construction of the act adopted the
registrar's certificate would have had the same effect
159
even if the old certificate had not been produced. But
that, if correct, is no answer. Presumably the registrar
will do his duty, and if he does he will require the old
certificate to be handed in. It does not justify the
omission of a precaution that probably would be
sufficient, to point out that a dishonest official could get
around it. There is not the slightest reason to suppose
that Napletone would have got a certificate on which
the Wilborns could rely, without the delivery of the old
one by the appellants. As between two innocent
persons, one of whom must suffer the consequence of a
breach of trust, the one who made it possible by his act
of confidence must bear the loss."
Vargas & Mañalac in their treatise on the Philippine
Land Registration Law quote with approval the
comment of Mr. Powell in his book on Land
Registration, section 213. The question which the
author propounded was: Why does the law say that the
person who had no title at all and only a forged deed as
a color of title should become the true owner of the land
by merely continuing to occupy and enjoy the land
which in fact does not belong to him,
631
VOL. 61, JULY 26, 1935 631
Blondeau and De la Cantera vs. Nano and
Vallejo
but which belongs to the victim of the forgery? His
answer was:
"* * * that public policy, expediency, and the
need of a statute of repose as to the possession of land,
demand such a rule. Likewise, public policy,
expediency, and the need of repose and certainty as to
land titles demand that the bona fide purchaser of a
certificate of title to registered land, who, though he
buys on a forged transfer, succeeds in having the land
registered in his name, should nevertheless hold an
unimpeachable title. There is more natural justice in
recognizing his title as being valid than there is in
recognizing as valid the title of one who has succeeded
in ripening a f orged color of title by prescription.
"In the first place, a forger cannot effectuate his
forgery in the case of registered land by executing a
transfer which can be registered, unless the owner has
allowed him, in some way, to get possession of the
owner's certificate. The Act has erected In favor of the
owner, as a safeguard, against a forged transfer being
perpetrated against him, the requirement that no
voluntary transfer shall be registered unless the
owner's certificate is produced along with the
instrument of transfer. Therefore, if the owner has
voluntarily or carelessly allowed the forger to come into
possession of his owner's certificate he is to be judged
according to the maxim, that when one of two innocent
persons must suffer by the wrongful act of a third
person the loss fall on him who put it into the power of
that third person to perpetrate the wrong.
Furthermore, even if the forger stole the owner's
certificate, the owner is up against no greater hardship
than is experienced by one whose money or negotiable
paper payable to bearer is stolen and transferred by the
thief to an innocent purchaser."
Other incidental facts might be mentioned and other
incidental legal propositions might be discussed, but in
its final analysis this is a case of a mortgagee relying
160
upon a Torrens title, and loaning money in all good faith
on the
632
632 PHILIPPINE REPORTS
ANNOTATED
Basa vs. Mercado
basis of the title standing in the name of the mortgagors
only thereafter to discover one defendant to be an
alleged forger and the other defendant, if not a party to
the conspiracy, at least having by his negligence or
acquiescence made it possible for the fraud to transpire.
Giving to the facts the most favorable interpretation for
Vallejo, yet, as announced by the United States
Supreme Court, the maxim is, as between two innocent
persons, in this case Angela Blondeau and Jose Vallejo,
one of whom must suffer the consequence of a breach of
trust, the one who made it possible by his act of
confidence must bear the loss, in this case Jose Vallejo.
Accordingly, the four errors assigned will be sustained,
the judgment reversed, and in the court of origin a new
one entered sustaining plaintiff's mortgage and
granting her the relief prayed for in her complaints. So
ordered, without special pronouncement as to the costs
in either instance.
Villa-Real, Imperial, Butte, and Goddard,
JJ., concur.
Judgment reversed.
 G.R. No. 160346. August 25, 2009.*
PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE
CASTILLA (represented by Mother and Attorney-in-
Fact VIRGINIA CASTILLA), petitioners, vs. COURT
OF APPEALS, SPOUSES ISAGANI BELARMINO and
LETICIA OCAMPO, EUFEMIA SAN AGUSTIN-
MAGSINO, ZENAIDA SAN AGUSTIN-McCRAE,
MILAGROS SAN AGUSTIN-FORTMAN, MINERVA
SAN AGUSTIN-ATKINSON, FERDINAND SAN
AGUSTIN, RAUL SAN AGUSTIN, ISABELITA SAN
AGUSTIN-LUSTENBERGER and VIRGILIO SAN
AGUSTIN, respondents.
Civil Law; Agency; Special Power of Attorney; A special
power of attorney is necessary for an agent to enter into a
contract by which the ownership of an immovable property is
transmitted or acquired, either gratuitously or for a valuable
consideration.—Under Article
_______________
* Additional member as per August 3, 2009 raffle.
* THIRD DIVISION.
14
14 SUPREME COURT
REPORTS ANNOTATED
Pahud vs. Court of Appeals
1878, a special power of attorney is necessary for an
agent to enter into a contract by which the ownership of an
immovable property is transmitted or acquired, either
gratuitously or for a valuable consideration. Such stringent
statutory requirement has been explained in Cosmic Lumber
Corporation v. Court of Appeals, 265 SCRA 168 (1996).
161
Same; Same; Same; Absence of a written authority to sell
a piece of land is, ipso jure, void, precisely to protect the
interest of an unsuspecting owner from being prejudiced by
the unwarranted act of another.—We have repeatedly held
that the absence of a written authority to sell a piece of land
is, ipso jure, void, precisely to protect the interest of an
unsuspecting owner from being prejudiced by the
unwarranted act of another.
Same; Sales; A purchaser of a real property is not
required to make any further inquiry beyond what the
certificate of title indicates on its face. But the rule excludes
those who purchase with knowledge of the defect in the title of
the vendor or of facts sufficient to induce a reasonable and
prudent person to inquire into the status of the property.—
The Belarminos, for their part, cannot argue that they
purchased the property from Virgilio in good faith. As a
general rule, a purchaser of a real property is not required to
make any further inquiry beyond what the certificate of title
indicates on its face. But the rule excludes those who
purchase with knowledge of the defect in the title of the
vendor or of facts sufficient to induce a reasonable and
prudent person to inquire into the status of the property.
Such purchaser cannot close his eyes to facts which should
put a reasonable man on guard, and later claim that he acted
in good faith on the belief that there was no defect in the title
of the vendor. His mere refusal to believe that such defect
exists, or his obvious neglect by closing his eyes to the
possibility of the existence of a defect in the vendor’s title,
will not make him an innocent purchaser for value, if
afterwards it turns out that the title was, in fact, defective.
In such a case, he is deemed to have bought the property at
his own risk, and any injury or prejudice occasioned by such
transaction must be borne by him.
CARPIO-MORALES, J., Concurring and Dissenting
Opinion:
 Civil Law; Estoppel; Article 1432 of the Civil Code
expressly states that the principles of estoppel are adopted
“insofar as they are
15
VOL. 597, AUGUST 25, 2009 15
Pahud vs. Court of Appeals
not in conflict with the provisions of this Code,” among
other laws.—Article 1432 of the Civil Code expressly states
that the principles of estoppel are adopted “insofar as they
are not in conflict with the provisions of this Code,” among
other laws. Indeed, estoppel, being a principle in equity,
cannot be applied in the presence of a law clearly applicable
to the case. The Court is first and foremost a court of law.
While equity might tilt on the side of one party, the same
cannot be enforced so as to overrule positive provisions of law
in favor of the other.
Same; Same; The evident purpose of the legal
requirement of written authority is not only to safeguard the
interest of an unsuspecting owner from being prejudiced by
the unauthorized act of another, but also to caution the buyer
to assure himself of the specific authorization of the putative
agent.—The evident purpose of the legal requirement of such
written authority is not only to safeguard the interest of an
unsuspecting owner from being prejudiced by the
unauthorized act of another, but also to caution the buyer to
assure himself of the specific authorization of the putative
agent. In other words, the drafters of the law already saw the
risky predicament of selling lands through agents which, in
the absence of a specific law, would otherwise ultimately
depend on equity to resolve disputes such as the present
case.
Same; Same; Estoppel cannot give validity to an act that
is prohibited by law or one that is against public policy.—The
previous sale being violative of an express mandate of law,
162
such cannot be ratified by estoppel. Estoppel cannot give
validity to an act that is prohibited by law or one that is
against public policy. Neither can the defense of illegality be
waived. An action or defense for the declaration of the
inexistence of a contract does not prescribe. Amid the
confusion from the double dealing made by their sibling
Eufemia, the three sisters expectedly kept mum about it.
Succinctly, their “continued silence” cannot be taken against
them. Bargaining away a provision of law should not be
countenanced.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Hilarion L. Aquino for petitioners.16
16 SUPREME COURT REPORTS
ANNOTATED
Pahud vs. Court of Appeals
Saguisag & Associates for respondents Spouses
Isagani Belarmino and Leticia Ocampo.
Demeterio L. Hilbero for respondents Eufemia San
Agustin-Magsino, et al.
Carmelino F. Pansacola for respondent Virgilio San
Agustin.
NACHURA, J.:
For our resolution is a petition for review
on certiorari assailing the April 23, 2003 Decision1 and
October 8, 2003 Resolution2 of the Court of Appeals (CA)
in CA-G.R. CV No. 59426. The appellate court, in the
said decision and resolution, reversed and set aside the
January 14, 1998 Decision3 of the Regional Trial Court
(RTC), which ruled in favor of petitioners.
 The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin
and Agatona Genil were able to acquire a 246-square
meter parcel of land situated in Barangay Anos, Los
Baños, Laguna and covered by Original Certificate of
Title (OCT) No. O-(1655) 0-15.4 Agatona Genil died on
September 13, 1990 while Pedro San Agustin died on
September 14, 1991. Both died intestate, survived by
their eight (8) children: respondents Eufemia, Raul,
Ferdinand, Zenaida, Milagros, Minerva, Isabelita and
Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul
executed a Deed of Absolute Sale of Undivided
Shares5conveying in
_______________
1 Penned by Associate Justice Juan Q. Enriquez, Jr., with
Associate Justices Mercedes Gozo-Dadole and Hakim S. Abdulwahid,
concurring; Rollo, pp. 35-45.
2 Id., at pp. 47-48.
3 Rollo, pp. 121-146.
4 Id., at pp. 85-86.
5 Id., at pp. 49-50.
17
VOL. 597, AUGUST 25, 2009 17
Pahud vs. Court of Appeals
favor of petitioners (the Pahuds, for brevity) their
respective shares from the lot they inherited from their
deceased parents for P525,000.00.6 Eufemia also signed
the deed on behalf of her four (4) other co-heirs, namely:
Isabelita on the basis of a special power of attorney
executed on September 28, 1991,7 and also for Milagros,
Minerva, and Zenaida but without their apparent
163
written authority.8 The deed of sale was also not
notarized.9
On July 21, 1992, the Pahuds paid P35,792.31 to the
Los Baños Rural Bank where the subject property was
mortgaged.10 The bank issued a release of mortgage and
turned over the owner’s copy of the OCT to the
Pahuds.11 Over the following months, the Pahuds made
more payments to Eufemia and her siblings totaling to
P350,000.00.12 They agreed to use the remaining
P87,500.0013 to defray the payment for taxes and the
expenses in transferring the title of the property.14When
Eufemia and her co-heirs drafted an extra-judicial
settlement of estate to facilitate the transfer of the title
to the Pahuds, Virgilio refused to sign it.15
On July 8, 1993, Virgilio’s co-heirs filed a
complaint16 for judicial partition of the subject property
before the RTC of Calamba, Laguna. On November 28,
1994, in the course of the proceedings for judicial
partition, a Compromise Agreement17
_______________
6 Id., at pp. 37-38.
7 Id., at p. 61.
8 Id., at p. 37.
9 Id., at pp. 50, 140.
10 Id., at p. 13.
11 Id., at p. 38.
12 Id., at pp. 89-96.
13 Id., at p. 97.
14 Id., at pp. 13, 140.
15 Id., at p. 38.
16 Id., at pp. 51-54. The complaint was docketed as Civil Case No.
2011-93-C.
17 Id., at pp. 69-71.
18
18 SUPREME COURT REPORTS
ANNOTATED
Pahud vs. Court of Appeals
was signed with seven (7) of the co-heirs agreeing to sell
their undivided shares to Virgilio for P700,000.00. The
compromise agreement was, however, not approved by
the trial court because Atty. Dimetrio Hilbero, lawyer
for Eufemia and her six (6) co-heirs, refused to sign the
agreement because he knew of the previous sale made
to the Pahuds.18
On December 1, 1994, Eufemia acknowledged having
received P700,000.00 from Virgilio.19 Virgilio then sold
the entire property to spouses Isagani Belarmino and
Leticia Ocampo (Belarminos) sometime in 1994. The
Belarminos immediately constructed a building on the
subject property.
Alarmed and bewildered by the ongoing construction
on the lot they purchased, the Pahuds immediately
confronted Eufemia who confirmed to them that Virgilio
had sold the property to the Belarminos.20 Aggrieved,
the Pahuds filed a complaint in intervention21in the
pending case for judicial partition.
After trial, the RTC upheld the validity of the sale to
petitioners. The dispositive portion of the decision
reads:
“WHEREFORE, the foregoing considered, the Court
orders:
1. the sale of the 7/8 portion of the property covered by
OCT No. O (1655) O-15 by the plaintiffs as heirs of deceased
Sps. Pedro San Agustin and Agatona Genil in favor of the
Intervenors-Third Party plaintiffs as valid and enforceable,
but obligating the Intervenors-Third Party plaintiffs to
164
complete the payment of the purchase price of P437,500.00
by paying the balance of P87,500.00 to defendant Fe (sic) San
Agustin Magsino. Upon receipt of the balance, the plaintiff
shall formalize the sale of the 7/8 portion in favor of the
Intervenor[s]-Third Party plaintiffs;
2. declaring the document entitled “Salaysay sa
Pagsang-ayon sa Bilihan” (Exh. “2-a”) signed by plaintiff
Eufemia San
_______________
18 Id., at pp. 136, 139.
19 Id., at p. 106.
20 Id., at pp. 135-136.
21 Id., at pp. 72-84.
19
VOL. 597, AUGUST 25, 2009 19
Pahud vs. Court of Appeals
Agustin attached to the unapproved Compromise Agreement
(Exh. “2”) as not a valid sale in favor of defendant Virgilio
San Agustin;
3. declaring the sale (Exh. “4”) made by defendant
Virgilio San Agustin of the property covered by OCT No. O
(1655)-O-15 registered in the names of Spouses Pedro San
Agustin and Agatona Genil in favor of Third-party defendant
Spouses Isagani and Leticia Belarmino as not a valid sale
and as inexistent;
4. declaring the defendant Virgilio San Agustin and the
Third-Party defendants spouses Isagani and Leticia
Belarmino as in bad faith in buying the portion of the
property already sold by the plaintiffs in favor of the
Intervenors-Third Party Plaintiffs and the Third-Party
Defendant Sps. Isagani and Leticia Belarmino in
constructing the two-[storey] building in (sic) the property
subject of this case; and
 5. declaring the parties as not entitled to any damages,
with the parties shouldering their respective responsibilities
regarding the payment of attorney[‘]s fees to their respective
lawyers.
No pronouncement as to costs.
SO ORDERED.”22
Not satisfied, respondents appealed the decision to
the CA arguing, in the main, that the sale made by
Eufemia for and on behalf of her other co-heirs to the
Pahuds should have been declared void and inexistent
for want of a written authority from her co-heirs. The
CA yielded and set aside the findings of the trial court.
In disposing the issue, the CA ruled:
“WHEREFORE, in view of the foregoing, the Decision
dated January 14, 1998, rendered by the Regional Trial
Court of Calamba, Laguna, Branch 92 in Civil Case No.
2011-93-C for Judicial Partition is hereby REVERSED and
SET ASIDE, and a new one entered, as follows:
(1) The case for partition among the plaintiffs-
appellees and appellant Virgilio is now considered
closed and terminated;
_______________
22 Id., at pp. 145-146.
20
20 SUPREME COURT REPORTS
ANNOTATED
Pahud vs. Court of Appeals
(2) Ordering plaintiffs-appellees to return to
intervenors-appellees the total amount they received
from the latter, plus an interest of 12% per
annum from the time the complaint [in] intervention
165
was filed on April 12, 1995 until actual payment of the
same;
(3) Declaring the sale of appellant Virgilio San
Agustin to appellants spouses, Isagani and Leticia
Belarmino[,] as valid and binding;
(4) Declaring appellants-spouses as buyers in
good faith and for value and are the owners of the
subject property.
No pronouncement as to costs.
SO ORDERED.”23
Petitioners now come to this Court raising the
following arguments:
“I. The Court of Appeals committed grave and
reversible error when it did not apply the second
paragraph of Article 1317 of the New Civil Code
insofar as ratification is concerned to the sale of
the 4/8 portion of the subject property executed by
respondents San Agustin in favor of petitioners;
II. The Court of Appeals committed grave and
reversible error in holding that respondents
spouses Belarminos are in good faith when they
bought the subject property from respondent
Virgilio San Agustin despite the findings of fact by
the court a quo that they were in bad faith which
clearly contravenes the presence of long line of
case laws upholding the task of giving utmost
weight and value to the factual findings of the trial
court during appeals; [and]
III. The Court of Appeals committed grave and
reversible error in holding that respondents
spouses Belarminos have superior rights over the
 property in question than petitioners despite the
fact that the latter were prior in pos-
_______________
23 Id., at pp. 44-45.
21
VOL. 597, AUGUST 25, 2009 21
Pahud vs. Court of Appeals
session thereby misapplying the provisions of Article
1544 of the New Civil Code.”24
The focal issue to be resolved is the status of the sale
of the subject property by Eufemia and her co-heirs to
the Pahuds. We find the transaction to be valid and
enforceable.
Article 1874 of the Civil Code plainly provides:
“Art. 1874. When a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void.”
Also, under Article 1878,25 a special power of attorney
is necessary for an agent to enter into a contract by
which the ownership of an immovable property is
transmitted or acquired, either gratuitously or for a
valuable consideration. Such stringent statutory
requirement has been explained in Cosmic Lumber
Corporation v. Court of Appeals:26
“[T]he authority of an agent to execute a contract [of] sale of
real estate must be conferred in writing and must give
him specific authority, either to conduct the general
business of the principal or to execute a binding contract
containing terms and conditions which are in the contract he
did execute. A special power of attorney is necessary to enter
166
into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to
enable an appointee of an agency (couched) in general terms
to sell must be one that expressly mentions a sale or
that includes a
_______________
24 Id., at p. 19.
25 Article 1878(5) provides:
Art. 1878. Special powers of attorney are necessary in the
following cases:
xxxx
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a
valuable consideration.
26 332 Phil. 948; 265 SCRA 168 (1996).
22
22 SUPREME COURT REPORTS
ANNOTATED
Pahud vs. Court of Appeals
sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express
the powers of the agent in clear and unmistakable language.
When there is any reasonable doubt that the language so
used conveys such power, no such construction shall be given
the document.”27
In several cases, we have repeatedly held that the
absence of a written authority to sell a piece of land
is, ipso jure, void,28 precisely to protect the interest of an
unsuspecting owner from being prejudiced by the
unwarranted act of another.
 Based on the foregoing, it is not difficult to conclude,
in principle, that the sale made by Eufemia, Isabelita
and her two brothers to the Pahuds sometime in 1992
should be valid only with respect to the 4/8 portion of
the subject property. The sale with respect to the 3/8
portion, representing the shares of Zenaida, Milagros,
and Minerva, is void because Eufemia could not dispose
of the interest of her co-heirs in the said lot absent any
written authority from the latter, as explicitly required
by law. This was, in fact, the ruling of the CA.
Still, in their petition, the Pahuds argue that the sale
with respect to the 3/8 portion of the land should have
been deemed ratified when the three co-heirs, namely:
Milagros, Minerva, and Zenaida, executed their
respective special power of attorneys29 authorizing
Eufemia to represent them in the sale of their shares in
the subject property.30
_______________
27 Id., at pp. 957-958. (Emphasis supplied, citations omitted.)
28 Estate of Lino Olaguer, etc. v. Hon. CA and Emiliano M.
Ongjoco, G.R. No. 173312, August 26, 2008, 563 SCRA 373; Dizon v.
Court of Appeals, G.R. Nos. 122544 and 124741, January 28, 2003, 396
SCRA 151, 155; AF Realty & Development, Inc. v. Dieselman Freight
Services, Co., 424 Phil. 446, 455; 373 SCRA 385, 392 (2002); San Juan
Structural and Steel Fabricators, Inc. v. Court of Appeals, G.R. No.
129459, September 29, 1998, 296 SCRA 631, 648.
29 Special Power of Attorney of Isabelita San Agustin-Lusten-
berger was executed on September 28, 1991, Rollo, p. 61 (Annex “E”);
23
VOL. 597, AUGUST 25, 2009 23
Pahud vs. Court of Appeals
While the sale with respect to the 3/8 portion is void
by express provision of law and not susceptible to
167
ratification,31 we nevertheless uphold its validity on the
basis of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
“Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the
person relying thereon.”
True, at the time of the sale to the Pahuds, Eufemia
was not armed with the requisite special power of
attorney to dispose of the 3/8 portion of the property.
Initially, in their answer to the complaint in
intervention,32 Eufemia and her other co-heirs denied
having sold their shares to the Pahuds. During the pre-
trial conference, however, they admitted that they had
indeed sold 7/8 of the property to the Pahuds sometime
in 1992.33 Thus, the previous denial was superseded, if
not accordingly amended, by their subsequent
admission.34
_______________
Special Power of Attorney of Milagros San Agustin-Fortman was
executed in December 1992, Id., at p. 62 (Annex “F”); Special Power of
Attorney of Minerva San Agustin-Atkinson was executed, undated,
but was witnessed by G.R. Stephenson, Commissioner for Oaths, on
February 12, 1993, Id., at p. 63 (Annex “G”); and Special Power of
Attorney of Zenaida San Agustin-McCrae was executed on May 10,
1993, Id., at p. 64 (Annex “H”).
30 Rollo, p. 20.
31 CIVIL CODE, Art. 1409 provides in part:
Art. 1409. The following contracts are inexistent and void
from the beginning:
xxxx
(7) Those expressly prohibited or declared void by law.
 These contracts cannot be ratified. Neither can the right to
set up the defense of illegality be waived.
32 I Records, p. 26; Exh. “I-A,” entitled Answer to Counterclaim
dated December 14, 1993.
33 II Records, pp. 262-264.
34 RULES OF COURT, Rule 10, Sec. 5 provides in full:
24
24 SUPREME COURT REPORTS
ANNOTATED
Pahud vs. Court of Appeals
Moreover, in their Comment,35 the said co-heirs again
admitted the sale made to petitioners.36
Interestingly, in no instance did the three (3) heirs
concerned assail the validity of the transaction made by
Eufemia to the Pahuds on the basis of want of written
authority to sell. They could have easily filed a case for
annulment of the sale of their respective shares against
Eufemia and the Pahuds. Instead, they opted to remain
silent and left the task of raising the validity of the sale
as an issue to their co-heir, Virgilio, who is not privy to
the said transaction. They cannot be allowed to rely on
Eufemia, their attorney-in-fact, to impugn the validity
of the first transaction because to allow them to do so
would be tantamount to giving premium to their sister’s
dishonest and fraudulent deed. Undeniably, therefore,
the silence and passivity of the three co-heirs on the
issue bar them from making a contrary claim.
It is a basic rule in the law of agency that a principal
is subject to liability for loss caused to another by the
latter’s reliance upon a deceitful representation by an
agent in the course of his employment (1) if the
representation is author-
_______________
168
SEC. 5. Amendment to conform to or authorize
presentation of evidence.—When issues not raised by the
pleadings are tried with the express or implied consent of the
parties, they shall be treated in all respects as if they had been
raised in the pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the evidence and
to raise these issues may be made upon motion of any party at
any time, even after judgment; but failure to amend does not
affect the result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the pleadings
to be amended and shall do so with liberality if the presentation
of the merits of the action and the ends of substantial justice
will be subserved thereby. The court may grant a continuance
to enable the amendment to be made.
35 Rollo, pp. 200-204.
36 Id., at p. 200.
25
VOL. 597, AUGUST 25, 2009 25
Pahud vs. Court of Appeals
ized; (2) if it is within the implied authority of the agent
to make for the principal; or (3) if it is apparently
authorized, regardless of whether the agent was
authorized by him or not to make the representation.37
By their continued silence, Zenaida, Milagros and
Minerva have caused the Pahuds to believe that they
have indeed clothed Eufemia with the authority to
transact on their behalf. Clearly, the three co-heirs are
now estopped from impugning the validity of the sale
from assailing the authority of Eufemia to enter into
such transaction.
Accordingly, the subsequent sale made by the seven
co-heirs to Virgilio was void because they no longer had
any interest over the subject property which they could
alienate at the time of the second transaction.38 Nemo
dat quod non habet. Virgilio, however, could still
alienate his 1/8 undivided share to the Belarminos.
The Belarminos, for their part, cannot argue that
they purchased the property from Virgilio in good faith.
As a general rule, a purchaser of a real property is not
required to make any further inquiry beyond what the
certificate of title indicates on its face.39 But the rule
excludes those who purchase
_______________
37 See De Leon, Comments and Cases on Partnership, Agency and
Trusts, 2005 edition, p. 538, citing Mechem, Cases on the Law of
Agency, p. 230.
38 CIVIL CODE, Art. 1409 provides in part:
Art. 1409. The following contracts are inexistent and void
from the beginning:
xxxx
(3) Those whose cause or object did not exist at the time of
the transaction;
xxxx
These contracts cannot be ratified. Neither can the right to
set up the defense of illegality be waived.
39 Lu v. Intermediate Appellate Court, G.R. No. 70149, January 30,
1989, 169 SCRA 595, 604; Lopez v. Court of Appeals, G.R. No. 49739,
January 20, 1989, 169 SCRA 271, 275-276.
26
26 SUPREME COURT REPORTS
ANNOTATED
Pahud vs. Court of Appeals
with knowledge of the defect in the title of the vendor or
of facts sufficient to induce a reasonable and prudent
person to inquire into the status of the property.40Such
purchaser cannot close his eyes to facts which should
put a reasonable man on guard, and later claim that he
acted in good faith on the belief that there was no defect
169
in the title of the vendor. His mere refusal to believe
that such defect exists, or his obvious neglect by closing
his eyes to the possibility of the existence of a defect in
the vendor’s title, will not make him an innocent
purchaser for value, if afterwards it turns out that the
title was, in fact, defective. In such a case, he is deemed
to have bought the property at his own risk, and any
injury or prejudice occasioned by such transaction must
be borne by him.41
In the case at bar, the Belarminos were fully aware
that the property was registered not in the name of the
immediate transferor, Virgilio, but remained in the
name of Pedro San Agustin and Agatona Genil.42 This
fact alone is sufficient impetus to make further inquiry
and, thus, negate their claim that they are purchasers
for value in good faith.43 They knew that the property
was still subject of partition proceedings before the trial
court, and that the compromise agreement signed by
the heirs was not approved by the RTC following the
opposition of the counsel for Eufemia and her six other
co-heirs.44 The Belarminos, being transferees pendente
lite, are deemed buyers in mala fide, and they stand
exactly in the shoes of the transferor and are bound by
any judgment or
_______________
40 Abad v. Guimba, G.R. No. 157002, July 29, 2005, 465 SCRA 356,
367.
41 Bailon-Casilao v. Court of Appeals, G.R. No. L-78178, April 15,
1988, 160 SCRA 738, 750.
42 I Records, pp. 5-6.
43 Guaranteed Homes, Inc. v. Heirs of Maria P. Valdez, et al., G.R.
No. 171531, January 30, 2009, 577 SCRA 441.
44 I Records, at pp. 60-61.
27 46 Rollo, p. 16.
VOL. 597, AUGUST 25, 2009 27 ** In lieu of Associate Justice Consuelo-Ynares Santiago per
Special Order No. 678 dated August 3, 2009.
Pahud vs. Court of Appeals *** Additional member in lieu of Associate Justice Consuelo
decree which may be rendered for or against the Ynares-Santiago per Special Order No. 679 dated August 3, 2009.
transferor.45 Furthermore, had they verified the status 28
of the property by asking the neighboring residents, 28 SUPREME COURT REPORTS
they would have been able to talk to the Pahuds who ANNOTATED
occupy an adjoining business establishment46 and would
Pahud vs. Court of Appeals
have known that a portion of the property had already
CONCURRING AND DISSENTING OPINION
been sold. All these existing and readily verifiable facts
CARPIO -MORALES, J.:
are sufficient to suggest that the Belarminos knew that
The ponencia reinstates the trial court’s Decision of
they were buying the property at their own risk.
January 14, 1998 with the modification that “the sale
WHEREFORE, premises considered, the April 23,
made by respondent Virgilio San Agustin to respondent
2003 Decision of the Court of Appeals as well as its
spouses Isagani Belarmino and Leticia Ocampo is valid
October 8, 2003 Resolution in CA-G.R. CV No. 59426,
only with respect to the 1/8 portion of the subject
are REVERSED and SET ASIDE. Accordingly, the
property.”1
January 14, 1998 Decision of Branch 92 of the Regional
I submit that the validity of the sale to spouses
Trial Court of Calamba, Laguna is REINSTATED with
Belarmino extends to 4/8 or one-half of the property,
the MODIFICATION that the sale made by respondent
inclusive of the combined 3/8 share of respondents-
Virgilio San Agustin to respondent spouses Isagani
sisters Zenaida, Milagros and Minerva, all bearing the
Belarmino and Leticia Ocampo is valid only with
maiden surname of San Agustin, thus leaving only one-
respect to the 1/8 portion of the subject property. The
half of the property to petitioners Purita Pahud, et al.
trial court is ordered to proceed with the partition of the
who earlier purchased from Eufemia San Agustin
property with dispatch.
(Eufemia) the property including the 3/8 portion over
SO ORDERED.
which no written authority from the three sisters was
Chico-Nazario,** (Actg. Chairperson), Velasco,
secured. The ponente, Justice Nachura, in fact, agrees
Jr. and Peralta, JJ., concur.
to this proposition “in principle.”2
Carpio-Morales,*** J., Please see Concurring and
The ponencia even rejects petitioners’ contention
Dissenting Opinion.
_______________ that the special power of attorney subsequently
executed by Zenaida, Milagros and Minerva in favor of
45 Voluntad v. Dizon, G.R. No. 132294, August 26, 1999, 313 SCRA Eufemia effectively ratified their earlier purchase of the
209.

170
property insofar as the 3/8 portion is concerned, for the
established reason that void contracts or the illegal
terms thereof3 are not susceptible to ratification. The
subsequent execution by the three sisters of the
respective special powers of attorney only means that
they considered the previous sale null and recognized
the salability of their 3/8 portion, thus paving the way
for its transfer to Virgilio San Agustin and its eventual
sale to the spouses Belarmino.
_______________
1 Ponencia, p. 12 (underscoring supplied).
2 Ponencia, p. 7.
3 Civil Code, Art. 1420 in relation to Art. 493.
29
VOL. 597, AUGUST 25, 2009 29
Pahud vs. Court of Appeals
Indeed, as the ponencia elucidates, Articles 1874 and
1878 of the Civil Code clearly provide that a special
power of attorney is necessary for an agent to “enter
into any contract by which the ownership of an
immovable is transmitted or acquired either
gratuitously or for a valuable consideration” and that
specifically in cases of sale of a piece of land or any
interest therein through an agent, “the authority of the
latter shall be in writing; otherwise the sale shall
be void.”
The ponencia takes one step further, however, in
upholding the validity of the sale of the 3/8 portion
belonging to the 3 sisters to petitioner notwithstanding
the want of a written authority to sell, by applying the
principle of estoppel. It ratiocinates:
171
“While the sale with respect to the 3/8 portion is void by
express provision of law and not susceptible to ratification,
we nevertheless uphold its validity on the basis of the
common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as
against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was
not armed with the requisite special power of attorney to
dispose of the 3/8 portion of the property. Initially, in their
answer to the complaint in intervention, Eufemia and her
other co-heirs denied having sold their shares to the
Pahuds. During the pre-trial conference, however, they
admitted that they had indeed sold 7/8 of the property to the
Pahuds sometime in 1992. Thus, the previous denial was
superseded, if not accordingly amended, by their subsequent
admission. Moreover, in their Comment, the said co-heirs
again admitted the sale made to petitioners.
Interestingly, in no instance did the three (3) heirs
concerned assail the validity of the transaction made by
Eufemia to the Pahuds on the basis of want of written
authority to sell. They could have easily filed a case for
annulment of the sale of their respective shares against
Eufemia and the Pahuds. Instead, they opted to remain
30
30 SUPREME COURT REPORTS
ANNOTATED
Pahud vs. Court of Appeals
silent and left the task of raising the validity of the sale as
an issue to their co-heir, Virgilio, who is not privy to the said
transaction. They cannot be allowed to rely on Eufemia, their
attorney-in-fact, to impugn the validity of the first
transaction because to allow them to do so would be
tantamount to giving premium to their sister’s dishonest and
fraudulent deed. Undeniably, therefore, the silence and
passivity of the three co-heirs on the issue bar them from
making a contrary claim.
It is a basic rule in the law of agency that a principal is
subject to liability for loss caused to another by the
latter’s reliance upon a deceitful representation by an
agent in the course of his employment (1) if the
representation is authorized; (2) if it is within the implied
authority of the agent to make for the principal; or (3) if it is
apparently authorized, regardless of whether the agent was
authorized by him or not to make the representation.
By their continued silence, Zenaida, Milagros and
Minerva have caused the Pahuds to believe that they have
indeed clothed Eufemia with the authority to transact on
their behalf. Clearly, the three co-heirs are now estopped
from impugning the validity of the sale from assailing the
authority of Eufemia to enter such transaction.”4(Emphasis
and underscoring supplied)
It is from this aspect of the ponenciathat I
respectfully dissent.
Equity cannot supplant or contravene the law.5
Article 1432 of the Civil Code expressly states that
the principles of estoppel are adopted “insofar as they
are not in conflict with the provisions of this Code,”
among other laws.
Indeed, estoppel, being a principle in equity, cannot
be applied in the presence of a law clearly applicable to
the case. The Court is first and foremost a court of law.
While equity might tilt on the side of one party, the
same cannot be en-
_______________
172
4 Ponencia, pp. 8-10.
5 Valdevieso v. Damalerio, 492 Phil. 51, 59; 451 SCRA 664, 672
(2005).
31
VOL. 597, AUGUST 25, 2009 31
Pahud vs. Court of Appeals
forced so as to overrule positive provisions of law in
favor of the other.6
Moreover, the evident purpose of the legal
requirement of such written authority is not only to
safeguard the interest of an unsuspecting owner from
being prejudiced by the unauthorized act of another, but
also to caution the buyer to assure himself of the specific
authorization of the putative agent. In other words, the
drafters of the law already saw the risky predicament
of selling lands through agents which, in the absence of
a specific law, would otherwise ultimately depend on
equity to resolve disputes such as the present case. The
law undoubtedly seeks to prevent the following
confusion:
“Case law tells us that the elements of estoppel are: “first,
the actor who usually must have knowledge, notice or
suspicion of the true facts, communicates something to
another in a misleading way, either by words, conduct or
silence; second, the other in fact relies, and relies reasonably
or justifiably, upon that communication; third, the other
would be harmed materially if the actor is later permitted to
assert any claim inconsistent with his earlier conduct;
and fourth, the actor knows, expects or foresees that the
other would act upon the information given or that a
reasonable person in the actor’s position would expect or
foresee such action.”7
 The depicted scenario is precisely the
misunderstanding between parties to such type of sale
which the lawmakers sought to avoid in prescribing the
conditions for the validity of such sale of land. The
present case is a classic example of a tedious litigation
which had ensued as a result of such misunderstanding.
This is what the law endeavors to avert.8 It is
_______________
6 Vide id. A waiver will be inoperative and void if it infringes on
the rights of others (Ouano v. Court of Appeals, infra at 704).
7 Phil. Bank of Communications v. Court of Appeals, 352 Phil. 1, 9;
289 SCRA 178, 185-186 (1998).
8 Cf. Powton Conglomerate, Inc. v. Agcolicol, 448 Phil. 643, 653;
400 SCRA 523 (2003) for analogy respecting the vital preconditions to
the validity of a contract for additional works under Article 1724 of the
Civil Code.
32
32 SUPREME COURT REPORTS
ANNOTATED
Pahud vs. Court of Appeals
not for the Court to suspend the application of the law
and revert to equitable grounds in resolving the present
dispute.
Assuming arguendo that estoppel can contradict
positive law, I submit that Article 1431 of the Civil Code
does not apply since it speaks of one’s prioradmission
or representation, without which the other person could
not have relied on it before acting accordingly.
The ponencia cites acts or omissions on the part of
the three sisters which came after the fact such as
their “admission” and “continued silence” which,
however, could not retroact to the time of the previous
173
sale as to consider petitioners to have accordingly relied
on such admission or representation before buying the
property from Eufemia. The application of the principle
of estoppel is proper and timely in heading off shrewd
efforts at renouncing one’s previous acts to the
prejudice of another who had dealt honestly and in good
faith.9 It is thus erroneous to conclude that Zenaida,
Milagros and Minerva have caused petitioners to
believe that they have clothed Eufemia with the
authority to transact on their behalf.
Could the three sisters ratify the previous sale
through their subsequentacts or omissions? I opine they
cannot. The ponencia concedes that “the sale with
respect to the 3/8 portion is void by express provision of
law and not susceptible to ratification.”
The previous sale being violative of an express
mandate of law, such cannot be ratified by estoppel.
Estoppel cannot give validity to an act that is prohibited
by law or one that is against public policy. Neither can
the defense of illegality be waived.10 An action or
defense for the declaration of the in-
_______________
9 Vide Pureza v. Court of Appeals, 352 Phil. 717, 722; 290 SCRA
110, 114-115 (1998).
10 Vide Ouano v. Court of Appeals, 446 Phil. 690, 708; 398 SCRA
525, 539 (2003).
33
VOL. 597, AUGUST 25, 2009 33
Pahud vs. Court of Appeals
existence of a contract does not prescribe.11 Amid the
confusion from the double dealing made by their sibling
Eufemia, the three sisters expectedly kept mum about
it. Succinctly, their “continued silence” cannot be taken
against them. Bargaining away a provision of law
should not be countenanced.
Neither can their “admission” to a question of
law bind them. The ponenciahighlights the admission
made by Eufemia and her co-heirs during the pre-trial
conference before the trial court and in their Comment
on the present petition that they had earlier sold 7/8 of
the property to petitioners. These statements could not
mean, however, as an admission in petitioners’ favor
that Zenaida, Milagros and Minerva validly sold their
respective shares to petitioners. They could only admit
to the statement of fact12that the sale took place, but not
to the conclusion of law that the sale was valid,
precisely because the validity of the sales transaction
is at issue as it was contested by the parties.
Further, the textbook citation of the rule involving a
principal’s responsibility for an agent’s
misrepresentation within the scope of an agent’s
authority as annotated by the cited author under
Article 1900 of the Civil Code is inapplicable. The
qualifying phrase “in the course of his
employment” presupposes that an agency relationship
is existing. The quoted rule clearly recites that a
principal is held liable if the “deceitful representation”
(not the agency relationship) is authorized either
expressly, impliedly, or apparently. In this case, there
was no agency relationship to speak of.
I, therefore, vote to reinstate the trial court’s
January 14, 1998 Decision with modification that the
sale made by respondent Virgilio San Agustin to
respondent spouses Isagani Belarmino and Leticia
174
Ocampo is valid with respect to the 4/8 portion of the
subject property.
G.R. No. 108957. June 14, 1993. *
PRUDENTIAL BANK, petitioner, vs.THE COURT OF
APPEALS, AURORA CRUZ, respondents.
Commercial Law; Banks or Banking Institutions; A
banking corporation is liable to innocent third persons where
the representation is made in the course of its business by an
agent acting within the general scope of his authority even
though the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some
other person for his own ultimate benefit.—Conformably, we
have declared in countless decisions that the principal is
liable for obligations contracted by the agent. The agent’s
apparent representation yields to the principal’s true
representation and the contract is consid-
________________
FIRST DIVISION.
*
351
VOL. 223, JUNE 14, 1993 351
Prudential Bank vs. Court of Appeals
ered as entered into between the principal and the third
person. A bank is liable for wrongful acts of its officers done
in the interests of the bank or in the course of dealings of the
officers in their representative capacity but not for acts
outside the scope of their authority. (9 c.q.s. p. 417) A bank
holding out its officers and agent as worthy of confidence will
not be permitted to profit by the frauds they may thus be
enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may
accrue to the bank therefrom (10 Am Jur 2d, p. 114).
Accordingly, a banking corporation is liable to innocent third
persons where the representation is made in the course of its
business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate
a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752,
204 NW 818, 40 ALR 1021.)
Same; Same; Civil Law; Damages; Petitioner is liable
for moral and exemplary damages when it acted in bad faith
in denying Cruz the obligation she was claiming against it.—
We agree with the lower courts that the petitioner acted in
bad faith in denying Cruz the obligation she was claiming
against it. It was obvious that an irregularity had been
committed by the bank’s personnel, but instead of repairing
the injury to Cruz by immediately restoring her money to
her, it sought to gloss over the anomaly in its own operations.
Cruz naturally suffered anxious moments and mental
anguish over the loss of the investment. The amount of
P200,000.00 is not small even by present standards. By
unjustly withholding it from her on the unproved defense
that she had already withdrawn it, the bank violated the
trust she had reposed in it and thus subjected itself to further
liability for moral and exemplary damages.
PETITION for review of the decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
175
Monique Q. Ignacio for petitioner.
Eduardo C. Tutaan for private respondent.
CRUZ, J.:
We deal here with another controversy involving the
integrity of a bank.
The complaint in this case arose when private
respondent
352
352 SUPREME COURT REPORTS
ANNOTATED
Prudential Bank vs. Court of Appeals
Aurora F. Cruz, with her sister as co-depositor,
**
invested P200,000.00 in Central Bank bills with the
Prudential Bank at its branch in Quezon Avenue,
Quezon City, on June 23, 1986. The placement was for
63 days at 13.75% annual interest. For this purpose, the
amount of P196,122.88 was withdrawn from the
depositors’ Savings Account No. 2546 and applied to the
investment. The difference of P3,877.07 represented the
pre-paid interest.
The transaction was evidenced by a Confirmation of
Sale delivered to Cruz two days later, together with a
1
Debit Memo in the amount withdrawn and applied to
2
the confirmed sale. These documents were issued by
Susan Quimbo, the employee of the bank to whom Cruz
was referred and who was apparently in charge of such
transactions. 3
Upon maturity of the placement on August 25, 1986,
Cruz returned to the bank to “roll-over” or renew her
investment. Quimbo, who again attended to her,
prepared a Credit Memo crediting the amount of
4 information, Cruz became hysterical and burst into
P200,000.00 in Cruz’s savings account passbook. She
also prepared a Debit Memo for the amount of
P196,122.88 to cover the re-investment of P200,000.00
minus the prepaid interest of P3,877.02. 5 inquire about her request to withdraw her investment.
This time, Cruz was asked to sign a Withdrawal
Slip for P196,122.98, representing the amount to be re-
6 she wrote the bank which was received by Santos
invested after deduction of the prepaid interest. Quimbo
explained this was a new requirement of the bank.
Several days later, Cruz received another Confirmation
of Sale and a copy of the Debit Memo.
7 8
On October 27, 1986, Cruz returned to the bank and
sought to withdraw her P200,000.00. After verification
of her records, however, she was informed that the
investment appeared to have been already withdrawn
by her on August 25, 1986. There
_______________
**The petitioner is not related to the ponente.
1 Decision of RTC Judge Rodolfo A. Ortiz, p. 3.
2 Decision of RTC Judge Rodolfo A. Ortiz, p. 3.
3 Rollo, p. 28.
4 Decision of RTC Judge Rodolfo A. Ortiz, p. 4.
5 Rollo, p. 29.
6 Rollo, p. 29.
7 Rollo, p. 29.
8 Rollo, p. 29.
353
VOL. 223, JUNE 14, 1993 353
Prudential Bank vs. Court of Appeals
was no copy on file of the Confirmation of Sale and the
Debit Memo allegedly issued to her by Quimbo. Quimbo
herself was not available for questioning as she had not
been reporting for the past week. Shocked by this
176
tears. The branch manager, Roman Santos, assured her
that he would look into the matter. 9
Every day thereafter, Cruz went to the bank to
She received no definite answer, not even to the letter
himself. Finally, Cruz sent the bank a demand letter
10
dated November 12, 1986 for the amount of P200,000.00
plus interest. In a reply dated November 20, 1986, the
11
bank’s Vice President Lauro J. Jocson said that there
appeared to be an anomaly and requested Cruz to defer
court action as they hoped to settle the matter
amicably. Increasingly worried, Cruz sent another
12
letter reiterating her demand. This time the reply of
13
the bank was unequivocal and negative. She was told
that her request had to be denied because she had
already withdrawn the amount she was claiming. 14
Cruz’s reaction was to file a complaint for breach of
contract against Prudential Bank in the Regional Trial
Court of Quezon City. She demanded the return of her
money with interest, plus damages and attorney’s fees.
In its answer, the bank denied liability, insisting that
Cruz had withdrawn her investment. The bank also
instituted a third-party complaint against Quimbo, who
did not file an answer and was declared in default. The
15
bank, however, did not present any evidence against
her.
After trial, Judge Rodolfo A. Ortiz rendered
judgment in favor of the plaintiffs and disposed as
follows:
ACCORDINGLY, judgment is hereby rendered ordering the The petition shall fail. The petitioner is quibbling. It
defendant/third-party plaintiff to pay to the plaintiffs the appears to be merely temporizing to delay enforcement
following of the liability clearly established against it.
________________
The basic issues are factual. The private respondent
9 Rollo, p. 30. claims she has not yet collected her investment of
10 Rollo, p. 30. P200,000.00 and has submitted in proof of their
11 Rollo, p. 30.

12 Rollo, p. 31.
contention the Confirmation of Sale and the Debit
13 Rollo, p. 31. Memo issued to her by Quimbo on the official forms of
14 Rollo, p. 31.
the bank. The petitioner denies her claim and points to
15 Rollo, p. 36.
the Withdrawal Slip, which it says Cruz has not denied
354 having signed. It also contends that the Confirmation of
354 SUPREME COURT REPORTS Sale and the Debit Memo are fake and should not have
ANNOTATED been given credence by the lower courts.
Prudential Bank vs. Court of Appeals The findings of the trial court on these issues have
amounts: been affirmed by the respondent court and we see no
reason to disturb them. The petitioner has not shown
1. 1.P200,000.00, plus interest thereon at the rate of that they have been reached arbitrarily or in disregard
13.75% per annum from October 27, 1986, until fully of the evidence of record. On the contrary, we find
paid; substantial basis for the conclusion that the private
2. 2.P30,000.00, as moral damages; respondents signed the Withdrawal Slip only as part of
3. 3.P20,000.00, as exemplary damages; and the bank’s new procedure of re-investment. She did not
4. 4.P25,000.00, as reasonable attorney’s fees.
actually receive the amount indicated therein, which
she was made to understand was being re-invested in
The counterclaim and the third-party complaint of the
defendant/ third-party plaintiff are dismissed. her name. The bank itself so
_______________
With costs against the defendant/third-party plaintiff.
Rollo, pp. 39-46.
The decision was affirmed in toto on appeal to the
16

respondent court. 355

The judgment of the Court of Appeals is now faulted
16
in this petition, mainly on the ground that the bank
should not have been found liable for a quasi-delict
when it was sued for breach of contract.
VOL. 223, JUNE 14, 1993 355
Prudential Bank vs. Court of Appeals
assured her in the Confirmation of Sale and the Debit
Memo later issued to her by Quimbo.

177
 Especially persuasive are the following observations
of the trial court:17
What is more, it could not be that plaintiff Aurora F. Cruz
withdrew only the amount of P196,122.98 from their savings
account, if her only intention was to make such a
withdrawal. For, if, indeed, it was the desire of the plaintiffs
to withdraw their money from the defendant/third-party
plaintiff, they could have withdrawn an amount in round
figures. Certainly, it is unbelievable that their withdrawal
was in the irregular amount of P196,122.98 if they really
received it. On the contrary, this amount, which is the price
of the Central Bank bills rolled over, indicates that, as
claimed by plaintiff Aurora F. Cruz, she did not receive this
money, but it was left by her with the defendant/ third-party
plaintiff in order to buy Central Bank bills placement for
another sixty-three (63) days, for which she signed a
withdrawal slip at the instance of third-party defendant
Susan Quimbo who told her that it was a new bank
requirement for the roll-over of a matured placement which
she trustingly believed.
Indeed, the bank has not explained the remarkable
coincidence that the amount indicated in the
withdrawal slip is exactlythe same amount Cruz was re-
investing after deducting therefrom the pre-paid
interest.
The bank has also not succeeded in impugning the
authenticity of the Confirmation of Sale and the Debit
Memo which were made on its official forms. These are
admittedly not available to the general public or even
its depositors and are handled only by its personnel.
Even assuming that they were not signed by its
authorized officials, as it claims, there was no obligation
on the part of Cruz to verify their authority because she
178
had the right to presume it. The documents had been
issued in the office of the bank itself and by its own
employees with whom she had previously dealt. Such
dealings had not been questioned before, much less
invalidated. There was absolutely no reason why she
should not have accepted their authority to act on
behalf of their employer.
_______________
17 Decision of RTC Judge Rodolfo A. Ortiz, pp. 7-8.
356
356 SUPREME COURT REPORTS
ANNOTATED
Prudential Bank vs. Court of Appeals
It is also worthy of note—and wonder—that although
the bank impleaded Quimbo in a third-party complaint,
it did not pursue its suit even when she failed to answer
and was declared in default. The bank did not introduce
evidence against her although it could have done so
under the rules. No less remarkably, it did not call on
her to testify on its behalf, considering that under the
circumstances claimed by it, she would have been the
best witness to show that Cruz had actually withdrawn
her P200,000.00 placement. Instead, the bank chose to
rely on its other employees whose testimony was less
direct and categorical than the testimony Quimbo could
have given.
We do not find that the Court of Appeals held the
bank liable on a quasi-delict. The argument of the
petitioner on this issue is pallid, to say the least,
consisting as it does only of the observation that the
article cited by the respondent court on the agent’s
liability falls under the heading in the Civil Code on
quasidelicts. On the other hand, the respondent court
clearly declared that:
The defendant/third-party plaintiff being liable for the
return of the P200,000.00 placement of the plaintiffs, the
extent of the liability of the defendant/third-party plaintiff
for damages resultant thereof, which is contractual, is for all
damages which may be reasonably attributed to the non-
performance of the obligation, x x x.
xxx
Because of the bad faith of the defendant/third-party
plaintiff in its breach of its contract with the plaintiffs, the
latter are, therefore, entitled to an award of moral damages
x x x (Emphasis supplied)
There is no question that the petitioner was made liable
for its failure or refusal to deliver to Cruz the amount
she had deposited with it and which she had a right to
withdraw upon its maturity. That investment was
acknowledged by its own employees, who had the
apparent authority to do so and so could legally bind it
by its acts vis-a-vis Cruz. Whatever might have
happened to the investment—whether it was lost or
stolen by whoever—was not the concern of the
depositor. It was the concern of the bank.
As far as Cruz was concerned, she had the right to
withdraw her P200,000.00 placement when it matured
pursuant to the terms of her investment as
acknowledged and reflected in the Confirmation of Sale.
The failure of the bank to deliver the
357
VOL. 223, JUNE 14, 1993 357
Prudential Bank vs. Court of Appeals
179
amount to her pursuant to the Confirmation of Sale
constituted its breach of their contract, for which it
should be held liable.
The liability of the principal for the acts of the agent
is not even debatable. Law and jurisprudence are
clearly and absolutely against the petitioner.
Such liability dates back to the Roman Law
maxim, Qui per alium facit per seipsum facere
videtur. “He who does a thing by an agent is considered
as doing it himself.” This rule is affirmed by the Civil
Code thus:
“Art. 1910. The principal must comply with all the
obligations which the agent may have contracted within the
scope of his authority.
Art. 1911. Even when the agent has exceeded his
authority, the principal is solidarity liable with the agent if
the former allowed the latter to act as though he had full
powers.
Conformably, we have declared in countless decisions
that the principal is liable for obligations contracted by
the agent. The agent’s apparent representation yields
to the principal’s true representation and the contract
is considered as entered into between the principal and
the third person. 18
A bank is liable for wrongful acts of its officers done in the
interests of the bank or in the course of dealings of the
officers in their representative capacity but not for acts
outside the scope of their authority. (9 c.q.s. p. 417) A bank
holding out its officers and agent as worthy of confidence will
not be permitted to profit by the frauds they may thus be
enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may
accrue to the bank therefrom (10 Am Jur 2d, p. 114).
Accordingly, a banking corporation is liable to innocent third
persons where the representation is made in the course of its
business by an agent acting within the general scope of his
authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate
a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752,
204 NW 818, 40 ALR 1021.)
_______________
18 National Food Authority vs. Intermediate Appellate Court, 184
SCRA 166.
358
358 SUPREME COURT REPORTS
ANNOTATED
Prudential Bank vs. Court of Appeals
Application of these principles is especially necessary
because banks have a fiduciary relationship with the
public and their stability depends on the confidence of
the people in their honesty and efficiency. Such faith
will be eroded where banks do not exercise strict care in
the selection and supervision of its employees, resulting
in prejudice to their depositors.
It would appear from the facts established in the case
before us that the petitioner was less than eager to
present Quimbo at the trial or even to establish her
liability although it made the initial effort—which it did
not pursue—to hold her answerable in the third-party
complaint. What ever happened to her does not appear
in the record. Her absence from the proceedings feeds
the suspicion of her possible misdeed, which the bank
180
seems to have studiously ignored by its insistence that
the missing money had been actually withdrawn by
Cruz. By such insistence, the bank is absolving not only
itself but also, in effect and by extension, the
disappeared Quimbo who apparently has much to
explain.
We agree with the lower courts that the petitioner
acted in bad faith in denying Cruz the obligation she
was claiming against it. It was obvious that an
irregularity had been committed by the bank’s
personnel, but instead of repairing the injury to Cruz by
immediately restoring her money to her, it sought to
gloss over the anomaly in its own operations.
Cruz naturally suffered anxious moments and
mental anguish over the loss of the investment. The
amount of P200,000.00 is not small even by present
standards. By unjustly withholding it from her on the
unproved defense that she had already withdrawn it,
the bank violated the trust she had reposed in it and
thus subjected itself to further liability for moral and
exemplary damages.
If a person dealing with a bank does not read the fine
print in the contract, it is because he trusts the bank
and relies on its integrity. The ordinary customer
applying for a loan or even making a deposit (and so
himself extending the loan to the bank) does not bother
with the red tape requirements and the finicky
conditions in the documents he signs. His feeling is that
he does not have to be wary of the bank because it will
deal with him fairly and there is no reason to suspect
its motives. This is an attitude the bank must justify.
 While this is not to say that bank regulations are
meaningless
359
VOL. 223, JUNE 14, 1993 359
Domagas vs. Malana
or have no binding effect, they should, however, not be
used for covering up the fault of bank employees when
they blunder or, worse, intentionally cheat him. The
misdeeds of such employees must be readily
acknowledged and rectified without delay. The bank
must always act in good faith. The ordinary customer
does not feel the need for a lawyer by his side every time
he deals with a bank because he is certain that it is not
a predator or a potential adversary. The bank should
show that there is really no reason for any apprehension
because it truly deserves his faith in it.
WHEREFORE, the petition is DENIED and the
appealed decision is AFFIRMED, with costs against the
petitioner. It is so ordered.
Griño-Aquino, Bellosillo and Quiason,
JJ., concur.
Petition denied. Appealed judgment affirmed.
THE MUNICIPAL COUNCIL OF ILOILO, plaintiff and
appellee, vs. JOSE EVANGELISTA ET AL., defendants
and appellees. TAN ONG SZE VDA. DE TAN Toco,
appellant.
181
1. 1.PRINCIPAL AND AGENT; POWER OF
AGENT; PAYMENTS OF AT-TORNEYS' FEES.—
An agent or attorney-in-fact empowered to pay the
debts of the principal, and to employ attorneys to
defend the latter's interests, is impliedly empowered
to pay the attorneys' fees for services rendered in the
interests of said principal, and may satisfy them by
an assignment of a judgment rendered in favor of
said principal.
1. 2.ID.; APPOINTMENT OF Two AGENTS.—When a
person appoints two agents independently, the
consent of one will not be required to validate the
acts of the other, unless that appears positively to
have been the principal's intention.
1. 3.JUDGMENT; ASSIGNMENT OF AMOUNT FOR
PROFESSIONAL SERVICES.—The assignment of
the amount of a judgment made by a person to his
attorney, who has not taken any part in the case
wherein said judgment was rendered, made in
payment of professional services in other cases, does
not contravene the prohibition of article 1459, case
5, of the Civil Code.
APPEAL from a judgment of the Court of First Instance
of Iloilo. Rovira, J.
The facts are stated in the opinion of the court.
Treñas & Laserna, for defendant-appellant.
Provincial Fiscal Blanco of Iloilo for plaintiff-
appellee.
Felipe Ysmael for appellee Mauricio Cruz & Co.
No appearance for other appellees.
291
 VOL. 55, NOVEMBER 17, 1930 291
Municipal Council of Iloilo vs. Evangelista,
VILLA-REAL, J.:
This is an appeal taken by the defendant Tan Ong Sze
Vda. de Tan Toco from the judgment of the Court of
First Instance of Iloilo, providing as follows:
"Wherefore, judgment is hereby rendered, declaring valid
and binding the deed of assignment of the credit executed by
Tan Toco's widow, through her attorney-in-fact Tan
Buntiong, in favor of the late Antero Soriano; likewise the
assignment executed by the latter during his lifetime in favor
of the defendant Mauricio Cruz & Co., Inc., and the plaintiff
is hereby ordered to pay the said Mauricio Cruz & Co., Inc.,
the balance of f=30,966.40; the plaintiff is also ordered to
deposit said sum in a local bank within the period of ninety
days from the time this judgment shall become final, at the
disposal of the aforesaid Mauricio Cruz & Co., Inc., and in
case that the plaintiff shall not make such deposit in the
manner indicated, said amount shall bear the legal interest
of six per cent per annum from the date when the plaintiff
shall fail to make the deposit within the period herein set
forth, until fully paid.
"Without special pronouncement of costs."
In support of its appeal, the appellant assigns the
following alleged errors as committed by the trial court
in its decision, to wit:
1. "1.The lower court erred in rejecting as evidence
Exhibit 4-A, Tan Toco, and Exhibit 4-B, Tan
Toco.
182
2. "2.The lower court erred in sustaining the
validity of the deed of assignment of the credit,
Exhibit 2-Cruz, instead of finding that said
assignment made by Tan Buntiong to Attorney
Antero Soriano was null and void.
3. "3.The lower court erred in upholding the
assignment of that credit by Antero Soriano to
Mauricio Cruz & Co., Inc., instead of declaring
it null and void.
292
292 PHILIPPINE REPORTS
ANNOTATED
Municipal Council of Iloilo vs. Evangelista
1. "4.The court below erred in holding that the
balance of the credit against the municipality of
Iloilo should be adjudicated to the appellant
herein, Tan Toco's widow.
2. "5.The lower court erred in denying the motion
for a new trial filed by the defendant-appellant."
The facts of the case are as follows:
On March 20, 1924, the Court of First Instance of
Iloilo rendered judgment in civil case No. 3514 thereof,
wherein the appellant herein, Tan Ong Sze Vda. de Tan
Toco was the plaintiff, and the municipality of Iloilo the
defendant, and the former sought to recover of the latter
the value of a strip of land belonging to said plaintiff
taken by the defendant to widen a public street; the
judgment entitled the plaintiff to recover P42,966.40,
representing the value of said strip of land, from the
defendant (Exhibit A). On appeal to this court (G. R. No.
22617) the judgment was affirmed on November 28,
1 to file an action of interpleading against the adverse
1924 (Exhibit B).
After the case was remanded to the court of origin,
and the judgment rendered therein had become final
and executory, Attorney Jose Evangelista, in his own
behalf and as counsel for the administratrix of Jose Ma.
Arroyo's intestate estate, filed a claim in the same case
for professional services rendered by him, which the
court, acting with the consent of the appellant widow,
fixed at 15 per cent of the amount of the judgment
(Exhibit 22—Soriano).
At the hearing on said claim, the claimants
appeared, as did also the Philippine National Bank,
which prayed that the amount of the judgment be
turned over to it because the land taken over had been
mortgaged to it. Antero Soriano also appeared claiming
the amount of the judgment as it had been assigned to
him, and by him, in turn, assigned to Mauricio Cruz &
Co., Inc.
After hearing all the adverse claims on the amount
of the judgment, the court ordered that the attorney's
lien in the amount of 15 per cent of the judgment, be
recorded
_____________
1 Viuda de Tan Toco vs. Municipal Council of Iloilo, not reported.
293
VOL. 55, NOVEMBER 17, 1930 293
Municipal Council of lloilo vs. Evangelista,
in favor of Attorney Jose Evangelista, in his own behalf
and as counsel for the administratrix of the deceased
183
Jose Ma. Arroyo, and directed the municipality of Iloilo
claimants, the Philippine National Bank, Antero
Soriano, Mauricio Cruz & Co., Jose Evangelista, and
Jose Arroyo, as was done, the case being filed in the
Court of First Instance of Iloilo as civil case No. 7702.
After due hearing, the court rendered the decision
quoted from at the beginning.
On March 29, 1928, the municipal treasurer of Iloilo,
with the approval of the auditor, of the provincial
treasurer of Iloilo, and of the Executive Bureau, paid
the late Antero Soriano the amount of P6,000 in part
payment of the judgment mentioned above, assigned to
him by Tan Boon Tiong, acting as attorney-in-fact of the
appellant herein, Tan Ong Sze Vda. de Tan Toco:
On December 18, 1928, the municipal treasurer of
Iloilo deposited with the clerk of the Court of First
Instance of Iloilo the amount of P6,000 on account of the
judgment rendered in said civil case No. 3514. In
pursuance of the resolution of the court below -ordering
that the attorney's lien in the amount of 15 per cent of
the judgment be recorded in favor of Attorney Jose
Evangelista, in his own behalf and as counsel for the
late Jose Ma. Arroyo, the said clerk of court delivered
on the same date to said Attorney Jose Evangelista the
said amount of P6,000. At the hearing of the instant
case, the co-defendants of Attorney Jose Evangelista
agreed not to discuss the payment made to the latter by
the clerk of the Court of First Instance of Iloilo of the
amount of P6,000 mentioned above in consideration of
said lawyer's waiver of the remainder of the 15 per cent
of said judgment amounting to P444.69.
 With these two payments of P6,000 each making a
total of P12,000, the judgment for P42,966.44 against
the municipality of Iloilo was reduced to P30,966.40,
which was adjudicated by said court to Mauricio Cruz
& Co.
294
294 PHILIPPINE REPORTS
ANNOTATED
Municipal Council of Iloilo vs. Evangelista,
This appeal, then, is confined to the claim of Mauricio
Cruz & Co. as alleged assignee of the rights of the late
Attorney Antero Soriano by virtue of the said judgment
in payment of professional services rendered by him to
the said widow and her co-heirs.
The only question to be decided in this appeal is the
legality of the assignment made by Tan Boon Tiong, as
attorney-in-fact of the appellant Tan Ong Sze Viuda de
Tan Toco, to Attorney Antero Soriano, of all the credits,
rights and interests belonging to said appellant Tan
Ong Sze Viuda de Tan Toco by virtue of the judgment
rendered in civil case No. 3514 of the Court of First
Instance of Iloilo, entitled Viuda de Tan Toco vs. The
Municipal Council of Iloilo, adjudicating to said widow
the amount of P42,966.40, plus the costs of court,
against said municipal council of Iloilo, in consideration
of professional services rendered by said attorney to
said widow of Tan Toco and her co-heirs, by virtue of the
deed Exhibit 2.
The appellant contends, in the first place, that said
assignment was not made in consideration of
professional services by Attorney Antero Soriano, for
they had already been satisfied before the execution of
184
said deed of assignment, but in order to facilitate the
collection of the amount of said judgment in favor of the
appellant, for the reason that, being Chinese, she had
encountered many difficulties in trying to collect.
In support of her contention on this point, the
appellant alleges that the payments admitted by the
court in its judgment, as made by Tan Toco's widow to
Attorney Antero Soriano for professional services
rendered to her and to her co-heirs, amounting to
P2,900,. must be added to the P700 evidenced by
Exhibits 4-A, Tan Toco, and 4-B, Tan Toco, respectively,
which exhibits the court below rejected as evidence, on
the ground that they were considered as payments
made for professional services rendered, not by Antero
Soriano personally, but by the firm of Soriano &Arroyo.
295
VOL. 55, NOVEMBER 17, 1930 295
Municipal Council of Iloilo vs. Evangelista
A glance at these receipts shows that those amounts
were received by Attorney Antero Soriano for the firm
of Soriano & Arroyo, which is borne out by the stamp on
said receipts reading, "Bufete Soriano & Arroyo," and
the manner in which said attorney receipted for them,
"Soriano & Arroyo, by A. Soriano."
Therefore, the appellant's contention that the
amounts of P200 and P500 evidenced by said receipts
should be considered as payments made to Attorney
Antero Soriano for professional services rendered by
him personally to the interests of the widow of Tan
Toco, is untenable.
Besides, if at the time of the assignment to the late
Antero Soriano, his professional services to the
appellant widow of Tan Toco had already been paid for,
no reason can be given why it was necessary to wire him
money in payment of professional services on March 14,
1928 (Exhibit 5-G Tan Toco) and December 15, of the
same year (Exhibit 5-H Tan Toco) after the deed of
assignment, (Exhibit 2-Cruz) dated September 27,
1927, had been executed. In view of the fact that the
amounts involved in the cases prosecuted by Attorney
Antero Soriano as counsel for Tan Toco's widow, some
of whi6h cases have been appealed to this court, run
into the hundreds of thousands of pesos, and
considering that said attorney had won several of those
cases for his clients, the sum of P10,000 to date paid to
him for professional services is wholly inadequate, and
shows, even if indirectly, that the assignment of the
appellant's rights and interests made to the late Antero
Soriano and determined in the judgment
aforementioned, was made in consideration of the
professional services rendered by the latter to the
aforesaid widow and her co-heirs. , ,. the deed deed of
The defendant-appellant also contends that the deed
of assignment Exhibit 2-Cruz was drawn up in
contravention of the prohibition contained in article
1459, case 5, of the Civil Code, which reads as follows:
296
296 PHILIPPINE REPORTS
ANNOTATED
Municipal Council of Iloilo vs, Evangelista,
"ART. 1459. The following persons cannot take by purchase,
even at a public or judicial auction, either in person or
through the mediation of another:
* * * * * * * therefore the assignment of her credit, right and
185
"5. Justices, judges, members of the department of public
prosecution, clerks of superior and inferior courts, and other
officers of such courts, the property and rights in litigation
before the court within whose jurisdiction or territory they
perform their respective duties. This prohibition shall
include the acquisition of such property by assignment.
"Actions between equal concerning the hereditary
property, assignments in payment of debts, or to secure the
property of such persons, shall be excluded from this rule.
"The prohibition contained in this paragraph shall
include lawyers and solicitors with respect to any property or
rights involved in any litigation in which they may take part
by virtue of their profession and office."
It does not appear that Attorney Antero Soriano was
counsel for the herein appellant in civil case No. 3514 of
the Court of First Instance of Iloilo, which she instituted
against the municipality of Iloilo, Iloilo, for the recovery
of the value of a strip of land expropriated by said
municipality for the widening of a certain public street.
The only lawyers who appear to have represented her
in that case were Arroyo and Evangelista,, who filed a
claim for their professional fees. When the appellant's
credits right, and interests in that case were assigned
by her attorney-in-fact Tan Boon Tiong, to Attorney
Antero Soriano in payment of professional services
rendered by the latter to theappellant and her co-heirs
in connection with other cases, that particular case had
been decided, and the only thing left to do was to collect
the judgment. There was no relation of attorney and
client, then, between Antero Soriano and the appellant,
in the case where that judgment was rendered; and
297
 VOL, 55, NOVEMBER 17, 1930 297
Municipal Council of Iloilo vs. Evangelista
interests to said lawyer did not violate the prohibition
cited above.
As to whether Tan Boon Tiong, as attorney-in-fact of
the appellant; was empowered by his principal to make
an assignment of credits, rights, and interests, in
payment of debts for professional services rendered by
lawyers, in paragraph VI of the power of attorney,
Exhibit 5-Cruz, Tan Boon Tiong is authorized to employ
and contract for the services of lawyers upon such
conditions as he may deem convenient, to take charge
of any actions necessary or expedient for the interests
of his principal, and to def end suits brought against
her. This power necessarily implies the authority to pay
for the professional services thus engaged. In the
present case, the assignment made by Tan Boon Tiong,
as attorney-in-fact for the appellant, in favor of
Attorney Antero Soriano for professional services
rendered in other cases in tHe interests of the appellant
and her co-heirs, was that credit which she had against
the municipality of Iloilo, and such assignment was
equivalent to the payment of the amount of said credit
to Antero Soriano for professional services.
With regard to the failure of the other attorney-in-
fact of the appellant, Tan Montano, authorized by
Exhibit 1—Tan Toco, to consent to the deed of
assignment, the latter being also authorized to pay, in
the name and behalf of the principal, all her debts and
the liens and encumbrances on her property, the very
fact that different letters of attorney were given to each
of these two representatives shows that it was not the
186
principal's intention that they should act jointly in
order to make their acts valid. Furthermore, the
appellant was aware of that assignment and she not
only did not repudiate it, but she continued employing
Attorney Antero Soriano to represent her in court.
For the foregoing considerations, the court is of
opinion and so holds: (1) That an agent or attorney-in-
fact empowered to pay the debts of the principal, and to
employ
298
298 PHILIPPINE REPORTS
ANNOTATED
People vs. Hitosis
lawyers to defend the latter's interests, is impliedly
empowered to pay the lawyer's fees for services
rendered in the interests of said principal, and may
satisfy them by an assignment of a judgment rendered
in favor of said principal; (2) that when a person
appoints two attorneys-in-fact independently, the
consent of the one will not be required to validate the
acts of the other unless that appears positively to have
been the principal's intention; and (3) that the
assignment of the amount of a judgment made by a
person to his attorney, who has not taken any part in
the case wherein said judgment was rendered, made in
payment of professional services in other cases, does not
contravene the prohibition of article 1459, case 5, of the
Civil Code.
By virtue whereof, and finding no error in the
judgment appealed from, the same is affirmed in its
entirety, with costs against the. appellant. So ordered.
 Avanceña, C.
J., Johnson, Street, Malcolm, Villamor, Ostrand, John
s, and Romualdez, JJ., concur.
Judgment affirmed.
G.R. No. 137686. February 8, 2000. *
RURAL BANK OF MILAOR (CAMARINES SUR),
petitioner, vs.FRANCISCA OCFEMIA, ROWENA
BARROGO, MARIFE O. NINO, FELICISIMO
OCFEMIA, RENATO OCFEMIA, JR., and WINSTON
OCFEMIA, respondents.
Remedial Law; Courts; Jurisdiction; Well-settled rule is
that jurisdiction is determined by the allegations of the
complaint; The Regional Trial Court has jurisdiction over the
Petition for Mandamus pursuant to Section 21 of Batas
Pambansa 129.—The well-settled rule is that jurisdiction is
determined by the allegations of the complaint. In the
present case, the Petition for Mandamus filed by respondents
before the trial court prayed that petitioner-bank be
compelled to issue a board resolution confirming the Deed of
Sale covering five parcels of unregistered land, which the
bank manager had executed in their favor. The RTC has
jurisdiction over such action pursuant to Section 21 of BP
129.
Civil Law; Agency; Estoppel; A bank is liable to innocent
third persons where representation is made in the course of
its normal business by an agent even though such agent is
abusing her authority.—Tena had previously transacted
187
business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to innocent
third persons where representation is made in the course of
its normal business by an agent like Manager Tena, even
though such agent is abusing her authority. Clearly, persons
dealing with her could not be blamed for believing that she
was authorized to transact business for and on behalf of the
bank.
Same; Same; Same; Bank is estopped from questioning
the authority of the bank manager to enter into the contract
of sale.—In this light, the bank is estopped from questioning
the authority of the bank manager to enter into the contract
of sale. If a corporation knowingly permits one of its officers
or any other agent to act within the scope of an apparent
authority, it holds the agent out to the public as possessing
the power to do those acts; thus, the corporation will, as
against anyone who has in good faith dealt with it through
such agent, be estopped from denying the agent’s authority.
_____________
*THIRD DIVISION.
100
100 SUPREME COURT REPORTS
ANNOTATED
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
VITUG, J., Concurring Opinion:
Civil Law; Agency; Estoppel; A corporation may be held
in estoppel from denying as against innocent third persons
the authority of its officers or agents who have been clothed
by it with ostensible or apparent authority.—A corporate
officer entrusted with general management and control of
the business has the implied authority to act or contract for
the corporation which may be necessary or appropriate to
conduct the ordinary business. If the act of corporate officers
comes within corporate powers but it is done without any
express or implied authority therefor from the by-laws, board
resolutions or corporate practices, such an act does not bind
the corporation. The Board, however, acting within its
competence, may ratify the unauthorized act of the corporate
officer. So, too, a corporation may be held in estoppel from
denying as against innocent third persons the authority of
its officers or agents who have been clothed by it with
ostensible or apparent authority.
PETITION for review on certiorari of a decision of the
Court of Appeals.
The facts are stated in the opinion of the Court.
David C. Naval for petitioner.
Eustaquio S. Beltran for respondents.
PANGANIBAN, J.:
When a bank, by its acts and failure to act, has clearly
clothed its manager with apparent authority to sell an
acquired asset in the normal course of business, it is
legally obliged to confirm the transaction by issuing a
board resolution to enable the buyers to register the
property in their names. It has a duty to perform
necessary and lawful acts to enable the other parties to
enjoy all benefits of the contract which it had
authorized.
101
VOL. 325, FEBRUARY 8, 2000 101
188
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
The Case
Before this Court is a Petition for Review on Certiorari
challenging the December 18, 1998 Decision of the
Court of Appeals (CA) in CA-GR SP No. 46246, which
1
affirmed the May 20, 1997 Decision of the Regional
2
Trial Court (RTC) of Naga City (Branch 28). The CA
disposed as follows:
“Wherefore, premises considered, the Judgment appealed
from is hereby AFFIRMED. Costs against the respondent-
appellant.”
3
The dispositive portion of the judgment affirmed by the
CA ruled in this wise:
“WHEREFORE, in view of all the foregoing findings, decision
is hereby rendered whereby the [petitioner] Rural Bank of
Milaor (Camarines Sur), Inc. through its Board of Directors
is hereby ordered to immediately issue a Board Resolution
confirming the Deed of Sale it executed in favor of Renato
Ocfemia marked Exhibits C, C-1 and C-2); to pay
[respondents] the sum of FIVE HUNDRED (P500.00)
PESOS as actual damages; TEN THOUSAND (P10,000.00)
PESOS as attorney’s fees; THIRTY THOUSAND
(P30,000.00) PESOS as moral damages; THIRTY
THOUSAND (P30,000.00) PESOS as exemplary damages;
and to pay the costs.”
4
Also assailed is the February 26, 1999 CA
Resolution which denied petitioner’s Motion for
5
Reconsideration.
The Facts
The trial court’s summary of the undisputed facts was
reproduced in the CA Decision as follows:
_____________
1 Special Thirteenth Division composed of J.Renato C.
Dacudao, ponente; and JJ. Salvador J. Valdez, Jr. (chairman) and
Roberto A. Barrios (member), both concurring.
2 Penned by Judge Antonio N. Gerona.
3 CA Decision, p. 9; rollo, p. 25.
4 RTC Decision, p. 6; rollo, p. 49.
5 Rollo, pp. 36-37.
102
102 SUPREME COURT REPORTS
ANNOTATED
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
“This is an action for mandamus with damages. On April 10,
1996, [herein petitioner] was declared in default on motion
of the [respondents] for failure to file an answer within the
reglementary period after it was duly served with summons.
On April 26, 1996, [herein petitioner] filed a motion to set
aside the order of default with objection thereto filed by
[herein respondents].
“On June 17, 1996, an order was issued denying
[petitioner’s] motion to set aside the order of default. On July
10, 1996, the defendant filed a motion for reconsideration of
the order of June 17, 1996 with objection thereto by
[respondents]. On July 12, 1996, an order was issued denying
[petitioner’s] motion for reconsideration. On July 31, 1996,
[respondents] filed a motion to set case for hearing. A copy
thereof was duly furnished the [petitioner] but the latter did
not file any opposition and so [respondents] were allowed to
present their evidence ex-parte. A certiorari case was filed by
the [petitioner] with the Court of Appeals docketed as CA GR
No. 41497-SP but the petition was denied in a decision
rendered on March 31, 1997 and the same is now final.
The evidence presented by the [respondents] through the
testimony of Marife O. Niño, one of the [respondents] in this
189
case, show[s] that she is the daughter of Francisca Ocfemia,
a co[respondent] in this case, and the late Renato Ocfemia
who died on July 23, 1994. The parents of her father, Renato
Ocfemia, were Juanita Arellano Ocfemia and Felicisimo
Ocfemia. Her other co[respondents] Rowena O. Barrogo,
Felicisimo Ocfemia, Renato Ocfemia, Jr. and Winston
Ocfemia are her brothers and sisters.
“Marife O. Niño knows the five (5) parcels of land
described in paragraph 6 of the petition which are located in
Bombon, Camarines Sur and that they are the ones
possessing them which [were] originally owned by her
grandparents, Juanita Arellano Ocfemia and Felicisimo
Ocfemia. During the lifetime of her grandparents,
[respondents] mortgaged the said five (5) parcels of land and
two (2) others to the [petitioner] Rural Bank of Milaor as
shown by the Deed of Real Estate Mortgage (Exhs. A and A-
1) and the Promissory Note (Exh. B).
“The spouses Felicisimo Ocfemia and Juanita Arellano
Ocfemia were not able to redeem the mortgaged properties
consisting of seven (7) parcels of land and so the mortgage
was foreclosed and thereafter ownership thereof was
transferred to the [petitioner] bank. Out of the seven (7)
parcels that were foreclosed, five (5) of them are in the
possession of the [respondents] because these five
103
VOL. 325, FEBRUARY 8, 2000 103
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
(5) parcels of land described in paragraph 6 of the petition
were sold by the [petitioner] bank to the parents of Marife O.
Niño as evidenced by a Deed of Sale executed in January
1988 (Exhs. C, C-1 and C-2).
“The aforementioned five (5) parcels of land subject of the
deed of sale (Exh. C), have not been, however transferred in
the name of the parents of Marife O. Niño after they were
sold to her parents by the [petitioner] bank because bank inquiring why no action was taken by the board of the
according to the Assessor’s Office the five (5) parcels of land, request for the issuance of the resolution considering that the
subject of the sale, cannot be transferred in the name of the bank was already fully paid [for] the consideration of the sale
buyers as there is a need to have the document of sale since January 1988 as shown by the deed of sale itself (Exhs.
registered with the Register of Deeds of Camarines Sur. D and D-1).
“In view of the foregoing, Marife O. Niño went to the 104
Register of Deeds of Camarines Sur with the Deed of Sale 104 SUPREME COURT REPORTS
(Exh. C) in order to have the same registered. The Register ANNOTATED
of Deeds, however, informed her that the document of sale Rural Bank of Milaor (Camarines Sur) vs.
cannot be registered without a board resolution of the Ocfemia
[petitioner] Bank. Marife Niño then went to the bank,
“On January 15, 1996 the [petitioner] bank answered
showed to it the Deed of Sale (Exh. C), the tax declaration
[respondents’] lawyer’s letter (Exhs. D and D-1) informing
and receipt of tax payments and requested the [petitioner]
the latter that the request for board resolution ha[d] already
for a board resolution so that the property can be transferred
been referred to the board of directors of the [petitioner] bank
to the name of Renato Ocfemia the husband of petitioner
with another request that the latter should be furnished with
Francisca Ocfemia and the father of the other [respondents]
a certified machine copy of the receipt of payment covering
having died already.
the sale between the [respondents] and the [petitioner] (Exh.
The [petitioner] bank refused her request for a board
E). This request of the [petitioner] bank was already
resolution and made many alibi[s]. She was told that the
complied [with] by Marife O. Niño even before she brought
[petitioner] bank ha[d] a new manager and it had no record
the matter to her lawyer.
of the sale. She was asked and she complied with the request
“On January 23, 1996 [respondents’] lawyer wrote back
of the [petitioner] for a copy of the deed of sale and receipt of
the branch manager of the [petitioner] bank informing the
payment. The president of the [petitioner] bank told her to
latter that they were already furnished the receipts the bank
get an authority from her parents and other [respondents]
was asking [for] and that the [respondents] want[ed] already
and receipts evidencing payment of the consideration
to know the stand of the bank whether the board [would]
appearing in the deed of sale. She complied with said
issue the required board resolution as the deed of sale itself
requirements and after she gave all these documents, Marife
already show[ed] that the [respondents were] clearly entitled
O. Niño was again told to wait for two (2) weeks because the
to the land subject of the sale (Exh. F). The manager of the
[petitioner] bank would still study the matter.
[petitioner] bank received the letter which was served
“After two (2) weeks, Marife O. Niño returned to the
personally to him and the latter told Marife O. Niño that
[petitioner] bank and she was told that the resolution of the
since he was the one himself who received the letter he would
board would not be released because the [petitioner] bank
not sign anymore a copy showing him as having already
ha[d] no records from the old manager. Because of this,
received said letter (Exh. F).
Marife O. Niño brought the matter to her lawyer and the
latter wrote a letter on December 22, 1995 to the [petitioner]

190
 “After several days from receipt of the letter (Exh. F)
when Marife O. Niño went to the [petitioner] again and
reiterated her request, the manager of the (petitioner] bank
told her that they could not issue the required board
resolution as the [petitioner] bank ha[d] no records of the
sale. Because of this Marife O. Niño already went to their
lawyer and ha[d] this petition filed.
“The [respondents] are interested in having the property
described in paragraph 6 of the petition transferred to their
names because their mother and co-petitioner, Francisca
Ocfemia, is very sickly and they want to mortgage the
property for the medical expenses of Francisca Ocfemia. The
illness of Francisca Ocfemia beg[a]n after her husband died
and her suffering from arthritis and pulmonary disease
already became serious before December 1995.
“Marife O. Niño declared that her mother is now in
serious condition and they could not have her hospitalized
for treatment as they do not have any money and this is
causing the family sleepless nights and mental anguish,
thinking that their mother may die
105
VOL. 325, FEBRUARY 8, 2000 105
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
because they could not submit her for medication as they do
not have money.” 6
The trial court granted the Petition. As noted earlier,
the CA affirmed the RTC Decision.
Hence, this recourse. In a Resolution dated June 23,
7
1999, this Court issued a Temporary Restraining Order
directing the trial court “to refrain and desist from
executing [pending appeal] the decision dated May 20,
1997 in Civil Case No. RTC-96-3513, effective
immediately until further orders from this Court.” 8
191
Ruling of the Court of Appeals
The CA held that herein respondents were “able to
prove their present cause of action” against petitioner.
It ruled that the RTC had jurisdiction over the case,
because (1) the Petition involved a matter incapable of
pecuniary estimation; (2) mandamus fell within the
jurisdiction of RTC; and (3) assuming that the action
was for specific performance as argued by the
petitioner, it was still cognizable by the said court.
Issues
In its Memorandum, the bank posed the following
9
questions:
1. “l.Question of Jurisdiction of the Regional Trial
Court.—Has a Regional Trial Court original
jurisdiction over an action in
_____________
6 RTC Decision, pp. 1-3; rollo, pp. 44-46.
7 The case was deemed submitted for resolution on October 27,
1999, upon receipt by this Court of the respective Memoranda of the
petitioner and the respondents. The Memorandum of Petitioner was
signed by Atty. David C. Naval, while that of respondents was signed
by Atty. Eustaquio S. Beltran.
8 Rollo, p. 117.
9 Rollo, pp. 153-160.
106
106 SUPREME COURT REPORTS
ANNOTATED
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
 1. volving title to real property with a total assessed
value of less than P20,000.00?
2. “2.Question of Law.—May the board of directors of a
rural banking corporation be compelled to confirm a
deed of absolute sale of real property owned by the
corporation which deed of sale was executed by the
bank manager without prior authority of the board
of directors of the rural banking corporation?”
10
This Court’s Ruling
The present Petition has no merit.
First Issue: Jurisdiction of the Regional Trial Court
Petitioner submits that the RTC had no jurisdiction
over the case. Disputing the ruling of the appellate
court that the present action was incapable of pecuniary
estimation, petitioner argues that the matter in fact
involved title to real property worth less than P20,000.
Thus, under RA 7691, the case should have been filed
before a metropolitan trial court, a municipal trial court
or a municipal circuit trial court.
We disagree. The well-settled rule is that jurisdiction
is determined by the allegations of the complaint. In 11
the present case, the Petition for Mandamus filed by
respondents before the trial court prayed that
petitioner-bank be compelled to issue a board resolution
confirming the Deed of Sale covering five parcels of
unregistered land, which the bank manager had
executed in their favor. The RTC has jurisdiction over
such action pursuant to Section 21 of BP 129, which
provides:
“SEC. 21. Original jurisdiction in other cases.—Regional
Trial Courts shall exercise original jurisdiction:
192
_____________
10Ibid., p. 154.
11Santiago v. Guingona, 298 SCRA 756, 776, November 18,
1998; Bernate v. CA, 263 SCRA 323, October 18, 1996; Sandel v. CA, 262
SCRA 101, September 19, 1996.
107
VOL. 325, FEBRUARY 8, 2000 107
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
1. (1)In the issuance of writs
of certiorari,prohibition, mandamus, quo warranto,
habeas corpus and injunction which may be enforced
in any part of their respective regions; and
2. (2)In actions affecting ambassadors and other public
ministers and consuls.”
A perusal of the Petition shows that the respondents did
not raise any question involving the title to the
property, but merely asked that petitioner’s board of
directors be directed to issue the subject resolution.
Moreover, the bank did not controvert the allegations in
the said Petition. To repeat, the issue therein was not
the title to the property; it was respondents’ right to
compel the bank to issue a board resolution confi rming
the Deed of Sale.
Second Issue: Authority of the Bank Manager
Respondents initiated the present proceedings, so that
they could transfer to their names the subject five
parcels of land; and subsequently, to mortgage said lots
and to use the loan proceeds for the medical expenses of
their ailing mother. For the property to be transferred
in their names, however, the register of deeds required
the submission of a board resolution from the bank
confirming both the Deed of Sale and the authority of
the bank manager, Fe S. Tena, to enter into such
transaction. Petitioner refused. After being given the
runaround by the bank, respondents sued in
exasperation.
Allegations in the Petition for Mandamus Deemed
Admitted
Respondents based their action before the trial court on
the Deed of Sale, the substance of which was alleged in
and a copy thereof was attached to the Petition for
Mandamus. The Deed named Fe S. Tena as the
representative of the bank. Petitioner, however, failed
to specifically deny under oath the allegations in that
contract. In fact, it filed no answer at all,
108
108 SUPREME COURT REPORTS
ANNOTATED
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
for which reason it was declared in default. Pertinent
provisions of the Rules of Court read:
“SEC. 7. Action or defense based on document.—Whenever
an action or defense is based upon a written instrument or
document, the substance of such instrument or document
shall be set forth in the pleading, and the original or a copy
thereof shall be attached to the pleading as an exhibit, which
shall be deemed to be a part of the pleading, or said copy may
with like effect be set forth in the pleading.
“SEC. 8. How to contest genuineness of such documents.—
When an action or defense is founded upon a written
instrument, copied in or attached to the corresponding
pleading as provided in the preceding section, the
193
genuineness and due execution of the instrument shall be
deemed admitted unless the adverse party, under oath,
specifically denies them, and sets forth what he claims to be
the facts; but this provision does not apply when the adverse
party does not appear to be a party to the instrument or when
compliance with an order for an inspection of the original
instrument is refused.” 12
In failing to file its answer specifically denying under
oath the Deed of Sale, the bank admitted the due
execution of the said contract. Such admission means
that it acknowledged that Tena was authorized to sign
the Deed of Sale on its behalf. Thus, defenses that are,
13
inconsistent with the due execution and the
genuineness of the written instrument are cut off by an
admission implied from a failure to make a verified
specific denial.
Other Acts of the Bank
In any event, the bank acknowledged, by its own acts or
failure to act, the authority of Fe S. Tena to enter into
binding contracts. After the execution of the Deed of
Sale, respondents occupied the properties in dispute
and paid the real estate
_____________
Rule 8 of the Rules of Court.
12
Imperial Textile Mills, Inc. v. C.A., 183 SCRA 1, March 22, 1990.
13
109
VOL. 325, FEBRUARY 8, 2000 109
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
taxes due thereon. If the bank management believed
that it had title to the property, it should have taken
some measures to prevent the infringement or invasion
of its title thereto and possession thereof.
Likewise, Tena had previously transacted business
on behalf of the bank, and the latter had acknowledged
her authority. A bank is liable to innocent third persons
where representation is made in the course of its
normal business by an agent like Manager Tena, even
though such agent is abusing her authority. Clearly,
14
persons dealing with her could not be blamed for
believing that she was authorized to transact business
for and on behalf of the bank. Thus, this Court has ruled
in Board of Liquidators v. Kalaw: “Settled
15
jurisprudence has it that where similar acts have been
approved by the directors as a matter of general
practice, custom, and policy, the general manager may
bind the company without formal authorization of the
board of directors. In varying language, existence of
such authority is established, by proof of the course of
business, the usages and practices of the company and
by the knowledge which the board of directors has, or
must be presumed to have, of acts and doings of its
subordinates in and about the affairs of the corporation.
So also,
“ ‘x x x authority to act for and bind a corporation may be
presumed from acts of recognition in other instances where
the power was in fact exercised’
“ ‘x x x Thus, when, in the usual course of business of a
corporation, an officer has been allowed in his official
capacity to manage its affairs, his authority to represent the
corporation may be implied from the manner in which he has
been permitted by the directors to manage its business’ ”
Notwithstanding the putative authority of the manager
to bind the bank in the Deed of Sale, petitioner has
194
failed to file an answer to the Petition below within the
reglementary period, let alone present evidence
controverting such author-
______________
First Philippine International Bank v. CA, infra, note 17.
14
20 SCRA 987, 1005, August 14, 1967, per Sanchez, J.
15
110
110 SUPREME COURT REPORTS
ANNOTATED
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
ity. Indeed, when one of herein respondents, Marife O.
Niño, went to the bank to ask for the board resolution,
she was merely told to bring the receipts. The bank
failed to categorically declare that Tena had no
authority. This Court stresses the following:
“x x x Corporate transactions would speedily come to a
standstill were every person dealing with a corporation held
duty-bound to disbelieve every act of its responsible officers,
no matter how regular they should appear on their face. This
Court has observed in Ramirez vs. Orientalist Co., 38 Phil.
634, 654-655, that—
‘In passing upon the liability of a corporation in cases of this kind
it is always well to keep in mind the situation as it presents itself
to the third party with whom the contract is made. Naturally he
can have little or no information as to what occurs in corporate
meetings; and he must necessarily rely upon the external
manifestation of corporate consent. The integrity of commercial
transactions can only be maintained by holding the corporation
strictly to the liability fixed upon it by its agents in accordance with
law; and we would be sorry to announce a doctrine which would
permit the property of man in the city of Paris to be whisked out of
his hands and carried into a remote quarter of the earth without
recourse against the corporation whose name and authority had
been used in the manner disclosed in this case. As already
observed, it is familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the
public as possessing power to do those acts, the corporation will, as
against any one who has in good faith dealt with the corporation
through such agent, be estopped from denying his authority; and
where it is said ‘if the corporation permits this means the same as
if the thing is permitted by the directing power of the corporation.’
”
16
In this light, the bank is estopped from questioning the
authority of the bank manager to enter into the contract
of
______________
16 Francisco v. GSIS, 7 SCRA 577, 583-584, March 30, 1963, per
Reyes, J.B.L., J.
111
VOL. 325, FEBRUARY 8, 2000 111
Rural Bank of Milaor (Camarines Sur) vs.
Ocfemia
sale. If a corporation knowingly permits one of its
officers or any other agent to act within the scope of an
property, it behooves the bank to confirm the Deed of
Sale so that the buyers may enjoy its full use.
The board resolution is, in fact, mere paper work.
Nonetheless, it is paper work necessary in the orderly
operations of the register of deeds and the full
enjoyment of respondents’ rights. Petitioner-bank
persistently and unjustifiably refused to perform its
legal duty. Worse, it was less than candid in dealing
with respondents regarding this matter. In this light,
the Court finds it proper to assess the bank treble costs,
in addition to the award of damages.
WHEREFORE, the Petition is hereby DENIED and
the assailed Decision and Resolution AFFIRMED. The
Temporary Restraining Order issued by this Court is
hereby LIFTED. Treble costs against petitioner.
SO ORDERED.
Melo (Chairman), Purisima and Gonzaga-
Reyes, JJ., concur.
Vitug, J., Please see Concurring Opinion.
__________________
17 First International Bank v. CA, 252 SCRA 259, January 24,

apparent authority, it holds the agent out to the public 1996; People’s Aircargo and Warehousing Co., Inc. v. CA, 297 SCRA
170, 184-185, October 7, 1998.
as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good
faith dealt with it through such agent, be estopped from
denying the agent’s authority. 17

Unquestionably, petitioner has authorized Tena to

enter into the Deed of Sale. Accordingly, it has a clear
legal duty to issue the board resolution sought by
respondents. Having authorized her to sell the

195

No. L-18287. March 30, 1963.
TRINIDAD J. FRANCISCO, plaintiff-
appellee, vs. GOVERNMENT SERVICE
INSURANCE SYSTEM, defendant-appellant.
No. L-18155. March 30, 1963.
TRINIDAD J. FRANCISCO, plaintiff-
appellant, vs. GOVERNMENT SERVICE
INSURANCE SYSTEM, defendant-appellee.
Corporations; Binding effect of acts of corporate
officers.—A corporation cannot evade the binding effect
produced by a telegram sent by its board secretary, and the
addressee of such telegram cannot be blamed for relying
upon it, because if every person dealing with a corporation
were held duty-bound to disbelieve every act of its
responsible officers no matter how regular it should appear
on its face, corporate transactions would speedily come to a
standstill.
Same; Same; When corporation estopped to deny
apparent authority of its officers.—If a private corporation
intentionally or negligently clothes its officers or agents with
apparent power to perform acts for it, the corporation will be
estopped to deny that such apparent authority is real, as to
innocent third persons dealing in good faith with such
officers or agents. (2 Fletcher’s Encyclopedia, Priv. Corp. 255,
Perm. Ed.)
Same; Same; Same; When notice of lands by a corporate
officer is notice to corporation.—Knowledge of facts acquired
or possessed by an officer or agent of a corporation in the
course of his employment, and in relation to matters within
the scope of his authority, is notice to the corporation,
196
whether he communicates such knowledge or not.
(Ballentine, Law on Corporations, section 112.)
Same; Same; Same; Silence of corporation as ratification
of agreement.—The silence of the corporation, taken together
with the unconditional acceptance of three subsequent
remittances from plaintiff, constitutes a binding ratification
of the original agreement between them (Civil Code, Article
1393).578
578 SUPREME COURT
REPORTS ANNOTATED
Francisco vs. Government Service
Insurance System
Same; Same; Same; Maxim that the one who made it
possible for a wrong to be done should suffer.—The equitable
maxim that between two innocent parties the one who made
it possible for the wrong to be done should be the one to bear
the resulting loss, applies when — as in the instant case —
a corporation allows one of its officers, now alleged to be
without the proper authority, to send a telegram binding the
corporation.
Damages; Breach of contract; Moral damages not
warranted if breach is not malicious or fraudulent.—Award
of moral damages under Article 2220 of the Civil Code is not
warranted if the breach of contract is not malicious or
fraudulent (Ventanilla vs. Centeno, L-14333, 28 Jan. 1961;
Fores vs. Miranda, L-12163, 4 March 1959).
Same; Same; When exemplary damages allowed.—
Exemplary damages are only allowed in addition to moral,
temperate, liquidated, or compensatory damages (Art. 2234,
Civil Code; Velayo vs. Shell Co. of P.I., L-7817, Res. July 30,
1957; Singson, et al. vs. Aragon and Lorza, L-5164, Jan. 27,
1953, 49 0.G. No. 2, 515).
Attorney’s fees; Award essentially discretionary with
trial court.—The award of attorney’s fees is essentially
discretionary with the trial court, and no abuse of discretion
is committed when the court refuses to make an award
because of the absence of gross and evident bad faith in
defendant’s refusal to satisfy plaintiff’s claim, or of any of the
other grounds enumerated in Article 2208 of the Civil Code.
APPEAL from a decision of the Court of First Instance
of Rizal. Mojica, J.
The facts are stated in the opinion of the Court.
Vicente J. Francisco for plaintiff-appellee.
The Government Corporate Counselfor defendant-
appellant.
REYES, J.B.L., J.:
Appeal by the Government Service Insurance
System from the decision of the Court of First Instance
of Rizal (Hon. Angel H. Mojica, presiding), in its Civil
Case No. 2088-P, entitled “Trinidad J. Francisco,
plaintiff, vs. Government Service Insurance System,
defendant”, the dispositive part of which reads as
follows:
“WHEREFORE, judgment is hereby rendered: (a)
Declaring null and void the consolidation in the name of the
defendant, Government Service Insurance System, of the
title of the VIC-MARI Compound; said title shall be restored
to the plaintiff; and all payments made by the plaintiff, after
her offer had
579
VOL. 7, MARCH 30, 1963 579
Francisco vs. Government Service
Insurance System
been accepted by the defendant, must be credited as
amortizations on her loan; and (b) Ordering the defendant to
197
abide by the terms of the contract created by plaintiff’s offer
and it’s unconditional acceptance, with costs against the
defendant.”
The plaintiff, Trinidad J. Francisco, likewise
appealed separately (L-18155), because the trial court
did not award the P535,000.00 damages and attorney’s
fees she claimed. Both appeals are, therefore, jointly
treated in this decision.
The following facts are admitted by the parties: On
10 October 1956, the plaintiff, Trinidad J. Francisco, in
consideration of a loan in the amount of P400,000.00,
out of which the sum of P336,100.00 was released to
her, mortgaged in favor of the defendant, Government
Service Insurance System (hereinafter referred to as
the System) a parcel of land containing an area of
18,232 square meters, with twenty-one (21) bungalows,
known as Vic-Mari Compound, located at Baesa,
Quezon City, payable within ten (10) years in monthly
installments of P3,902.41, and with interest of 7% per
annum compounded monthly.
On 6 January 1959, the System extrajudicially
foreclosed the mortgage on the ground that up to that
date the plaintiff-mortgagor was in arrears on her
monthly installments in the amount of P52,000.00.
Payments made by the plaintiff at the time of
foreclosure amounted to P130,000.00. The System itself
was the buyer of the property in the foreclosure sale.
On 20 February 1959, the plaintiff’s father, Atty.
Vicente J. Francisco, sent a letter to the general
manager of the defendant corporation, Mr. Rodolfo P.
Andal, the material portion of which recited as follows:
 “Yesterday, I was finally able to collect what the
Government owed me and I now propose to pay said amount
of P30,000 to the GSIS if it would agree that after such
payment the foreclosure of my daughter’s mortgage would be
set aside. I am aware that the amount of P30,000 which I
offer to pay will not cover the total arrearage of P52,000 but
as regards the balance, I propose this arrangement: for the
GSIS to take over the administration of the mortgaged
property and to collect the monthly installments, amounting
to about P5,000, due on the unpaid purchase price of more
than 31 lots and houses therein and the monthly
installments collected shall be applied to the
580
580 SUPREME COURT REPORTS
ANNOTATED
Francisco vs. Government Service
Insurance System
payment of Miss Francisco’s arrearage until the same is fully
covered. It is requested, however, that from the amount of
the monthly installments collected, the sum of P350.00 be
deducted for necessary expenses, such as to pay the security
guard, the street-caretaker, the Meralco Bill for the street
lights and sundry items.
It will be noted that the collectible income each month
from the mortgaged property, which as I said consists of
installments amounting to about P5,000, is more than
enough to cover the monthly amortization on Miss
Francisco’s loan. Indeed, had she not encountered
difficulties, due to unforeseen circumstances, in collecting
the said installments, she could have paid the amortizations
as they fell due and there would have been really no need for
the GSIS to resort to foreclosure.
The proposed administration by the GSIS of the
mortgaged property will continue even after Miss Francisco’s
198
account shall have been kept up to date. However, once the
arrears shall have been paid, whatever amount of the
monthly installments collected in excess of the amortization
due on the loan will be turned over to Miss Francisco.
I make the foregoing proposal to show Francisco’s sincere
desire to work out any fair arrangement for the settlement
of her obligation. I trust that the GSIS, under the
broadminded policies of your administration, would give it
serious consideration.
Sincerely,
s/ Vicente J. Francisco
t/ VICENTE J.
FRANCISCO
On the same date, 20 February 1959, Atty. Francisco
received the following telegram:
“VICENTE FRANCISCO
SAMANILLO BLDG. ESCOLTA.
GSIS BOARD APPROVED YOUR REQUEST RE
REDEMPTION OF FORECLOSED PROPERTY OF YOUR
DAUGHTER
ANDA
L”
On 28 February 1959, Atty. Francisco remitted to the
System, through Andal, a check for P30,000.00, with an
accompanying letter, which reads:
“I am sending you herewith BPI Check No. B-299484 for
Thirty Thousand Pesos (P30,000.00) in accordance with my
letter of February 20th and your reply thereto of the same
date, which reads:581
VOL. 7, MARCH 30, 1963 581
 Francisco vs. Government Service
Insurance System
“GSIS BOARD APPROVED YOUR REQUEST RE
REDEMPTION OF FORECLOSED PROPERTY OF YOUR
DAUGHTER’
xxx x xxx x xxx x the compliance of the terms of the offer already
x x x x”
The defendant received the amount of P30,000.00, and
issued therefor its official receipt No. 1209874, dated 4
March 1959. It did not, however, take over the
administration of the compound. In the meantime, the
plaintiff received the monthly payments of some of the
occupants thereat; then on 4 March 1960, she remitted,
through her father, the amount of P44,121.29,
representing the total monthly installments that she
received from the occupants for the period from March
to December 1959 and January to February 1960,
minus expenses and real estate taxes. The defendant
also received this amount, and issued the corresponding
official receipt.
Remittances, all accompanied by letters,
corresponding to the months of March, April, May, and
June, 1960 and totalling P24,604.81 were also sent by
the plaintiff to the defendant from time to time, all of
which were received and duly receipted for.
Then the System sent three (3) letters, one dated 29
January 1960, which was signed by its assistant
general manager, and the other two letters, dated 19
and 26 February 1960, respectively, which were signed
by Andal, asking the plaintiff for a proposal for the
payment of her indebtedness, since according to the
System the one-year period for redemption had expired.
199
In reply, Atty. Francisco sent a letter, dated 11
March 1960, protesting against the System’s request for
proposal of payment and inviting its attention to the
concluded contract generated by his offer of 20 February
1959, and its acceptance by telegram of the same date,
commenced by the plaintiff, and the misapplication by
the System of the remittances she had made, and
requesting the proper corrections.
By letter, dated 31 May 1960, the defendant
countered the preceding protest that, by all means, the
plaintiff should pay attorney’s fees of P35,644.14,
publication expenses, filing fee of P301.00, and
surcharge of P23.64 for
582
582 SUPREME COURT REPORTS
ANNOTATED
Francisco vs. Government Service
Insurance System
the foreclosure work done; that the telegram should be
disregarded in view of its failure to express the contents
of the board resolution due to the error of its minor
employees in couching the correct wording of the
telegram. A copy of the excerpts of the resolution of the
Board of Directors (No. 380, February 20, 1959) was
attached to the letter, showing the approval of
Francisco’s offer—
“x x x subject to the condition that Mr. Vicente J. Francisco
shall pay all expenses incurred by the GSIS in the foreclosure
of the mortgage.”
Inasmuch as, according to the defendant, the
remittances previously made by Atty. Francisco were
allegedly not sufficient to pay off her daughter’s arrears,
including attorney’s fees incurred by the defendant in
foreclosing the mortgage, and the one-year period for
redemption has expired, said defendant, on 5 July 1960,
consolidated the title to the compound in its name, and
gave notice thereof to the plaintiff on 26 July 1960 and
to each occupant of the compound.
Hence, the plaintiff instituted the present suit, for
specific performance and damages. The defendant
answered, pleading that the binding acceptance of
Francisco’s offer was the resolution of the Board, and
that Andal’s telegram, being erroneous, should be
disregarded. After trial, the court below found that the
offer of Atty. Francisco, dated 20 February 1959, made
on behalf of his daughter, had been unqualifiedly
accepted, and was binding, and rendered judgment as
noted at the start of this opinion.
The defendant-appellant corporation assigns six (6)
errors allegedly committed by the lower court, all of
which, however, are resolvable on the single issue as to
whether or not the telegram generated a contract that
is valid and binding upon the parties.
We find no reason for altering the conclusion reached
by the court below that the offer of compromise made by
plaintiff in the letter, Exhibit “A”, had been validly
accepted, and was binding on the defendant. The terms
of the offer were clear, and over the signature of
defendant’s general manager, Rodolfo Andal, plaintiff
was informed
583
VOL. 7, MARCH 30, 1963 583
200
Francisco vs. Government Service
Insurance System
telegraphically that her proposal had been accepted.
There was nothing in the telegram that hinted at any
anomaly, or gave ground to suspect its veracity, and the
plaintiff, therefore, can not be blamed for relying upon
it. There is no denying that the telegram was within
Andal’s apparent authority, but the defense is that he
did not sign it, but that it was sent by the Board
Secretary in his name and without his knowledge.
Assuming this to be true, how was appellee to know it?
Corporate transactions would speedily come to a
standstill were every person dealing with a corporation
held duty-bound to disbelieve every act of its
responsible officers, no matter how regular they should
appear on their face. This Court has observed
in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655,
that—
“In passing upon the liability of a corporation in cases of
this kind it is always well to keep in mind the situation as it
presents itself to the third party with whom the contract is
made. Naturally he can have little or no information as to
what occurs in corporate meetings; and he must necessarily
rely upon the external manifestations of corporate consent.
The integrity of commercial transactions can only be
maintained by holding the corporation strictly to the liability
fixed upon it by its agents in accordance with law; and we
would be sorry to announce a doctrine which would permit
the property of a man in the city of Paris to be whisked out
of his hands and carried into a remote quarter of the earth
without recourse against the corporation whose name and
authority had been used in the manner disclosed in this case.
As already observed, it is familiar doctrine that if a
corporation knowingly permits one of its officers, or any
other agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as possessing
power to do those acts, the corporation will, as against any
one who has in good faith dealt with the corporation through
such agent, be estopped from denying his authority; and
where it is said ‘if the corporation permits’ this means the
same as ‘if the thing is permitted by the directing power of
the corporation.’”
It has also been decided that —
“A very large part of the business of the country is carried
on by corporations. It certainly is not the practice of persons
dealing with officers or agents who assume to act for such
entities to insist on being shown the resolution of the board
of directors authorizing the particular officer or agent to
transact the particular business which he assumes to
conduct. A person who knows that the officer or agent of the
corporation
584
584 SUPREME COURT REPORTS
ANNOTATED
Francisco vs. Government Service
Insurance System
habitually transacts certain kinds of business for such
corporation under circumstances which necessarily show
knowledge on the part of those charged with the conduct of
the corporate business assumes, as he has the right to
assume, that such agent or officer is acting within the scope
of his authority. (Curtis Land & Loan Co. vs. Interior Land
Co., 137 Wis. 341, 118 N.W. 853, 129 Am. St. Rep. 1068; as
cited in 2 Fletcher’s Encyclopedia, Priv. Corp. 263, perm. Ed.)
Indeed, it is well-settled that—
201
“If a private corporation intentionally or negligently clothes
its officers or agents with apparent power to perform acts for
it, the corporation will be estopped to deny that such
apparent authority is real, as to innocent third persons
dealing in good faith with such officers or agents.” (2
Fletcher’s Encyclopedia, Priv. Corp. 255, Perm. Ed.)
Hence, even if it were the board secretary who sent
the telegram, the corporation could not evade the
binding effect produced by the telegram.
The defendant-appellant does not disown the
telegram, and even asserts that it came from its offices,
as may be gleaned from the letter, dated 31 May 1960,
to Atty. Francisco, and signed “R. P. Andal, general
manager by Leovigildo Monasterial, legal counsel”,
wherein these phrases occur: “the telegram sent x x x by
this office” and “the telegram wesent your” (emphasis
supplied), but it alleges mistake in couching the correct
wording. This alleged mistake cannot be taken
seriously, because while the telegram is dated 20
February 1959, the defendant informed Atty. Francisco
of the alleged mistake only on 31 May 1960, and all the
while it accepted the various other remittances,
starting on 28 February 1959, sent by the plaintiff to it
in compliance with her performance of her part of the
new contract.
The inequity of permitting the System to deny its
acceptance become more patent when account is taken
of the fact that in remitting the payment of P30,000
advanced by her father, plaintiff’s letter to Mr. Andal
quoted verbatim the telegram of acceptance. This was
in itself notice to the corporation of the terms of the
allegedly unauthorized telegram, for as Ballentine says:
“Knowledge of facts acquired or possessed by an officer or
agent of a corporation in the course of his employment, and
in
585
VOL. 7, MARCH 30, 1963 585
Francisco vs. Government Service
Insurance System
relation to matters within the scope of his authority, is notice
to the corporation, whether he communicates such
knowledge or not.” (Ballentine, Law on Corporations, section
112.)
since a corporation cannot see, or know, anything except
through its officers.
Yet, notwithstanding this notice, the defendant
System pocketed the amount, and kept silent about the
telegram not being in accordance with the true facts, as
it now alleges. This silence, taken together with the
unconditional acceptance of three other subsequent
remittances from plaintiff, constitutes in itself a
binding ratification of the original agreement (Civil
Code, Art. 1393).
“ART. 1393. Ratification may be effected expressly or
tacitly. It is understood that there is a tacit ratification if,
with knowledge of the reason which renders the contract
voidable and such reason having ceased, the person who has
a right to invoke it should execute an act which necessarily
implies an intention to waive his right.”
Nowhere else do the circumstances call more
insistently for the application of the equitable maxim
that between two innocent parties, the one who made it
202
possible for the wrong to be done should be the one to
bear the resulting loss.
The defendant’s assertion that the telegram came
from it but that it was incorrectly worded renders
unnecessary to resolve the other point on controversy as
to whether the said telegram constitutes an actionable
document.
Since the terms offered by the plaintiff in the letter
of 20 February 1959 (Exhibit “A”) provided for
the setting aside of the foreclosure effected by the
defendant System, the acceptance of the offer left the
account of plaintiff in the same condition as if no
foreclosure had taken place. It follows, as the lower
court has correctly held, that the right of the System to
collect attorneys’ fees equivalent to 10% of the due
(P35,694.14) and the expenses and charges of P3,300.00
may no longer be enforced, since by the express terms
of the mortgage contract, these sums were collectible
only “in the event of foreclosure.”
The court a quo also called attention to the
unconscionability of defendant’s charging the attorney’s
fees, totalling
586
586 SUPREME COURT REPORTS
ANNOTATED
Francisco vs. Government Service
Insurance System
over P35,000.00; and this point appears well-taken,
considering that the foreclosure was merely extra-
judicial, and the attorneys’ work was limited to
requiring the sheriff to effectuate the foreclosure.
However, in view of the parties’ agreement to set the
same aside, with the consequential elimination of such
incidental charges, the matter of unreasonableness of
the counsel fees need not be labored further.
Turning now to the plaintiff’s separate appeal (Case
G.R. No. L-18155): Her prayer for an award of actual or
compensatory damages for P83,333.33 is predicated on
her alleged unrealized profits due to her inability to sell
the compound for the price of P750,000.00 offered by
one Vicente Alunan, which sale was allegedly blocked
because the System consolidated the title to the
property in its name. Plaintiff reckons the amount of
P83,333.33 by placing the actual value of the property
at P666,666.67, a figure arrived at by assuming that the
System’s loan of P400,000.00 constitutes 60% of the
actual value of the security. The court a quo correctly
refused to award such actual or compensatory damages
because it could not determine with reasonable
certainty the difference between the offered price and
the actual value of the property, for lack of competent
evidence. Without proof we cannot assume, or take
judicial notice, as suggested by the plaintiff, that the
practice of lending institutions in the country is to give
out as loan 60% of the actual value of the collateral. Nor
should we lose sight of the fact that the price offered by
Alunan was payable in installments covering five years,
so that it may not actually represent true market
values.
Nor was there error in the appealed decision in
denying moral damages, not only on account of the
plaintiff’s failure to take the witness stand and testify
to her social humiliation, wounded feelings, anxiety,
etc., as the decision holds, but primarily because a
203
breach of contract like that of defendant, not being
malicious or fraudulent, does not warrant the award of
moral damages under Article 2220 of the Civil Code
(Ventanilla vs. Centeno, L-14333, 28 Jan. 1961; Fores
vs. Miranda, L-12163, 4 March 1959).587
VOL. 7, MARCH 30, 1963 587
Francisco vs. Government Service
Insurance System
There is no basis for awarding exemplary damages
either, because this species of damages is only allowed
in addition to moral, temperate, liquidated, or
compensatory damages, none of which have been
allowed in this case, for reasons herein before discussed
(Art. 2234, Civil Code; Velayo vs. Shell Co. of P.I., L-
7817, Res. July 30, 1957; Singson, et al. vs. Aragon and
Lorza, L-5164, Jan. 27, 1953, 49 O.G. No. 2, 515).
As to attorneys’ fees, we agree with the trial court’s
stand that in view of the absence of gross and evident
bad faith in defendant’s refusal to satisfy the plaintiff’s
claim, and there being none of the other grounds
enumerated in Article 2208 of the Civil Code, such
absence precludes a recovery. The award of attorneys’
fees is essentially discretionary in the trial court, and
no abuse of discretion has been shown.
FOR THE FOREGOING REASONS, the appealed
decision is hereby affirmed, with costs against the
defendant Government Service Insurance System, in
G.R. No.L-18287.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador,
Concepcion, Barrera, Paredes, Dizon,
Regala and Makalintal, JJ., concur. Decision affirmed.
 No. L-19375. May 21, 1969.
DY PEH, AND/OR VICTORY RUBBER
MANUFACTURING, petitioner, vs.COLLECTOR OF
INTERNAL REVENUE, respondent.
Court of Tax Appeals; Review of findings of fact binding
on the Supreme Court.—The Supreme Court does not review
findings of fact of the Court of Tax Appeals; only errors of law
are reviewable by it.
Civil law; Contracts; Agency; Agent's acts bind his
principal; Remedy of principal.—Where a contract of agency
exists the agent's acts bind his principal, without prejudice
to the latter seeking recourse against the agent in an
appropriate civil or criminal action.
PETITION for review of a decision and a resolution of
the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
Rene A. Diokno for petitioner.
Solicitor General Arturo A. Alafriz, Assistant
Solicitor General Felicisimo R. Rosete and Special
Attorney Alejandro B. Afurong for respondent.
DlZON, J.:
Petition filed by Dy Peh for the review of the decision
and resolution of the Court of Tax Appeals dated April
29 and December 23, 1961, respectively, in C.T.A. Case
No. 538, ordering him to pay deficiency percentage
taxes in the total amount of P51,939,27.
The following facts are not disputed:
Petitioner, during all the time material to this case,
was engaged in the business of manufacturing and
204
selling rubber shoes and allied products in the city of
Cebu, under the registered firm name Victory Rubber
Manufacturing.
Sometime in the year 1955 the Bureau of Internal
Revenue unearthed anomalies committed in the office
of the Treasurer of the city of Cebu in connection with
the payment of taxes by some taxpayers, amongst them
petitioner herein. As a result the respondent assessed
against, and demanded from petitioner the payment of
the following sums: P4,725, including P100 as penalty,
P29,980, including P50 as penalty, and P17,425
including P50 as penalty, on January 27, 1956,
November 12, 1955 and November 12,
217
VOL. 28, MAY 21, 1969 217
Dy Peh vs. Collector of Internal Revenue
1955, respectively. This assessment was based upon
short payments in connection with taxes due from
petitioner during the periods covered by the
assessment. The investigation of the anomalies
disclosed that the amounts of the taxes allegedly paid
by him, as appearing in the original of every official
receipt he had in his possession, were bigger than the
amounts appearing in the corresponding duplicate,
triplicate and quadruplicate copies thereof kept in the
office of the City Treasurer of Cebu. Such discrepancies
are hereunder tabulated as follows:
Official Appearing in Appearing in the
the Duplicate
Receipt Original Triplicate and/or
Number Date Amount Quadruplicate
Re 1st cause of action Date Amount Difference
699004 4- P 4- P227.47 P3,000.00 8423087 7- 2,850.63 7- 50.63 2,800.00
20- 3,227.47 20- 20- 20-
54 54 53 53
704201 7- 3,681.41 7- 681.41 3,000.00 8470851 10- 2,901.87 10- 101.87 2,800.00
20- 20- 20- 20-
54 54 53 53
709008 10- 1,892.78 10- 192.78 1,700.00 693613 1- 2,996.26 1- 96.26 2,900.00
20- 20- 20- 20-
54 54 54 54
A- 1- 2,575.46 1- 175.46 2,400.00 Re 3rd cause of action
210319 20- 20- A- 1- P3,815.18 1- P115.18 P3,700.00
55 55 1709018 17- 17-
A- 4- 3,968.68 4- 168.69 3,800.00 52 52
218105 20- 20- Petitioner's contention below and here is this: since the
55 55 checks issued by him covered in full the amount due for
Re 2nd cause of action each quarter, and were accepted and deposited by the
1923194 4- P4,380.37 4- P380.37 P4,000.00 City Treasurer of Cebu; since the originals of the official
21- 21- receipts issued by the latter show that the full amount
52 52 of the taxes due from him had been paid, he must be
1972817 7- 4,140.29 7- 140.29 4,000.00 deemed to have paid such taxes in full, and any
21- 21- anomaly in the application of the amounts paid by him
52 52 consisting in the diversion of part thereof to pay the
6399188 10- 2,113.07 10- 113.07 2,000.00 taxes of other taxpayers—whether attributable solely to
20- 20- employees in the office of said Treasurer or to other
52 52 parties—should not be held against him.
218
7769180 1- 1,457.42 4- 7- 6.00 1,451.42 218 SUPREME COURT REPORTS
17- 53 ANNOTATED
53 Dy Peh vs. Collector of Internal Revenue
7778387 4- 4,057.56 4- 57.56 4,000.00
Respondent's contention, on the other hand, is that the
18- 18- amounts actually paid by petitioner were those
53 52

205
appearing on the duplicates, triplicates and
quadruplicates of the official receipts mentioned
heretofore; that the originals thereof were falsified or
altered to make them show payment in full of the taxes
due from petitioner.
In connection with the issues thus joined petitioner
tried to prove that the payments in question were made
by him personally, while, on the other hand, respondent
claimed that said payments were made not by
petitioner personally but by Tan Chuan Liong, his
authorized agent in the matter of payment of his taxes;
that Bartolome Baguio, Chief of the Internal Revenue
Division of the City Treasurer's Office of Cebu, had
allowed the wrongful practice of permitting Tan Chuan
Liong to prepare the official receipts in connection with
tax payments made by him in behalf of his merchant
clients; that it was Tan Chuan Liong who applied a
portion of the amounts given to him by petitioner to pay
tax obligations of other taxpayers, also his clients, and
that therefore petitioner's recourse is against him.
Whether it was petitioner, in person, who made the
payment of his taxes herein involved, or it was his
aforesaid agent, is manifestly a question of fact
squarely resolved by the Court of Tax Appeals as
follows:
"Petitioner sought to prove that he never employed Tan
Chuan Liong as a business agent in the payment of the tax
in question. The preponderance of the evidence shows
otherwise. If, as alleged, petitioner paid the tax personally,
why were the official receipts prepared by Tan Chuan Liong
and not by Bartolome Baguio or any authorized employee in
the office of the City Treasurer of Cebu? It appears that Tan
Chuan Liong prepared the official receipts of payments of
206
taxpayers who employed him as. business agent. It has not
been shown that Tan Chuan Liong prepared any official
receipt covering payment of taxpayers other than those who
employed him business agent."
After ruling against petitioner on this question, the
Court of Tax Appeals said further:
"Even assuming that Tan Chuan Liong was not employed by
petitioner as business agent, petitioner is not entirely
blameless. The records show that the payments were made
219
VOL. 28, MAY 21, 1969 219
Dy Peh vs. Collector of Internal Revenue
by checks. The numbers of the official receipts covering the
payments are indicated on the back of the checks. After the
checks had been deposited and the amounts credited in favor
of the Government, the cancelled checks were returned to
petitioner. Petitioner is, therefore, charged with knowledge
of the fact that the amount covered by each check was
applied in payment not only of his tax but also of taxes of
other taxpayers, the numbers of the official receipts covering
which are indicated on the back of the check. The fact that
he accepted the cancelled checks without protest is evidence
of his acquiescence to the manner in which the amount
covered by each check was applied by the collecting officer.
He cannot now be heard to complain."
We can hardly add any other consideration to
strengthen the lower court's ruling.
Another question of fact vital to this case is whether
or not the official receipts in petitioner's possession
were falsified, and if so by whom.
In this connection, We believe it established as a fact
that petitioner had employed Tan Chuan Liong as a
business agent in the matter of payment of his taxes.
The testimonies of Bartolome Baguio, Isidro Badana
and Lauro Abalos on this matter (T.s.n. pp. 200-201,
472-473, 483484, 501-503, 508-510, 525, 535-539) were
corroborated by the statement and report of NBI
handwriting expert Felipe Logan. That Tan Chuan
Liong, as such petitioner's agent, actually paid to the
government less than the amounts of the taxes due from
petitioner is also fully proven by their testimonies and
the duplicate, triplicate and quadruplicate copies of the
official receipts which appear upon their face to be
genuine or authentic. The same thing cannot be claimed
for the official receipts in question, because the lower
court found that, as in the case of Tiu Bon Sin vs.
Collector etc., C.T.A. No. 286, and Yap Pe Giok vs.
Arañas, C.T.A. No. 533, appellant employed the same
business agent who misappropriated a portion of the
amounts entrusted to him and paid less than what was
due from his principals. In plain words, the lower court
expressed the view that the official receipts in
petitioner's hands did not reflect the truth.
The trial court's ruling upon these questions must be
sustained pursuant to our consistent ruling to the effect
220
220 SUPREME COURT REPORTS
ANNOTATED
Campillo vs. Philippine National Bank
that in reviews of the nature of the present, only errors
of law are reviewable by this Court (G.R. L-
12174, Maria B. Castro vs. Collector, April 26,
1962; G.R. L-9738, Blas Gutierrez, et al. vs. Court of
Tax Appeals; G.R. L-8556, Benito Sanchez vs.
207
Commissioner of Customs, Sept. 30, 1957 and 54 O.G.
No. 2, p. 361, Eugenio Perez vs. Court of Tax Appeals,
.G.R. L-10507, May 30, 1958; G.R. No. L-13387, Sy
Chiuco vs. Collector, March 23, 1960; G.R. No. L-
11622, Collector vs. Fisher and G.R. No. L-1168, Fisher
vs. Collector, January 28, 1961).
The foregoing disposes of the first two assignments
of error submitted in petitioner's brief. In the third, it is
his contention that the Court a quo erred in holding
that he is estopped from questioning the misapplication
of his payments.
This is only a corollary of the questions raised in the
previous assignments of error. Inasmuch as We have
held in resolving the latter that, in point of fact, Tan
Chuan Liong was petitioner's agent, the conclusion
must necessarily be that the agent's acts bind his
principal; without prejudice, of course, to the latter
seeking recourse against him in an appropriate civil or
criminal action.
The fourth and last assignment of error has been
impliedly resolved adversely to petitioner in our
rulings, upon the first three.
PREMISES CONSIDERED, the decision appealed
from is hereby affirmed, with costs.
Reyes, J.B.L., Acting
C.J., Makalintal, Zaldivar, Sanchez, Fernandoand Ca
pistrano, JJ., concur.
Teehankee and Barredo, JJ., did not take part.
Concepcion, C.J., and Castro, J.,are on official
leave.
Decision affirmed.

No.L-28773. June 30, 1975. *
FRANCISCO ORTIGAS, JR., plaintiff-appellant-
appellee, vs. LUFTHANSA GERMAN AIRLINES,
defendant-appellant-appellee.
Appeals; Supreme Court can review matters not
assigned as error in the appeal.—This Court is clothed with
ample authority to review matters, even if they are not
assigned as errors in the appeal, if it finds that their
consideration is necessary in arriving at a just decision of the
case. Also, an unassigned error closely related to an error
properly assigned or upon which the determination of the
questioned raised by the error properly assigned is
dependent, will be considered by the appellate court
notwithstanding the failure to assign it as an error.
Civil procedure; Evidence; Court may delete or strike off
testimony of witness who failed to appear during the hearing
for his cross-examination where the case has been pending for
years and witness’s failure to attend the hearing has not been
explained.—We reiterate, the case has been pending for more
than three years, with so many postponements, and the least
that defendant should have done to merit favorable action on
the part of the trial judge was to be ready with an
explanation of its inability to proceed with the trial, giving
the detailed and good reasons therefore. x x x Moreover, the
Rome based witnesses were not the only possible witnesses
of the defendant. To begin with, Mr. C.H. Dehio, the IATA
Agency Manager, Far East and Australia, Lufthansa
German Air Lines, who, according to the record, had already
attended previous hearings as a prospective witness could
have been made to go to court. There is nothing in the record
to show that he was also rendered incapable of doing so.
Then, there could still be local witnesses. It is no excuse that
208
presenting other witnesses would have disrupted the
presentation of defendant’s case, for parties may be allowed
to maintain their own way of presenting their evidence only
where this can be done without injury to the expeditious
disposition of the case and the best interests of the
administration of justice.
Same; Same; Oral testimony may be taken into account
only where it is complete.—Oral testimony may be taken into
account only when it is complete, that is, if the witness has
been wholly cross-examined by the adverse party or the right
to cross-examine is lost wholly or in part thru the fault of
such adverse party. But when cross-
_________________
* SECOND DIVISION.
611
VOL. 64, JUNE 30, 1975 611
Ortigas, Jr. vs. Lufthansa German
Airlines
examination is not and cannot be done or completed due
to causes attributable to the party offering the witness, the
uncompleted testimony is thereby rendered incompetent.
Same; Same; Right to cross-examination in civil cases is
an indispensable part of due process of law.—The right of a
party to cross-examine the witnesses of his adversary is
invaluable as it is inviolable in civil cases, no less than the
right of the accused in criminal cases. The express
recognition of such right of the accused in the Constitution
does not render the right thereto of parties in civil cases less
constitutionally based, for it is an indispensable part of the
due process guaranteed by the fundamental law.
Civil law; Agency; Damages; Air carriers which are
members of the IATA are constituted as agents of each other
in the issuing of tickets and, therefore, bound by the mistakes
committed by a member thereof which, in behalf of petitioner
airline confirmed, Ortigas’ reservation for a first-class
accommodation.—Disputing the foregoing conclusions,
Lufthansa claims firstly that the Alitalia employee who
validated and confirmed Ortigas’ reservation must have
made a mistake because actually, he was informed by the
Lufthansa Rome office that Ortigas could only be waitlisted.
Assuming, however, there was an error, it has been
indisputably proven that under the so-called pool
arrangement among different airline companies pursuant to
the International Air Transport Association (IATA)
agreement of which Alitalia and Lufthansa are signatories,
both companies are constituted thereby as agents of each
other in the issuing of tickets and other matters pertaining
to their relations with those who would need their services,
and since there can be no question that on its face, the
annotations made by Alitalia on the ticket here in dispute
cannot have any other meaning than that the reservation of
Ortigas for the Rome-Hongkong flight was validated and
confirmed, Lufthansa’s disclaimer is unavailing. Besides, it
appears that when Ortigas checked in at the airport, the
Lufthansa lady employee thereat told him, after making the
proper verification, that the reservation was correct.
Same; Common carriers; Damages; Inattention and
lack of care by a common carrier resulting in its failure to
accommodate a passenger in the class contracted for amounts
to bad faith or fraud.—It is Our considered view that when
it comes to contracts of common carriage, inattention and
lack of care on the part of the carrier resulting in the failure
of the passenger to be accommodated in the class contracted
for amounts to bad faith or fraud which entitles the
passenger to the award of moral damages in accordance with
Article 2220 of the Civil Code. But in the instant case, the
breach
612
209
612 SUPREME COURT
REPORTS ANNOTATED
Ortigas, Jr. vs. Lufthansa German
Airlines
appears to be of graver nature, since the preference
given to the Belgian passenger over plaintiff was done
willfully and in wanton disregard of plaintiff’s rights and his
dignity as a human being and as a Filipino, who may not be
discriminated against with impunity, x x x As found by the
court below, what worsened the situation of Ortigas was that
Lufthansa succeeded in keeping him as its passenger by
assuring him that he would be given first class
accommodation at Cairo, the next station, the proper
arrangements therefor having been made already, when in
truth such was not the case. xxx Although molested and
embarrassed to the point that he had to take nitroglycerine
pills to ward off a possible heart attack, Ortigas hardly had
any choice, since his luggage was already in the plane. To his
disappointment, when the plane reached Cairo, he was told
by the Lufthansa office there that no word at all had been
received from Rome and they had no space for him in first
class. Worse, similar false representations were made to him
at Dharham and Calcutta. It was only at Bangkok where for
the first time, Ortigas was at last informed that he could
have a first class seat in that leg of the flight, from Bangkok
to Hongkong. This Ortigas reject, if only to make patent his
displeasure and indignation at being so inconsiderately
treated in the earlier part of his journey. x x x In the light of
all the foregoing, there can be no doubt as to the right of
Ortigas to damages, both moral and exemplary. Precedents
We have consistently adhered to so dictate.
Same; Same; Same; Where award of higher damages
justified.—Besides, there is again the disparity between the
Lopez case and this one that here the offense, which, as in
Cuenca, is aggravated by the Lufthansa employee at Rome
having falsely noted on the ticket that Ortigas was travelling
in economy from Rome to Hongkong, was repeated four times
in the same tripe, namely, in Rome, Cairo, Dharham and
Calcutta. More importantly, unlike in the case of Lopez,
Ortigas was suffering from a weak heart and was under
doctor’s advice to travel only in first class, hence, his being
compelled to stay in economy or tourist class during the
major part of his trip, must have given him added
apprehensive feelings about his safety, and, moreover, it is
to be noted that in the Lopez case, which was decided in
1966, aside from taking into account the personal
circumstances of the plaintiff, the Court considered “the
present rate of exchange and the terms at which the amount
of damages awarded would approximately be in U.S.
dollars,” hence, We may not justifiably do differently here.
DIRECT APPEALS from both parties of a decision of
the Court of First Instance of Manila. Moya, J.
The facts are stated in the opinion of the Court.
613
VOL. 64, JUNE 30, 1975 613
Ortigas, Jr. vs. Lufthansa German Airlines
Baizas, Alberto & Associates for appellant Lufthansa
German Airlines.
Pelaez, Jalandoni & Jamir for appellant
Francisco Ortigas, Jr.
BARREDO, J.:
Direct appeals of both parties plaintiff, Francisco
Ortigas, and defendant Lufthansa German Airlines,
from the decision of the Court of First Instance of
210
Manila, Branch X, “condemning the defendant to pay
plaintiff the amount of P100,000 as moral damages,
P30,000 as exemplary or corrective damages, with
interest on both sums at the legal rate from the
commencement of this suit until fully paid, P20,000 as
attorney’s fees and the costs” for the former’s failure to
“comply with its obligation to give first class
accommodation to (the latter) a (Filipino) passenger
holding a first class ticket,” aggravated by the giving of
the space instead to a Belgian and the improper conduct
of its agents in dealing with him during the occasion of
such discriminatory violation of its contract of carriage.
Defendant buttresses its appeal on the following:
“ASSIGNMENTS OF ERRORS
I
THE LOWER COURT ACTED WITH GRAVE ABUSE OF
DISCRETION IN DENYING THE DEFENDANTS
URGENTMOTION FOR POSTPONEMENT DATED
SEPTEMBER 24, 1966.
II
THE LOWER COURT CONSEQUENTLY ERRED IN
ORDERING THE STRIKING FROM THE RECORDS THE
TESTIMONY OF WITNESS IVO LAZZARI AND IN
DEEMING THE CASE SUBMITTED FOR DECISION ON
THE EVIDENCE OF THE PLAINTIFF ALONE.
III
THE LOWER COURT ERRED IN CONDEMNING
DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT
OF P100,000.00 AS MORAL DAMAGES, P30,000.00 AS
EXEMPLARY
614
614 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
OR CORRECTIVE DAMAGES, WITH INTEREST ON
BOTH SUMS AT THE LEGAL RATE FROM THE
COMMENCEMENT OF THIS SUIT UNTIL FULLY PAID,
P20,000.00 AS ATTORNEY’S FEES, AND COSTS.” (Pp. 12-
13, p. 118, Record.)
On the other hand, plaintiff’s sole ground for his appeal
is that “the trial court erred in ordering Lufthansa to
pay Ortigas only P100,000 as moral damages, P20,000
as exemplary or corrective damages, and P20,000 as
attorney’s fees.” (Plaintiff-Appellant’s Brief, p. a.) Thus,
apart from the contention of defendant that it has been
denied its full day in court, the only issue raised by both
appellants relate to the amount of the damages
awarded by the trial court, plaintiff claiming it is less
than he is entitled to and the defendant insisting on the
opposite.
Lufthansa maintains it has not had its full day in
court because the trial court abruptly ended the trial by
denying its last motion for postponement
notwithstanding it was well founded and forthwith
ordering the striking out of the testimony of its absent
witness whose cross-examination had not been finished
and then declaring the case submitted for decision. In
this connection, the record reveals the following facts:
211
Plaintiff’s complaint was filed with the court below
on December 24, 1963 and after issues were joined, a
pre-trial was held, the parties submitted a partial
stipulation of facts and thereafter went to trial, the last
day of which was on September 28, 1966. As to what
happened in between, a detailed account is made in the
brief of Ortigas as plaintiff-appellee as follows:
“ x x x Thereafter the case was set for hearing twenty four
(24) times, or on April 27, 1964, July 9, 1964, August 20,
1964, October 1, 1964, November 11, 1964, December 22,
1964, February 3, 1965, March 18,1965, May 5, 1965, June
11, 1965, July 22, 1965, August 26, 1965 and September 8,
1965, September 22, 1965, November 3, 1965, November 24,
1965, December 17, 1965, December 29, 1965, January 14,
1966, February 2, 1966, April 19, 1966, April 20, 1966, July
5, 6 and 7, 1966, August 25, 1966 and September 28, 1966.
One (1) hearing or that of August 25, 1966, was cancelled
because the trial judge, Hon. Jose L. Moya, was then sick.
Other postponements were as follows:
615
VOL. 64, JUNE 30, 1975 615
Ortigas, Jr. vs. Lufthansa German Airlines
Postponements at instance of
plaintiff
Three (3) settings were cancelled upon motion of plaintiff on
grounds that defendant’s counsel (Atty. Crispin Baizas)
himself must have found sufficient, for he gave his
conformity thereto. These were the hearings set for:
July 9, 1964—postponed upon plaintiff’s motion, dated
June 27, 1964, or 12 days before the hearing, on the ground
that he had to attend an important business matter in
Mindanao, which was so urgent that ‘for plaintiff to even
make a flying trip to Manila for the scheduled hearing might
jeopardize and render to naught a project to which plaintiff
has already expended considerable time, money and effort’
(RA—pp. 28-29. Note: All reference herein will be to
plaintiff’s Record on Appeal).
August 26, 1965—postpone upon plaintiff’s motion, dated
August 23, 1965, for the reason that he was in London for
business reasons and could not return to the Philippines on
time for the hearing. This motion is not reproduced in any
Record on Appeal but is admitted.
July 5-7, 1966—18 days before the dates set for the
hearing, counsel for plaintiff filed a motion, dated June 17,
1966, for postponement on the ground that Atty. Rodegelio
M. Jalandoni, who had been personally handling this case
was then in Washington, D.C. on business and would not be
back until the middle part of August, 1966. Considering that
the trial of the case was far advanced, it would be difficult for
another lawyer to substitute for Atty. Jalandoni. Defendant’s
counsel agreed to the motion (RA—pp. 50-51).
Postponements at instance of
both parties
Four (4) settings, or those of August 20, 1964, October 1,
1964, November 11, 1964 and December 22, 1964, were
cancelled upon the joint motion of the parties on the ground
that negotiations for the possible settlement of this case were
pending (RA—pp. 31-34).
While both attorneys for plaintiff and defendant signed
the joint motions for postponement, the initiative to have the
hearings cancelled actually came from defendant’s counsel
who claimed that he needed time to consult with his client.
Plaintiff welcomed the possibility of compromise and acceded
to join the requests for postponement but became impatient
at and suspicious of the attempt to delay so that in the
212
motion to postpone the December 22, 1964 hearing, plaintiff
insisted on the insertion of the phrase ‘be postponed for the
last time’ (RA—p. 34). These took place after the pre-trial but
before plaintiff had started presenting his evidence.
616
616 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
Postponements at instance of
defendant
Of the remaining 16 settings, at least TEN (10) were
postponed or could not proceed except for a few minutes
because either Atty. Crispin Baizas, counsel for defendant,
was not available or needed time to prepare or had to attend
a meeting somewhere else, or, as in the case of September
28, 1966, defendant’s witnesses wanted to avoid the
inconvenience of coming to the Philippines. The situation
became such that on two (2) occasions the court a
quo warned the defendant and/or its counsel that it was
postponing the trial ‘for the last time’ and ‘definitely for the
last time.’ Thus:
February 3, 1965—On this date, although plaintiff was
ready to present his evidence and the Court to hear the
parties, Atty. Baizas asked for postponement for the reason
that he had to be somewhere else. The undersigned
graciously obliged by not objecting, albeit the
motion was made without warning and in open court.
March 18, 1965—Once again the hearing scheduled for this
date was postponed on motion of Atty. Baizas in open court.
The undersigned did not object because, as far as he can now
recall, the excuse given was that opposite counsel had
another appointment.
 June 11, 1965—The Court was free the whole morning of
this day and plaintiff actually took the witness stand. After
plaintiff was through with his direct testimony, Atty. Zaida
R. Alberto, who appeared for the defendant, asked that the
cross-examination be postponed for the next hearing, on the
ground that Atty. Baizas knew more of the defense. The
following appears of record:
‘ATTY. ALBERTO:
If Your Honor please, may I request to
allow the cross examination at the next
hearing.
COURT:
You can handle the cross examination
now.
ATTY. ALBERTO:
The defense are more in the knowledge
of Atty. Baizas
COURT:
If you postpone the cross examination we
will forget the testimony and will be
spending much time referring to his
testimony, so you better cross-examine
him while his testimonyis still fresh.
ATTY. ALBERTO:
May I ask for a reconsideration, Your
Honor, anyway it is past 11:00 o’clock I
do not think there will be enough time
COURT:
We still have one hour.
ATTY. ALBERTO:
I ask for a reconsideration, Your Honor.
213
617
VOL. 617
64,
JUNE
30,
1975
Ortigas, Jr. vs. Lufthansa German Airlines
COURT:
On motion of the defendant’s
counsel, the continuation of the
trial is postponed to July 22,
1965, at 8:30 a.m. The
partieswere notified in open court
of this new assignment.’ (t.s.n.
pp.43-44, June 11, 1965)
Notwithstanding there was an hour left, which was precious
considering the crowded calendar of the Court, and Judge
Moya wanted to hear the cross-examination because
plaintiff’s testimony was fresh, the Court pleased counsel for
the defendant and postponed the hearing to July 22, 1965.
September 22, 1965—At this hearing the undersigned
requested that Dr. Isidro Pertiera be permitted to take the
witness stand. He is a heart specialist and it was difficult to
bring him to court because of his many patients. His direct
testimony did not take long, after which Atty. Baizas asked
for postponement, for the reason that he did not expect Dr.
Pertiera to testify and, since the subject of the testimony was
important and technical, he needed time to be able to cross-
examine. The undersigned, understanding the predicament
of Atty. Baizas, did not offer any objection.
November 3, 1965—This scheduled hearing was
postponed upon motion dated October 7, 1965, of Atty.
Baizas on the ground that he was leaving on a business trip
abroad. The undersigned again did not object.
November 24, 1965—It will be recalled that the hearing
of September 22, 1965, supra, was postponed to enable Atty.
Baizas to prepare for his cross-examination of Dr. Pertiera.
On this date, November 24, 1965, Atty. Baizas cross-
examined briefly the doctor, but announced:
‘ATTY. BAIZAS:
May I announce, your Honor, that after I cross-examine the
Doctor I will ask for a postponement of my cross examination of
Atty. Ortigas because I will have to attend a meeting of the PAL
Board of Directors this morning. My cross examination will not be
very long.’ (t.s.n., pp. 3-4, November 24, 1965)
The PAL Board of Directors’ meeting was certainly not
more important than the occupation of the Court, and it was
still early, but counsel was insistent. The Court was
beginning to be perturbed by the dilatory motions; yet it
granted counsel’s requested postponement but ‘for the last
time.’ Thus:
‘ATTY. BAIZAS:
That is all. May I make that request, Your Honor, that it is
simply that I have to be present at the meeting. I wish to finish my
cross examination on Atty. Ortigas but it is merely that the
meeting is held for today at 10:00 o’clock and I would like to ask
618
618 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
for a postponement to continue the cross examination.
COURT:
I will grant this for the last time. On motion of Atty. Baizas,
the continuation of the hearing is postponed for the last time
to December 17, 1965, at 8:30 a.m., by agreement between
him and Atty. Jalandoni.’ (t.s.n., p. 17, November 24, 1965)
214
December 17, 1965—Although at the hearing of
November 24, 1965 trial was postponed for the last time to
December 17, 1965, the Court’s warning did not seem to
register because on December 7, 1965 defendant’s counsel
filed another motion for postponement alleging that he had
received a telegram to the effect that the meeting of the Legal
Committee of IATA that he was attending, originally
scheduled for December 10-15, had been deferred and would
begin on December 13 and as it was for 5 days, it would not
be possible for him to return for the December 17 hearing;
hence, he requested that said hearing be reset for December
27 and 29. In his undated motion filed on December 7, 1965
counsel averred that:
There is no intention whatever to delay the case but because of the
circumstances above-stated, undersigned counsel is constrained to
ask, for the last time, for the cancellation of the hearing on
December 17 and for its resetting on such dates as may be
convenient to this Honorable Court, preferably December 27 and
29.’ (RA—p. 41)
The undersigned opposed said motion and alleged:
‘That this case has been pending since December 24, 1963, or
almost two years now, and trial thereof has been repeatedly
suspended and/or postponed;
That at the hearing of November 24, 1965, this Honorable
Court precisely postponed continuation of the trial thereof for the
last time to December 17, a date which was fixed by agreement of
the parties;
That when counsel for defendant left, as alleged, on December
6, 1965 he did so with full knowledge of the intransferable
character of the trial set for December 17;
That defendant can well be represented by Atty. Baizas’
associate, Atty. Alberto, who, as a matter of fact, handled this case
when trial started on June 11, 1965 and has been actively
collaborating with Atty. Baizas since then;
That when plaintiff testified on direct examination on June 11,
1965 said Atty. Alberto appeared for defendant and that plaintiff
is now merely due for further cross-examination.‘ (RA—p. 43)
In spite of said opposition, the Trial Court once more granted
defendant’s request but was more categorical this time with
its
619
VOL. 64, JUNE 30, 1975 619
Ortigas, Jr. vs. Lufthansa German Airlines
admonition against further postponements and used the
word ‘definitely’ in its order which read:
‘ORDER
For the reasons stated in the defendant’s motion for
postponement and in view of the fact that it seeks a
deferment of the hearing for only a few days, the
continuation of the trial is postponed definitely for the last
time to December 29, 1965, at 8:30 a.m.
‘SO ORDERED.
‘Manila, Philippines, December 11, 1965.
JOSE L. MOYA
Judge’
(RA—p. 46)
March 10, 1966—The hearing on this date lasted for only
a few minutes, with the undersigned offering the
documentary evidence for the plaintiff. Thereupon,
defendant’s counsel again asked for postponement so he
could go over said evidence. Since he had no witnesses to
present, the Court once more postponed the trial to April 19,
1966 without any objection on the part of the undersigned.
April 19, 1966—The hearing for this day was cancelled
upon motion of defendant’s counsel (RA—p. 49) on his
representation that defendant’s witness Ivo Lazzari had
arrived from Italy at midnight of April 18, 1966 and was not
in a condition to take the witness stand. The Court again
215
accommodatingly transferred the hearing to the following
day, April 20, 1966, although it had other cases scheduled for
that date and the case at bar was not among them, just so
Lazzari’s trip would not be useless. The undersigned likewise
did not oppose the transfer of hearing.” (Pp. 2-13—Brief, p.
132—Record.)
Defendant does not seriously deny these facts.
Seemingly, the controversy between the parties
revolves around defendant’s motion for postponement of
the hearing set for September 28, 1966 which was
denied by the trial court. It is this denial that is the
subject of the first above-quoted alleged errors assigned
by Lufthansa in its brief as defendant-appellant.
At the time this incident of postponement arose,
plaintiff had already closed his evidence, and so it was
the turn of the defendant to prove its defenses. The
starting date for this was April 19, 1966, but, upon
motion of defendant’s counsel, it was deferred to the
next day, April 20, 1966, on which date defendant’s first
witness, Ivo Lazzari, took the witness stand. His
testimony, however, was not finished in the morning
and
620
620 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
afternoon of that day nor during the whole day of April
22, 1966. Atty. Rodegelio M. Jalandoni was still cross-
examining him when the hearing was continued “to the
first available date in the calendar”. Eventually, the
next continuation of the trial was set at first for July 5,
6 and 7, 1966, but upon motion of plaintiff’s counsel, it
was reset for August 25, 1966, on which date, in spite of
the presence of Lazzari who came from Rome purposely
for the trial together with another expected witness,
Severino Caselli, and still another witness, C.H. Dehio,
who came from Hongkong, no trial could be held
because of the absence of the judge. Hence, another
date, September 28, 1966 was fixed with notice to the
parties received by them respectively the month
previous.
On September 24, 1966, defendant’s counsel filed a
motion for postponement thus:
“COMES NOW the defendant by undersigned counsel and to
this Honorable Court respectfully states:
1
The above-entitled case is set for hearing on September
28, 1966 at 8:30 o’clock in the morning.
2 witnesses in not exerting every effort to testify are not the
The witnesses who are scheduled to testify for the
defendant at said hearing are to come from Rome, Italy;
3 That defendant’s attitude is aggravated by the fact that,
Word has been received from the defendant that said
witnesses will not be able to come for the hearing
aforementioned.
WHEREFORE, it is respectfully prayed that the hearing
of this case scheduled for September 28 be postponed to some
other date most convenient to this Honorable Court,
preferably on any of the following dates: October 21, 17;
216
November 3, 8, 9 or 11, 1966. x x x.” (Page 53, Record on
Appeal, p. 29, Rec.)
On September 27,1966, plaintiff’s counsel filed the
following opposition to the above motion:
“COMES NOW plaintiff, through undersigned counsel and,
in opposition to defendant’s urgent motion for postponement,
dated September 24, 1966, to this Honorable Court
respectfully states:
That this case has been pending since December, 1963;
That defendant’s aforesaid motion does not give any valid
reason for postponing the hearing, since it does not state why
defendant’s
621
VOL. 64, JUNE 30, 1975 621
Ortigas, Jr. vs. Lufthansa German Airlines
witnesses cannot come to Manila on the scheduled dates of
continuation of trial;
That the convenience and motive of defendant and its
concern of the plaintiff, and more so of this Honorable Court,
and that the speedy and proper administration of justice
dictates that the hearing proceed irrespective of defendant’s
obvious disregard of the need thereof;
being an airline company, it has all facilities to have its
employees available as witnesses at any time it desires.
WHEREFORE, it is respectfully prayed that defendant’s
aforesaid motion for postponement be denied. x x x.” (Pp. 55-
56, id.)
In view of this opposition, on the same day, His Honor
issued an order of denial:
“No reason whatsoever having been alleged or shown why
the defendant’s witnesses will not be able to come from Rome
to Manila on the day of the hearing, and this case having
been pending since December, 1963, the motion for
postponement is denied.” (Pp. 56-57, id.)
On the day set for the hearing, September 28, 1966,
Atty. Zaida Ruby S. Alberto appeared for defendant and
verbally moved for reconsideration of the foregoing
order of denial. She argued that:
“Actually, it is not intended to delay the termination of this
case. As a matter of fact, on August 15, 1966, the date set for
the hearing of this case, we were ready with the presentation
of our evidence as our two witnesses from Rome were here.
But unfortunately, Your Honor was indisposed, so the
hearing was postponed to this date. I really do not know why
our witnesses failed to come. However, I intend to make an
inquiry about the matter so that I could file the
corresponding explanation for their failure to appear in
Court today. May I, therefore, reiterate my motion for
reconsideration, with the reservation that I be allowed to file
my explanation for the failure of these two witnesses coming
from Rome to appear for today’s hearing.” (Page 2, t.s.n.,
Sept. 28/66.)
But as counsel could not give the exact reason why
defendant’s witness scheduled to testify were absent,
the trial court denied the motion; ruling that “no ground
has been alleged in support thereof”.(p. 6, t.s.n.,
September 28, 1966.)
This order was immediately followed by a motion of
plaintiff’s counsel for the striking out of the entire
testimony of
622
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622 SUPREME COURT REPORTS
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Ortigas, Jr. vs. Lufthansa German Airlines
the witness, Ivo Lazzari, upon the ground that counsel
had not yet finished his cross-examination of him and
his absence was unexplained. No objection appears to
have been made to such motion, albeit counsel for
defendant tried to point out that Atty. Jalandoni had
already finished his cross-examination of the witness.
After verifying from the records that such was not the
case, His Honor issued the following order:
“The witness Ivo Lazzari not having appeared at the hearing
set for today, for which reason his cross-examination cannot
be continued, on motion of the plaintiff’s counsel, his
testimony is striken from the record, and this case is deemed
submitted for decision on the evidence already presented.”
(Pp. 57-58, Rec. on Ap., id.)
Thus the trial ended and parties were allowed to submit
their respective memoranda.
On October 19, 1966, however, defendant’s counsel
filed the following motion for reconsideration:
“MOTION FOR RECONSIDERATION
COMES NOW defendant by undersigned counsel this
Honorable Court moving for a reconsideration of the orders
dated September 27 and September 28, 1966, respectively,
respectfully states:
I
On September 26, 1966 a motion for postponement of the
hearing on September 28, 1966 was filed by undersigned
counsel for the reason that word had just been received from
the defendant that the witnesses who were scheduled to
testify at the said hearing and who were to come from Rome,
Italy, would not be able to come to the Philippines for said
hearing. This motion was denied in the order of September
27, 1966;
2
No reason could be stated in the aforesaid motion for
postponement because at the time it was prepared, counsel
for defendant did not really know the specific reasons for the
inability of said witnesses to come. A simple telex message
had been sent by the Far East Manager of the defendant
company to defendant’s representatives in Manila advising
the latter that the witnesses in question could not come.
Copy of said telex message is attached to and made part of
this motion for reconsideration as Annex “1”;
623
VOL. 64, JUNE 30, 1975 623
Ortigas, Jr. vs. Lufthansa German Airlines
3 the witnesses to come for the hearing on September 28 was
For this reason on September 28, 1966, when the case was
called, counsel for the defendant reiterated the motion for
postponement and requested this Honorable Court for time
to submit an explanation on the failure of defendant’s
witnesses to come as a letter elaborating on the matter would
surely follow the telex message. This request was however
denied by the Honorable Court and upon motion of plaintiff’s
counsel, another order was issued striking out from the
record the testimony of defendant’s only witness so far, Ivo
Lazzari, whose cross-examination was to be continued that
date, (or the latter’s failure to appear at the hearing, and
deeming the case submitted for decision;
218
4
It is alleged by opposing counsel that the witnesses did
not come for the hearing of September 28, 1966 because it
was inconvenient for them and for defendant. This
accusation is absolutely without basis and malicious;
5
If inconvenience were the only reason for the witnesses’
failure to come, then they would not also have come
previously because it was just as inconvenient for them then.
It will be recalled that Ivo Lazzari had been here in April
1966 when he was presented on direct examination and
partly on cross-examination. On August 25, 1966, the case
was also scheduled for hearing. All of defendant’s witnesses
came here from Rome, Italy for said hearing. Even Mr. C. H.
Dehio was also here to testify. Unfortunately, the Presiding
(Judge) of this Honorable Court was indisposed on that
particular morning and so the hearing on said date was
cancelled. We mention this only to show that the failure of
not caused by mere inconvenience;
6
Defendant had and had no intention to delay the
proceedings whatsoever. The witnesses in question could not
come because of certain circumstances that rendered their
coming over virtually impossible. Both witnesses, Ivo
Lazzari and Saverino Casilli are employees of defendant
company at the Rome office. The air traffic in Rome has been
particularly heavy this season. Some of the personnel of the
Lufthansa Rome office were on leave and these two
employees had to assume some of the duties of those
employees who were on leave, aside from performing their
own regular duties. If
624
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Ortigas, Jr. vs. Lufthansa German Airlmes
they were to leave their posts to come for the hearing on
September 28, there would be grave disruption to the public
service and for this reason they were not able to come. These
facts are contained in a letter dated September 29, 1966
written to undersigned counsel by C. H. Dehio, IATA Agency
Manager, Far East and Australasia, Lufthansa German Air
Lines, copy of which is attached to and made part of this
motion for reconsideration as Annex ‘2’. The envelope in
which said letter contained is likewise attached to and made
part of this motion as Annex ‘2-A’;
7 Narsolis, et al. G.R. No. L-2764, March 24, 1950)
Witness Ivo Lazzari had finished his testimony on direct
examination and on September 28, 1966, opposing counsel
was to continue cross-examination of said witness. The other
witness Saverino Casilli was to be presented after Ivo
Lazzari would have finished testifying. Both witnesses are
material for the defense and no other person could testify on
the facts that are the subject of their testimony. The inability
of said witnesses to come for the hearing on September 28
was not due to any fault or neglect on the part of defendant
who in fact had exerted every effort to have them come, but
because of the supervening circumstances above-described,
their coming over could not have been possible without
seriously disrupting public service;
8 trial by which both parties are given the chance to adduce truth is
219
There is no question that the granting or denial of a
motion for postponement rests upon the sound discretion of
the court. We submit however that under the circumstances,
the ends of justice would have been better served by granting
the motion on question. The reason for defendant’s motion
for postponement is valid and meritorious, and the grant of
a postponement based on such ground would not have
adversely affected the substantial rights of plaintiff’s.
‘Continuances and postponements of trial are part and parcel of
our judicial system of justice, and where no substantial rights are
affected and the intention to delay is not manifest, it is sound
judicial discretion to allow them. (Rexwell vs. Canlas, No. L-16746,
Dec. 30, 1961)
‘There is even authority for the view that the right to a speedy
trial is not violated by granting a continuance on the ground of
absence of material witnesses. (People vs. Romero, G.R. No. L-
4517-20, May 25, 1953)
‘The lower court erred in denying a motion for postponement
filed by defense to await arrival of a material witness.” (People vs.
625
VOL. 64, JUNE 30, 1975 625
Ortigas, Jr. vs. Lufthansa German-Airlines
‘A miscarriage of justice may result from the accidental or
excusable absence of a material witness, where presence can be
secured by the grant of a reasonable continuance/ (Luna vs.
Arcenas, 34 Phil. 80, 98-99)
8
Defendant has a valid and meritorious defense, and if given
opportunity to present its side of the case, it would certainly
diminish, if not altogether disprove plaintiff’s claim.
‘xxx court litigations are primarily for the search of truth. x x x A
the best way to find out such truth. A denial of this chance would
be too technical. The dispensation of justice and the vindication of
grievances should not be barred by technicalities.’ (Ronquillo vs.
Marasigan, L-11621, May 21, 1962; Santiago vs. Joaquin, L-15237,
May 31, 1963, italics ours.) ‘Judicial experience dictates that it is
better that cases are
tried on the merits even with a little delay than that substantial
rights of a party litigant be sacrificed on the altar of technicality.’
(Uy vs. Demetillo, CA-G.R. No. 32665-R, Jan. 14, 1964.)
9
An affidavit of merit by Clarita C. de la Riva, Manager,
Rocha & Cua., Inc., General Sales Agents, Lufthansa
German Airlines is likewise attached to and made an
integral part of this motion for reconsideration as Annex “3”;
10
The order dated September 27, denying defendant’s
motion for postponement and the order of September 28,
1966 striking off from the records the testimony on direct
examination of the witness Ivo Lazzari and holding the case
submitted for decision on the evidence presented would
unduly prejudice defendant’s stand, and would amount to a
denial of due process to defendant.
‘The paramount interests of justice demand such reasonable
allowances as would prevent, without doing an injustice to the
opposing party, the loss by a litigant of his chance to duly present
his side of the case before the court. With a view of avoiding a
possible miscarriage of justice, the exercise of the court’s discretion
ought to lean, in a reasonable degree
626
626 SUPREME COURT REPORTS
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Ortigas, Jr. vs. Lufthansa German Airlines
220
toward bringing about a presentation of evidence on both
sides. x x x ’ (Gerona vs. Calada, CA-G.R. No. 23955-R March
30, 1963, Tormes vs. Balzado, CA-G.R. No. 32019-R, April
17, 1964.)
WHEREFORE, it is respectfully prayed that the orders of the
Honorable Court dated September 27, and September 28,
1966, respectively, be reconsidered and set aside; that the
testimony of defendant’s witness Ivo Lazzari be allowed to
remain on record and that a date be set for the continuation
of defendant’s evidence.
Manila, Philippines, October 19, 1966.
CRISPIN D. BAIZAS & ASSOCIATES
By: s/t/ Crispin D. Baizas
Counsel for the defendant
Suite 305 Shurdut Building
Intramuros, Manila
VERIFICATION
I, CRISPIN D. BAIZAS, after having been sworn
according to law, depose and say:
I am the counsel for the defendant in the above-entitled
case;
I have prepared the foregoing motion for reconsideration
and all the allegations contained therein are true and correct
of my own knowledge and to the best of my information and
belief.
s/t/ CRISPIN D. BAIZAS
SUBSCRIBED AND SWORN TO BEFORE ME this 19th
day of October, 1966 in the City of Manila, affiant exhibiting
to me his Res. Cert. No. A-5892423 issued on January 28,
1966 at Makati, Rizal.
 s/ (Illigible)
NOTARY PUBLIC
Until December 31,1967
Doc. No. 1377
Page No. 77
Book No. III
Series of 1966.”
(Pages 58-67, Record on Appeal, id.)
to which, plaintiff’s counsel filed the following
opposition:
627
VOL. 64, JUNE 30, 1975 627
Ortigas, Jr. vs. Lufthansa German Airlines
“COMES NOW plaintiff, through undersigned counsel, and,
in opposition to defendant’s motion for reconsideration,
dated October 19, 1966, to this Honorable Court respectfully
states that:
1. This is in effect the second motion for reconsideration
that defendant has filed against the order of September 27,
1966 denying its motion for postponement of the hearing of
September 28. The first motion for reconsideration was made
in open court by Atty. Zaida S. Alberto and denied on the
same date.
2. Defendant now claims that it did not intend to delay
the trial of this case and seeks to justify the failure of its
witnesses, Ivo Lazzari and Saverino Casilli, to appear on
September 28 on the ground that:
‘xxx The air traffic in Rome has been particularly heavy this
season. Some of the personnel of the Lufthansa Rome office were
on leave and these two employees had to assume some of the duties
of these employees who were on leave, aside from performing their
own regular duties. If they were to leave their posts to come for the
hearing on September 28, there would be grave disruption to the
public service and for this reason they were not able to come. x x
x.’ (p. 3, Defendant’s Motion for Reconsideration.)
3. Note that the above alleged facts are contained in a
mere letter that was written by a certain Mr. C.H. Dehio, an
employee of defendant in Hongkong, to its counsel on
September 29, 1966, or one day after the hearing of
September 28, when presumably defendant’s aforesaid
employee had already been informed that this Honorable
Court had denied the postponement and considered this case
as submitted for decision. Defendant is an airline company
and has all the telex facilities to communicate in a matter of
minutes with its various agencies. The ground for failure to
appear, to wit, supposed pressure of work of said employees,
is as easy to conceive and gratuitously state as to flick one’s
fingers. We wish to call attention to the significant fact that
the statement of Mr. Dehio in his letter is not under oath.
Incorporating said statement in the body of the motion for
reconsideration that is sworn to by counsel merely ‘to the
best of his information and belief, or in an affidavit of Mrs.
Clarita C. de la Riva (Annex 3) who was only referring to
hearsay information derived from Mr. Dehio’s aforesaid
letter, is insufficient verification of the motion for
reconsideration under Section 6, Rule 7 of the Rules of Court.
Even Mr. Dehio had he executed the affidavit himself, would
have been disqualified to swear to the facts because he is
stationed in Hongkong. So that, when defendant’s counsel
and Mrs. de la Riva verified the motion on information and
belief derived from Mr. Dehio’s letter, their statements were
hearsay thrice removed.
4. But assuming said facts to be true, did this justify the
failure of defendant’s witnesses to appear at the scheduled
hearing or
628

221
628 SUPREME COURT REPORTS
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Ortigas, Jr. vs. Lufthansa German Airlines
constitute a valid excuse for defendant’s inability to present
evidence? We respectfully submit that they do not. The
September 28 hearing was set as early as August 25, 1966,
or more than one (1) month previous, to suit the schedules
not only of this Honorable Court but of the parties as well.
Surely, it was incumbent on defendant, if it has deference to
this Honorable Court and our administration of justice, to
see to it that its witnesses, particularly Ivo Lazzari who was
on the witness stand and due for cross-examination, would
be available, rather than granting leave to its other
employees and burdening the two needed witnesses with
additional work. Defendant is not a neophyte in the airline
business. Assuming arguendo that it is true that the volume
of air traffic in Europe was high in ‘September and early
October’, it should have foreseen the situation and taken
appropriate measures to assure compliance with its
obligation to this Honorable Court. The witnesses are
defendant’s employees and subject to its exclusive control.
Instead, defendant allegedly rendered itself short handed by
granting leave to its other employees, and now comes to court
with a lame excuse requesting that it be extricated from a
predicament that it has deliberatedly brought upon itself.
For, the excuse that with the workload for Mr. Lazzari and
Mr. Casilli becoming heavier than usual ‘it would seriously
disrupt our service to the travelling public if, during this
time, they were to leave their jobs for several days’ (Please
see Mr. Dehio’s letter, Annex ‘2’), is lame, by any standard.
The local newspapers are constantly carrying news articles
of how large and expanded is the Lufthansa as an airline
outfit. Surely, of its hundred (if not thousands) of available
employees, two like Lazzari and Casilli could have been
222
dispensed from their work temporarily to defend the
company against the just grievance asserted by an injured
passenger before a court of justice. At the most, defendant
was after the promotion of its own interest in holding the two
employees to their jobs, and is not avoiding ‘grave disruption
to the public service’ as counsel exaggerates Mr. Dehio’s
expression ‘seriously disrupt our service to the travelling
public’—two distinct ideas, the latter signifying self-interest
as distinguished from public necessity. This Honorable Court
can take judicial notice that there are many other airlines
operating in the same areas as does Lufthansa and
competing with it.
5. As we explained at the September 28 hearing, the truth of
the matter is that, contrary to the unverified representations
of defendant, the reason for the non-attendance of
defendant’s witnesses was to avoid the inconvenience of
coming to the Philippines to testify. In other words, after Ivo
Lazzari and Saverino Casilli were unable to testify last
August 25, 1966, defendant thought of avoiding having said
witnesses come again to Manila. We say this because
sometime on September 20, 1966, Atty. Leonardo P.
Valmonte (an assistant attorney of plaintiff who is helping in
this case) had a telephone
629
VOL. 64, JUNE 30, 1975 629
Ortigas, Jr. vs. Lufthansa German Airlines
conversation with defendant’s counsel, Atty. Zaida S. Alberto
in connection with the former’s request for a copy of a certain
exhibit, and in the course of their conversation Atty. Alberto
informed Atty. Valmonte that the trial scheduled for
September 28, 1966 would not proceed because they were
intending ‘to secure the permission of the court to take the
testimonies of their witnesses by wav of deposition’. In short,
even before the receipt of the alleged telex (Annex “1” of
Motion) by defendant’s counsel on September 22, 1966, said
counsel announcing that the trial could not proceed because
they were going to resort to depositions of their witnesses in
Rome, rather than have said witnesses come to Manila. The
decision to take depositions having been made on or before
September 20, it was an easy matter to have Lufthansa’s
Hongkong office send the telex of September 22 stating that
they would be unable to provide witnesses on September 28.
No reason was given why witnesses could not be provided 6
or 7 days thence. If in truth there was unexpected increase
in air traffic, surely 6 or 7 days were more than sufficient to
make the necessary arrangements so that the work of
Lazzari and Casilli could be taken over temporarily just so
these witnesses could appear before this Honorable Court at
the appointed date. Attached hereto as Annex “A” is the
affidavit of Atty. Leonardo P. Valmonte on his aforesaid
conversation with Atty. Alberto.
6. At the hearing on September 28, when we made
reference to the above-referred to conversation between
Attys. Valmonte and Alberto, the latter did not deny that she
had in truth spoken to Atty. Valmonte in the tenor above
related. As a matter of fact, she admitted that defendant was
intending to take the depositions of its witnesses in Rome.
7. When this Honorable Court denied the motion for
postponement on September 28, 1966, it did so in the
exercise of its sound judicial discretion, for no valid reason
was given why the witnesses could not appear, whereas this
case had been pending for about three (3) years and had been
postponed several times with repeated warnings on
defendant that said postponements were for the last time.
And now, in its motion for reconsideration, defendant has
failed to effectively allege the ground for the failure of said
witnesses to come, and even if said ground be admitted as
true for argument’s sake, it merely showed ‘inofficiousness,
223
lack of resourcefulness and diligence, if not total indifference’
on the part of defendant to protect in court its interests and
to prevent needless delays in the discharge of judicial
business.
‘Postponement not based on valid reasons.—Where a party
seeks postponement of the hearing of this case for reasons
caused by his own inofficiousness, lack of resourcefulness
and diligence if not total indifference to his own interests or
to the interests of those he represents, thereby resulting in
his failure to present his own
630
630 SUPREME COURT REPORTS
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Ortigas, Jr. vs. Lufthansa German Airlines
evidence, the court would not extend to him its mantle of
protection. If it was he who created the situation that
brought about the resulting adverse consequences, he cannot
plead for his day in court nor claim that he was so denied of
it.’ (De Leon vs. People’s Homesite and Housing
Corporation, CA-G.R. No. 31169-R, Aug. 31, 1963.)
8. In the case of Hap Hong Hardware Co. vs. Philippine
Company, G.R. No. L-16773(May 23, 1961), the Supreme
Court, in sustaining the trial court’s denial of a motion for
postponement and on the ground that the defendant’s
witnesses, officers of the company, had not come because it
was the beginning of the milling season in the municipality
of San Jose, Mindoro Occidental and their presence in the
Central was very necessary, held that the trial court was
perfectly justified in denying said motion for postponement
because the reason adduced was ‘not unavoidable and one
that could not have been foreseen.’ Said the Supreme Court:
‘The reason adduced in support of the motion for postponement is
not unavoidable and one that Could not have been foreseen.
Defendant ought to have known long before the date of trial that
the milling season would start when the trial of the case would be
held. The motion should have been presented long in advance of
the hearing, so that the court could have taken steps to postpone
the trial without inconvenience to the adverse party. As it is,
however, the motion was presented on the day of the trial. Knowing
as it should have known that postponements lie in the court’s
discretion and there being no apparent reason why the defendant
could not have presented the motion earlier, thus avoiding
inconvenience to the adverse party, the appellant cannot claim that
the trial court erred in denying postponement. Under all the
circumstances we hold that the court was perfectly justified in
denying the motion for postponement.’
In the case at bar, the same unjustified excuse is
adduced—that the witnesses, who are employees (not even
officers) of defendant, had work to do, albeit date of trial was
set one month previous.
9. The cases cited by defendant are not in point, the facts
involved therein being very different from those attending
the case at bar. For example, in the cited case of Lino Luna
vs. Arcenas, 34 Phil. 93, the trial judge declined to grant a
continuance of a few hours to give counsel an opportunity to
secure the presence of the defendant. The Supreme Court
held that considering that it did not appear that defendant
was indulging in dilatory tactics, the denial of the motion for
short postponement was improper. Again, in the case
of People vs. Romero, G.R. No. L-4517, May 25, 1953, the
prosecution witnesses, although subpoenaed, failed to
appear; whereupon the fiscal asked that they be ordered
arrested and that in the meantime the trial be
631
VOL. 64, JUNE 30, 1975 631
Ortigas, Jr. vs. Lufthansa German Airlines
postponed. The Supreme Court likewise held that the denial
of the postponement was improper. These fact situations,
however, as can immediately be seen are completely different
224
from that of Lufthansa whose non-presentation of its
employees-witnesses was motivated by the desire to avoid
inconvenience to them, hence its frustrated plan to have
their depositions taken in Rome.
10. Complaints regarding delays in the disposition of court
cases are prevalent and have recently found expression not
only in executive pronouncements but in judicial
admonitions. The unclogging of court dockets remains a
pressing problem to the despair of litigants. As the Court of
Appeals put it:
‘The records reveals that the trial of the case was postponed five
times at the instance of appellants themselves, and for this reason
the trial was delayed for more than one year and three months. In
granting these several postponements, the trial judge was over
liberal already, and to have allowed another postponement would
have been to jeopardize plaintiff’s interest. Obviously courts cannot
unduly protect the interests of one party to the detriment of the
other. Already, there are complaints regarding delays in the
disposition of court cases. The unclogging of our court dockets still
remains a pressing problem in the despair of many a litigant.
However to eliminate, at least minimize, these delays is as much
our concern and any act of trial courts conducive towards this
purposeful end will be encouraged by appellate court’s’. (Rosario
vs. De Leon, CA-G.R. No. 6495-R, April 25, 1941; 40 O.G. 752.)
11. Prejudice will be occasioned plaintiff if defendant’s
belated motion for reconsideration is granted.
Notwithstanding defendant’s counsel’s receipt of Mr. Dehio’s
letter, dated September 25, 1966, a few days after said date,
defendant delayed the filing of its motion for reconsideration
until after about three (3) weeks later. In the meantime, it
knew as of September 28 that this Honorable Court had
striken out the testimony of Ivo Lazzari, considered the case
submitted for decision on the evidence on record, and given
plaintiff’s counsel 7 days to present his memorandum.
Plaintiff and his counsel exerted all efforts and worked
overtime just so to be able to submit his memorandum within
the short period allowed. Said memorandum was finished on
time, and has been served on defendant’s counsel and
submitted to Court. In other words, defendant purposely
waited until the submission of plaintiff’s memorandum
before presenting its motion for reconsideration based on
alleged information received three (3) weeks previous. To
grant defendant’s instant motion for reconsideration would
place plaintiff at a great disadvantage, because defendant is
now fully aware of every facet of plaintiff’s cause and can
simply tailor its defenses and evidence in refutation thereof.
632
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Ortigas, Jr. vs. Lufthansa German Airlines
12. Defendant claims that plaintiff is taking undue
advantage of a technicality and it should not be deprived of
its day in court on this ground. Suffice it to state that it is
never technical to invoke one’s rights, and that while the
Rules of Court should be liberally construed, their strict
observance has been considered indispensable to the
prevention of needless delays and the orderly and speedy
discharge of judicial business. Thus:
‘Although the Rules of Court should be liberally construed,
however their strict observance which have been considered
indispensable to the prevention of needless delays and to the
orderly and speedy discharge of judicial business, is as imperative
necessity. Thus, the rules prescribing the time within which
certain act must be done, or certain proceedings taken, are
considered absolutely indispensable to the prevention of needless
delays and to the orderly and speedy discharge of judicial business,
is as imperative necessity. Thus, the rules prescribing the time
within which certain act must be done, or certain proceedings
taken, are considered absolutely indispensable to the prevention of
needless delays and to the orderly and speedy discharge of judicial
225
business and therefore must be strictly complied with.’ (Alvero vs.
De la Rosa, 76 Phil. 428, cited in Francisco on Civil Procedure, Vol.
1, p. 89) ‘Rules of Courts, promulgated by authority of law, have
the force and effect of law; and rules of court prescribing the time
within which certain acts must be done, or certain proceedings
taken are considered absolutely indispensable to the prevention of
needless delays and to the orderly and speedy discharge of judicial
business.’ Conlu vs. Court of Appeals, et al., G.R. No. L-14027,
January 29, 1960, citing Shioji vs. Harvey, 43 Phil. 333; Alvero vs.
De la Rosa, et al., 42 Off. Gaz., p. 316, (Supra.)
WHEREFORE, it is respectfully prayed that defendant’s
motion for reconsideration, dated October 19, 1966, be
denied. Manila, October 31, 1966.” (Pages 74-88, Record on
Appeal, id.)
By way of reply to the above opposition, defendant’s
counsel alleged:
“Defendant could have from the beginning taken depositions
in Rome, but so as to avoid any inconvenience to plaintiff and
that the court may see and hear the witnesses testify to
better determine the credibility of their testimony defendant
had been bringing the witnesses here. As a matter of fact,
defendant even without leave of court may take the
depositions of its witnesses by merely giving the Court notice
of its intention to do so.
‘After answer has been filed no leave of court is required as a
prerequisite to taking depositions x x x (Marzo vs. Moore
633
VOL. 64, JUNE 30, 1975 633
Ortigas, Jr. vs. Lufthansa German Airlines
McCormick Line, Inc. 8 Feb. Rules of Service, p. 560; cited in Moran
Comments on Rules of Court Vol. II, p. 18)
‘After issue is joined, depositions may be taken without leave of
court. (Lyons vs. Bronx Towing Line, Inc., 1 Fed. Service p. 341)
 ‘After answer is served, depositions may be taken as of course
and application should not be made to the court for leave. (Schultz
vs. State Mutual Life Assurance Company, 1 Fed. Rules of Service,
p. 340, US Dist. Ct. Dist. of Oregon, Oct. 14, 1938)
The statements made by Atty. Valmonte are false and
malicious. An affidavit executed by Atty. Zaida Ruby Alberto
is attached to and made part of this Reply as Annex ‘1’.”
(Pages 92-93, Record on Appeal, id.)
On October 24, 1966, the trial court resolved the
incident in a brief order holding that “(f)or the reasons
stated in the plaintiff’s opposition to the motion for
reconsideration, it is denied.”
In its appeal, defendant reiterates insistently its
position that the denial of its motion for postponement
as well as the order striking out the testimony of Ivo
Lazzari were issued in grave abuse of discretion and
should be set aside. Before going any further, however,
it may be mentioned that since defendant has not
assigned as error, although it discusses in its brief, the
denial of its last motion for reconsideration, plaintiff
contends that such failure constitutes a bar to any
further consideration of the merits of the arguments of
defendant relative to the main denial-of-postponement
and striking-out orders. To be sure, there is technical
plausibility in such pose of plaintiff, but considering the
importance of the other matters involved in this case, it
would serve the interests of justice more if We passed
on the merits of the substantial issues in this
controversy. After all, “this Court is clothed with ample
authority to review matters, even if they are not
assigned as errors in the appeal, if it finds that their
consideration is necessary in arriving at a just decision
226
of the case.” (Saura Import & Export Co., Inc. vs.
Philippine International Surety Co., Inc., L-15184, May
31, 1963, 8 SCRA 143.) And considering the inter-
relation between the omitted assignment of error and
those actually assigned and discussed by defendant’s
counsel, We can apply here the ruling in Hernandez vs.
Andal, 78 Phil. 196, to the effect that “an unassigned
error closely related to an error properly assigned or
upon which the determination of the
634
634 SUPREME COURT REPORTS
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Ortigas, Jr. vs. Lufthansa German Airlines
question raised by the error properly assigned is
dependent, will be considered by the appellate court
notwithstanding the failure to assign it as an error.” (at
pp. 209-210.)
Now, with respect to defendant’s first assignment of
error, We feel that the rather extended recital We have
made above of the incidents and proceedings related to
the trial court’s order denying defendant’s motion for
postponement of the hearing set for September 28, 1966
is self-revealing. It argues against the charge that His
Honor’s order of denial was improper and unjustified.
The case had been pending for about three years and
had actually suffered during that period even more than
the usually permissible number of continuances, quite
often to suit the convenience of defendant’s counsel.
Notice of the September 28, 1966 schedule had been
served on counsel the month previous. It must be
assumed that due preparations and arrangements were
to be made since the receipt of that notice to insure the
presence in Manila for the expected witnesses on the
date set. Under the circumstances, the excuse given by
defendant that the witnesses could not leave their
respective stations and places of work to attend the trial
is plainly unacceptable. There was enough time and
opportunity for defendant to have made the
corresponding adjustments in the assignments of its
personnel so as to enable its witnesses to be in court.
The trouble is that defendant relied on the assumption
that the court could be made to wait until the volume
and other conditions of its business would permit it to
comply with the schedule of the court. For an airline
company engaged in international transportation and
presumably having all the facilities to have any of its
employees available practically anywhere in the world
at a moment’s notice, if it only took due care to do this,
defendant’s attitude cannot be countenanced.
What is more, the motion of September 24, 1966 gave
no reason at all why defendant’s witnesses supposed to
come from Rome would be unable to be at the trial. Even
as late as the day of the hearing, September 28, 1966,
the court could not be told the reason for such inability.
All that counsel could say was that she “intend(ed) to
inquire and file the explanation” later. This was not as
it should have been, for the telex advising the Manila
office that the witnesses would not be available was
received on September 22nd yet, and certainly there
was
635
VOL. 64, JUNE 30, 1975 635
Ortigas, Jr. vs. Lufthansa German Airlines
227
enough time to investigate and find out the reason for
such unavailability. And as no justifiable reason could
be advanced in support of the verbal motion for
reconsideration. We cannot say that His Honor acted
improperly when he denied the same.
We reiterate, the case had been pending for more
than three years, with so many postponements, and the
least that defendant should have done to merit
favorable action on the part of the trial judge was to be
ready with an explanation of its inability to proceed
with the trial, giving the detailed and good reasons
therefor. As it is, there was actually no basis at all for
the exercise of discretion on the part of the trial judge
in a manner favorable to it. Trials may be postponed
because of the absence of evidence only when such
absence is justified. Mere absence is not a justification
in itself. Section 4 of Rule 22 is sufficiently clear on this
point. It provides that “A motion to postpone a trial on
the ground of absence of evidence can be granted only
upon affidavit showing the materiality of evidence
expected to be obtained, and that due diligence has been
used to procure it.” This means that it must be shown
to the court that due diligence had been exercised in
either securing the presence of the evidence (witnesses)
or preventing the absence thereof.
There is, of course, defendant’s motion for
reconsideration of October 19, 1966 praying for the
setting aside of the court’s order of denial as well as the
other order striking out the testimony of witness
Lazzari. But, as already noted, the only excuse given in
said motion is that:
“x x x The witnesses in question could not come because of
certain circumstances that rendered their coming over
virtually impossible. Both witnesses, Ivo Lazzari and
Saverino Casilli are employees of defendant company at the
Rome office. The air traffic in Rome has been particularly
heavy this season. Some of the personnel of the Lufthansa
Rome office were on leave and these two employees had to
assume some of the duties of those employees who were on
leave, aside from performing their own regular duties. If they
were to leave their posts to come for the hearing on
September 28, there would be grave disruption to the public
service and for this reason they were not able to come. x x x
” (Page 47, Rec. on Ap., p. 32, Record.)
Indeed, even if such reason were given earlier on
September 24, 1966 the court would have been as well
justified in denying the requested postponement. We
cannot see any reason why, despite its having
knowledge of the date of the hearing about a
636
636 SUPREME COURT REPORTS
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Ortigas, Jr. vs. Lufthansa German Airlines
month before, defendant did not see to it that its
expected witnesses were not assigned to do duty on the
day they were supposed to appear in court. We cannot
believe Lufthansa could be so undermanned that such
a simple adjustment of its personnel had to be
“impossible.”
Moreover, the Rome based witnesses were not the
only possible witnesses of defendant. To begin with, Mr.
C.H. Dehio, the IATA Agency Manager, Far East and
Australasia, Lufthansa German Air Lines, who,
228
according to the record, had already attended previous
hearings as a prospective witness could have been made
to go to court. There is nothing in the record to show
that he was also rendered incapable of doing so. Then,
there could still be local witnesses, it is no excuse that
presenting other witnesses would have disrupted the
presentation of defendant’s case, for parties may be
allowed to maintain their own way of presenting their
evidence only where this can be done without injury to
the expeditious disposition of the case and the best
interests of the administration of justice.
Coming now to the second assigned error regarding
the striking out of the unfinished testimony of Lazarri,
the Court is also of the opinion and so holds that the
trial court’s action cannot be categorized as arbitrary or
oppressive or as amounting to a grave abuse of
discretion. To be sure, this second order was but a
logical consequence of the previous order denying
defendant’s motion for postponement. With such denial,
the next thing in order was to declare the presentation
of evidence of the defendant terminated. Accordingly, it
was necessary to determine what evidence could be
considered to be for the defendant. And so when counsel
for plaintiff asked the court to strike out the testimony
so far given by Lazarri, there was practically no
alternative for the court but to grant the same. Indeed,
defendant’s counsel could not and did not offer any
objection thereto.
Oral testimony may be taken into account only when
it is complete, that is, if the witness has been wholly
cross-examined by the adverse party or the right to
cross-examine is lost wholly or in part thru the fault of
such adverse party. But when cross-examination is not
and cannot be done or completed due to causes
attributable to the party offering the witness, the
uncompleted testimony is thereby rendered
incompetent.
637
VOL. 64, JUNE 30, 1975 637
Ortigas, Jr. vs. Lufthansa German Airlines
The right of a party to cross-examine the witnesses of
his adversary is invaluable as it is inviolable in civil
cases, no less than the right of the accused in criminal
cases. The express recognition of such right of the
accused in the Constitution does not render the right
thereto of parties in civil cases less constitutionally
based, for it is an indispensable part of the due process
guaranteed by the fundamental law. Subject to
appropriate supervision by the judge in order to avoid
unnecessary delays on account of its being unduly
protracted and to needed injunctions protective of the
right of the witness against self-incrimination and
oppressive and unwarranted harrassment and
embarrassment, a party is absolutely entitled to a full
cross-examination as prescribed in Section 8 of Rule 132
thus: “Upon the termination of the direct examination,
the witness may be cross-examined by the adverse
party as to any matters stated in the direct
examination, or connected therewith, with sufficient
fullness and freedom to test his accuracy and
truthfulness and freedom from interest or bias, or the
reverse, and to elicit all important facts bearing upon
the issue.” Until such cross-examination has been
finished, the testimony of the witness cannot be
229
considered as complete and may not, therefore, be
allowed to form part of the evidence to be considered by
the court in deciding the case.
In the case at bar, however, We have opted not to rely
exclusively on the foregoing considerations. In order to
satisfy Ourselves as to whether or not defendant stands
to be irreparably prejudiced by the impugned action of
the trial court relative to the testimony of Lazzari, We
have just the same gone over the transcript thereof.
After considering the same, however, We are of the
impression that even his direct testimony, without
taking into account anymore his answers to the cross-
examination questions of counsel for plaintiff, cannot be
of much weight in establishing the defenses in
defendant’s answer. But it would seem more
appropriate to elaborate on this point when We come to
the discussion of the mutual accusation of the parties
that the trial court erred in the portion of its discretion
awarding damages to plaintiff.
The last issue submitted for Our resolution relates to
the award of damages made by the trial court in favor
of Ortigas against Lufthansa in the amounts
aforestated, as to which, as already noted at the outset,
both parties have appealed taking opposite positions. In
this respect, the appealed decision made the following
findings and discussion of the material facts:
638
638 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
“In October, 1963, the Sharp Travel Service, the travel
department of C. F. Sharp, Inc., the majority interest in
which is held by Rocha y Cia., Inc., General Agents of the
defendant, Lufthansa German Airlines, issued to the
plaintiff First Class Pan American Ticket No. 026492147076
to 81 which would take him from Manila, the place of
departure, to Hongkong, various cities in the United States,
Europe, Asia, the Far East, and then back to Manila, the
place of destination. Ortigas’ ticket for all these different legs
of his journey was first class.
He left Manila October 12, 1963, as scheduled. In New
York, he decided to leave out some cities, included in his
original itinerary, to be in Hongkong on the 19th day of
November, 1963, for several appointments he had there. He
went to the Trans World Airlines and had his Pan American
ticket changed with First Class TWA Ticket No. 115-460-
451-878 to 881. His TWA ticket was also first class for the
entire trip from New York to several European cities,
including Rome, and thence to the Far East, with Manila also
as the place of destination.
Ortigas arrived in due course in Rome. To be sure he could
fly first class to Hongkong on November 18, 1963, for his
appointments there the next day, Ortigas repaired to the
office of the Alitalia on Saturday, November 16, 1963, to book
passage. The man at the counter of the Alitalia office told
him it had no flight on Monday but the Lufthansa had. The
man thereupon called up the office of the Lufthansa and,
after talking to an employee thereof, told Ortigas that the
Lufthansa had no first class, but only economy, seats
available on its Monday flight.
Ortigas answered that he was not willing to take an
economy seat and requested the employee to call up other
airlines. Then the phone rang. The employee ‘answered and
afterwards informed Ortigas that the Lufthansa had a first
class seat available for its Monday flight. Ortigas
immediately asked him to get the seat and to see to it that
his ticket be confirmed and validated for the flight and a first
230
class seat. The man thereafter asked for Ortigas’ passport
and other travel papers and attached a validating sticker
(Exhibit ‘D-1’) on flight coupon No. 4 (Exhibit ‘B’) which
corresponded to the Rome-Hongkong leg of his TWA Ticket
No. 115-460-451-878. The sticker recites:
Flight Res.
Carrier No. Date Time Status
LH 646 18 12:35 O.K.
Nov. P.M
Wishing to be doubly sure, Ortigas again requested the
Alitalia employee to call back the Lufthansa office to recheck
whether his ticket was really confirmed and validated. The
man did so, after
639
VOL. 64, JUNE 30, 1975 639
Ortigas, Jr. vs. Lufthansa German Airlines
which he told Ortigas that his ticket had been checked,
validated, and confirmed as shown by the word ‘O.K.’ on the
sticker. The same employee later wrote on the cover of the
plaintiff’s ticket 10.15 Terminal-36, via Gioliti’ (Exhibits ‘C’
and ‘C-1’) and told him to be in the air terminal on Monday,
November 18, at 10:00 A.M.
The following Monday, Ortigas checked out of his hotel and
took a taxi to the terminal, arriving there about 9:30 A.M.
He unloaded his baggage and proceeded to the counter in
charge of the Lufthansa passengers. The lady at the counter
told him the Lufthansa had no space for him that day.
Ortigas requested her to check with her main office, which
she did by calling it up. After calling, she apologized and said
the plaintiff’s ticket was in order and would be confirmed and
validated. On her request, Ortigas had his luggage weighed
and was given the free luggage allowance of a first class
passenger. He was furthermore asked to pay 800 liras for bus
fare and 700 liras as embarkation tax. Then Ortigas, along
with other passengers, one of whom was Amado Castro of the
Development Bank of the Philippines, boarded a bus for the
airport.
At the airport, the plaintiff handed over his ticket to the
man behind the Lufthansa counter, who told him everything
was all right. At that juncture, the plaintiff heard his name
called. He inquired if he was being called from an employee
of the Lufthansa and, on receiving an affirmative answer,
said he was Ortigas. The employee asked for his passport and
other papers and, after examining his passport, where his
Filipino nationality appears, said he could not board the
plane that day because his seat would be given to a Belgian.
Ortigas asked the man why he was doing that to him when
his ticket was confirmed and validated first class. The
Lufthansa employee replied he was sorry but Ortigas could
not leave.
Fearing he would have a recurrence of his heart ailment,
Ortigas took a nitroglycerin pill which his doctor advised him
to take on occasions of stress. The plaintiff then told the
Lufthansa man to bring the Belgian over so that his papers
may be examined to determine whether he had a preferred
right to Ortigas’ seat but the Lufthansa employee turned
down the request, raised his voice, and said if the plaintiff
desired, he could take an economy seat and he would be
allowed a refund. Ortigas retorted he was not interested in a
refund and what he wanted was to travel first class in
accordance with his ticket.
This argument occurred in the presence of the other
passengers, one of whom was Amado Castro, and the
plaintiff felt embarrassed and humiliated because the
Lufthansa employee was shouting at him and treating him
the way he did. Ortigas made another request, namely, that
the employee call other airlines to inquire if they had flights
231
to Hongkong that day but he once more turned down the plea
and insisted that Ortigas travel economy, with the promise
that he
640
640 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
will be transferred to first class in Cairo and onward to
Hongkong.
After promising to, the man went inside a room and, after a
while, came out and assured the plaintiff he would travel
first class from Cairo to Hongkong because he sent a
communication that it should be done. He then jotted down
some letters on Ortigas’ ticket. The plaintiff replied he was
not satisfied with the arrangement but was constrained to
agree to it because he had to be in Hongkong the next day,
his luggage was in all probability already inside the plane,
he was not certain he could still secure a hotel reservation,
the manager of the hotel where he stayed having told him it
would be hard for him to get another reservation once he
checks out, and he was assured he would be given first class
passage from Cairo onward.
Upon arrival in Cairo, the plaintiff requested the
Lufthansa agent to transfer him to first class but the agent
said he could not and that he did not receive any
communication from Rome to that effect. Ortigas also
requested the man to find out if there were other airlines
having planes leaving that day but his request was likewise
denied. The man, however, promised that at Dharham,
Ortigas will be transferred to first class. Ortigas had no
alternative but to continue traveling as before but he did so
again under protest.
 At Dharham, the plaintiff once more requested a transfer
to first class but was also told by the Lufthansa agent that
he had not received any communication about the change
and the request could not be granted. The plaintiff had to
travel perforce economy from Dharham. In Calcutta, Ortigas
once again requested a transfer or that he be assisted in
booking passage on other planes but was also refused. It was
only in Bangkok when the chief steward asked him if he
wanted to move over to first class but having been already
embarrassed and humiliated and the trip to Hongkong being
only three hours, he said he would not as a sign of protest.
In Hongkong, Ortigas protested against the treatment
given him but was told by the Lufthansa office he had to file
his protest in Manila, it being the point of destination. He
did so by means of a letter, dated November 25, 1963 (Exhibit
“F”), followed by another letter, dated December 20, 1963
(Exhibit “C”), and not having received any definite answer,
he brought this suit.
Although Ortigas’ ticket for the flight from Rome to
Hongkong was validated and confirmed by the Alitalia, its
act bound and obligated the Lufthansa. The Alitalia and
Lufthansa are members of the International Air Transport
Association (IATA). It is admitted that as such member, the
Alitalia can issue tickets for other members of the
association like the Lufthansa, Pan American World
Airways, and others. Par. 10, Order of April 29, 1964, and
Exhibit “H”‘ certification of the manager of the Alitalia. Aside
from being members of the IATA, the Alitalia and Lufthansa
are pool partners and conduct a joint service with
interchangeable flights for the
641
VOL. 64, JUNE 30, 1975 641
Ortigas, Jr. vs. Lufthansa German Airlines
232
European-Far East-and Australia sectors. Par. 11, Order of
April 29, 1964. Under the pool agreement (Exhibit “DD”)
they undertake to adhere to the appropriate IATA
regulations and to take measures to provide district sales
offices with every possibility for close cooperation in the
promotion of the pool services covered by the agreement,
including “reservation and booking”. They furthermore, in
effect confirm in the agreement that tickets of one, other
than free and reduced tickets, may be validated by the other.
Finally, Manuel Otayza, general manager of Filital, Inc.,
which is the general agent of the Alitalia in the Philippines,
testified that space reservation through telephone calls
between airlines is permitted by IATA’s, ‘Manual of Traffic
Conference Resolutions’ and that telephone calls for
reservation by one airline to another is in fact accepted
procedure in accordance with the official airline guide of the
Air Traffic Conference and International Air Transport
Association (Exhibit “W”).
The placing by the Alitalia of a sticker on the plaintiff’s
ticket obligated the Lufthansa to give him a first class seat
on its flight from Rome to Hongkong on November 18, 1963.
The same witness, Manuel Otayza, testified that the placing
of a validating sticker on a ticket is standard airline
procedure; that a sticker changes are status of a reservation;
that consequently while Ortigas’ ticket was “open”., that is,
it had no reservation for a particular flight between Rome
and Hongkong, the moment a validating sticker was placed
thereon, stating the flight number of the airline, the day and
hour of departure, with the letters “O.K”, his ticket was
changed from an “open” to a “confirmed” or “validated” ticket;
and that the sticker on Ortigas’ ticket meant that first class
space was confirmed for him on Lufthansa flight 646 to
Hongkong on November 18, 1963, at 12:35 P.M.
 Aside from Otayza’s testimony, it is admitted that in the
stipulation of facts that “the letters ‘O.K.’ (Exhibit D-2)
appearing on the ‘Res. Status’ box of the sticker (Exhibit D-
1) attached to Flight Coupon No. 4 of TWA Ticket No. 015-
410:451-880 (Exhibit “D”) means space confirmed’, per IATA
Resolution 275, page 4, Issue 2, a photostatic copy of which
is attached hereto as Exhibit ‘O’; that validate’ means to
stamp or write on the passenger ticket an indication that the
passenger ticket has been officially issued by the carrier; that
“the placing of a sticker on a flight coupon is a revalidation
thereof for the flight mentioned in said sticker and is an
alteration effected on said coupon, in accordance with the
procedure laid down in IATA Resolution 275d, Page 1, Issue
1, a photostatic copy of which is attached thereto as Exhibit
‘S’ “; and that “prior endorsement was not necessary for
Alitalia to revalidate TWA Ticket No. 115-410-880 Exhibit
“D”) because Alitalia is the carrier originally designated in
the ‘Via carrier’ box of said ticket, in accordance with IATA
Resolution No. 279, photostatic copy of which is attached
hereto
642
642 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
as Exhibit T “.
There was, therefore, a valid and binding contract between
Lufthansa and the plaintiff to transport him as a first class
passenger from Rome to Hongkong on November 18, 1963,
and this agreement the defendant violated by compelling the
plaintiff to travel as an economy passenger. It cannot be said
the breach was the result of an honest mistake or excusable
negligence. There is evidence the defendant acted with bad
faith and in willful disregard of the plaintiff’s rights.
233
Ortigas’ ticket was confirmed on the early morning of
November 16, 1963, more than 48 hours before his departure
on the afternoon of November 18. There was, therefore,
ample time to send a telex message from Rome to the
defendant’s main office in Frankfurt, which is only about 2-
1/2 flying hours away, to reserve a first class seat for the
plaintiff.
At the terminal on Via Gioliti, he was again told that he
had a first class seat, his luggage was checked in divesting
him of control thereof, and transported to the airport some
37 kilometers distant. He was in this manner deprived of the
opportunity of availing himself of the facilities of other
airlines and compelled to take the Lufthansa flight even
against his will.
In the airport, although he was found entitled to fly first
class, he was told after his Filipino passport was seen, that
his seat would be given to a Belgian, without any reason or
explanation whatsoever. His simple request that the
Belgian’s ticket be produced and examined to see who had a
better right to a first class seat was turned down. So was his
equally simple request that other airlines be called to find
out if any of them could accept him as a first class passenger
to Hongkong that day. He was deceived into boarding the
Lufthansa plane at Rome by falsely assuring him he will be
transferred to first class at Cairo, the next stop in the flight.
The same false and deceptive promise was given him at
Dharham and Calcutta.
Indubitable proof of the defendant’s bad faith is found in
the fact that while its employee was assuring the plaintiff he
would be transferred to first class in Cairo, he was at the
same time writing on his ticket the following notation:
‘TRVLDY/c ROME HEG ROME ST’, which means ‘Travelled
economy class Rome to Hongkong St’, thereby barring
Ortigas from asserting any right to demand first class
accommodation. The defendant’s employee, therefore, knew
all along the plaintiff would not travel first class, and yet he
deliberately made him believe he would be transferred to
first class from Cairo to Hongkong.
From the circumstances, it is clear that the defendant not
only breached its duty to the plaintiff but also did not want
to release him as a passenger and wished to hold on to him
even if it would cause him inconvenience and
embarrassment.” (Pages 97-109, Record on Appeal.)
643
VOL. 64, JUNE 30, 1975 643
Ortigas, Jr. vs. Lufthansa German Airlines
Disputing the foregoing conclusions, Lufthansa claims
firstly that the Alitalia employee who validated and
confirmed Ortigas’ reservation must have made a
mistake because actually, he was informed by the
Lufthansa Rome office that Ortigas could only be
waitlisted. Assuming, however, there was such an
error, it has been indisputably proven that under the
so-called pool arrangement among different airline
companies pursuant to the International Air Transport
Association (IATA) agreement of which Alitalia and
Lufthansa are signatories, both companies are
constituted thereby as agents of each other in the
issuing of tickets and other matters pertaining to their
relations with those who would need their services, and
since there can be no question that on its face, the
annotations made by Alitalia on the ticket here in
dispute cannot have any other meaning than that the
reservation of Ortigas for the Rome—Hongkong flight
was validated and confirmed, Lufthansa’s disclaimer is
unavailing. Besides, it appears that when Ortigas
checked in at the airport, the Lufthansa lady employee
234
thereat told him, after making the proper verification,
that the reservation was correct. What is more, in the
unconcluded testimony of Ivo Lazzari, the striking out
of which is questioned by Lufthansa, he admitted that
it was a fact that the said reservation of plaintiff for first
class was confirmed, albeit he qualified that this was
done already in the morning of November 18th, the day
of the flight, almost at the last hour. What seems to
have happened was that somehow the first class
accommodations for that flight were overboard and
Lufthansa tried to solve the problem by downgrading
Ortigas to the economy class in favor of a Belgian, as
Ortigas was told by the Lufthansa employee who paged
him over the public address system for the purpose just
as he was about to go to the departure area, with his
luggage already checked and his overweight fees duly
paid, so much so that they were already loaded in the
plane. Verily, such treatment given to plaintiff was
completely wrong and absolutely unjustifiable. Nobody,
much less a common carrier who is under constant
special obligation to give utmost consideration to the
convenience of its customers, may be permitted to
relieve itself from any difficulty situation created by its
own lack of diligence in the conduct of its affairs in a
manner prejudicial to such customers. It is Our
considered view that when it comes to contracts of
common carriage, inattention and lack of care on
644
644 SUPREME COURT REPORTS
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Ortigas, Jr. vs. Lufthansa German Airlines
the part of the carrier resulting in the failure of the
passenger to be accommodated in the class contracted
for amounts to bad faith or fraud which entitles the
passenger to the award of moral damages in accordance
with Article 2220 of the Civil Code. But in the instant
case, the breach appears to be of graver nature, since
the preference given to the Belgian passenger over
plaintiff was done willfully and in wanton disregard of
plaintiff’s rights and his dignity as a human being and
as a Filipino, who may not be discriminated against
with impunity.
Lufthansa contends, however, that there could not
have been any possible discrimination by reason of race
against Ortigas because from his appearance, said
plaintiff can easily be taken for a European or white
more than his own witness Amado Castro and besides,
there were other orientals in the same flight on that
occasion. It is argued that any such policy would be self-
defeating, since it would certainly be damaging to its
own business. Again, this ratiocination cannot carry the
day for Lufthansa, for what appears from the evidence
in this case is not really a case of a general policy of
discriminating against orientals or non-whites, but a
specific act of Lufthansa’s employee at the airport of
giving preference to a Belgian after examining Ortigas’
passport wherein his Filipino nationality is noted.
Indeed, the fact that despite plaintiff’s protestations
and demand that he be shown how it could happen that
somebody else, particularly that Belgian, should be
given his place when his reservation was validated and
confirmed and actually, he had already checked in and
his luggage was already in the plane, nothing was done
235
to satisfy him, merely infused bad faith into the breach
of contract already committed of depriving plaintiff of
his reserved accommodation. In other words, from the
legal standpoint, such preference given to a ● European
surely aggravated the damage or injury suffered by
plaintiff, but the very act alone of deliberately
downgrading him despite his confirmed reservation for
first class accommodation is sufficient ground for relief.
And considering that there are already recorded cases
in this Court wherein Filipinos have been similarly
discriminated against by foreign airline company
employees in the treatment of passengers, this new
instance can easily be believed and correspondingly
dealt with in fixing and assessing the liability of herein
defendant.
645
VOL. 64, JUNE 30, 1975 645
Ortigas, Jr. vs. Lufthansa German Airlines
As found by the court below, what worsened the
situation of Ortigas was that Lufthansa succeeded in
keeping him as its passenger by assuring him that he
would be given first class accommodation at Cairo, the
next station, the proper arrangements therefor having
been made already, when in truth such was not the
case. Thus, instead of complying with the request of
Ortigas that other airlines be contacted to find out if
they had first class space for him, the Lufthansa
employee who had indifferently told him about his
downgrading paid very little attention if ever to said
request. And to keep him from giving the business to
another company, he was made to believe that he would
be given first class accommodation at Cairo. Although
molested and embarrassed to the point that he had to
take nitroglycerine pills to ward off a possible heart
attack, Ortigas hardly had any choice, since his luggage
was already in the plane. To his disappointment, when
the plane reached Cairo, he was told by the Lufthansa
office there that no word at all had been received from
Rome and they had no space for him in first class.
Worse, similar false representations were made to him
at Dharham and Calcutta. It was only at Bangkok
where for the first time, Ortigas was at last informed
that he could have a first class seat in that leg of the
flight, from Bangkok to Hongkong. This Ortigas
rejected, if only to make patent his displeasure and
indignation at being so inconsiderately treated in the
earlier part of his journey.
Lufthansa insists in its brief that it could have
proven that there was no such “entrapment of a captive
passenger” had it been allowed the postponement it
sought of the September 28, 1966 hearing. It is argued
that there could have been no way by which its Rome
office could have assured Ortigas about what he would
be given in Cairo, the flight being fully booked as it was
without any assurance of any first class seat being
vacated by then. We are not impressed. In view of the
insistence of plaintiff that he be given the first class
accommodation he had contracted and paid for, the
least that the Rome office should have done was to
communicate with Cairo and strongly urge that all
possible effort be made to comply with his well
grounded request. As it happened, however, the Cairo
office informed Ortigas when he arrived there that they
had not received any word at all from Rome. On the
236
contrary, as pointed out by the trial court, contrary to
the verbal assurance given Ortigas, the Lufthansa
employee made annotations on
646
646 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
his ticket that he was travelling economy class from
Rome to Hongkong. If, as contended by Lufthansa,
Ortigas was duly advised to make arrangements for
transfer to first class as soon as he arrived at each
station on the way, why was such notation made that
he was travelling up to Hongkong in economy class? All
these only go to show that any evidence of defendant
tending to disprove the testimony of Ortigas would in
any event have been inconclusive or unreliable.
Likewise, Lufthansa maintains that it could have
proven that Ortigas did not take offense at being
downgraded, as in fact, according to Lufthansa, he was
in jovial mood throughout the trip enjoying his
conversation and exchange of amenities with his
seatmate, who by strange coincidence happened to be
the Manager of Lufthansa German Airlines for the
district of Australia and New Zealand holding said
position since 1962. Moreover, it is argued, the economy
1
class accommodations are not much different from first
class and Ortigas was not delayed in his trip. We cannot
see the point. A passenger contracts for first class
accommodations for many reasons peculiar to himself
and pays a higher price therefor, and it is certainly not
for the airplane to say later, after it deprives him of his
space in order to favor another passenger, that economy
class is anyway just as good as first class. That Ortigas
was rightfully indignant is not difficult to imagine. No
person in his normal senses and possessed of human
dignity would have been unperturbed and unruffled by
the treatment he had received. More, he was under
express admonition of his doctor taking care of his
ailing coronary condition to travel only in first class.
Indeed, that he complained and made himself
emphatically clear while still in Rome is sufficiently
substantiated in the record, as it was more or less
admitted by defendant’s witness Lazzari when he
testified that he heard about plaintiff’s complaint that
same day, November 18, 1963.
In the light of all the foregoing, there can be no doubt
as to the right of Ortigas to damages, both moral and
exemplary. Precedents We have consistently adhered to
so dictate. Beginning with Cuenca, wherein the Court
2 exemplary, the Court of Appeals having modified the
rejected the theory
________________
1 Annexed as Appendix 1 to the Reply Brief of Defendant Appellant
is the affidavit of Max Albert Springweiler, who defendant claims is
its newly discovered evidence.
2 Northwest Airlines Inc. vs. Cuenca, 14 SCRA 1063.
647
VOL. 64, JUNE 30, 1975 647
Ortigas, Jr. vs. Lufthansa German Airlines
that an air carrier is liable only in the event of death or
injury suffered by a passenger, because, according to
the Court, to so hold would be tantamount to declaring
the carrier “exempt from any liability for damages in
the event of its absolute refusal, in bad faith, to comply
with a contract of carriage, which is absurd”, We have
237
uniformly upheld the right of a passenger to damages
in all cases wherein, after having contracted and paid
for first class accommodations duly confirmed and
validated, he is transferred over his objection to
economy class, which he has to take in order to be able
to arrive at his destination on his scheduled time.
In the case of Nicolas L. Cuenca, then Commissioner
of Public Highways of the Philippines, he boarded a
Northwest plane in Manila with a first class ticket to
Tokyo, but upon arrival at Okinawa, an agent of the
company rudely compelled him, over his protest, to
move over to the tourist class, which he had to do, so he
could reach the international conference he was
attending on time. Under these facts, the Court held
that the P20,000 awarded by the lower court to Cuenca
“may well be considered as nominal and also as
trial court’s designation thereof as moral, saying it
should have been nominal.
In Lopez , Honorable Fernando Lopez, then an
3
incumbent senator and former Vice President of the
Philippines, together with his wife and his daughter
and son-in-law, made first class reservations with the
Pan American World Airways in its Tokyo-San
Francisco flight. The reservation having been
confirmed, first class tickets were subsequently issued
in their favor. Mistakenly, however, defendant’s agent
cancelled said reservation, but expecting some
cancellations before the flight scheduled about a month
later, the reservations supervisor decided to withhold
the information from them, with the result that upon
arrival in Tokyo, the Lopezes discovered they had no
first class accommodations and were thus compelled to
take the tourist class, just so the senator could be on
time for his pressing engagements in the United States.
In the light of these facts, the Court held there was a
breach of the contract of carriage and viewed as the
element of bad faith entitling the plaintiffs to moral
damages for such contractual breach, the
________________
3 Fernando Lopez, et al. vs. Pan American World Airways, 16
SCRA 431.
648
648 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
failure of the agents of the defendant to inform the
plaintiffs on time that their reservation for first class
had long before been cancelled by mistake. According to
the Court, such omission placed plaintiffs in a
predicament that enabled the company to keep the
plaintiffs as their passengers in the tourist class,
thereby retaining the business and promoting the
company’s self-interest at the expense of,
embarrassment, discomfort and humiliation on the part
of the plaintiffs.
In Air France vs. Carrascoso, plaintiff Mr. Rafael
4 extent of threatening the plaintiff in the presence of many
Carrascoso, a civil engineer who was going to Lourdes,
France, as a member of a religious group of pilgrims was
issued by the Philippine Air Lines, as agent of the
defendant Air France, a ticket for first class round trip
from Manila to Rome. From Manila, Carrascoso
travelled first class, as per said ticket, but at Bangkok,
238
the Manager of the defendant airline forced him to
vacate the first class seat because there was a white
man who allegedly had a better right thereto, without,
however, showing him the basis for such preference.
Upon these factual premises, the Court held:
“It is really correct to say that the Court of Appeals in the
quoted portion first transcribed did not use the term ‘bad
faith’. But can it be doubted that the recital of facts therein
points to bad faith? The manager not only prevented
Carrascoso from enjoying his right to a first class seat; worse,
he imposed his arbitrary will; he forcibly ejected him from
his seat, made him suffer the humiliation of having to go to
the tourist class compartment—just to give way to another
passenger whose right thereto has not been established.
Certainly, this is bad faith. Unless, of course, bad faith has
assumed a meaning different from what is understood in law.
For, ‘bad faith* contemplates a ‘state of mind affirmatively
operating with furtive design or with some motive of self-
interest or ill will or for ulterior purpose.’ (Words & Phrases,
Perm. Ed., Vol. 5, p. 13, citing Warfield Natural Gas Co. vs.
Allen, 59 S.W. (2d) 534, 538.)
And if the foregoing were not yet sufficient, there is the
express finding of bad faith in the judgment of the Court of
First Instance thus:
‘The evidence shows that defendant violated its contract of
transportation with plaintiff in bad faith, with the aggravating
circumstances that defendant’s Manager in Bangkok went to the
passengers to have him thrown out of the airplane to give the
______________
4 18 SCRA 155.
649
VOL. 64, JUNE 30, 1975 649
Ortigas, Jr. vs. Lufthansa German Airlines
‘first class’ seat that he was occupying to, again using the
words of the witness Ernesto G. Cuento, a ‘white man’ whom
he (defendant’s Manager) wished to accommodate, and the
defendant has not proven that this ‘white man’ had any
‘better right’ to occupy the ‘first class’ seat that the plaintiff
was occupying, duly paid for, and for which the
corresponding ‘first class’ ticket was issued by the defendant
to him.’ (R.A., p. 74; italics supplied.) (at pp. 166-167.)
These precedents, as may be seen, apply four-square to
herein plaintiff’s case. Defendant’s liability for willful
and wanton breach of its contract of carriage with
plaintiff is, therefore, indubitable.
Coming now to the amount that should be awarded
by way of damages to the plaintiff, it is also the teaching
of the cases aforecited that defendant is liable not only
for moral but also for exemplary damages. As earlier
stated, the court below fixed the compensation for moral
damages at P100,000 and the exemplary at P30,000.
The Court believes that these amounts are not enough.
According to the lower court:
“Although the plaintiff has not held any elective public office,
he has however, a distinguished record as a private citizen,
a lawyer, businessman, a civic and religious leader, a
member of numerous government boards and organizations
as well as of local and international bodies, and is the
recipient of awards and citations for outstanding services
and achievements.
He was, and still is, moreover suffering from a heart
ailment and has been advised by his physician to travel first
class because it is more relaxing and comfortable. His
position as chairman of the boards of directors of the
corporation he represented also required that he travel in
239
that manner. He was, furthermore, carrying a special
passport issued by the Philippine Government to represent
it and business corporations abroad.
His sickness and the need for him to travel in the most
comfortable manner possible were made known to the
defendant’s employee, but he paid no heed to them. Instead,
he engaged Ortigas in a heated discussion, summarily
brushed off his protests and pleas, humiliated him, and
tricked him into boarding his employer’s plane, endangering
thereby his health and obliging him to take medicine to
forestall an attack.
There is, finally, evidence that he was discriminated
against because of his nationality, for he was told to yield his
first class seat to a Belgian only after his passport was
examined and his Filipino citizenship must have been noted.
650
650 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
“Under the circumstances and measured by the criterion
jurisprudence has followed, the compensation the plaintiff
should be entitled to receive must be fixed at P100,000.00 as
moral damages, P30,000.00 as exemplary damages or
corrective damages, and P20,000.00 as attorney’s fees.” (Pp.
111-113, Record on Appeal.)
We have reviewed the evidence and We are convinced
there is more than ample basis for these findings. But
under the circumstances revealed in the record, it is
Our considered opinion that the award of moral
damages should be increased to P150,000.
We cannot go along with defendant’s pose that in
Cuenca the amount awarded was only P20,000, for the
very obvious reason that in that case what was involved
was only one leg of the flight contracted for, namely,
that from Okinawa to Tokyo, whereas in the case not at
bar, the offense was repeated four times, at Rome,
Cairo, Dharham and Calcutta, with apparent cold
indifference of defendant’s agents to plaintiff’s plight.
Besides, it appears that Cuenca did not appeal from the
trial court’s decision fixing said amount, hence there
was no occasion for the Supreme Court to award more.
This was also what happened in the Carrascoso case,
where the plaintiff did not complain against the award
of only P25,000-moral-and-P10,000-exemplary
damages made by the trial court. It was Air France who
claimed that these were even excessive. Verily,
however, such discriminatory acts of the defendants in
those cases which were not only violative of their
contractual obligations but also offensive to human
dignity and national or racial pride constitute about the
most justifiable ground for the award of moral damages,
for the resulting injury therefrom cannot but cause
immense mental anguish, besmirched reputation,
wounded feelings, moral shock and social humiliation.
(See Article 2217 of the Civil Code.) We reiterate, they
are to be considered as infecting with bad faith the
breach of contract committed, under Article 2220 of the
same Code. (Lopez vs. Pan Am., supra.)
Lufthansa suggests that compared to the P100,000
awarded to Vice President Lopez in the case
aforementioned, the P100,000 given by the trial court to
Ortigas are “grossly excessive”. It does not appear to Us
to be so. As pointed out by His Honor, “although
plaintiff has not held any elective public office, he has,
240
however, a distinguished record as a private citizen, a
lawyer, businessman, a civic and religious leader, a
651
VOL. 64, JUNE 30, 1975 651
Ortigas, Jr. vs. Lufthansa German Airlines
member of numerous boards and organizations as well
as local and international bodies, and is the recipient of
awards and citations for outstanding services and
achievements.” Indeed, under the proven facts in the
record, We cannot regard plaintiff to be in any inferior
position vis-a-vis Vice President Lopez in the highest
circles of Philippine society and in the business and
religious world, not to speak of his standing in
government officialdom.
Besides, there is again the disparity between the
Lopez case and this one that here the offense, which, as
in Cuenca, is aggravated by the Lufthansa employee at
Rome1 having falsely noted on the ticket that Ortigas
was travelling in economy from Rome to
Hongkong, was repeated four times in the same trip,
5
namely, in Rome, Cairo, Dharham and Calcutta. More
importantly, unlike in the case of Lopez, Ortigas was
suffering from a weak heart and was under doctor’s
advice to travel only in first class, hence, his being
compelled to stay in economy or tourist class during the
major part of his trip, must have given him added
apprehensive feelings about his safety. And, moreover,
it is to be noted that in the Lopez case, which was
decided in 1966, aside from taking into account the
personal circumstances of the plaintiff, the Court
considered “the present rate of exchange and the terms
at which the amount of damages awarded would
approximately be in U.S. dollars”, hence, We may not
justifiably do differently here.
Furthermore, it may not be amiss to mention here
that in Zulueta vs. Pan American World Airways,
Inc., 43 SCRA 397, the Court awarded the plaintiffs:
Zulueta, the husband, his wife and a minor daughter, a
total of P775,000 as damages, consisting of P500,000 as
moral, P200,000 as exemplary and P75,000 as
attorney’s fees, apart from actual damages. In that case,
the Zulueta’s were coming home to Manila from
Honolulu in a Pan-American plane. At Wake, however,
where the plane arrived at 4:00 o’clock in the morning,
Zulueta could not be found at flight time because,
without letting anyone know, not even his wife or
daughter, he had relieved himself, according to him, at
the beach behind the terminal. When at last, he was
found, the Pan-Am employee who first met him while
walking back from the beach remonstrated him thus:
“What in the hell
______________
5 In Cuenca, supra, his ticket was marked, without his knowledge
as W/L or wait-listed despite it had been confirmed. (at p. 1066)
652
652 SUPREME COURT REPORTS
ANNOTATED
Ortigas, Jr. vs. Lufthansa German Airlines
do you think you are? Get on that plane.” This angered
Zulueta who engaged the said employee in an exchange
of angry words. In the meanwhile, the pilot who had
been tipped by a “man from the State Department”, also
a passenger in that flight, that there might be a bomb
241
in the plane and expressed apprehension for the safety
of the flight unless Zulueta could be found, ordered the
unloading of the bags of the Zuluetas, and when three
of the four of them had already been unloaded, he
ordered Zulueta to open them, but the latter refused.
Another exchange of angry words followed, in the course
of which, according to Zulueta’s evidence, the pilot went
to the extent of referring to him and his family as “those
monkeys” Ultimately, the plane left without Zulueta,
albeit his wife and daughter were on board, because the
captain refused to allow Zulueta to board until after his
bags were opened and inspected, which Zulueta refused
entirely to do. Although, said decision is not yet final,
because of the pendency of a second motion for
reconsideration the Court has not yet resolved, the
Court has already allowed the partial execution of the
judgment, thus enabling Zuluetas to collect already one-
half of the amount or over P335,000, which amount,
according to the concurring and dissenting opinion
there of the writer of the instant decision could be the
least that should anyway be allowed. Of course, the
Court did not itemize the award but granted the same
to the family as a whole, but it is evident that in the
final distribution, Zulueta would get for himself from at
least P150,000 to not more than P200,000. 6
We hold that the foregoing considerations justify the
increase of the award of moral damages from P100,000
to P150,000.
Finally, We have the dispute regarding the amount
of exemplary damages awarded. In this respect, it is
Our considered opinion that defendant should pay
P100,000 instead of the P30,000 awarded by the trial
court. The record of this
_______________
6 the concurring and dissenting opinion of this writer was relative
to the resolution denying the first motion for reconsideration. It
disputes the right of Zulueta to moral damages for breach of contract
in bad faith but recognizes his right to moral damages because of the
inconsiderate and insulting manner he was treated by the employees
of Pan-Am—a quasi delict. Said opinion has already been released but
it has not yet been published in SCRA.
653
VOL. 64, JUNE 30, 1975 653
Ortigas, Jr. vs. Lufthansa German Airlines
case taken together with what are revealed in the other
similar cases decided by this Court, those
aforediscussed, convinces Us that defendant, as an
airline, should be made to pay an amount that can
really serve as a deterrent against a seeming pattern of
indifference and unconcern, and what is worse, of
discrimination for racial reasons, discernible in the
treatment of air passengers. This is not the first case,
and unless the proper sanctions are applied, it does not
appear it is going to be the last yet, of instances wherein
Filipino passengers having validated and confirmed
tickets for first class would be shoved to the economy
class, over their valid objections and without any regard
at all to their feelings and convenience, only to favor
other passengers presumed by the airlines to be of
superior race, hence, deserving preference. It is high
time everyone concerned were made to realize that the
laws of the Philippines do not permit any act of
discrimination against its citizens, specially when this
242
accompanies a clear breach of contractual obligations of
common carriers whose business is affected with public
interest and must be directed to serve the convenience
and comfort of the passengers. When any disregard of
such laws is committed, the Supreme Court, as the
interpreter of such laws, must exact the commensurate
liability which they contemplate.
“Exemplary damages are required by public policy,
for wanton acts must be repressed. They are an antidote
so that the poison of wickedness may not run through
the body politic.” (Report of Code Commission, pp. 75-
76) by authority of the decided cases
aforediscussed, acts of similar nature as those herein
7
involved fall within the category of those justifying the
imposition of exemplary damages pursuant to the codal
concept just stated.
“The rationale behind exemplary or corrective
damages is, as the name implies, to provide an example
or correction for public good. x x x. In view of its nature,
it should be imposed in such an amount as to
sufficiently and effectively deter similar breach of
contracts by defendant or other airlines.” (Lopez v. Pan-
American World Airways, supra; see also Rotea vs.
Halili, 109 Phil. 495; People vs. Medroso, Jr., G.R. No.
L-37633, Jan. 31, 1975, 62 SCRA 245; Cotabato
Timberland Co. Inc. vs. Plaridel Lumber Co., Inc., 13
SCRA 235) Thus, all
________________
7 Cuenca, Carrascoso and Lopez, supra.
654
654 SUPREME COURT REPORTS
ANNOTATED
Sta. Ana Hardware & Co. vs. “Y” Shipping
Corporation
relevant matters considered, P100,000 of exemplary
damages, which practically amounts only to not more
than $15,000 U.S. under the present rate of exchange,
would serve the ends for which the liability has been
conceived.
WHEREFORE, the judgment appealed from is
modified by raising the award of moral and exemplary
damages to plaintiff Ortigas to P150,000.00 and
P100,000.00, respectively. In all other respects,
including as to the payment of interests on the said
amounts, the same is affirmed.
Fernando (Chairman), Antonio, Aquino and Co
ncepcion, Jr., JJ., concur.
Judgment affirmed with modification.
G.R. No. 88539. October 26, 1993. *
KUE CUISON, doing business under the firm name and
style “KUE CUISON PAPER SUPPLY,”
petitioner, vs. THE COURT OF APPEALS, VALIANT
INVESTMENT ASSOCIATES, respondents.
Remedial Law; Appeal; It is elementary that in petitions
for review under Rule 45, the Court only passes upon
questions of law.—This petition ought to have been denied
243
outright, for in the final analysis, it raises a factual issue. It
is elementary that in petitions for review under Rule 45, this
Court only passes upon questions of law. An exception
thereto occurs where the findings of fact of the Court of
Appeals are at variance with the trial court, in which case
the Court reviews the evidence in order to arrive at the
correct findings based on the records.
Same; Evidence; Self-serving evidence is evidence made
by a party out of court at one time, it does not include a party’s
testimony as a witness in court.—The argument that
Villanueva’s testimony is self-serving and therefore
inadmissible on the lame excuse of his employment with
private respondent utterly misconstrues the nature of “self-
serving evidence” and the specific ground for its exclusion.
As pointed out by this Court in Co v. Court of Appeals, et al.,
(99 SCRA 321 [1980]):
_______________
* THIRD DIVISION.
392
392 SUPREME COURT
REPORTS ANNOTATED
Cuison vs. Court of Appeals
“Self-serving evidence is evidence made by a party out
of court at one time; it does not include a party’s testimony as
a witness in court. It is excluded on the same ground as any
hearsay evidence, that is the lack of opportunity for cross-
examination by the adverse party, and on the consideration
that its admission would open the door to fraud and to
fabrication of testimony. On the other hand, a party’s
testimony in court is sworn and affords the other party the
opportunity for cross-examination” (italics supplied).
Same; Same; Same; If a man’s extrajudicial admissions
are admissible against him, there seems to be no reason why
his admissions made in open court, under oath, should not be
accepted against him.—Furthermore, consistent with and as
an obvious indication of, the fact that Tiu Huy Tiac was the
manager of the Sto. Cristo branch, three (3) months after Tiu
Huy Tiac left petitioner’s employ, petitioner even sent
communications to its customers notifying them that Tiu
Huy Tiac is no longer connected with petitioner’s business.
Such undertaking spoke unmistakenly of Tiu Huy Tiac’s
valuable position as petitioner’s manager than any uttered
disclaimer. More than anything else, this act taken together
with the declaration of petitioner in-open court amount to
admissions under Rule 130 Section 22 of the Rules of Court,
to wit: “The act, declaration or omission of a party as to a
relevant fact may be given in evidence against him.” For
well-settled is the rule that “a man’s acts, conduct and
declaration, wherever made, if voluntary, are admissible
against him, for the reason that it is fair to presume that they
correspond with the truth, and it is his fault if they do not. If
a man’s extrajudicial admissions are admissible against him,
there seems to be no reason why his admissions made in open
court, under oath, should not be accepted against him.”
Civil Law; Agency; One who clothes another with
apparent authority as his agent and holds him out to the
public as such cannot be permitted to deny the authority of
such person to act as his agent to the prejudice of innocent
third parties dealing with such person in good faith and in
the honest belief that he is what he appears to be.—As to the
merits of the case, it is a well-established rule that one who
clothes another with apparent authority as his agent and
holds him out to the public as such cannot be permitted to
deny the authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with such person
in good faith and in the honest belief that he is what he
appears to be (Macke, et al. v. Camps, 7 Phil. 553 [1907];
Philippine National Bank v. Court of Appeals, 94 SCRA 357
244
[1979]). From the facts and the evidence on record, there is
no doubt that this rule obtains. The petition must therefore
fail.
393
VOL. 227, OCTOBER 26, 393
1993
Cuison vs. Court of Appeals
Same; Same; 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.—Taken in this light, petitioner is liable for the
transaction entered into by Tiu Huy Tiac on his behalf. Thus,
even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers (Article
1911 Civil Code), as in the case at bar.
Same; Estoppel; A party cannot be allowed to go back on
his own acts and representations to the prejudice of the other
party who in good faith relied upon them.—Tiu Huy Tiac,
therefore, by petitioner’s own representations and
manifestations, became an agent of petitioner by estoppel.
Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the
person relying thereon (Article 1431, Civil Code of the
Philippines). A party cannot be allowed to go back on his own
acts and representations to the prejudice of the other party
who, in good faith, relied upon them.
Same; Same; Same; As between two innocent parties, the
one who made it possible for the wrong to be done should be
the one to bear the resulting loss.—Finally, although it may
appear that Tiu Huy Tiac defrauded his principal (petitioner)
in not turning over the proceeds of the transaction to the
latter, such fact cannot in any way relieve nor exonerate
petitioner of his liability to private respondent. For it is an
equitable maxim that as between two innocent parties, the
one who made it possible for the wrong to be done should be
the one to bear the resulting loss.
PETITION for review of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Leighton R. Siazon for petitioner.
Melanio L. Zoreta for private respondent.
BIDIN, J.:
This petition for review assails the decision of the
respondent Court of Appeals ordering petitioner to pay
private respondent, among others, the sum of
P297,482.30 with interest. Said decision reversed the
appealed decision of the trial court rendered in favor of
petitioner.
394
394 SUPREME COURT REPORTS
ANNOTATED
Cuison vs. Court of Appeals
The case involves an action for a sum of money filed by
respondent against petitioner anchored on the following
antecedent facts:
Petitioner Kue Cuison is a sole proprietorship
engaged in the purchase and sale of newsprint, bond
paper and scrap, with places of business at Baesa,
Quezon City, and Sto. Cristo, Binondo, Manila. Private
respondent Valiant Investment Associates, on the other
hand, is a partnership duly organized and existing
245
under the laws of the Philippines with business address
at Kalookan City.
From December 4, 1979 to February 15, 1980,
private respondent delivered various kinds of paper
products amounting to P297,487.30 to a certain Lilian
Tan of LT Trading. The deliveries were made by
respondent pursuant to orders allegedly placed by Tiu
Huy Tiac who was then employed in the Binondo office
of petitioner. It was likewise pursuant to Tiac’s
instructions that the merchandise was delivered to
Lilian Tan. Upon delivery, Lilian Tan paid for the
merchandise by issuing several checks payable to cash
at the specific request of Tiu Huy Tiac. In turn, Tiac
issued nine (9) postdated checks to private respondent
as payment for the paper products. Unfortunately, said
checks were later dishonored by the drawee bank.
Thereafter, private respondent made several
demands upon petitioner to pay for the merchandise in
question, claiming that Tiu Huy Tiac was duly
authorized by petitioner as the manager of his Binondo
office, to enter into the questioned transactions with
private respondent and Lilian Tan. Petitioner denied
any involvement in the transaction entered into by Tiu
Huy Tiac and refused to pay private respondent the
amount corresponding to the selling price of the subject
merchandise.
Left with no recourse, private respondent filed an
action against petitioner for the collection of
P297,487.30 representing the price of the merchandise.
After due hearing, the trial court dismissed the
complaint against petitioner for lack of merit. On
appeal, however, the decision of the trial court was
modified, but was in effect reversed by the Court of
Appeals, the dispositive portion of which reads:
“WHEREFORE, the decision appealed from is MODIFIED in
that defendant-appellant Kue Cuison is hereby ordered to
pay plaintiff-
395
VOL. 227, OCTOBER 26, 1993 395
Cuison vs. Court of Appeals
appellant Valiant Investment Associates the sum of
P297,487.30 with 12% interest from the filing of the
complaint until the amount is fully paid, plus the sum of 7%
of the total amount due as attorney’s fees, and to pay the
costs. In all other respects, the decision appealed from is
affirmed.” (Rollo, p. 55)
In this petition, petitioner contends that:
“THE HONORABLE COURT ERRED IN FINDING TIU
HUY TIAC AGENT OF DEFENDANT-APPELLANT
CONTRARY TO THE UNDISPUTED/ESTABLISHED
FACTS AND CIRCUMSTANCES.
“THE HONORABLE COURT ERRED IN FINDING
DEFENDANT-APPELLANT LIABLE FOR AN
OBLIGATION UNDISPUTABLY BELONGING TO TIU
HUY TIAC.
“THE HONORABLE COURT ERRED IN REVERSING
THE WELL-FOUNDED DECISION OF THE TRIAL
COURT.” (Rollo, p. 19)
The issue here is really quite simple, and that is—
whether or not Tiu Huy Tiac possessed the required
authority from petitioner sufficient to hold the latter
liable for the disputed transaction.
This petition ought to have been denied outright, for
in the final analysis, it raises a factual issue. It is
246
elementary that in petitions for review under Rule 45,
this Court only passes upon questions of law. An
exception thereto occurs where the findings of fact of the
Court of Appeals are at variance with the trial court, in
which case the Court reviews the evidence in order to
arrive at the correct findings based on the records.
As to the merits of the case, it is a well-established
rule that one who clothes another with apparent
authority as his agent and holds him out to the public
as such cannot be permitted to deny the authority of
such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good
faith and in the honest belief that he is what he appears
to be (Macke, et al. v. Camps, 7 Phil.
553 [1907]; Philippine National Bank v. Court of
Appeals, 94 SCRA 357 [1979]). From the facts and the
evidence on record, there is no doubt that this rule
obtains. The petition must therefore fail.
It is evident from the records that by his own acts
and admission, petitioner held out Tiu-Huy Tiac to the
public as the manager of his store in Sto. Cristo,
Binondo, Manila. More
396
396 SUPREME COURT REPORTS
ANNOTATED
Cuison vs. Court of Appeals
particularly, petitioner explicitly introduced Tiu Huy
Tiac to Bernardino Villanueva, respondent’s manager,
as his (petitioner’s) branch manager as testified to by
Bernardino Villanueva. Secondly, Lilian Tan, who has
been doing business with petitioner for quite a while,
also testified that she knew Tiu Huy Tiac to be the
manager of petitioner’s Sto. Cristo, Binondo branch.
This general perception of Tiu Huy Tiac as the manager
of petitioner’s Sto. Cristo store is even made manifest
by the fact that Tiu Huy Tiac is known in the
community to be the “kinakapatid” (godbrother) of
petitioner. In fact, even petitioner admitted his close
relationship with Tiu Huy Tiac when he said in open
court that they are “like brothers” (Rollo, p. 54). There
was thus no reason for anybody especially those
transacting business with petitioner to even doubt the
authority of Tiu Huy Tiac as his manager in the Sto.
Cristo, Binondo branch.
In a futile attempt to discredit Villanueva, petitioner
alleges that the former’s testimony is clearly self-
serving inasmuch as Villanueva worked for private
respondent as its manager.
We disagree. The argument that Villanueva’s
testimony is self-serving and therefore inadmissible on
the lame excuse of his employment with private
respondent utterly misconstrues the nature of “self-
serving evidence” and the specific ground for its
exclusion. As pointed out by this Court in Co v. Court of
Appeals, et al., (99 SCRA 321 [1980]):
“Self-serving evidence is evidence made by a party out of
court at one time; it does not include a party’s testimony as a
witness in court. It is excluded on the same ground as any
hearsay evidence, that is the lack of opportunity for cross-
examination by the adverse party, and on the consideration
that its admission would open the door to fraud and to
fabrication of testimony. On the other hand, a party’s
testimony in court is sworn and affords the other party the
opportunity for cross-examination” (italics supplied).
247
Petitioner cites Villanueva’s failure, despite his
commitment to do so on cross-examination, to produce
the very first invoice of the transaction between
petitioner and private respondent as another ground to
discredit Villanueva’s testimony. Such failure,
petitioner argues, proves that Villanueva was not only
bluffing when he pretended that he can produce the
invoice, but that Villanueva was likewise prevaricating
when he insisted that
397
VOL. 227, OCTOBER 26, 1993 397
Cuison vs. Court of Appeals
such prior transactions actually took place. Petitioner is
mistaken. In fact, it was petitioner’s counsel himself
who withdrew the reservation to have Villanueva
produce the document in court. As aptly observed by the
Court of Appeals in its decision:
“x x x However, during the hearing on March 3, 1981,
Villanueva failed to present the document adverted to
because defendant-appellant’s counsel withdrew his
reservation to have the former (Villanueva) produce the
document or invoice, thus prompting plaintiff-appellant to
rest its case that same day (t.s.n., pp. 39-40, Sess. of March
3, 1981). Now, defendant-appellant assails the credibility of
Villanueva for having allegedly failed to produce even one
single document to show that plaintiff-appellant and
defendant-appellant have had transactions before, when in
fact said failure of Villanueva to produce said document is a
direct off-shoot of the action of defendant-appellant’s counsel
who withdrew his reservation for the production of the
document or invoice and which led plaintiff-appellant to rest
its case that very day.” (Rollo, p. 52)
In the same manner, petitioner assails the credibility of
Lilian Tan by alleging that Tan was part of an intricate
plot to defraud him. However, petitioner failed to
substantiate or prove that the subject transaction was
designed to defraud him. Ironically, it was even the
testimony of petitioner’s daughter and assistant
manager Imelda Kue Cuison which confirmed the
credibility of Tan as a witness. On the witness stand,
Imelda testified that she knew for a fact that prior to
the transaction in question, Tan regularly transacted
business with her father (petitioner herein), thereby
corroborating Tan’s testimony to the same effect. As
correctly found by the respondent court, there was no
logical explanation for Tan to impute liability upon
petitioner. Rather, the testimony of Imelda Kue Cuison
only served to add credence to Tan’s testimony as
regards the transaction, the liability for which
petitioner wishes to be absolved.
But of even greater weight than any of these
testimonies, is petitioner’s categorical admission on the
witness stand that Tiu Huy Tiac was the manager of his
store in Sto. Cristo, Binondo, to wit:
“Court:
xxx
398
398 SUPREME COURT REPORTS
ANNOTATED
Cuison vs. Court of Appeals
“Q And who was managing the store in
Sto. Cristo?
248
“A At first it was Mr. Ang, then later Mr.
Tiu Huy Tiac but I cannot remember
the exact year.
“Q So, Mr. Tiu Huy Tiac took over the
management.
“A Not that was because every afternoon,
I was there, sir.
“Q But in the morning, who takes charge?
“A Tiu Huy Tiac takes charge of
management and if there (sic) orders
for newsprint or bond papers they are
always ref erred to the compound in
Baesa, sir.” (t.s.n., p. 16, Session of
January 20, 1981, CA decision, Rollo,
p. 50, italics supplied).
Such admission, spontaneous no doubt, and standing
alone, is sufficient to negate all the denials made by
petitioner regarding the capacity of Tiu Huy Tiac to
enter into the transaction in question. Furthermore,
consistent with and as an obvious indication of, the fact
that Tiu Huy Tiac was the manager of the Sto. Cristo
branch, three (3) months after Tiu Huy Tiac left
petitioner’s employ, petitioner even sent
communications to its customers notifying them that
Tiu Huy Tiac is no longer connected with petitioner’s
business. Such undertaking spoke unmistakenly of Tiu
Huy Tiac’s valuable position as petitioner’s manager
than any uttered disclaimer. More than anything else,
this act taken together with the declaration of
petitioner in open court amount to admissions under
Rule 130, Section 22 of the Rules of Court, to wit: ‘The
act, declaration or omission of a party as to a relevant
fact may be given in evidence against him.” For well-
settled is the rule that “a man’s acts, conduct and
declaration, wherever made, if voluntary, are
admissible against him, for the reason that it is fair to
presume that they correspond with the truth, and it is
his fault if they do not. If a man’s extrajudicial
admissions are admissible against him, there seems to
be no reason why his admissions made in open court,
under oath, should not be accepted against him.” (U.S.
vs. Ching Po, 23 Phil. 578, 583 [1912]).
Moreover, petitioner’s unexplained delay in
disowning the transactions entered into by Tiu Huy
Tiac despite several attempts made by respondent to
collect the amount from him, proved all the more that
petitioner was aware of the questioned transactions.
Such omission was tantamount to an admission by
silence under Rule 130 Section 23 of the Rules of Court,
thus: “Any act or declaration made in the presence of
and within the
399
VOL. 227, OCTOBER 26, 1993 399
Cuison vs. Court of Appeals
observation of a party who does or says nothing when
the act or declaration is such as naturally to call for
action or comment if not true, may be given in evidence
against him.”
All of these point to the fact that at the time of the
transaction, Tiu Huy Tiac was admittedly the manager
of petitioner’s store in Sto. Cristo, Binondo.
Consequently, the transaction in question as well as the
249
concomitant obligation is valid and binding upon
petitioner.
By his representations, petitioner is now estopped
from disclaiming liability for the transaction entered
into by Tiu Huy Tiac on his behalf. It matters not
whether the representations are intentional or merely
negligent so long as innocent third persons relied upon
such representations in good faith and for value. As
held in the case of Manila Remnant Co., Inc. v. Court of
Appeals, (191 SCRA 622 [1990]):
“More in point, we find that by the principle of estoppel,
Manila Remnant is deemed to have allowed its agent to act
as though it had plenary powers. Article 1911 of the Civil
Code provides:
‘Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers.’
(Italics supplied).
The above-quoted article is new. It is intended to protect
the rights of innocent persons. In such a situation, both the
principal and the agent may be considered as joint
tortfeasors whose liability is joint and solidary.
Authority by estoppel has arisen in the instant case
because by its negligence, the principal, Manila Remnant,
has permitted its agent, AU. 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.”
Tiu Huy Tiac, therefore, by petitioner’s own
representations and manifestations, became an agent of
petitioner by estoppel. Under the doctrine of estoppel,
an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or
disproved as against the person relying thereon (Article
1431, Civil Code of the Philippines). A party cannot be
allowed to go back on his own acts and representations
to the prejudice of the other party who, in good faith,
relied upon them (Philippine National Bank v.
Intermediate Appellate Court, et
400
400 SUPREME COURT REPORTS
ANNOTATED
Cuison vs. Court of Appeals
al., 189 SCRA 680 [1990]).
Taken in this light, petitioner is liable for the
transaction entered into by Tiu Huy Tiac on his behalf.
Thus, even when the agent has exceeded his authority,
the principal is solidarity liable with the agent if the
former allowed the latter to act as though he had full
powers (Article 1911 Civil Code), as in the case at bar.
Finally, although it may appear that Tiu Huy Tiac
defrauded his principal (petitioner) in not turning over
the proceeds of the transaction to the latter, such fact
cannot in any way relieve nor exonerate petitioner of his
liability to private respondent. For it is an equitable
maxim that as between two innocent parties, the one
who made it possible for the wrong to be done should be
the one to bear the resulting loss (Francisco vs.
Government Service Insurance System, 7 SCRA
577 [1963]).
Inasmuch as the fundamental issue of the capacity
or incapacity of the purported agent Tiu Huy Tiac, has
already been resolved, the Court deems it unnecessary
to resolve the other peripheral issues raised by
petitioner.
250
WHEREFORE, the instant petition is hereby
DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
No. L-32473. July 31, 1973.
IGNACIO VICENTE and MOISES ANGELES,
petitioners, vs. HON. AMBROSIO M. GERALDEZ, as
Judge of the Court of First Instance of Bulacan, Branch
V (Sta. Maria), and HI CEMENT CORPORATION,
respondents.
No. L-32483. July 31, 1973.
JUAN BERNABE, petitioner, vs. HI CEMENT
CORPORATION and THE HON. AMBROSIO M.
GERALDEZ, Presiding Judge, Branch V, Court of First
Instance of Bulacan, respondents.
Civil procedure; Civil
law; Compromise; Attorneys; Attorneys cannot, without
special authority, compromise their client's litigation.—
Special powers of attorney are necessary, among other cases,
in the following: to compromise and to renounce the right to
appeal from a judgment. Attorneys have authority to bind
their clients in any case by any agreement in relation thereto
made in writing. and in taking appeals, and in all matters of
ordinary judicial procedure, but they cannot, without special
authority, compromise their clients' litigation, or receive
anything in discharge of their clients' claims but the full
amount in cash. The compromised agreement dated January
30, 1969 was signed only by lawyers for petitioners and by
the lawyers for the private respondent
211
VOL. 52, JULY 31, 1973 211
Vicente vs. Geraldez
corporation. It is not disputed that the lawyers of
respondent corporation had not submitted to the Court any
written authority from heir client to enter into a compromise.
The compromise agreement is not binding upon the
respondent corporation.
Same; Same; Same; Same; Attorney's authority to
compromise client's claim should be duly established by
evidence.—This Court has said that the Rules "require, for
attorneys to compromise the litigation of their clients, a
special authority. And while the same does not state that the
special authority be in writing, the same be duly established
by evidence other than the self-serving assertion of counsel
himself that such authority was verbally given him."
Same; Corporation law; Compromise; In corporations,
power to settle claims vested in board of directors.—The law
specifically requires that "juridical persons may compromise
only in the form and with the requisites which may be
necessary to alienate their property." Under the corporation
law the power to compromise or settle claims in favor of or
against the corporation is ordinarily and primarily
committed to the board of directors. This power may however
be delegated either expressly or impliedly to other corporate
officials or agents. Thus, it has been stated, that as a general
rule, an officer or agent of the corporation has no power to
compromise or settle a claim by or against the corporation,
except to the extent that such power is given to him either
expressly or by reasonable implication from the
circumstances.
251
Same; Compromise; Mere verbal assertion of counsel he
was authorized to compromise not sufficient to bind client.—
Petitioners claim that private respondent's attorneys
admitted twice in open court that they were authorized to
compromise their client's case. On the other hand, said
respondent's counsels denied that they ever represented to
the court that they were authorized to enter into a
compromise. Nowhere does it appear in the stenographic
notes that respondent's lawyers ever made such
representation. In any event, assuming arguendo that they
did, such a self-serving assertion cannot properly be the basis
for the conclusion that the respondent corporation had in fact
authorized its lawyers to compromise the litigation.
Same; Same; Corporation law; Mere fact that
administrative manager of a corporation signed compromise
agreement not conclusive proof was authorized by corporate
board of directors to do so.—The infirmity of the argument,
that there was tacit ratification on the part of the corporation
of the compromise agreement because it nominated Mr.
Larry Marquez as its
212
212 SUPREME COURT
REPORTS ANNOTATED
Vicente vs. Geraldez
commissioner (to determine value of land in dispute)
and Atty. Florentino V. Cardenas, the corporation's
administrative manager, not only did not object but even
affixed his signature to the agreement, is in their assumption
that Atty. Cardenas as administrative manager had
authority to bind the corporation or to compromise the case.
Whatever authority the officers or agents of a corporation
may have is derived from the board of directors, or other
governing body, unless conferred by the charter of the
corporation. A corporate officer's power as an agent of the
corporation must therefore be sought from the statute, the
charter, the by-laws, or in a delegation of authority to such
officer, from the acts of the board of directors, formally
expressed or implied from a habit or custom of doing
business. In the case at bar no provision of the charter and
bylaws of the corporation or any resolution or any other act
of the board of directors has been cited from which we could
reasonably infer that the administrative manager had been
granted expressly or impliedly the power to bind the
corporation or the authority to compromise the case. The
signature of Atty. Cardenas on the agreement would
therefore be legally ineffectual.
As regards the nomination of Mr. Marquez as
commissioner, counsel for respondent corporation has
explained, and this has not been disproven, that Atty.
Cardenas, apparently on his own, submitted the same to the
court. There is no iota of proof that when Mr. Marquez' name
was submitted, the respondent corporation knew of the
contents of the compromise agreement.
Same; Same; Same; When unauthorized acts of agent
binding upon corporation. —Inorder to ratify the
unauthorized act of an agent and make it binding on the
corporation, it must be shown that the governing body or
officer authorized to ratify had full and complete knowledge
of all the material facts connected with the transaction to
which it relates. It cannot be assumed also that Atty.
Cardenas, as administrative manager of the corporation, had
authority to ratify. For ratification can never be made on the
part of the corporation by the same persons who wrongfully
assume the power to make the contract, but the ratification
must be by the officer or governing body having authority to
make such contract, and, as we have seen, must be with full
knowledge.
Same; Same; Same; Estoppel; Corporation cannot be
estopped for acts of an agent who is responsible for the
252
misrepresentation. —Equally inapposite is petitioners'
invocation of the principle of estoppel. In the case at bar,
except those made by Attys. Ventura, Cardenas and
Magpantay, petitioners have not demonstrated any act or
declaration of the corporation amounting to
213
VOL. 52, JULY 31, 1973 213
Vicente vs. Geraldez
false representation or concealment of material facts
calculated to mislead said petitioners. The acts or conduct for
which the corporation may be liable under the doctrine of
estoppel must be by those of the corporation, its governing
body or authorized officers, and not those of the purported
agent who is himself responsible for the misrepresentation.
ORIGINAL ACTION in the Supreme Court. Certiorari
with preliminary injunction.
The facts are stated in the opinion of the Court.
Librado S. Correa for petitioners Ignacio Vicente
and Moises Angeles.
Francisco R. Capistrano and Andreciano F.
Caballero for petitioner Juan Bernabe.
Renato L. Cayetano and Jesus G. Diaz for
respondent HI Cement Corporation.
ANTONIO, J.:
There are two original actions of certiorari with prayer
for preliminary injunction wherein petitioners seek to
annul the orders dated April 24, May 18, and July 18,
1970 of respondent Judge of the Court of First Instance
of Bulacan in Civil Case No. SM-201. (Hi Cement
Corporation vs. Juan Bernabe, Ignacio Vicente and
Moises Angeles). The two cases are herein decided
jointly because they proceed from the same case and
involve in substance the same.question of law.
On September 9, 1967 herein private respondent Hi
Cement Corporation filed with the Court of First
Instance of Bulacan a complaint for injunction and
damages against herein petitioners Juan Bernabe,
Ignacio Vicente and Moises Angeles. In said complaint
the plaintiff alleged that it had acquired on October 27,
1965, Placer Lease Contract No. V-90, from the
Banahaw Shale Mining Association, under a deed of
sale and transfer which was duly registered with the
Office of the Mining Recorder of Bulacan on November
4, 1965 and duly approved by the Secretary of
Agriculture and Natural Resources on December 15,
1965; that the said Placer Lease
214
214 SUPREME COURT REPORTS
ANNOTATED
Vicente vs. Geraldez
Contract No. V-90 was for a period of twenty-five years
commencing from August 1, 1960 and covered two
mining claims (Red Star VIII & IX) with a combined
area of about fifty-one hectares; that within the limits
of Placer Mining Claim Red Star VIII are three parcels
of land claimed by the defendants Juan Bernabe (about
two hectares), Ignacio Vicente (about two hectares), and
Moises Angeles (about one-fourth hectare); that the
plaintiff had, on several occasions, informed the
defendants, thru its representatives, of the plaintiffs
acquisition of the aforesaid placer mining claims which
included the areas occupied by them; that the plaintiff
253
had requested the defendants to allow its workers to
enter the area in question for exploration and
development purposes as well as for the extraction of
minerals therefrom, promising to pay the defendants
reasonable amounts as damages, but the defendants
refused to allow entry of the plaintiffs representatives;
that the defendants were threatening the plaintiffs
workers with bodily harm if they entered the premises,
for which reason the plaintiff had suffered irreparable
damages due to its failure to work on and develop its
claims and to extract minerals therefrom, resulting in
its inability to comply with its contractual
commitments, for all of which reasons the plaintiff
prayed the court to issue preliminary writs of
mandatory injunction perpetually restraining the
defendants and those cooperating with them from the
commission or continuance of the acts complained of,
ordering defendants to allow plaintiff, or its agents and
workers, to enter, develop and extract minerals from
the areas claimed by defendants, to declare the
injunction permanent after hearing, and to order the
defendants to pay damages to the plaintiff in the
amount of P200,000.00, attorney's fees, expenses of
litigation and costs.
On September 12, 1967 the trial court issued a
restraining order and required the defendants to file
their answers. The defendants filed their respective
answers, which contained the usual admissions and
denials and interposed special and affirmative defenses,
namely, among others, that they are the rightful owners
of certain portions of the land covered by the supposed
mining claims of the plaintiff; that it was the plaintiff
and its workers who had committed acts of force and
violence when they entered into and intruded upon the
215
VOL. 52, JULY 31, 1973 215
Vicente vs. Geraldez
defendants' lands; and that the complaint failed to state
a cause of action. The defendants set up counter-claims
against the plaintiff for actual and moral damages, as
well as for attorney's fees.
In another pleading filed on the same date,
defendant Juan Bernabe opposed the issuance of a writ
of preliminary mandatory or prohibitory injunction. In
its Order dated September 30, 1967, the trial court,
however, directed the issuance of a writ of preliminary
mandatory injunction upon the plaintiff s posting of a
bond in the amount of P100,000.00. In its order, the
court suggested the relocation of the boundaries of the
plaintiff s claims in relation to the properties of the
defendants, and to this end named as Commissioner, a
Surveyor from the Office of the District Engineer of
Bulacan to relocate the boundaries of the plaintiff s
mining claims, to show in a survey plan the location of
the areas thereof in conflict with the portions whose
ownership is claimed by the defendants and to submit
his report thereof to the court on or before October 31,
1967. The court also directed the parties to send their
representatives to the place of the survey on the date
thereof and to furnish the surveyor with copies of their
titles. The Commissioner submitted his report to the
Court on November 24, 1967 containing the following f
indings:
254
1. "1.In the attached survey plan, the area covered
and embraced full and heavy lines is the Placer
Mining Claims of the Plaintiff containing an
area of 107 hectares while the area bounded by
finebroken lines are the properties of the
Defendants.
2. "2.The property of the Defendant MOISES
ANGELES, consisting of two (2) parcels known
as Lot 1-B and Lot 2 of Psu-103374, both
described in O.C.T. No. 0-1769 with a total area
of 34.984 square meters were totally covered by
the Claims of the Plaintiff.
3. "3.The property of the Defendant IGNACIO
VICENTE, containing an area of 32,619 square
meters, is also inside the Claims of the Plaintiff.
4. "4.The property of the Defendant JUAN
BERNABE known as Psu-178969, described in
O.C.T. No. 0-2050 is partially covered by the
Claims of the Plaintiff and the area affected is
57,539 square
216
216 SUPREME COURT REPORTS
ANNOTATED
Vicente vs. Geraldez
1. meters."
In an Order issued on December 14, 1967, the court
approved the report "with the conformity of all the
parties in this case."
Thereafter, on April 2,1968 plaintiff HI Cement Corporation
filed a motion to amend the complaint "so as to conform to
the facts brought out and/or impliedly admitted in the pre-
trial." This motion was granted by the court on April 6, 1968.
Accordingly, on October 21, 1968, the plaintiff filed its
amended complaint. The amendments consisted in the
statement of the correct areas of the land belonging to
defendants Bernabe (57,539 square meters), Vicente (32,619
square meters) and Angeles (34,984 square meters), as well
as the addition of allegations to the effect, among others, that
at the pre-trial the defendants Angeles and Vicente declared
their willingness to sell to the plaintiff their properties
covered by the plaintiff s mining claims for P10.00 per square
meter, and that when the plaintiff offered to pay only P0.90
per square meter, the said defendants stated that they were
willing to go to trial on the issue of what would be the
reasonable price for the properties of defendants sought to be
taken by plaintiff. With particular reference to defendant
Bernabe, the amended complaint alleged that the said
defendant neither protested against nor prohibited the
predecessor-in-interest of the plaintiff from prospecting,
discovering, locating and contracting minerals from the
aforementioned claims, or from conducting the survey
thereon, or filed any opposition against the application for
lease by the Red Star Mining Association, and that as a
result of the failure of said defendant to object to the acts of
possession or occupation over the said property by plaintiff,
defendant is now estopped from claiming that plaintiff
committed acts of usurpation on said property. The plaintiff
prayed the court, among other things, to fix the reasonable
value of the defendants' properties as reasonable
compensation for any resulting damage.
Defendant Bernabe filed an amended answer
substantially reproducing his original answer and
255
denying the averments concerning him in the amended
complaint.
The respective counsels of the parties then conferred
among
217
VOL. 52, JULY 31, 1973 217
Vicente vs. Geraldez
themselves on the possibility of terminating the case by
compromise, the defendants having previously signified
their willingness to sell to the plaintiff their respective
properties at reasonable prices.
On January 30, 1969 the counsels of the parties
executed and submitted to the court for its approval the
following Compromise Agreement:
"COMPROMISE AGREEMENT
"COME NOW the plaintiff and the defendants, represented
by their respective counsel, and respectfully submit the
following agreement:
1. "1.That the plaintiff is willing to buy the properties
subject of litigation, and the defendants are willing
to sell their respective properties;
2. "2.That this Honorable Court authorizes the plaintiff
and the defendants to appoint their respective
commissioners, that is, one for the plaintiff and one
for each defendant;
3. "3.That the parties hereby agree to abide by the
decision of the Court based on the findings of the
Commissioners;
4. "4.That the fees of the Commissioners shall be paid as
follows:
For those appointed by the parties shall be paid by
 them respectively; and for the one appointed by the
Court, his fees shall be paid pro-rata by the parties;
5. "5.That the names of the Commissioners to be
appointed by the parties shall be submitted to the
Court on or before February 8, 1969.
"GREETINGS:
"Please submit the foregoing Compromise Agreement to the
Honorable Court for the consideration and approval
immediately upon receipt hereof.

"WHEREFORE, the undersigned respectfully pray that VENTURA, CARDENAS & MAGPANTAY
the foregoing agreement be approved.
"Sta. Maria, Bulacan, January 30, 1969. By:
"For the Plaintiff: (Sgd.) FRANCISCO VENTURA
(Sgd.) FRANCISCO VENTURA t/FRANCISCO VENTURA"
t/ FRANCISCO VENTURA On the same date, the foregoing Compromise
218 Agreement was approved by the trial court, which
218 SUPREME COURT REPORTS enjoined the parties to comply with the terms and
ANNOTATED conditions thereof.
Vicente vs. Geraldez Pursuant to the terms of the said compromise
(Sgd.) FLORENTINO V. CARDENAS agreement the counsel of both parties submitted the
t/FLORENTINO V. CARDENAS names of the persons designated by them as their
(Sgd.) ENRIQUETO I. MAGPANTAY respective commissioners, and in conformity therewith,
t/ ENRIQUETO I. MAGPANTAY the trial court, in its Order dated February 26, 1969,
appointed the following as Commissioners: Mr. Larry G.
"For Juan Bernabe: Marquez, to represent the plaintiff; Mr. Demetrio M.
Aquino, to represent defendant Bernabe; Mr. Moises
(Sgd.) ANDRECIANO F. CABALLERO
t/ ANDRECIANO F. CABALLERO Correa, to represent defendant Angeles; Mr. Santiago
Cabungcal, to
"For Ignacio Vicente and 219
Moises Angeles: VOL. 52, JULY 31, 1973 219
Vicente vs. Geraldez
(Sgd.) CONRADO MANZANO represent defendant Vicente; and Mr. Liberato
t/ CONRADO MANZANO Barrameda, to represent the court, and directed that
"The Clerk of Court said Commissioners should appear before the court on
CFI, Sta. Maria, Bulacan March 17, 1969, to take their oath and qualify as such
Commissioners, and then meet on March 31, 1969 in
256
the court for their first session and to submit their
report not later than April 30, 1969.
On September 15, 1969, Commissioner Liberato
Barrameda submitted to the court for its approval a
Consolidated Report, containing the three reports of the
Commissioners of the plaintiff and the three
defendants, together with an analysis of the said
reports and a summary of the important facts and
conclusions. The following unit prices for the three
defendants' properties were recommended in the
Consolidated Report:
1. "A -JUAN BERNABE at P12.00 per square
meter, wherefrom plaintiff has been extracting
its first output, and would still continue to
extract therefrom as the property consists of a
mountain of limestone and shale;
2. "B -IGNACIO VICENTE:
1. a)60% or 19,571.4 sq. m. (mineral land) at P12.00
per sq. m.
2. b)40% or 13,047.6 sq. m. (riceland) at P8.00 per
sq. m.
1. "C—MOISES ANGELES (riceland) at P8.00 per
sq. m."
It is worthy of note that in the individual report of the
Commissioner nominated by plaintiff HI Cement
Corporation, the price recommended for defendant
Juan Bernabe's property was P0.60 per square meter,
while in the individual report of the Commissioner
257
nominated by the said defendant, the price
recommended was P50.00 per square meter. The
Commissioners named by defendants Vicente and
Angeles recommended P15.00 per square meter for the
lands owned by the said two defendants, while the
Commissioner named by the plaintiff recommended
P0.65 per square meter for Vicente's land, and P0.55 per
square meter for Angeles' land.
On October 21, 1969, Atty. Francisco Ventura, one of
the three lawyers for plaintiff HI Cement Corporation,
filed with the trial court a manifestation stating that on
September 1,
220
220 SUPREME COURT REPORTS
ANNOTATED
Vicente vs. Geraldez
1969 he sent a copy of the Compromise Agreement to
Mr. Antonio Diokno, President of the corporation,
requesting the latter to intercede with the Board of
Directors for the confirmation or approval of the
commitment made by the plaintiff s lawyers to abide by
the decision of the court based on the reports of the
Commissioners; and that on October 15, 1969 he
received a letter from Mr. Diokno, a copy of which was
attached to the manifestation. In that letter Mr. Diokno
said:
"While I realize your interest in cooperating with the Court
in its desire to expedite the disposition of the case, this
commitment would deprive us of the right to appeal if we do
not agree with the valuation set by the Court. Our Board,
therefore, cannot waive its rights; only when it knows the
value set by the Court on the properties can it decide whether
to abide by it or appeal therefrom. I would like to stress that,
under the law, the compromise agreement requires the
express approval of our Board of Directors to be binding on
our corporation. Such an approval, I regret to say, cannot be
obtained at this time."
On November 5, 1969, defendant Bernabe filed an
answer to Atty. Ventura's manifestation, praying the
court to ignore, disregard and, if possible, order striken
from the record, the plaintiffs manifestation on the
following grounds: that its filing after the Consolidated
Report of the Commissioners had been submitted and
approved, and long after the signing of the Compromise
Agreement on January 30, 1969, cast suspicion on the
sincerity of the plaintiffs motive; that when the
Compromise Agreement was being considered, the
court inquired from the parties and their respective
lawyers if all the attorneys appearing in the case had
been duly authorized and/or empowered to enter into a
compromise agreement, and the three lawyers for the
plaintiff answered in the affirmative; that in fact it was
Atty. Ventura himself who prepared the draft of the
Compromise Agreement in his own handwriting and
was the first to sign the agreement; that one of the three
lawyers for the plaintiff, Atty. Florentino V. Cardenas,
who also signed the Compromise Agreement, was the
official representative, indeed was an executive official,
of plaintiff corporation; that the Compromise
Agreement, having been executed pursuant to a pre-
trial conference, partakes the nature of a stipulation of
facts mutually agreed upon by the
221
VOL. 52, JULY 31, 1973 221
Vicente vs. Geraldez
258
parties and approved by the court, hence, was binding
and conclusive upon the parties; and that the
nomination by the plaintiff of Mr. Larry G. Marquez as
its Commissioner pursuant to the Compromise
Agreement, was a clear indication of the plaintiff s tacit
approval of the terms and conditions of the Compromise
Agreement, if not an implied ratification of Atty.
Ventura's acts.
On March 13, 1970 the court rendered a decision in
which the terms and conditions of the Compromise
Agreement are reproduced, and the Consolidated
Report of the Commissioners is extensively quoted. The
rationale and dispositive portion of the decision read:
"What is fair and just compensation?
'Just compensation includes all elements of value that
inheres in the property. but it does not exceed market value
fairly determined. The sum required to be paid the owner
does not depend upon the usage to which he has devoted his
land but is to be arrived at upon just consideration of all the
uses for which it is suitable. The highest and most profitable
use for which the property is adoptable and needed or likely
to be needed in the reasonably near future is to be
considered, not necessarily as the measure of value, but to
the full extent that the prospect of demand for such use
affects the market value while the property is privately held.'
"The term fair and just compensation as applied in
expropriation or eminent domain proceedings need not
necessarily be applied in the present case. In expropriation
proceedings the government is the party involved and its use
is for public purpose. In the instant case, however. private
parties are involved and the use of the land is a private
venture and for profit.
"It appears that defendants' properties are practically
adjacent to plaintiffs plant site. It also appears that
practically all the surrounding areas were acquired by the
plaintiff by purchase.
"In the report submitted by the commissioner
representing the plaintiff. it is claimed that the surrounding
areas were acquired thru purchase by the plaintiff in the
amount of less than P1.00 per square meter, On the other
hand, it appears from the reports submitted by the
commissioners representing the defendants that there were
some
222
222 SUPREME COURT REPORTS
ANNOTATED
Vicente vs. Geraldez
recorded sales around the area from P20.00 to P25.00 per
square meter and there were subdivision lots which
command even higher prices.
"The properties are reported to consist of mineral land
which are rocky and barren containing limestone and shale.
From the viewpoint of the owners their property which is
described as rocky and barren mineral land must necessarily
command a higher price, and this Court believes that the
plaintiff will adopt the same attitude from the viewpoint of
its business.
"While it may be true that the plaintiff acquired
properties within the area in question at a low price, we
cannot overlook the fact that this was so at the time when
plaintiff corporation was not yet in operation and that the
land owners were not as yet aware of the potential value of
their landholdings.
"Irrespective of the different classifications of the
properties owned by the defendants, and considering the
benefits that will enure to the plaintiff and bearing in mind
the.property rights and privileges to which the property
owners are entitled both under the constitution and the
259
mining law, coupled with the fact that the plaintiff had
already taken advantage of the properties even long before
the rightful acquisition of the same, this Court believes that
the just and fair market value of the land should be in the
amount of P15.00 per square meter.
"In view of the above findings, the plaintiff pursuant to
the compromise agreement, is hereby ordered to pay the
defendants the amount of P15.00 per square meter for the
subject properties, and upon full payment, the restraining
order earlier issued by this Court shall be deemed lifted."
On March 23, 1970 defendant Juan Bernabe filed an
urgent motion for execution of judgment anchored on
the proposition that the judgment, being based on a
compromise agreement, is not appealable and is, on the
other hand, immediately executory. The other two
defendants, Moises Angeles and Ignacio Vicente,
likewise filed their respective motions for execution.
These motions were granted by the court in its Order of
April 14, 1970.
On April 17, 1970 the plaintiff filed a motion for
reconsideration of the April 14, 1970 Order, alleging
that it had
223
VOL. 52, JULY 31, 1973 223
Vicente vs. Geraldez
an opposition to the defendants' motions for execution,
and that the Compromise Agreement had been
repudiated by the plaintiff corporation through its Vice
President, as earlier manifested by the plaintiff. The
plaintiff prayed for ten days from the date of the
hearing of the motion within which to file its written
opposition to the motions for execution. Defendant Juan
Bernabe filed an opposition to the plaintiffs motion on
April 21, 1970.
On April 22, 1970 the plaintiff filed with the court a
motion for new trial on the ground that the decision of
the court dated March 13, 1970 is null and void because
it was based on the Compromise Agreement of January
30, 1969 which was itself null and void for want of a
special authority by the plaintiff s lawyers to enter into
the said agreement. The plaintiff also prayed that the
decision dated March 13, 1970 and the Order dated
April 14, 1970 granting the defendants' motions for
execution, be set aside. Defendant Juan Bernabe filed
on April 27, 1970 an opposition to the plaintiff s motion
on the grounds that the decision of the court is in
accordance with law, for three lawyers for the plaintiff
signed the Compromise Agreement, and one of them,
Atty. Cardenas, was an official representative of
plaintiff corporation, hence, when he signed the
Compromise Agreement, he did so in the dual capacity
of lawyer and representative of the management of the
corporation; that the plaintiff itself pursued, enforced
and implemented the agreement by appointing Mr.
Larry Marquez as its duly accredited Commissioner;
and that the plaintiff is conclusively bound by the acts
of its lawyers in entering into the Compromise
Agreement.
In the meantime, or on April 24, 1970, the court
issued an Order setting aside its Order of April 14, 1970
under which the defendants' motions for execution of
judgment had been granted, and gave the plaintiff ten
days within which to file an opposition to the
defendants' motions for execution.
260
On May 9, 1970 the plaintiff filed an opposition to
the motions for execution of judgment, on the grounds
that the decision dated March 13, 1970 is contrary to
law for it is based on a compromise agreement executed
by the plaintiff s lawyers who had no special power of
attorney as required by Article
224
224 SUPREME COURT REPORTS
ANNOTATED
Vicente vs. Geraldez
1878 of the Civil Code, or any special authority as
required by Section 23, Rule 138 of the Rules of Court;
and that the judgment is void for lack of jurisdiction of
the court because. the same is based on a void
compromise agreement.
On May 18, 1970 the court issued an Order setting
aside its decision dated March 13, 1970, denying the
defendants' motions for execution of judgment, and
setting for June 23, 1970 a pretrial conference in the
case. The three defendants moved for reconsideration,
but their motions were denied in an Order dated July
18, 1970.
It is in these factual premises that the defendants in
Civil Case No. SM-201 came to this Court by means of
the present petitions. In G.R. No. L-32473, petitioners
Vicente and Angeles pray this Court to issue a writ of
preliminary injunction, and, after hearing, to annul and
set aside the Order dated May 18, 1970 issued by
respondent Judge setting aside the decision dated
March 13, 1970; to declare the said decision legal,
effective and immediately executory; to dissolve the
writ of preliminary mandatory injunction issued by
respondent Judge on September 30, 1967 commanding
petitioners to allow private respondent to enter their
respective properties and excavate thereon; to make the
preliminary injunction permanent; and to award treble
costs in favor of petitioners and against private
respondent. In G.R. No. L-32483, petitioner Juan
Bernabe prays this Court to issue a writ of preliminary
injunction or, at least a temporary restraining order,
and, after hearing, to annul and set aside the Order
dated April 24, 1970 issued by respondent Judge setting
aside his Order of April 14, 1970 and allowing private
respondent to file an opposition to petitioners' motion
for execution, the Order dated May 18, 1970, and the
Order dated July 18, 1970. Petitioner Bernabe also
seeks the reinstatement of the trial court's decision
dated May 13, 1970 and its Order dated April 14, 1970
granting his motion for execution of judgment, and an
award in his favor of attorney's fees and of actual, moral
and exemplary damages.
At issue is whether the respondent court, in setting
aside its decision of March 13, 1970 and denying the
motions for execution of said decision, had acted
without or in excess of its jurisdiction or with grave
abuse of discretion. We hold that
225
VOL. 52, JULY 31, 1973 225
Vicente vs. Geraldez
said court did not, in view of the following
considerations:
1. Special powers of attorney are necessary, among
other cases, in the following: to compromise and to
renounce the right to appeal from a judgment and
261
judgment. Attorneys have authority to bind their clients
1
in any case by any agreement in relation thereto made
in writing, and in taking appeals, and in all matters of
ordinary judicial procedure, but they cannot, without
special authority/compromise their clients' litigation, or
receive anything in discharge of their clients' claims but
the full amount in cash. 2
The Compromise Agreement dated January 30, 1969
was signed only by the lawyers for petitioners and by
the lawyers for private respondent corporation. It is not
disputed that the lawyers of respondent corporation
had not submitted to the Court any written authority
from their client to enter into a compromise.
This Court has said that the Rules "require, for
3
attorneys to compromise the litigation of their clients, a
special authority. And while the same does not state
that the special authority be in writing the court has
every reason to expect that, if not in writing, the same
be duly established by evidence other than the self-
serving assertion of counsel himself that such authority
was verbally given him." 4
2. The law specifically requires that "juridical
persons may compromise only in the form and with the
requisites which may be necessary to alienate their
property." Under the corporation law the power to
5
compromise or settle claims in favor of or against the
corporation is ordinarily and primarily committed to
the Board of Directors. The right of the Directors "to
compromise a disputed claim against the corporation
rests upon their right to manage the affairs of the
corporation according to their honest and informed
_______________
1 Article 1878 [3], Civil Code.
2 Rule 138, Section 23, Rules of Court.
3 Ibid.
4 Home Insurance Company v. United States Lines Co., et al., L-
25593, November 15, 1967, 21 SCRA 863, 866.
5 Article 2033, New Civil Code.
226
226 SUPREME COURT REPORTS
ANNOTATED
Vicente vs. Geraldez
discretion as to what is for the best interests of the
corporation." This power may however be delegated
6 ________________
either expressly or impliedly to other corporate officials
or agents. Thus it has been stated, that as a general rule
an officer or agent of the corporation has no power to
compromise or settle a claim by or against the
corporation, except to the extent that such power is
given to him either expressly or by reasonable
implication from the circumstances. It is therefore
7
necessary to ascertain whether from the relevant facts
it could be reasonably concluded that the Board of
Directors of the HI Cement Corporation had authorized
its lawyers to enter into the said compromise
agreement.
Petitioners claim that private respondent's attorneys
admitted twice in open court on January 30, 1969, that
they were authorized to compromise their client's case,
which fact, according to them, was never denied by the
said lawyers in any of the pleadings filed by them in the
case. The claim is unsupported by evidence. On the
contrary, in private respondent's "Reply to Defendant
262
Bernabe's Answer Dated November 8,1969," said
counsels categorically denied that they ever
represented to the court that they were authorized to
enter into a compromise. Indeed, the complete
transcripts of stenographic notes taken at the
proceedings on January 30, 1969 are before Us, and
nowhere does it appear therein that respondent
corporation's lawyers ever made such a representation.
In any event, assuming arguendo that they did, such a
self-serving assertion cannot properly be the basis for
the conclusion that the respondent corporation had in
fact authorized its lawyers to compromise the litigation.
6 2 Fletcher, Cyclopedia Corporations, 572, 1969 Revised Volume.
7 Golden West Credit & Adjustment Co. v. Wilson, 7 P. 2d. 345 119
Cal. App. 627.
Celeste Sugar Co. v. Dunbar-Dukate Co., 107 So. 493, 160 La 694
Massachusetts Hospital Life Ins. Co. v. Nesson, 190 N.E. 31, 286
Mass 216.
Garland Corp. v. Waterloo Loan & Trust Co., 170 N. W. 373 185
lowa 190.
Wheatland Tube Co. v. McDowell & Co., 176 A. 217 317 Pa 295.
Victoria Park Co. v. Continental Ins. Co. of New York, 178 P.
227
VOL. 52, JULY 31, 1973 227
Vicente vs. Geraldez
3. Petitioners however insist that there was tacit
ratification on the part of the corporation, because it
nominated Mr. Larry Marquez as its commissioner
pursuant to the agreement. paid his services therefor,
and Atty. Florentino V. Cardenas, respondent
corporation's administrative manager, not only did not
object but even affixed his signature to the agreement.
It is also argued that respondent corporation having
represented, through its lawyers, to the court and to
petitioners that said lawyers had authority to bind the
corporation and having induced by such
representations the petitioners to sign the compromise
agreement, said respondent is now estopped from
questioning the same.
The infirmity of these arguments is in their
assumption that Atty. Cerdenas as administrative
manager had authority to bind the corporation or to
compromise the case. Whatever authority the officers or
agents of a corporation may have is derived from the
board of directors, or other governing body, unless
conferred by the charter of the corporation. A corporate
of f icer's power as an agent of the corporation must
therefore be sought from the statute, the charter, the
by-laws, or in a delegation of authority to such officer,
from the acts of the board of directors, formally
expressed or implied from a habit or custom of doing
business. In the case at bar no provision of the charter
8
and by-laws of the corporation or any resolution or any
other act of the board of directors of HI Cement
Corporation has been cited, from which We could
reasonably infer that the administrative manager had
been granted
________________
724, 39 Cal. App. 347.
8 Board of Liquidators v. Kalaw, L-18805, Aug. 14, 1967, 20 SCRA
987.
2 Fletcher, Cyclopedia Corporations, footnote 70, 301, 1969
Revised Volume:
"A corporation is bound by the act of an officer or agent only to the
extent that the power to do the act has been conferred upon him
263
expressly by the charter, bylaws or action of the stockholders or
directors, or can be implied from powers expressly conferred, or which
are incidental thereto, or where the act is within the apparent powers
which the corporation has caused third persons to believe it has
conferred upon the officer or agent. Erie R. Co. v. S.J. Groves & Sons
Co., 114 NJL 216, 176 A. 377."
228
228 SUPREME COURT REPORTS
ANNOTATED
Vicente vs. Geraldez
expressly or impliedly the power to bind the corporation
or the authority to compromise the case. Absent such
authority to enter into the compromise, the signature of
Atty. Cardenas on the agreement would be legally
ineffectual.
4. As regards the nomination of Mr. Marquez as
commissioner, counsel for respondent corporation has
explained—and this has not been disproven—that Atty.
Cardenas, apparently on his own, submitted the same
to the court. There is no iota of proof that at the time of
the submission to the Court, on February 26, 1969, of
the name of Mr. Marquez, respondent corporation knew
of the contents of the compromise agreement. As matter
of fact, according to the manifestation of Atty. Ventura
to the court, it was only on September 1, 1969 that he
sent to Mr. Antonio Diokno, VicePresident of the
corporation, a copy of the compromise agreement for the
approval by the board of directors and on October
22,1969, Mr. Diokno informed him that the approval of
the Board cannot be obtained, as under the agreement
the corporation is deprived of its right to appeal from
the judgment.
 In the absence of any proof that the governing body
of respondent corporation had knowledge, either actual
or constructive, or the contents of the compromise
agreement before September 1, 1969, why should the
nomination of Mr. Marquez as commissioner, by Attys.
Ventura, Cardenas and Magpantay, on February 26,
1969, be considered as a form of tacit ratification of the
compromise agreement by the corporation? In order to
ratify the unauthorized act of an agent and make it
binding on the corporation, it must be shown that the
governing body or officer authorized to ratify had full
and complete knowledge of all the material facts
connected with the transaction to which it relates. It 9 and not those of the purported agent who is himself
cannot be assumed also that
________________
9 "In order to ratify the unauthorized act of an agent and make it
effectual and obligatory upon the principal, the general rule is that the
ratification must be made by the principal with a full and complete
knowledge of all the material facts connected with the transaction to
which it relates; and this rule applies, of course, to ratification by a
corporation of an unauthorized contract or other act by its officers or
agents, whether the ratification is by the stockholders or by the
directors, or by a subordinate officer having authority to ratify." (2
Fletcher, Cyclopedia Corporations, 1049
229
VOL. 52, JULY 31, 1973 229
Vicente vs. Geraldez
Atty. Cardenas, as administrative manager of the
corporation, had authority to ratify. For ratification can
never be made "on the part of the corporation by the
same persons who wrongfully assume the power to
make the contract, but the ratification must be by the
officer or governing body having authority to make such
264
contract and, as we have seen, must be with full
knowledge." 10
5. Equally inapposite is petitioners' invocation of the
principle of estoppel. In the case at bar, except those
made by Attys. Ventura, Cardenas and Magpantay,
petitioners have not demonstrated any act or
declaration of the corporation amounting to false
representation or concealment of material facts
calculated to mislead said petitioners. The acts or
conduct for which the corporation may be liable under
the doctrine of estoppel must be those of the
corporation, its governing body or authorized officers,
responsible for the misrepresentation. 11
It having been found by the trial court that "the
counsel for
________________
1052, 1969 Revised Volume).
10 "Ratification can never be made on the part of the corporation by
the same persons who wrongfully assume the power to make the
contract, but the ratification must be by the officer or governing body
having authority to make such contract and, as we have seen, must be
with full knowledge. Accordingly, a corporate officer or agent cannot
ratify an unauthorized act or contract done or entered into by himself
so as to bind the corporation. In other words, one who makes an
unauthorized contract has no more right to ratify their own
unauthorized acts; even though they constitute a majority of the
directors or of the stockholders, and a board of directors, the majority
of which were the members of a preceding board which authorized or
entered into an illegal contract, cannot ratify it, since this would be in
effect a ratification of one's own act." (2 Fletcher, Cyclopedia
Corporations, 1067-1069, 1969 Revised Volume.)
11 Dr. Beck & Co. v. General Elec. Co., 210 F Supp. 86.
Grummit v. Sturgeon Bay Winter Shorts Club, 197 F Supp. 455.
 Mannion v. Campbell Soup Co., 243 Cal App 2d 317, 52 Cal Rpts 2 Article 1919
& 6.
Spencer Concrete Products Co. v. City of Spencer, 116 NW 2d 455.

230
VOL. 42, SEPTEMBER 12, 1921 133
230 SUPREME COURT REPORTS
Danon vs. Antonio A. Brimo & Co.
ANNOTATED
bility, come within the purview of said Act (No. 2874);
Vicente vs. Geraldez that any provision or provisions in said Act (No. 2874)
the plaintiff entered into the compromise agreement which attempt to restrain the disposition or control of
without the written authority of his client and the latter private lands were null and void and of no effect, and
did not ratify, on the contrary it repudiated and that said Act has no retroactive effect. Therefore, the
disowned the same * * *", We therefore declare that the
12
provisions of said Act cannot be invoked for the purpose
orders of the court a quosubject of these two petitions, of preventing the registration of the parcels of land in
have not been issued in excess of its jurisdictional question in favor of the petitioner herein, upon the
authority or in grave abuse of its discretion. ground that he is not a citizen of the United States or of
WHEREFORE, the petitions in these two cases are the Philippine Islands.
hereby dismissed. Costs against the petitioners. The applicant having, by a large preponderance of
Makalintal, evidence, which was not disputed in any manner,
Actg. C.J., Castro, Teehankee, Barredo, Makasiar and proved that he and his predecessors had been in the
Esguerra, JJ., concur. open, continuous, exclusive, and notorious possession of
Zaldivar, J., is on leave. the lands in question, which were agricultural lands, for
Fernando, J., did not take part. a period of more than ten years prior to the taking effect
Petitions dismissed. of Act No. 926, he is clearly entitled to have all of said
parcels of land registered under the Torrens system.
Therefore, the decree of the lower court is hereby
affirmed, with costs. So ordered.
Araullo, Street, Avanceña, and Villamor, JJ.,
concur.
Judgment affirmed.
——————————
[No. 15823. September 12, 1921]

265
JULIO DANON, plaintiff and appellee, vs. ANTONIO A. is, that the duty assumed by the broker is to bring
BRIMO & CO., defendant and appellant. the minds of the buyer and seller to an agreement for
a sale, and the price and terms on which it is to be
1.AGENCY; BROKERAGE; COMMISSION AGENT NOT
made, and until that is done his right to commissions
ENTITLED TO COMMISSIONS FOR UNSUCCESSFUL
does not accrue. A broker is never entitled to
EFFORTS.—B agreed to pay D a commission of 5 per
commissions for unsuccessful efforts. The risk of a
cent if D could sell B's factory for P1,200,000. No
failure is wholly his. The reward comes only with his
definite period of time was fixed within which D
success.
should effect the sale. D found a person who intended
4.ID.; ID.; ID.—The undertaking to procure a purchaser
to purchase such a factory as B was selling; but
requires of the party so undertaking, not simply to
before such would-be purchaser definitely decided to
name or introduce a person who may be willing to
buy the factory in question at the fixed price of
make any sort of contract in reference to the
P1,200,000, B (the owner of the factory) had effected
property, but to produce a party capable, and who
the sale for P1,300,000 through another broker.
ultimately becomes the purchaser.
Thereafter D brought an action against B to recover
5.ID.; ID.; RIGHT OF PRINCIPAL TO TERMINATE AGENT'S
P60,000 (5% of P,200,000) "for services rendered,"
AUTHORITY.—Where no time for the continuance of
claiming that he could have effected the sale of said
the contract is fixed by its terms, either party is at
factory if B had not sold it to someone else. Held:
134
liberty to terminate it at will, subject only to the
ordinary requirements of good faith. Usually the
134 PHILIPPINE REPORTS broker is entitled to a fair and reasonable
ANNOTATED opportunity to perform his obligation, subject of
Danon vs. Antonio A. Brimo & Co. course to the rightt of the seller to sell independently.
D is not entitled to recover anything; complaint But having been granted him, the right of the
dismissed, and defendant absolved from all liability principal to terminate his authority is absolute and
thereunder. unrestricted, except only that he may not do it in bad
2.ID.; ID.; ID.—The broker must be the efficient agent or faith, and as a mere device to escape the payment of
the procuring cause of the sale. The means employed the broker's commissions.
by him and his efforts must result in the sale. He
APPEAL from a judgment of the Court of First Instance
must find the purchaser, and the sale must proceed
of Manila. Del Rosario, J.
from his efforts acting as broker.
The facts are stated in the opinion of the court.
3.ID.; ID.; ID.—In all cases, under all and varying forms
Claro M. Recto for appellant.
of expression, the fundamental and correct doctrine

266
 Canillas & Cardenas for appellee. P60,000, with costs. From that judgment the defendant
appealed to this court.
JOHNSON, J.:
The proof with regard to the authority of the plaintiff
This action was brought to recover the sum of
to sell the factory in question for the defendant, on com-
P60,000, alleged to be the value of services rendered to
mission, is extremely unsatisfactory. It consists solely
the defendant by the plaintiff as a broker. The plaintiff
of the testimony of the plaintiff, on the one hand, and of
alleges that in the month of August, 1918, the
the manager of the defendant company, Antonio A.
defendant company, through its manager, Antonio A.
Brimo, on the other. From a reading of their testimony
Brimo, employed
135
we believe that neither of them has been entirely free
VOL. 42, SEPTEMBER 12, 1921 135 from prevarications. However, after giving due weight
to the finding of the trial court in this regard and after
Danon vs. Antonio A. Brimo & Co.
carefully considering the inherent probability or
him to look for a purchaser of its factory known as "Hol-
improbability of the testimony of each of said witnesses,
land American Oil Co.," for the sum of P1,200,000, pay-
we believe we are approximating the truth in finding:
able in cash; that the defendant promised to pay to the
(1) That Antonio A. Brimo, in a conversation with the
plaintiff, as compensation for his services, a commission
plaintiff, Julio Danon, about the middle of August,.
of five per cent on the said sum of P1,200,000, if the sale
1918, informed the latter that he (Brimo) desired to sell
was consummated, or if the plaintiff should find a pur-
his factory, the Holland American Oil Co., for the sum
chaser ready, able and willing to buy said factory for the
of P1,200,000; (2) that he agreed and promised to pay to
said sum of P1,200,000; that subsequently the plaintiff
the plaintiff a commission of 5 per cent provided the
found such a purchaser, but that the defendant refused
latter could sell said factory for
to sell the said factory without any justifiable motive or 136
reason therefor and without having previously notified 136 PHILIPPINE REPORTS
the plaintiff of its desistance or variation in the price ANNOTATED
and terms of the sale. Danon vs. Antonio A. Brimo & Co.
To that complaint the defendant interposed a
that amount; and (3) that no definite period of time was
general denial. Upon the issue thus presented, the
fixed within which the plaintiff should effect the sale. It
Honorable Simplicio del Rosario, judge, after hearing
seems that another broker, Sellner, was also
and considering the evidence adduced during the trial
negotiating the sale, or trying to find a purchaser for the
of the cause, rendered a judgment in favor of the
same property and that the plaintiff was informed of
plaintiff and against the defendant for the sum of
that fact either by Brimo himself or by someone else; at
least, it is probable that the plaintiff was aware that he

267
was not alone in the field, and his whole effort was to
forestall his competitor by being the first to find a
purchaser and effect the sale. Such, we believe, was the
contract between the plaintiff and the defendant, upon
which the present action is based.
The next question to determine is whether the
plaintiff had performed all that was required of him
under that contract to entitle him to recover the
commission agreed upon. The proof in this regard is no
less unsatisfactory. It seems that immediately after
having an interview with Mr. Brimo, as above stated,
the plaintiff went to see Mr. Mauro Prieto, president of
the Santa Ana Oil Mill, a corporation, and offered to sell
to him the defendant's property at P1,200,000. The said
corporation was at that time in need of such a factory
as the plaintiff was offering for sale, and Mr. Prieto, its
president, instructed the manager, Samuel E. Kane, to
see Mr. Brimo and ascertain whether he really wanted
to sell said factory, and, if so, to get permission from him
to inspect the premises. Mr. Kane inspected the factory
and, presumably, made a favorable report to Mr. Prieto.
The latter asked for an appointment with Mr. Brimo to
perfect the negotiation. In the meantime Sellner, the
other broker referred to, had found a purchaser for the
same property, who ultimately bought it for Pl,300,000.
For that reason Mr. Prieto, the would be purchaser
found by the plaintiff, never came to see Mr. Brimo to
perfect the proposed negotiation.
Under the proofs in this case, the most that can be
said as to what the plaintiff had accomplished is, that
he had found a person who might have bought the
defendant's factory if the defendant had not sold it to
268
someone else. The evidence does not show that the
Santa Ana Oil Mill
137
VOL. 42, SEPTEMBER 12, 1921 137
Damon vs. Antonio A. Brimo & Co.
had definitely decided to buy the property in question at
the fixed price of Pl,200,000. The board of directors of
said corporation had not resolved to purchase said prop-
erty; and even if its president could legally make the
purchase without previous formal authorization of the
board of directors, yet said president does not pretend
that he had definitely and formally agreed to buy the
factory in question on behalf'of his corporation at the
price stated. On direct examination he testified for the
plaintiff as follows:
"Q. You say that we were going to accept or that it was
beneficial for us; will you say to whom you refer, when you
say 'we?'—A. Our company, the Santa Ana Oil Mill.
"Q. And is that company able to pay the sum of
Pl,200,000?—A. Yes, sir.
"Q. And you accepted it at that price of P1,200,000?— A.
Surely, because as I already said before, we were in the
difficult position of not being able to operate our factory,
because of the obstacle placed by the Government.
"Q. And did you inform Mr. Danon of this acceptance?—
A. I did not explain to Mr. Danon."
On cross-examination the same witness testified:
"Q. What actions did the board of directors of the Santa
Ana Oil Mill take in order to acquire or to make an offer to
Mr. Brimo of the Holland American Oil Company?—A. But
nothing was effected, because Mr. Danon stated that the
property had been sold when I was going to deal with him.
 "Q. But do you not say that you made an offer of
P1,200,000?—A. No; it was Mr. Danon who made the offer
and we were sure to put the deal through because we have
bound ourselves."
The plaintiff claims that the reasons why the sale to
the Santa Ana Oil Mill was not consummated was
because "Mr. Brimo refused to sell to a Filipino firm and
preferred an American buyer; that upon learning such
attitude of the defendant the plaintiff endeavored to
procure another pur-
138
138 PHILIPPINE REPORTS
ANNOTATED
Danon vs. Antonio A. Brimo & Co.
chaser and found a Mr. Leas, who delivered to the plain-
tiff a letter addressed to Mr. Brimo, offering to buy the
factory in question at P1,200,000, the offer being good
for twenty-four hours; that said offer was not accepted
by Brimo because while he was reading the letter of
Leas, Sellner came in, drew Brimo into another room,
and then and there closed the deal at P1,300,000. The
last statement is admitted by the defendant.
Such are the facts in this case, as nearly accurate as
we can gather them from the conflicting evidence before
us. Under those facts, is the plaintiff entitled to recover
the sum of P60,000, claimed by him as compensation for
his services? It will be noted that, according to the
plaintiff's own testimony, the defendant agreed and
promised to pay him a commission of 5 per
cent provided he (the plaintiff) could sell the factory at
P,200,000 ("con tal que V. me venda la fabrica en
P1,200,000"). It will also be noted that all that the
269
plaintiff had accomplished by way of performance of his
contract was, that he had found a person who might
have bought the factory in question had not the
defendant sold it to someone else. (Beaumont vs. Prieto,
41 Phil., 670; 249 U. S., 554.)
Under these circumstances it is difficult to see how
the plaintiff can recover anything in the premises. The
plaintiff's action is not one for damages for breach of
contract; it is an action to recover "the reasonable value"
of services rendered. This is unmistakable both from the
plaintiff's complaint and his testimony as a witness
during the trial.
"Q. And what is the reasonable value of the services you
rendered to Mr. Brimo?—A. Five per cent of the price at
which it was sold.
"Q. Upon what do you base your qualification that those
services were reasonable?—A. First, because that is the
common rate in the city, and, secondly, because of the big
gain that he obtained from the sale."
What benefit did the plaintiff, by his "services,"
bestow upon the defendant to entitle him to recover
from the
139
VOL. 42, SEPTEMBER 12, 1921 139
Damon vs. Antonio A. Brimo & Co.
latter the sum of P60,000? It is perfectly clear and un-
disputed that his "services" did not in any way
contribute towards bringing about the sale of the
factory in question. He was not "the efficient agent or
the procuring cause of the sale."
"The broker must be the efficient agent or the procuring
cause of the sale. The means employed by him and his efforts
must result in the sale. He must find the purchaser, and the
sale must proceed from his efforts acting as broker."
(Wylie vs. Marine National Bank, 61 N. Y., 415, 416, citing:
McClure vs. Paine, 49 N. Y., 561; Lloyd vs. Mathews, 51 id.,
124; Lyon vs. Mitchell, 36 id., 235; Briggs vs. Rowe, 4 Keyes,
424; Murray vs. Currie, 7 Carr. & Payne, 584;
Wilkinson vs. Martin, 8 id., 5.)
A leading case on the subject is that of
Sibbald vs. Bethlehem Iron Co. (83 N. Y., 378; 38 Am.
Rep, 441). In that case, after an exhaustive review of
various cases, the Court of Appeals of New York stated
the rule as follows:
"In all the cases, under all and varying forms of expres-
sion, the fundamental and correct doctrine is, that the duty
assumed by the broker is to bring the minds of the buyer and
seller to an agreement for a sale, and the price and terms on
which it is to be made, and until that is done his right to
commissions does not accrue. (McGavock vs. Woodlief, 20
How, 221; Barnes vs. Roberts, 5 Bosw, 73; Holly vs. Gosling,
3 E. D. Smith, 262; Jacobs vs. Kolff, 2 Hilt, 133;
Kock vs. Emmerling, 22 How, 72; Corning vs. Calvert, 2 Hilt,
56; Trundy vs. N. Y. & Hartf. Steamboat Co, 6 Robt, 312; Van
Lien vs. Burns, 1 Hilt, 134.)"
* * * * * * * purchaser upon the terms prescribed in his employment, and
"It follows, as a necessary deduction from the established
rule, that a broker is never entitled to commissions for
unsuccessful efforts. The risk of a failure is wholly his. The
reward comes only with his success. That is the plain
contract and contemplation of the parties. The broker may
devote his time and labor, and expend his
140
140 PHILIPPINE REPORTS
ANNOTATED
270
Damon vs. Antonio A. Brimo & Co.
money with ever so much of devotion to the interest of his
employer, and yet if he fails, if without effecting an
agreement or accomplishing a bargain, he abandons the
effort, or his authority is fairly and in good faith terminated,
he gains no right to commissions. He loses the labor and
effort which was staked upon success. And in such event it
matters not that after his failure, and the termination of his
agency, what he has done proves of use and benefit to the
principal. In a multitude of cases that must necessarily
result. He may have introduced to each other parties who
otherwise would have never met; he may have created
impressions, which under later and more favorable
circumstances naturally lead to and materially assist in the
consummation of a sale; he may have planted the very seed
from which others reap the harvest; but all that gives him no
claim. It was part of his risk that failing himself, not
successful in fulfilling his obligation, others might be left to
some extent to avail themselves of the fruit of his labors. As
was said in Wylie vs. Marine National Bank (61 N. Y., 416),
in such a case the principal violates no right of the broker by
selling to the first party who offers the price asked, and it
matters not that sale is to the very party with whom the
broker had been negotiating. He failed to find or produce a
the principal was under no obligation to wait longer that he
might make further efforts. The failure therefore and its con-
sequences were the risk of the broker only. This however
must be taken with one important and necessary limitation.
If the efforts of the broker are rendered a failure by the fault
of the employer; if capriciously he changes his mind after the
purchaser, ready anal willing, and consenting to the
prescribed terms, is produced; or if the latter declines to
complete the contract because of some defect of title in the
ownership of the seller, some unremoved incumbrance, some
defect which is the fault of the latter, then the broker does
not lose his commissions. And that upon the familiar
principle that no one can avail
141
VOL. 42, SEPTEMBER 12, 1921 141
Danon vs. Antonio A. Brimo & Co.
himself of the nonperformance of a condition precedent, who
has himself occasioned its nonperformance. But this
limitation is not even an exception to the general rule
affecting the broker's right for it goes on the ground that the
broker has done his duty, that he has brought buyer and
seller to an agreement, but that the contract is not
consummated and fails though the after-fault of the seller.
The cases are uniform in this respect. (Moses vs. Burling, 31
N. Y., 462; Glentworth vs. Luther, 21 Barb., 147; Van
Lien vs. Burns, 1 Hilt., 134.)
"One other principle applicable to such a contract as
existed in the present case needs to be kept in view. Where
no time for the continuance of the contract is fixed by its terms
either party is at liberty to terminate it at will, subject only to
the ordinary requirements of good faith. Usually the broker
is entitled to a fair and reasonable opportunity to perform his
obligation, subject of course to the right of the seller to sell
independently. But having been granted him, the right of the
principal to terminate his authority
is absolute and unrestricted, except only that he may not do
it in bad faith, and as a mere device to escape the payment
of the broker's commissions. Thus, if in the midst of
negotiations instituted by the broker, and which were plainly
and evidently approaching success, the seller should revoke
the authority of the broker, with the view of concluding the
bargain without his aid, and avoiding the payment of
commission about to be earned, it might be well said that the
due performance his obligation by the broker was purposely
271
prevented by the principal. But if the latter acts in good faith,
not seeking to escape the payment of commissions,
but moved fairly by a view of his own interest, he has the
absolute right before a bargain is made while negotiations
remain unsuccessful, before commissions are earned, to
revoke the broker's authority, and the latter cannot
thereafter claim compensation for a sale made by the
principal, even though it be to a customer with whom the
broker unsuccessfully negotiated, and even though, to some
extent, the seller might justly be said to have availed
142
142 PHILIPPINE REPORTS
ANNOTATED
Damon vs. Antonio A. Brimo & Co.
himself of the fruits of the broker's labor." (Ibid. pp. 444, 445
and 446.)
The rule laid down in the foregoing case was adopted
and followed in the cases of Zeimer vs. Antisell (75 Cal.
509), and Ayres vs. Thomas (116 Cal., 140).
"The undertaking to procure a purchaser requires of the
party so undertaking, not simply to name or introduce a
person who may be willing to make any sort of contract in
reference to the property, but to produce a party capable, and
who ultimately becomes the purchaser."
(Kimberly vs. Henderson and Lupton, 29 Md., 512, 515,
citing: Keener vs. Harrod & Brooke, 2 Md. 63;
McGavock vs. Woodlief, 20 How., 221. See also Richards,
Executor, vs. Jackson, 31 Md., 250.)
"The defendant sent a proposal to a broker in these words:
If you send or cause to be sent to me, by advertisement or
otherwise, any party with whom I may see fit and proper to
effect a sale or exchange of my real estate, above described I
will pay you the sum of $200. The broker found a person who
proposed to purchase the property, but the sale was not
effected. Held: That the broker was not entitled to
compensation." (Walker vs. Tirrel, 3 Am. Rep., 352.)
It is clear from the foregoing authorities that,
although the present plaintiff could probably have
effected the sale of the defendant's factory had not the
defendant sold it to someone else, he is not entitled to
the commissions agreed upon because he had no
intervention whatever in, and much sale in question. It
must be borne in mind that no definite period was fixed
by the defendant within which the plaintiff might effect
the sale of its factory. Nor was the plaintiff given by the
defendant the exclusive agency of such sale. Therefore,
the plaintiff cannot complain of the defendant's conduct
in selling the property through another agent before the
plaintiff's efforts were crowned with success. "One who
has employed a broker can himself sell the property to
a purchaser whom he has procured, without any aid
from the
272
G.R. No. 66715. September 18, 1990. *
PHILIPPINE NATIONAL BANK, petitioner, vs. THE
HONORABLE INTERMEDIATE APPELLATE
COURT (First Civil Cases Division) and ROMEO
ALCEDO, respondents.
Civil Law; Estoppel; A party may not go back on his own
acts and representations to the prejudice of the other party
who relied upon them.—We agree with the opinion of the
appellate court that under the doctrine of promissory
estoppel enunciated in the case of Republic Flour Mills, Inc.
vs. Central Bank, L-23542, August 11, 1979, the act and
assurance given by the PNB to Alcedo “that we shall exclude
the aforementioned lot [Lot No. 1402] as a collateral of
Leticia de la VinaSepe in our recommendation for her 1971-
72 sugar crop loan” (p. 37, Rollo) is binding on the bank.
Having given that assurance, the bank may not turn around
and do the exact opposite of what it said it would not do. One
may not take inconsistent positions (Republic vs. Court of
Appeals, 133 SCRA 505). A party may not go back on his own
acts and representations to the prejudice of the other party
who relied upon them (Lazo vs. Republic Surety & Insurance
Co., Inc., 31 SCRA 329.)
Same; Agency; Special Power of Attorney; The
revocation of a special power of attorney, although embodied
in a private writing, is valid and binding between the
parties.—While Article 1358 of the New Civil Code requires
that the revocation of Alcedo’s Special Power of
_______________
* FIRST DIVISION.
681
 VOL. 189, SEPTEMBER 681
18, 1990
Philippine National Bank vs.
Intermediate Appellate Court
Attorney to mortgage his property should appear in a
public instrument: x x x nevertheless, a revocation embodied
in a private writing is valid and binding between the parties
(Doliendo v. Depino, 12 Phil. 758; Hawaiian-Philippines Co.
vs. Hernaez, 45 Phil. 746) for—“The legalization by a public
writing and the recording of the same in the registry are not
essential requisites of a contract entered into, as between the
parties, but mere conditions of form or solemnities which the
law imposes in order that such contract may be valid as
against third persons, and to insure that a publicly executed
and recorded agreement shall be respected by the latter.”
(Alano, et al. vs. Babasa, 10 Phil. 511.)
PETITION for certiorari to review the decision and
resolution of the then Intermediate Appellate Court.
The facts are stated in the opinion of the Court.
Juan D. Diaz, Benjamin C. Del Rosario and Pedro
R. Lazo for petitioner.
Carlos S. Ayeng, Augustus C. Rallosand Orlando
S. Ayeng for private respondent.
GRIÑO-AQUINO, J.:
This is a petition for certiorari which seeks to set aside:
(a) the decision dated November 29, 1983 of the
Intermediate Appellate Court (now Court of Appeals)
in CA-G.R. CV No. 68021 which affirmed the decision of
the Court of First Instance of Negros Occidental (now
273
Regional Trial Court), Branch IV, Bacolod City, in Civil
Case No. 11393; and (b) respondent court’s resolution
dated February 29, 1984 denying petitioner Philip-pine
National Bank’s (PNB for short) motion for
reconsideration.
The facts of the case are the following:
On March 20, 1968, Leticia de la Vina-Sepe executed
a real estate mortgage in favor of PNB, San Carlos
Branch, over a lot registered in her name under TCT
No. T-31913 to secure the payment of a sugar crop loan
of P3,400. Later, Leticia Sepe, acting as attorney-in-fact
for her brother-in-law, private respondent Romeo
Alcedo, executed an amended real estate mortgage to
include his (Alcedo’s) Lot No. 1626 (being a portion of
Lot No. 1402, covered by TCT 52705 of the Isabela
Cadastre) as additional collateral for Sepe’s increased
loan of P16,500 (pp. 5-
682
682 SUPREME COURT REPORTS
ANNOTATED
Philippine National Bank vs. Intermediate
Appellate Court
6, PNB’s Brief, p. 74, Rollo). Leticia Sepe and private
respondent Alcedo verbally agreed to split fifty-fifty (50-
50) the proceeds of the loan (p. 94, Rollo) but failing to
receive his one-half share from her, Alcedo wrote a
letter on May 12, 1970 to the PNB, San Carlos Branch,
revoking the Special Power of Attorney which he had
given to Leticia Sepe to mortgage his Lot No. 1626 (p.
95, Rollo).
Replying on May 22, 1970, the PNB Branch
Manager, Jose T. Gellegani, advised Alcedo that his
land had already been included as collateral for Sepe’s
1970-71 sugar crop loan, which the latter had already
availed of, nevertheless, he assured Alcedo that the
bank would exclude his lot as collateral for Sepe’s
forthcoming (1971-72) sugar crop loan (p. 95, Rollo). The
letter reads:
“May 22, 1970
“Mr. Romeo Alcedo
Mamballo, M. Padilla
Negros Occidental
“Dear Mr. Alcedo:
“This is to acknowledge receipt of your letter dated
May 12, 1970, requesting us to revoke the ‘Special
Power of Attorney’ you have executed in favor of Mrs.
Leticia de la Vina-Sepe, on February 18, 1969, on Lot
No. 1402, Isabela Cadastre, covered by Transfer
Certificate of Title No. 52705, with an area of 20.9200
hectares.
“In this connection, we wish to advise you that the
aforementioned parcel of land had been included as
collateral to secure the 1970-71 sugar crop loan of Mrs.
Leticia de la Vina-Sepe, which she had already availed
of. In view of your late request, please be advised and
assured that we shall exclude the aforementioned lot as
a collateral of Leticia de la Vina-Sepe in our
recommendation for her 1971-72 sugar crop loan.
“For your information, we enclose a copy of our letter
to Mrs. Sepe, which is self-explanatory.
“Thank you.
“Very truly yours,
“(Sgd.) JOSE T. GELLEGANI
“Manager”
274
683
VOL. 189, SEPTEMBER 18, 683
1990
Philippine National Bank vs.
Intermediate Appellate Court
(pp. 6-7, Record on Appeal, p. 75, Rollo.)
On the same day, May 22, 1970, PNB advised Sepe in
writing to replace Lot No. 1402 with another collateral
of equal or higher value.
“May 22, 1970
“Mrs. Leticia de la Vina-Sepe
Canla-on City
“Dear Mrs. Sepe:
“We wish to advice you that Mr. Romeo Alcedo, in a
letter written to us, has plans to revoke the ‘Special
Power of Attorney’ he executed in 1969 in your favor,
affecting Lot No. 1402, Isabela Cadastre, covered by
Transfer Certificate of Title No. 52705 with an area of
20.9200 Hectares. Our record shows that this parcel of
land is mortgaged to us to secure the agricultural sugar
crop loans we have granted you.
“Mr. Alcedo made us understand that this said
property shall serve as security for your 1969/70 sugar
crop loan only. As it already secures your 1970-71 crop
loan, which you have already availed, the same may be
excluded as security for future crop loans. In the
meantime, it is requested that you replace Lot No. 1402,
above-mentioned, with the same or more appraised
value.
“Kindly call on us regarding this matter at your
earliest convenience. “Thank you.
 “Very truly yours,
“(Sgd.) JOSE T. GELLEGANI
“Manager”
(pp. 7-8, Record on Appeal, p. 75, Rollo.)
Despite the above advice from PNB, Sepe was still able
to obtain an additional loan from PNB increasing her
debt of P16,500 to P56,638.69 on the security of Alcedo’s
property as collateral. On January 15, 1974, Alcedo
received two (2) letters from PNB: (1) informing him of
Sepe’s failure to pay her loan in the total amount of
P56,638.69; and (2) giving him six (6) days to settle
Sepe’s outstanding obligation, as otherwise, foreclosure
proceedings would be commenced against his property
(p.
684
684 SUPREME COURT REPORTS
ANNOTATED
Philippine National Bank vs. Intermediate
Appellate Court
33, Rollo). Alcedo requested Sepe to pay her accounts to
forestall foreclosure proceedings against his property,
but to no avail (p. 15, Rollo).
On April 17, 1974, Alcedo sued Sepe and PNB in the
Court of First Instance of Negros Occidental for
collection and injunction with damages (p. 33, Rollo).
During the pendency of the case, PNB filed in the
Office of the Sheriff at Pasig, Metro Manila, a petition
for extrajudicial foreclosure of its real estate mortgage
on Alcedo’s land. On November 19, 1974, the property
was sold to PNB as the highest bidder in the sale. The
275
corresponding Sheriff’s Certificate of Sale was issued to
the Bank (p. 33, Rollo).
On October 18, 1975, Alcedo filed an amended
complaint against Leticia and her husband Elias Sepe,
and the Provincial Sheriff of Negros Occidental praying
additionally for annulment of the extrajudicial
foreclosure sale and reconveyance of the land to him
free from liens and encumbrances, with damages.
With leave of court, Alcedo filed a second amended
complaint withdrawing his action to collect his one-half
share (amounting to P28,319.34) out of the proceeds of
the sugar crop loans obtained by Sepe (p. 34, Rollo).
In its answer, PNB alleged that it had no knowledge
of the agreement between Mrs. Sepe and Alcedo to split
the crop loan proceeds between them. It required Sepe
to put up other collaterals when it granted her an
additional loan because Alcedo informed the Bank that
he was revoking the Special Power of Attorney he gave
Sepe; that the revocation was not formalized in
accordance with law; and that in any event, the
revocation of the Special Power of Attorney on May 12,
1970 by Alcedo did not impair the real estate mortgage
earlier executed on April 28, 1969 by Sepe in favor of
the Bank (p. 36, Rollo).
On March 14, 1980, the trial court rendered
judgment in favor of Alcedo—
1. “1.Declaring the public auction sale and the
certificate of sale executed by the Provincial Sheriff
of Negros Occidental relative to Lot No. 1626,
Isabela Cadastre (TCT No. T-52705), as null and
void;
 2. “2.Ordering the defendant Philippine National Bank
to reconvey to plaintiff the title to aforesaid Lot No.
1626 free from all liens and encumbrances relative
to the loans obtained by defendant Leticia
685
VOL. 189, SEPTEMBER 18, 1990 685
Philippine National Bank vs. Intermediate
Appellate Court
1. de la Vina-Sepe;
2. “3.Ordering defendant spouses Leticia de la Vina-
Sepe and Elias Sepe and the Philippine National
Bank, in solidum, to pay to the plaintiff moral
damages in the sum of P10,000.00, and another sum
of P5,000.00 as attorney’s fees and expenses of
litigation;
3. “4.On the cross-claim of defendant PNB against
Leticia de la Vina-Sepe, considering that no evidence
has been adduced regarding the updated actual
accountability of the latter with the former, it is
hereby directed that PNB proceed to collect against
the cross-defendant whatever outstanding
obligation the latter owes the former arising from
transactions in connection with the instant case.
“No pronouncement as to costs.” (pp. 10-11, Rollo.)
The bank appealed but to no avail for on November 29,
1983, the Intermediate Appellate Court
affirmed intoto the judgment of the trial court (p. 54,
Rollo.) The appellate court reasoned out that the Bank
was estopped from foreclosing the mortgage on Alcedo’s
lot to pay Sepe’s 1971-72 sugar crop loan, after having
276
assured Alcedo on May 22, 1970 “that we shall exclude
the aforementioned lot as a collateral of Leticia de la
Vina-Sepe in our recommendation for her 1971-72
sugar crop loan” (p. 37, Rollo). The Court of Appeals
held:
“x x x Plaintiff-appellee’s letter was unequivocal and clear to
the effect that defendant Leticia de la Vina Sepe was no
longer empowered to bind, encumber or mortgage his
property. Although We may not hold this revocation to
retroact to April 28, 1969 which was the date of the original
mortgage, We can neither interpret it in any other way than
that from the moment of notice to the PNB, it was the
absolute intention of the owner to withdraw all authority
from said defendant to further bind or encumber his
property. This was clearly understood by the defendant-
appellant PNB. There was no question on its part that
Leticia de la Vina Sepe was no longer authorized to offer
plaintiff-appellee’s property as collateral for her contract of
mortgage with the PNB. Defendant-appellant, therefore,
acknowledged this revocation of the agency and in no
uncertain terms assured the plaintiff-appellee that indeed,
the latter’s property will no longer be accepted by it as
collateral for the sugar crop loan of the aforementioned
defendant for the year 1971 to 1972. This meeting of the
minds between the plaintiff-appellee and defendant-
appellant took place not through verbal communications
only, but in writing, as shown by their letters dated May 12,
1970 and May 22, 1970, respectively. x x x.
686
686 SUPREMECOURT REPORTS
ANNOTATED
Philippine National Bank vs. Intermediate
Appellate Court
"xxx xxx xxx
“x x x To Our minds, the aforementioned act and
declaration of defendant-appellant PNB as embodied in said
letter binds said bank under the principle of estoppel by deed
and defined as follows:
“‘A doctrine in American jurisprudence whereby a party creating
an appearance of fact which is not true is held bound by that
appearance as against another person who has acted on the faith
of it. (Strong v. Gutierrez Repide, 6 Phil. 685).
which is provided for in Articles 1431 and 1433 of the New
Civil Code in conjunction with Section 3, paragraph (a), Rule
131 of the Rules of Court, all of which provide:
“‘Art.1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.’
“‘Art.1433. Estoppel may be in pais or by deed.’
“‘Sec.3. Conclusive presumptions.—The following are instances
of conclusive presumptions:
1. “‘(a)Whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such
declaration, act, or omission, be permitted to falsify it.’
and which was enunciated in the following decisions of
the Supreme Court:
“‘Whenever a party has, by his own declaration, act or omission
intentionally and deliberately led another to believe a particular
thing true and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act, or omission, be permitted to
falsify it.
“‘Estoppel arises when one, by his acts, representations, or
admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence induces another to
believe certain facts to exist and such other rightfully relies and
277
acts on such belief, so that he will be prejudiced if the former is
permitted to deny the existence of such facts (Huyatid v. Huyatid,
47265-R, Jan. 4, 1978).
“‘The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is to
forbid one to speak against his own act, representations, or
commitments to the injury of one to whom they were directed and
who reasonably relied thereon. Said doctrine springs from
687
VOL. 189, SEPTEMBER 18, 1990 687
Philippine National Bank vs. Intermediate
Appellate Court
equitable principles and the equities of the case. It is designed to
aid the law in the administration of justice where without its aid
injustice might result.’ (Philippine National Bank v. Court of
Appeals, L-30831, November 21, 1979, 94 SCRA 368)
“By its letter dated May 22, 1970, defendant-appellant
PNB led plaintiff-appellee to believe that his property
covered by TCT T-52705 would no longer be included as
collateral in the sugar crop loan of defendant Leticia de la
Vina Sepe for the year 1971-72. It led said plaintiff-appellee
to believe that his property as of said year will no longer be
encumbered and will be free from any lien or mortgage.
Plaintiff-appellee had the right to rely on said belief, because
of the aforementioned act and declaration of defendant-
appellant bank. Under the laws and jurisprudence
aforequoted, defendant-appellant bank can no longer be
allowed to deny or falsify its act or declaration, or to renege
from it. This is one of the conclusive presumptions provided
for by the Rules of Court.” (pp. 37, 38-39, Rollo.)
PNB seeks a review of that decision on the grounds
that:
 1. 1.the doctrine of promissory estoppel does not
apply to this case;
2. 2.PNB was a mortgagee in good faith and for
value; and
3. 3.PNB adduced substantial evidence in support
of its cross-claim against defendant Leticia Sepe
(p. 15, Rollo).
These issues boil down to whether or not PNB validly
foreclosed the real estate mortgage on Alcedo’s property
despite notice of Alcedo’s revocation of the Special
Power of Attorney authorizing Leticia Sepe to mortgage
his property as security for her sugar crop loans and
despite the Bank’s written assurance to Alcedo that it
would exclude his property as collateral for Sepe’s
future loan obligations.
After careful deliberation, the Court is not persuaded
to disturb the decisions of the trial court and the Court
of Appeals in this case.
We agree with the opinion of the appellate court that
under the doctrine of promissory estoppel enunciated in
the case of Republic Flour Mills, Inc. vs. Central
Bank, L-23542, August 11, 1979, the act and assurance
given by the PNB to Alcedo “that we shall exclude the
aforementioned lot [Lot No. 1402] as a collateral of
Leticia de la Vina-Sepe in our recommendation for her
1971-72 sugar crop loan” (p. 37, Rollo) is binding on the
bank. Having given that assurance, the bank may not
turn
688
688 SUPREME COURT REPORTS
ANNOTATED
278
Philippine National Bank vs. Intermediate
Appellate Court
around and do the exact opposite of what it said it would
not do. One may not take inconsistent positions
(Republic vs. Court of Appeals, 133 SCRA 505). A party
may not go back on his own acts and representations to
the prejudice of the other party who relied upon them
(Lazo vs. Republic Surety & Insurance Co., Inc., 31
SCRA 329.)
In the case of Philippine National Bank vs. Court of
Appeals (94 SCRA 357), where the bank manager
assured the heirs of the debtor-mortgagor that they
would be allowed to pay the remaining obligation of
their deceased parents, the Supreme Court held that
the bank must abide by its representations.
“On equitable principles, particularly on the ground of
estoppel, we must rule against petitioner Bank. The doctrine
of estoppel is based upon the grounds of public policy, fair
dealing, good faith and justice, and its purpose is to forbid
one to speak against its own act, representations, or
commitments to the injury of one to whom they were directed
and who reasonably relied thereon. The doctrine of estoppel
springs from equitable principles and the equities in the
case. It is designed to aid the law in the administration of
justice where without its aid injustice might result. It has
been applied by this Court wherever and whenever the
special circumstances of a case so demands.”
In the case at bar, since PNB had promised to exclude
Alcedo’s property as collateral for Sepe’s 1971-72 sugar
crop loan, it should have released the property to
Alcedo. The mortgage which Sepe gave to the bank on
Alcedo’s lot as collateral for her 1971-72 sugar crop loan
was null and void for having been already disauthorized
by Alcedo. Since Alcedo’s property secured
only P13,100.00 of Sepe’s 1970-71 sugar crop loan of
P16,500.00 (because P3,400 was secured by Sepe’s own
property), Alcedo’s property may be held to answer for
only the unpaid balance, if any, of Sepe’s 1970-71 loan,
but not the 1971-72 crop loan.
While Article 1358 of the New Civil Code requires
that the revocation of Alcedo’s Special Power of
Attorney to mortgage his property should appear in a
public instrument:
“Art.1358. The following must appear in a public document:
(1) Acts or contracts which have for their object the
creation,
689
VOL. 189, SEPTEMBER 18, 1990 689
Philippine National Bank vs. Intermediate
Appellate Court
transmission, modification or extinguishment of real rights
over immovable property; sales of real property or of an
interest therein are governed by Articles 1403, No. 2 and
1405.”
nevertheless, a revocation embodied in a private
writing is valid and binding between the parties
(Doliendo v. Depino, 12 Phil. 758; Hawaiian-
Philippines Co. vs. Hernaez, 45 Phil. 746) for—
“The legalization by a public writing and the recording of
thesame in the registry are not essential requisites of a
contract enteredinto, as between the parties, but mere
conditions of form or solemnities which the law imposes in
order that such contract may be valid asagainst third
persons, and to insure that a publicly executed andrecorded
279
agreement shall be respected by the latter.” (Alano, et al.
vs.Babasa, 10 Phil. 511.)
The PNB acted with bad faith in proceeding against
Alcedo’s property to satisfy Sepe’s unpaid 1971-72 sugar
crop loan. The extrajudicial foreclosure being null and
void abinitio, the certificate of sale which the Sheriff
delivered to PNB as the highest bidder at the sale is also
null and void.
WHEREFORE, finding no reversible error in the
decision of the Court of Appeals, the petition for review
is denied for lack of merit.
SO ORDERED.
Narvasa (Actg.
C.J.), Cruz, Gancaycoand Medialdea, JJ., concur.
Petition denied.
No. L-36585. July 16, 1984. *
MARIANO DIOLOSA and ALEGRIA VILLANUEVA-
DIOLOSA, petitioners, vs.THE HON. COURT OF
APPEALS, and QUIRINO BATERNA (As owner and
proprietor of QUIN BATERNA REALTY), respondents.
Agency; Contracts; Where the agency contract stipulated
that the agent is authorized to dispose the subdivided
property until the same is fully disposed of, the authority to
sell continuous until all lots are sold. The contract cannot be
terminated by landowner before then.—Under the contract,
Exhibit “A”, herein petitioners allowed the private
respondent “to dispose of, sell, cede, transfer and convey x x
x until all the subject property as subdivided is fully disposed
of.” The authority to sell is not extinguished until all the lots
have been disposed of. When, therefore, the petitioners
revoked the contract with private respondent in a letter,
Exhibit “B” x x x x x x they become liable to the private
respondent for damages for breach of contract.
Same; Same; Agency agreement can be terminated only
on the grounds specified by Art. 1381 N.C.C.—And, it may be
added that since the agency agreement, Exhibit “A”, is a
valid contract, the same may be rescinded only on grounds
specified in Articles 1381 and 1382 of the Civil Code, as
follows: x x x.
APPEAL by certiorari from a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Enrique I. Soriano for petitioners.
Domingo Laurea for private respondent.
RELOVA, J.:
Appeal by certiorari from a decision of the then Court of
Appeals ordering herein petitioners to pay private
respondent “the sum of P10,000.00 as damages and the
sum of P2,000.00 as attorney’s fees, and the costs.”
This case originated in the then Court of First
Instance of
_______________
* FIRST DIVISION.
351
VOL. 130, JULY 16, 1984 351
280
Diolosa vs. Court of Appeals
Iloilo where private respondents instituted a case of
recovery of unpaid commission against petitioners over
some of the lots subject of an agency agreement that
were not sold. Said complaint, docketed as Civil Case
No. 7864 and entitled: “Quirino Baterna vs. Mariano
Diolosa and Alegria Villanueva-Diolosa”, was dismissed
by the trial court after hearing. Thereafter, private
respondent elevated the case to respondent court whose
decision is the subject of the present petition.
The parties—petitioners and respondents—agree on
the findings of facts made by respondent court which
are based largely on the pre-trial order of the trial court,
as follows:
“PRE-TRIAL ORDER
When this case was called for a pre-trial conference today,
the plaintiff, assisted by Atty. Domingo Laurea, appeared
and the defendants, assisted by Atty. Enrique Soriano, also
appeared.
“A.—During the pre-trial conference the parties, in
addition to what have been admitted in the pleadings, have
agreed and admitted that the following facts are attendant
in this case and that they will no longer adduce evidence to
prove them:
1. “1.That the plaintiff was and still is a licensed real
estate broker, and as such licensed real estate
broker on June 20, 1968, an agreement was entered
into between him as party of the second part and the
defendants spouses as party of the first part,
whereby the former was constituted as exclusive
sales agent of the defendants, its successors, heirs
and assigns, to dispose of, sell, cede, transfer and
 convey the lots included in VILLA ALEGRE
SUBDIVISION owned by the defendants, under the
terms and conditions embodied in Exhibit “A”, and
pursuant to said agreement (Exhibit “A”), the
plaintiff acted for and in behalf of the defendants as
their agent in the sale of the lots included in the
VILLA ALEGRE SUBDIVISION;
2. “2.That on September 27, 1968, the defendants
terminated the services of plaintiff as their exclusive
sales agent per letter marked as Exhibit “B”, for the
reason stated in the latter.
“B.—During the trial of this case on the merit, the
plaintiff will adduce by competent evidence the following
facts:
352
352 SUPREME COURT REPORTS
ANNOTATED
Diolosa vs. Court of Appeals
1. “1.That as a real estate broker, he had sold the lots
comprised in several subdivisions, to wit: Greenfield
Subdivision, the Villa Beach Subdivision, the
Juntado Subdivision, the St. Joseph Village, the
Ledesma Subdivision, the Brookside Subdivision,
the Villa Alegre Subdivision, and Cecilia
Subdivision, all in the City of Iloilo except St. Joseph
which is in Pavia Iloilo.
2. “2.That the plaintiff, as a licensed real estate broker,
has been seriously damaged by the action of the
defendants in rescinding, by Exhibit “B” the contract
(Exhibit “A”) for which the plaintiff suffered moral
damages in the amount of P50,000.00, damages to
his good will in the amount of P100,000.00, for
281
attorney’s fees in the amount of P10,000.00 to
protect his rights and interests, plus exemplary
damages to be fixed by the Court.
3. “3.That the plaintiff is entitled to a commission on the
lots unsold because of the rescission of the contract.
“C—The defendants during the trial will prove by
competent evidence the following:
1. “1.That the plaintiff’s complaint was filed to make
money out of the suit from defendants, to harrass
and to molest defendants;
2. “2.That because of the unjustified and unlaunded
complaint of the plaintiff, the defendants suffered
moral damages in the amount of P50,000.00, and
that for the public good, the court may order the
plaintiff to pay the defendants exemplary damages
in the amount of P20,000.00, plus attorney’s fees of
P10,000.00.
“D.—Contentions of the parties:
1. “1.The plaintiff contends:
1. (a)That under the terms of the contract (Exhibit “A”)
the plaintiff had unrevocable authority to sell all the
lots included in the Villa Alegre Subdivision and to
act as exclusive sales agent of the defendants until
all the lots shall have been disposed of;
2. (b)That the rescission of the contract under Exhibit
“B”, contravenes the agreement of the parties.
353
VOL. 130, JULY 16, 1984 353
 Diolosa vs. Court of Appeals
“2. The defendants contend:
1. (a)That they were within their legal right to
terminate the agency on the ground that they
needed the undisposed lots for the use of the family;
2. (b)That the plaintiff has no right in law to claim for
commission on lots that they have not sold.
“E.—The parties hereby submit to the Court the following
issues:
1. “1.Whether under the terms of Exhibit “A” the
plaintiff has the irrevocable right to sell or dispose
of all the lots included within Villa Alegre
Subdivision;
2. “2.Can the defendants terminate their agreement
with the plaintiff by a letter like Exhibit “B”?
“F.—The plaintiff submitted the following exhibits which
were admitted by the defendants:
Exhibit “A”—agreement entered into between the parties on June
20, 1968 whereby the plaintiff had the authority to sell the
subdivision lots included in Villa Alegre subdivision;
Exhibit “B”—letter of the defendant Alegria V. Diolosa dated
September 27, 1968 addressed to the plaintiff terminating the
agency and rescinding Exhibit “A” for the reason that the lots
remained unsold lots were for reservation for their grandchildren.
“The Court will decide this case based on the facts
admitted in the pleadings, those agreed by the parties during
the pre-trial conference, and those which they can prove
during the trial of this case, in accordance with the
contention of the parties based on the issues submitted by
them during the pre-trial conference.
SO ORDERED.
282
Iloilo City, Philippines, August 14, 1969.
(SGD) VALERIO V. ROVIRA
Judge”
(pp. 22-25, Rollo)
The only issue in this case is whether the petitioners
could terminate the agency agreement, Exhibit “A”,
without paying
354
354 SUPREME COURT REPORTS
ANNOTATED
Diolosa vs. Court of Appeals
damages to the private respondent. Pertinent portion of
said Exhibit “A” reads:
“That the PARTY OF THE FIRST PART is the lawful and
absolute owner in fee simple of VILLA ALEGRE
SUBDIVISION situated in the District of Mandurriao, Iloilo
City, which parcel of land is more particularly described as
follows, to wit:
“A parcel of land, Lot No. 2110-b-2-C, PSD 74002, Transfer
Certificate of Title No. T____ situated in the District of
Mandurriao, Iloilo, Philippines, containing an area of 39016 square
meters, more or less, with improvements thereon.
“That the PARTY OF THE FIRST PART by virtue of
these presents, to enhance the sale of the lots of the above-
described subdivision, is engaging as their EXCLUSIVE
SALES AGENT the PARTY OF THE SECOND PART, its
successors, heirs and assigns to dispose of, sell, cede, transfer
and convey the above-described property in whatever
manner and nature the PARTY OF THE SECOND PART,
with the concurrence of the PARTY OF THE FIRST PART,
may deem wise and proper under the premises, whether it
be in cash or installment basis, until all the subject property
as subdivided is fully disposed of. (p. 7 of Petitioner’s brief.
Italics supplied).
Respondent court, in its decision which is the subject of
review said:
“Article 1920 of the Civil Code of the Philippines
notwithstanding, the defendants could not terminate the
agency agreement, Exh. “A”, at will without paying damages.
The said agency agreement expressly stipulates x x x until
all the subject property as subdivided is fully disposed of x x
x.” The testimony of Roberto Malundo (t.s.n. p. 99) that the
plaintiff agreed to the intention of Mrs. Diolosa to reserve
some lots for her own family use cannot prevail over the clear
terms of the agency agreement. Moreover, the plaintiff
denied that there was an agreement to reserve any of the lots
for the family of the defendants. (T.s.n. pp. 16).
“There are twenty seven (27) lots of the subdivision
remaining unsold on September 27, 1968 when the
defendants rescinded the agency agreement, Exhibit “A”. On
that day the defendants had only six grandchildren. That the
defendants wanted to reserve the twenty seven remaining
lots for the six grandchildren is not a legal reason for
defendants rescind the agency agreement. Even if the
355
VOL. 130, JULY 16, 1984 355
Diolosa vs. Court of Appeals
grandchildren were to be given one lot each, there would still
be twenty one lots available for sale. Besides it is undisputed
that the defendants have other lands which could be
reserved for their grandchildren.” (pp. 26-27, Rollo)
The present appeal is manifestly without merit.
Under the contract, Exhibit “A”, herein petitioners
allowed the private respondent “to dispose of, sell, cede,
283
transfer and convey x x x until all the subject property
as subdivided is fully disposed of.” The authority to sell
is not extinguished until all the lots have been disposed
of. When, therefore, the petitioners revoked the contract
with private respondent in a letter, Exhibit “B”—
“Dear Mr. Baterna:
Please be informed that we have finally decided to
reserve the remaining unsold lots, as of this date of our
VILLA ALEGRE Subdivision for our grandchildren.
In view thereof, notice is hereby served upon you to
the effect that our agreement dated June 20, 1968
giving you the authority to sell as exclusive sales agent
of our subdivision is hereby rescinded.
Please be duly guided.
Very truly yours,
(SGD) ALEGRIA V. DIOLOSA
Subdivision Owner”
(p. 11 of Petitioner’s Brief)
they become liable to the private respondent for
damages for breach of contract.
And, it may be added that since the agency
agreement, Exhibit “A”, is a valid contract, the same
may be rescinded only on grounds specified in Articles
1381 and 1382 of the Civil Code, as follows:
“ART. 1381. The following contracts are rescissible:
“(1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one
356
356 SUPREME COURT REPORTS
ANNOTATED
 Diolosa vs. Court of Appeals
1. fourth of the value of the things which are the object
thereof;
2. “(2)Those agreed upon in representation of absentees,
If the latter suffer the lesion stated in the preceding
number;
3. “(3)Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims
due them;
4. “(4)Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of
competent judicial authority;
5. “(5)All other contracts specially declared by law to be
subject to rescission.
“ART. 1382. Payments made in a state of insolvency for
obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also
rescissible.”
In the case at bar, not one of the grounds mentioned
above is present which may be the subject of an action
of rescission, much less can petitioners say that the
private respondent violated the terms of their
agreement—such as failure to deliver to them
(Subdivision owners) the proceeds of the purchase price
of the lots.
ACCORDINGLY, the petition is hereby dismissed
without pronouncement as to costs.
SO ORDERED.
284
Teehankee (Chairman), Melencio-
Herrera, Plana, Gutierrez, Jr. and De la Fuente, JJ.,
concur.
Petition dismissed.
G.R. No. 157186 October 19, 2007
ACTIVE REALTY and DEVELOPMENT
CORPORATION, Petitioner,
vs.
BIENVENIDO FERNANDEZ, Respondent.*
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Certiorari under Rule 65 of the
Revised Rules of Court assailing the May 30, 2002 Decision1 of
the Court of Appeals (CA) in CA-G.R. SP No. 64697, which
affirmed the February 3, 2000 Decision2 of the Regional Trial
Court (RTC) of Negros Occidental, Branch 54, in Civil Case No.
98-10499. The RTC reversed the Decision3 of the Municipal Trial
Court in Cities (MTCC) of Bacolod City, ordering Bienvenido
Fernandez (respondent) to vacate the land allegedly owned by
Active Realty & Development Corporation (petitioner). Likewise
questioned is the December 5, 2002 Resolution4 of the CA which
denied petitioner’s motion for reconsideration.
As culled from the records, the following are the antecedent facts:
On November 27, 1997, petitioner filed a Complaint5 for unlawful
detainer against respondent with the MTCC docketed as Civil
Case No. 24073. Petitioner alleged that it had become the owner
of the parcel of land covered by Transfer Certificate of Title (TCT)
No. T-855416 by virtue of the Deed of Sale7 executed between
petitioner and Philippine National Bank (PNB), the previous
owner of the land; that respondent had been occupying the
subject land by reason of PNB’s tolerance; that on March 6, 1997,
petitioner sent a letter of demand to respondent asking the latter
to vacate the subject property not later than March 31, 1997; and
that despite the demand, respondent failed and refused to vacate
the subject land, as a consequence of which, petitioner had been
unlawfully deprived of the possession of the lot and the rental
value of ₱500.00 per month8 .
On September 3, 1998, respondent filed a Motion to
Dismiss,9 contending that the MTCC lacked jurisdiction over the
case as it involved the implementation of agrarian reform and
should fall within the exclusive and original jurisdiction of the
Department of Agrarian Reform (DAR).10 Attached to the Motion
were two Investigation Reports of Municipal Agrarian Reform
Officer Peregrin P. Villa (MARO Villa) addressed to the Provincial
Agrarian Reform Office, Negros Occidental, dated March 4,
199711 and March 26, 1997.12
On February 27, 1998, the MTC issued an Order13 denying the
Motion to Dismiss14 and considering the motion for
reconsideration filed by respondent as his answer. The parties
were then directed to submit their position papers supporting their
respective claims15 .
In the Supplemental Position Paper16 filed by the respondent on
May 25, 1998, he insisted that there was a pending case between
the same parties involving the same property and the same
issues before the Department of Agrarian Reform Adjudication
Board (DARAB) which was filed on September 19, 1996,
docketed as DARAB Case No. R-0605-142-96.17 In fact,
according to the private respondent, an Injunction Order18 dated
January 3, 1996 was issued against the petitioner ordering the
latter to cease, desist and refrain from harassing, molesting,
disturbing, threatening, ousting, and removing or ejecting from
285
their respective landholdings the petitioners in DARAB Case No.
R-0605-142-96. The DARAB case was resolved by the Provincial
Agrarian Report Adjudication Board (PARAB) in its April 14, 1997
Order19 which directed the DAR-PARO to make a factual finding
on the "carpability" or "non-carPability" of the subject land.
Aggrieved by the said order, petitioner elevated the matter to the
DARAB, where it was docketed as DARAB Case No. 6567.
Meanwhile, on July 27, 1998, the MTC rendered a Decision,20 the
dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered ordering the
defendants (including herein private respondent), their heirs and
successors-in-interest:
1. To vacate the premises covered by Transfer Certificate
of Title No. T-85541 situated in Eroreco Subdivision,
Bacolod City;
2. To pay plaintiff (herein petitioner) actual damages in
the amount of ₱500.00 monthly computed from
November 27, 1997 until the lot is actually vacated;
3. To pay plaintiff the sum of ₱3,000.00 as attorney’s fees
and the amount of cost.
SO ORDERED.21
Respondent appealed the MTC Decision to the RTC, where it
was docketed as Civil Case No. 98-10499.
On October 28, 1998, the DARAB rendered a Decision22 in
DARAB Case No. 6567 which held that the subject matter is not
within its jurisdiction. It was further held that in order to give
DARAB jurisdiction over the case, it was necessary that the
complaint itself should contain statements of facts that would
bring the party clearly within the class of cases under the
DARAB’s jurisdiction.
On February 3, 2000 the RTC rendered a Decision23 reversing
and setting aside the MTC judgment. The RTC held: the MTC
should have yielded to the DARAB as the quasi-judicial body
clothed with primary jurisdiction over agrarian issues; trial court
judges had been explicitly reminded by the Court through
Administrative Circular 8-9224 that in cases where agrarian issues
are raised, primary jurisdiction is with the DARAB to avoid conflict
of jurisdiction with the DAR and for the proper application of the
Comprehensive Agrarian Reform Law (R.A. No. 6657); the MTC
should have heard the Motion to Dismiss filed by the private
respondent for the precise purpose of determining whether or not
it possessed jurisdiction over the case; it was clear that the
private respondent was seeking the protection of the agrarian
laws when he alleged that there was a pending case before the
DARAB and that a copy of the complaint in the DARAB was
submitted to the trial court; it is provided under Section 7 of R.A.
No. 6657 and under Executive Order No. 360, Series of 1989,
that the DAR has the right of first refusal of the sale or disposition
of the acquired assets of the PNB, the latter being a government
financial institution. Petitioner moved for the reconsideration of
said decision25 .
The RTC, on February 7, 2001, issued an order denying the
motion for reconsideration filed by the petitioner in Civil Case No.
98-10499 per the Order26 dated February 7, 2001. Petitioner then
filed with the CA a petition for review under Rule 42 of the Rules
of Court on May 9, 2001, docketed as CA-G.R. SP No. 6469727 .
Pending resolution of the petition and upon information given by
counsel for respondent in his "Comment" dated June 15, 2001
that respondent died on May 1, 1999, the CA issued a
Resolution28 requiring Teresita F. Mendoza to cause her
appearance as party-respondent in behalf of the deceased
respondent.29 On November 28, 2001, the CA issued a
Resolution30 stating that pursuant to Sec. 10, Rule 1331 of the
286
Rules of Court, the service to Teresita F. Mendoza of the July 9,
2001 Resolution, although actually unserved, shall be considered
completed on August 13, 2001.
On May 30, 2002, the CA rendered a Decision32 affirming the
RTC judgment. The CA took into consideration the Investigation
Report33 of MARO Officer Villa dated March 4, 1997,34 stating that
the land in dispute is part of the 48.35 hectares of agricultural
land, covered by 434 transfer certificates of title, with twenty-two
registered potential CARP beneficiaries; and recommending that
the subject landholding be placed under the coverage of PD
27/CARP.35
The CA also took note of the subsequent Investigation
Report36 dated March 26, 1997 of MARO Officer Villa,
recommending that the DAR should initiate proceedings in the
court of competent jurisdiction to have the said sale declared as
null and void in violation of R.A. No. 6657 and A.O. No. 1, Series
of 1989; and to initiate action so as to declare the conversion
made by the ACTIVE GROUP in violation of A.O. No. 12, Series
of 1994.37
Petitioner filed a motion for reconsideration38 but the CA denied
the motion in a Resolution dated December 5, 2002.39
Hence, the present Petition for Certiorari40 on the sole issue, to
wit:
WHETHER OR NOT THIS CASE PRESENTS AN AGRARIAN
DISPUTE. IF IT DOES, JURISDICTION OVER IT SHOULD BE
WITH THE DARAB, OTHERWISE, IT SHOULD BE WITH THE
REGULAR COURTS.
On June 26, 2003, Atty. Romulo A. Deles, the former counsel of
the respondent, filed a Manifestation41 before the Court insisting
that the filing of the instant Petition for Certiorari dated January
17, 2003 constitutes a direct contempt of court. According to Atty.
Deles, the filing of a petition for certiorari while administrative
proceedings are pending clearly constitutes direct contempt of
court as it is clearly an inevitable case of forum shopping.
The Court shall first discuss the procedural aspect of the present
case.
The petitioner brought the instant case before the Court via a
petition for certiorari under Rule 65 of the Rules of Court.
The proper remedy available to the petitioner should have been a
petition for review on certiorari under Rule 45 of the Rules of
Court, not a petition for certiorari under Rule 65 of the Rules of
Court.
A petition for certiorari under Rule 65 is proper to correct errors of
jurisdiction committed by the lower court, or grave abuse of
discretion which is tantamount to lack of jurisdiction.42 This
remedy can be availed of when "there is no appeal, or any plain,
speedy, and adequate remedy in the ordinary course of law.43 "
Appeal by certiorari under Rule 45 of the Rules of Court, on the
other hand, is a mode of appeal available to a party desiring to
raise only questions of law from a judgment or final order or
resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by
law.44
In the present case, the petitioner seeks to reverse the Decision
of the CA, which affirmed the Decision of the RTC, which in turn
reversed the Decision of the MTC ordering the respondent to
vacate the subject property. The general rule is that the remedy
to obtain reversal or modification of judgment on the merits is
appeal.45 Thus, the proper remedy for the petitioner should have
been a petition for review on certiorari under Rule 45 of the Rules
of Court since the decision sought to be reversed is that of the
CA.46 The existence and availability of the right of appeal
287
proscribes a resort to certiorari, because one of the requisites for
availment of the latter is precisely that "there should be no
appeal".47 The remedy of appeal under Rule 45 of the Rules of
Court was still available to the petitioner.
The Court has held that where an appeal is
available, certiorari will not prosper, even if the ground therefor is
grave abuse of discretion.48 Hence, despite allegation by the
petitioner that the CA committed grave abuse of discretion, this
does not negate the fact that the proper remedy should still be a
petition for review on certiorari under Rule 45 of the Rules of
Court.
While on some occasions, the Court has treated a petition
for certiorari under Rule 65 as having been filed under Rule 45 to
serve the higher interest of justice, such liberal application of the
rules finds no application if the petition is filed well beyond the
reglementary period for filing a petition for review without any
reason therefor.49
In the present case, petitioner filed a Motion for Reconsideration
of the CA Decision on June 28, 2002.50 The Motion for
Reconsideration was denied by the CA in its Resolution dated
December 5, 2002,51 a copy of which was received by the
petitioner on December 16, 2002.52 Herein petition was filed on
February 12, 2003.53
At the time of the filing of the complaint for ejectment, the rule is
that in cases where a party filed a motion for reconsideration
instead of filing a notice of appeal, the filing will interrupt the
running of the 15-day appeal period.54Thus, should a party file the
motion for reconsideration on the last day of the 15-day
reglementary period to appeal, the party is left with only one day
to file the notice of appeal upon receipt of the notice of denial of
the motion for reconsideration.
In 2005, pending resolution of herein petition, this rule was
amended by the Court in Neypes v. Court Appeals.55The Court
held:
To standardize the appeal periods provided in the Rules and to
afford litigants fair opportunity to appeal their cases, the Court
deems it practical to allow a fresh period of 15 days within which
to file the notice of appeal in the Regional Trial Court, counted
from receipt of the order dismissing a motion for a new trial or
motion for reconsideration.
Henceforth, this "fresh period rule" shall also apply to Rule 40
governing appeals from the Municipal Trial Courts to the Regional
Trial Courts; Rule 42 on petitions for review from the Regional
Trial Courts to the Court of Appeals; Rule 43 on appeals from
quasi-judicial agencies to the Court of Appeals and Rule 45
governing appeals by certiorari to the Supreme Court. The
new rule aims to regiment or make the appeal period uniform, to
be counted from receipt of the order denying the motion for new
trial, motion for reconsideration (whether full or partial) or any final
order or resolution.56 (Emphasis supplied)
Thus, with the advent of the "fresh period rule," parties who
availed themselves of the remedy of motion for reconsideration
are now allowed to file a notice of appeal within fifteen days from
the denial of that motion.
A petition for review on certiorari under Rule 45 of the Rules of
Court should have been filed with the court fifteen days from
December 16, 2002, or from the date of notice of the denial of
petitioner’s motion for reconsideration, as provided for in Section
2, Rule 45 of the Rules of Court,57 as amended
by Neypes.58 Instead, petitioners filed with the court a petition
for certiorari under Rule 65 of the Rules of Court on February 12,
2003, way beyond the "fresh period rule."
288
Clearly, the petitioner had lost its right to appeal by failing to avail
itself of it seasonably either before or after the "fresh period rule".
To remedy that loss, petitioner resorted to the extraordinary
remedy of certiorari as a mode of obtaining a reversal of the
judgment from which they failed to appeal. This cannot be done.
The CA decision had become final and had thus gone beyond the
reach of any court to modify in any substantive aspect.
The special civil action of certiorari cannot be used as a substitute
for an appeal which the petitioner already lost.59
Consequently, the Court should have outrightly dismissed the
present petition for the wrong mode of remedy. However, in the
exercise of its equity jurisdiction, the Court may disregard
procedural lapses, so that a case may be resolved on its merits
based on the evidence presented by the parties60 .
Petitioner seeks to evict the private respondent from the subject
land, contending that the latter occupied the property by reason of
PNB’s tolerance.
Petitioner maintains that the allegation of the agrarian nature of a
case is a defense which is often raised by a defendant in an
ejectment case, and that this allegation is an attempt to divest the
regular courts of their jurisdiction over the ejectment case.
Petitioner further argues that before the regular courts are
divested of their jurisdiction, it would be essential to first establish
all the indispensable elements of tenancy relationship, to wit: (1)
the parties are the landowner and the tenant; (2) the subject is
agricultural land; (3) there is consent by the landowner; (4) the
purpose is agricultural production; (5) there is personal
cultivation; and (6) there is a sharing of the harvests.61
Respondent, on the other hand, asserts that the present case
from the outset has involved a determination of an agrarian
dispute over the land in question originally owned by PNB. Citing
the RTC Decision, respondent contends that the Motion to
Dismiss filed before the MTC on the pendency of the agrarian
case before the DAR Adjudication Board should have caused the
MTC to proceed with caution, rather than brushing aside the
allegation of the pendency of an agrarian issue before the DAR.62
From the outset, respondent has insisted that the MTC had no
jurisdiction over the unlawful detainer case. In his Supplemental
1âwphi1
Position Paper,63 respondent argued that the MTC cannot take
jurisdiction over the case in view of pending DARAB CASE No.
R-0605-142-96, between the parties, involving the same property
and issues.
Essentially, respondent sought the dismissal of the pending
unlawful detainer case in the MTC by invoking the defense of litis
pendentia.
For litis pendentia to lie as a ground for a motion to dismiss, the
following requisites must be present: (1) that the parties to the
action are the same; (2) that there is substantial identity in the
causes of action and reliefs sought; (3) that the result of the first
action is determinative of the second in any event and regardless
of which party is successful64 .
A closer examination of the records of the case reveals that
herein respondent is not included as a party to DARAB CASE No.
R-0605-142-96 mentioned by him in his Supplemental Position
Paper.65 Litis pendentia cannot, therefore, be invoked by the
respondent. Contrary to the claim of respondent, the parties in the
unlawful detainer case in the MTC and the DARAB case are
different, as he is not included as a petitioner in the DARAB case.
More significantly, not being a party to the DARAB case,
respondent has no personality to assert that the DAR has primary
jurisdiction over the land subject matter of the MTC case
considering that he is not identified as one of the farmers-
beneficiaries-petitioners in the DARAB case.66
289
Further, the CA should not have relied on the Investigation
Reports of MARO Officer Villa dated March 4, 1997 and March
26, 1997, as the same were not executed pursuant or in relation
to any pending case. Moreover, browsing through the
Investigation Reports, it is clear that its tenor is only
recommendatory or directory in nature. Thus, the execution of the
Investigation Reports does not automatically divest the regular
courts of their jurisdiction over the unlawful detainer case.
It bears stressing that respondent died on May 1, 1999. However,
up to this point, no proper substitution has yet been effected upon
the person of Mrs. Teresita Fernandez, the heir of respondent. In
fact, nothing has been heard from Mrs. Teresita Fernandez
throughout the pendency of the case before this Court.
Despite several pleadings filed before this Court, nowhere in the
records is it shown that Atty. Romeo A. Deles, counsel for the
deceased respondent, was authorized by Mrs. Teresita
Fernandez to represent her.
The death of a client divests counsel of authority. A dead client
has no personality and cannot be represented by an attorney67 .
The relationship of attorney and client ceases68 . Thus, all
pleadings filed by the counsel on behalf of the decedent were all
unauthorized pleadings, hence, invalid69 .
Thus, the Manifestation dated June 26, 2003 of Atty. Romeo A.
Deles, former counsel of respondent, that the representatives of
the petitioner should be punished for direct contempt for
deliberate forum shopping does not deserve consideration. First,
it was filed by a former counsel; and second, the issue of forum
shopping was raised by respondent before the Court for the first
time in the June 26, 2003 Manifestation. Well-settled is the rule
that higher courts are precluded from entertaining matters neither
alleged in the pleadings nor raised during the proceedings below,
but ventilated for the first time only in a motion for reconsideration
or on appeal.70
WHEREFORE, the petition is GRANTED. The May 30, 2002
Decision and the December 5, 2002 Resolution of the Court of
Appeals are SET ASIDE. The July 27, 1998 Decision of the
Municipal Trial Court, Bacolod City (Branch 2)
is REINSTATED. No pronouncement as to costs.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
G.R. No. L-8169 December 29, 1913
ANTONIO M. A. BARRETTO, plaintiff-appellant,
vs.
JOSE SANTA MARINA, defendant-appellee.
Hausserman, Cohn and Fisher, for appellant.
W. A. Kincaid and Thos. L. Hartigan, for appellee.
TORRES, J.:
These cases were appealed by counsel for the plaintiff, through a
bill of exceptions, from the judgment of January 17, 1912, and the
order of February 5 of the same year, whereby the Honorable S.
del Rosario, judge, sentenced the defendant to pay to the plaintiff
the salary to which he was entitled for the first eight days of
January, 1910, also that for the following month, at the rate of
P3,083.33 per month, without special finding as to costs, and
dismissed the second cause of action contained in the complaint
presented in that case.
290
On January 5, 1911, for the plaintiff Antonio M.a Barretto filed suit
against Jose Santa Marina, alleging that the defendant, a resident
of Spain, was then the owner and proprietor of the business
known as the La Insular Cigar and Cigarette Factory, established
in these Islands, which business consisted in the purchase of leaf
tobacco and other raw material, in the preparation of the same,
and in the sale of cigars and cigarettes in large quantities; that on
January 8, 1910, and for a long time prior thereto, the plaintiff
held and had held the position of agent of the defendant in the
Philippine Islands for the management of the said business in the
name and for the account of the said defendant; that the plaintiff's
services were rendered in pursuance of a contract whereby the
defendant obligated himself in writing to hire the said services for
so long a time as the plaintiff should not show discouragement
and to compensate such services at the rate of P37,000
Philippine currency per annum; that, on the aforesaid 8th day of
January, 1910, the defendant, without reason, justification, or
pretext and in violation of the contract before mentioned,
summarily and arbitrarily dispensed with the plaintiff's services
and removed him from the management of the business, since
which date the defendant had refused to pay him the
compensation, or any part thereof, due him and payable in full for
services rendered subsequent to December 31, 1909; and that,
as a second cause of action based upon the facts aforestated,
the plaintiff had suffered losses and damages in the sum of
P100,000 Philippine currency. Said counsel therefore prayed that
judgment be rendered against the defendant by sentencing him to
pay to the plaintiff P137,000 Philippine currency, and the interest
thereon at the legal rate, in addition to the payment of the costs,
together with such other equitable remedies as the law allows.
By an order of March 14, 1911, the Honorable A. S. Crossfield,
judge overruled the demurrer to the first cause of action, but
sustained that to the second. Counsel for the plaintiff entered an
exception to this order in so far as it sustained the demurrer
interposed by the defendant to the second cause of action.
By his written answer to the complaint, on July 19, 1911, counsel
for the defendant, reserving his exception to the order of the court
overruling his demurrer filed against the first cause of action,
denied each and all of the allegations contained in the complaint,
relative to such first cause of action.
As a special defense of the latter, he set forth that the plaintiff had
no contract whatever with the defendant in which any period of
time was stipulated during which the former was to render his
services as manager of the La Insular factory; that the defendant
revoked for just cause the power conferred upon the plaintiff; that
subsequent to the revocation of such power, and on the occasion
of the plaintiff's having sold all his rights and interests in the
business of the La Insular factory to the defendant, in
consideration of the sum received by him, the plaintiff renounced
all action, intervention and claim that he might have against the
defendant relative to the business aforementioned, whereby all
the questions that might have arisen between them were settled.
On December 19, 1911, counsel for each of the parties presented
to the court as stipulation of the following purport:
In clause 11 of the will executed by Don Joaquin Santa
Marina y Perez in Madrid before a notary public on
August 4, 1901, and duly legalized in these Islands, there
appears the following:
"The testator provides that the testamentary
executor who is holding office as such shall enjoy
a salary, allotment, or emolument of 4,000 pesos
per annum which shall be paid out of the testator's
estate; but that in case of consultation, the
testamentary executors consulted shall not be
entitled to this allotment, nor to any other, on
account of such consultation."
291
According to the statement of the sums collected by Antonio M.a
Barretto as the judicial administrator of the estate of Joaquin
Santa Marina from November, 1908, to March, 1910, and during
twenty-three days of April of the latter year, the total amount so
collected was P5,923.28.
Antonio M.a Barretto ceased to manage the La Insular factory, as
the judicial administrator of the estate of the deceased Joaquin
Santa Marina, in October, 1909, and not on November 7, 1908,
as erroneously out in the stenographic notes.
The remuneration paid to Barretto as judicial administrator of the
estate of Santa Marina was independent of that which pertained
to him for his services as manager of the La Insular factory both
before and after the date on which he ceased to administer the
said factory as such judicial administrator.
In the stipulation before mentioned there also appears the
following: "The facts above stated are true, but there is a
controversy between the attorneys for the plaintiff and the
defendant, as to whether such facts are relevant as evidence in
the said case. They therefore submit this question to the court if it
determines that they are relevant as evidence they should be
admitted as such, with exception by the defendant, but if it
determines that they are not relevant as evidence they should be
excluded, with exception by the plaintiff."
After the hearing of the case, with the introduction of evidence by
both parties, the court, on January 17, 1912, rendered the
judgment aforementioned, to which an exception was taken by
counsel for the plaintiff, who by written motion asked that the said
judgment be set aside and a new trial granted, because such
judgment was not sufficiently warranted by the evidence and was
contrary to law and because the findings of fact therein contained
were openly and manifestly contrary to the weight of the
evidence. This motion was denied, with exception by the plaintiff.
By an order of the 5th of the following month of February, issued
in view of a petition presented by counsel for the plaintiff, the
court dismissed the second cause of action set out in the
complaint, to which order said counsel likewise excepted.
Upon presentation of the proper bill of exceptions, the same was
approved, certified, and forwarded to the clerk of this court.
Demand is made in this suit for the payment of the considerable
sum of P137,000, together with the legal interest thereon. Two
amounts make up this sum: One of P37,000, as salary for the
year 1910, claimed to be due for services rendered by the plaintiff
as agent and manager of the tobacco factory known as La
Insular; and the other of P100,000, as an indemnity for losses
and damages, on account of the plaintiff's removal without just
cause from his position as agent and manager of said factory,
effected arbitrarily and in violation of the contract of hire of
services between the parties, the plaintiff claiming to be still
entitled to hold the position from which he was dismissed.
The most important fact in this case, which stands out
prominently from the evidence regarded as a whole, is that of the
plaintiff Barretto's renunciation or registration of the position he
held as agent and manager of the said factory, which was freely
and voluntarily made by him on the occasion of the insolvency
and disappearance of the Chinaman Uy Yan, who had bought
from the factory products aggregating in value the considerable
sum of P97,000 and, without paying this large debt, disappeared
and has not been seen since.
Antonio M.a Barretto the agent and manager of the said factory,
said among other things the following, in the letter, Exhibit 3,
addressed by him to Jose Santa Marina, on January 2, 1909:
I have to report to you an exceedingly disagreeable
matter. This Chinaman Uy Yan, with whose name I begin
this paragraph, has failed and owes the factory the
considerable sum of P97,000. We will see that I can get
from him, although when these Chinamen fail it is
292
because they have spent everything. I will turned the
matter over to my attorney in order that he may sue the
party. I am not attempting to make light of this matter. I
acknowledge that I have been rather more generous with
this fellow than I should have been; but this is the way of
doing business here. . . .
I have always thought that when the manager of a
business trips up in a matter like this he should tender his
resignation, and I still think so. The position is at your
disposal to do as you like.
This letter is authentic and was neither denied nor rejected by the
plaintiff, Barretto.
lawphil.net
Although Santa Marina did not immediately reply and tell him
what opinion he may have formed and the decision he had
reached in the matter, it is no less true that the silence and lack of
reply on the part of the chief owner of the factory were sufficient
indications that the resignation had been virtually accepted and
that if he did not reply immediately it was because he intended to
act cautiously. As the addressee, the chief owner of the factory,
knew of no one at that time whom he could appoint relieve the
writer, who had resigned, it was to be presumed that he was
thereafter looking for some trustworthy person who might
substitute the plaintiff in his position of agent and manager of the
factory, communicated to the plaintiff that he had revoked the
power conferred upon him and had appointed Mr. J. McGavin to
substitute him in his position of manager of the La Insular factory,
whereby the plaintiff's resignation, tendered in his aforesaid letter
of January 2, 1909, Exhibit 3, was expressly accepted.
After the plaintiff had resigned the position he held, and
notwithstanding the lapse of several months before its express
acceptance, it cannot be understood that he has any right to
demand an indemnity for losses and damages particularly since
he ostensibly and frankly acknowledged that he had been
negligent in the discharge of his duties and that he had
overstepped his authority in the management of the factory, with
respect to the Chinaman mentioned. The record does not show
that Santa Marina, his principal, required him to resign his
position as manager, but that Barretto himself voluntarily stated
by letter to his principal that, for the reasons therein mentioned,
he resigned and placed at the latter's disposal the position of
agent and manager of the La Insular factory; and if the principal,
Santa Marina, deemed it suitable to relieve the agent, for having
been negligent and overstepping his authority in the discharge of
his office, and furthermore because of his having expressly
resigned his position, and placed it at the disposal of the chief
owner of the business, it cannot be explained how such person
can be entitled to demand an indemnity for losses and damages,
from his principal, who merely exercised his lawful right of
relieving the plaintiff from the position which he had voluntarily
given up.
So, the agent and manager Barretto was not really dismissed or
removed by the defendant Santa Marina. What did occur was
that, in view of the resignation rendered by the plaintiff for the
reasons which he himself conscientiously deemed to warrant his
surrender of the position he was holding in the La Insular factory,
the principal owner of the establishment, the defendant Santa
Marina, had to took for and appoint another agent and manager
to relieve and substitute him in the said employment — a lawful
act performed by the principal owner of the factory and one which
cannot serve as a ground upon which to demand from the latter
an indemnity for losses and damages, inasmuch as, in view of the
facts that occurred and were acknowledged and confessed by
Barretto in his letters, Exhibits 3 and 6, the plaintiff could not
expect, nor ought to have expected, that the defendant should
have insisted on the unsuccessful agent's continuance in his
position, or that he should not have accepted the resignation
tendered by the plaintiff in his first letter. By the mere fact that the
defendant remained silent and designated another person, Mr. J.
McGavin, to, discharge in the plaintiff's stead the powers and
duties of agent and manager of the said factory, Barretto should
have understood that his resignation had been accepted and that
293
if its acceptance was not communicated to him immediately it was
owing to the circumstance that the principal owner of the factory
did not then have, nor until several months afterwards, any other
person whom he could appoint and place in his stead, for, as
soon as the defendant Santa Marina could appoint the said
McGavin, he revoked the power he had conferred upon the
plaintiff and communicated this fact to the latter, by means of the
letter, Exhibit D, which was presented to him by the bearer
thereof, McGavin himself, the new manager and agent appointed.
Omitting consideration for the moment of the first error attributed
to the trial judge by his sustaining the demurrer filed against the
second cause of action, relative to the collection of P100,000 as
the amount of the losses and damages occasioned to the plaintiff,
and turning our attention to the second error imputed to him by
his refusal to sentence the defendant, for the first cause of action,
to the payment of P37,000 or of any sum over P3,083.33, we
shall proceed to examine the question whether any period or term
for the duration of the position of agent and manager was fixed in
the verbal contract made between the deceased Joaquin Santa
Marina, the defendant's predecessor in interest, and the plaintiff
antonio M.a Barretto — a contract which, after Joaquin Santa
Marina's death was ratified by his brother and heir, the defendant
Jose Santa Marina.
The defendant acknowledged the said verbal contract and also its
ratification by him after his brother's death; but he denied any
stipulation therein that Barretto should hold his office for any
specific period of time fixed by and between the contracting
parties, for the deceased Joaquin Santa Marina, in conferring
power upon the plaintiff, did not do so for any specific time nor did
he set any period within which he should hold his office of agent
and manager of the La Insular factory; neither did he fix the date
for the termination of such services, in the instrument of power of
attorney executed by the defendant Santa Marina before a notary
on the 25th of September, 1908. (Record, p. 20.)
From the context of the instrument just mentioned it can not be
concluded that any time whatever was fixed during which the
plaintiff should hold his position of agent. The defendant, in
executing that instrument, whereby the agreement made between
his brother Joaquin and Barretto was ratified, did no more than
accord to the plaintiff the same confidence that the defendant's
predecessor in interest had in him; and so long as this merely
subjective condition of trust lodged in the agent existed, the time
during which the latter might hold his office could be considered
indefinite or undetermined, but as soon as that indespensable
condition of a power of attorney disappeared and the conduct of
the agent deceased to inspire confidence, the principal had a
right to revoke the power he had conferred upon his agent,
especially when the latter, for good reasons, gave up the office he
was holding.
Article 1733 of the civil Code, applicable to the case at bar,
according to the provisions of article 2 of the Code of Commerce,
prescribes: "The principal may, at his will, revoke the power and
compel the agent to return the instrument containing the same in
which the authority was given."
Article 279 of the Code of Commerce provides: "The principal
may revoke the commission intrusted to an agent at any stage of
the transaction, advising him thereof, but always being liable for
the result of the transactions which took place before the latter
was informed of the revocation." 1awphi1.net
From the above legal provisions it is clearly to be inferred that the
contract of agency can subsist only so long as the principal has
confidence in his agent, because, from the moment such
confidence disappears and although there be a fixed period for
the excercise of the office of agent, a circumstance that does not
appear in the present case the principal has a perfect right to
revoke the power that he had conferred upon the agent owing to
the confidence he had in him and which for sound reasons had
ceased to exist.
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The record does not show it to have been duly proved.
notwithstanding the plaintiff's allegation, that a period was fixed
for holding his agency or office of agent and manager of the La
Insular factory. It would be improper, for the purpose of supplying
such defect, to apply to the present case the provisions of article
1128 of the Civil Code. This article relates to obligation for which
no period has been fixed for their fulfillment, but, which, from their
nature and circumstances, allow the inference that there was an
intention to grant such period to the debtor, wherefore the courts
are authorized to fix the duration of the same, and the reason why
it is inapplicable is that the rights and obligations existing between
Barretto and Santa Marina are absolutely different from those to
which it refers, for, according to article 1732 of the Civil Code,
agency is terminated:
1. By revocation.
2. By withdrawal of the agent.
3. By death, interdiction, bankruptcy, or insolvency of the
principal or of the agent.
It is not incumbent upon the courts to fix the period during which
contracts for services shall last. Their duration is understood to be
implicity fixed, in default of express stipulation, by the period for
the payment of the salary of the employee. Therefore the doctrine
of the tacit renewal of leases of property, established in article
1566 of the Civil Code, is not applicable to the case at bar. And
even though the annual salary fixed for the services to be
rendered by the plaintiff as agent and manager of the La Insular
factory, was P37,000, yet, in accordance with the custom
universally observed throughout the world, salaries fixed for the
year are collected and paid in monthly installments as they fall
due, and so the plaintiff collected and was paid his remuneration;
therefore, on the latter's discontinuance in his office as agent, he
would at most be entitled to the salary for one month and some
odd days, allowed in the judgment of the lower court.
Article 302 of the Code of Commerce reads thus:
In cases in which no special time is fixed in the contracts
of service, any one of the parties thereto may dissolve it,
advising the other party thereof one month in advance.
The factor or shop clerk shall be entitled, in such case, to
the salary due for one month.
From the mere fact that the principal no longer had confidence in
the agent, he is entitled to withdraw it and to revoke the power he
conferred upon the latter, even before the expiration of the period
of the engagement or of the agreement made between them; but,
in the present case, once it has been shown that, between the
deceased Joaquin Santa Marina and the latter's heir, now the
defendant, on the one hand, and the plaintiff Barretto, on the
other, no period whatever was stipulated during which the last-
named should hold the office and manager of the said factory, it
is unquestionable that the defendant, even without good reasons,
could lawfully revoke the power conferred upon the plaintiff and
appoint in his place Mr. McGavin, and thereby contracted no
liability whatever other than the obligation to pay the plaintiff the
salary pertaining to one month and some odd days, as held in the
judgment below.
Barretto himself acknowledged in his aforesaid letter, Exhibit 3,
that he had exceeded his authority and acted negligently in
selling on credit to the said Chinaman a large quantity of the
products of the factory under the plaintiff's management, reaching
the considerable value of P97,000; whereby he confessed one of
the causes which led to his removal, the revocation of the power
conferred upon him and the appointment of a new agent in his
place.
The defendant, Jose Santa Marina, in his letter of December 2,
1909, whereby he communicated to the plaintiff the revocation of
the power he had conferred upon him and the appointment of
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another new agent, Mr. McGavin, stated among other things that
the loan contracted by the agent Barretto, without the approval of
the principal, caused a great panic among the stockholders of the
factory and that the defendant hoped to allay it by the new
measure that he expected to adopt. This, then, was still another
reason the induced the principal to withdraw the confidence
placed in the plaintiff and to revoke the power he had conferred
upon him. Therefore, even omitting consideration of the
resignation before mentioned, we find duly warranted the reasons
which impelled the defendant to revoke the said power and
relieve the plaintiff from the position of agent and manager of the
La Insular factory.
In accordance with the provisions of article 283 of the Code of
Commerce, the manager of an enterprise or manufacturing or
commercial establishment, authorized to administer it and direct
it, with more or less powers, as the owner may have considered
advisable, shall have the legal qualifications of an agent.
Article 300 of the same code prescribes: "The following shall be
special reasons for which principals may discharge their
employees, even though the time of service of the contract has
not elapsed: Fraud or breach of trust in the business intrusted to
them . . . "
By reason of these legal provisions the defendant, in revoking the
authority conferred upon the plaintiff, acted within his
unquestionable powers and did not thereby violate any statute
whatever that may have limited them; consequently, he could not
have caused the plaintiff any harm or detriment to his rights and
interests, for not only had Santa Marina a justifiable reason to
proceed as he did, but also no period whatever had been
stipulated during which the plaintiff should be entitled to hold his
position; and furthermore, because, in relieving the latter and
appointing another person in his place, the defendant acted in
accordance with the renunciation and resignation which the
plaintiff had tendered. If the plaintiff is entitled to any indemnity in
accordance with law, such was awarded to him in the judgment of
the lower court by granting him the right to collect salary for one
month and some odd days.

As for the other features of the case, the record does not show
that the plaintiff has any good reason or legal ground upon which
to claim an indemnity for losses and damages in the sum of
P100,000, for it was not proved that he suffered to that extent,
and the judgment appealed from has awarded him the month's
salary to which he is entitled. Therefore that judgment and the
order of March 14 sustaining the demurrer to the second cause of
action are both in accordance with the law.

For the foregoing reasons, whereby the errors assigned to the

said judgment and order are deemed to have been refuted, both
judgment and order are hereby affirmed, with costs against the
appellant.

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