THIRD DIVISION

G.R. No. 172690 March 3, 2010

HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,

vs.
JULIET VILLA LIM, Respondent.

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil
Procedure, assailing the Court of Appeals (CA) Decision2 dated June 29, 2005, which
reversed and set aside the decision3 of the Regional Trial Court (RTC) of Lucena City, dated
April 12, 2004.

The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad
(Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed
Lim (petitioners), represented by Elenito Lim (Elenito). They filed a Complaint4 for
Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent),
widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay,
Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and
Norberto Uy (Norberto), formed a partnership to engage in the trucking business. Initially,
with a contribution of ₱50,000.00 each, they purchased a truck to be used in the hauling and
transport of lumber of the sawmill. Jose managed the operations of this trucking business
until his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and partners
agreed to continue the business under the management of Elfledo. The shares in the
partnership profits and income that formed part of the estate of Jose were held in trust by
Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire properties using
said funds.

Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving
as his father’s driver in the trucking business. He was never a partner or an investor in the
business and merely supervised the purchase of additional trucks using the income from
the trucking business of the partners. By the time the partnership ceased, it had nine trucks,
which were all registered in Elfledo's name. Petitioners asseverated that it was also through
Elfledo’s management of the partnership that he was able to purchase numerous real
properties by using the profits derived therefrom, all of which were registered in his name
and that of respondent. In addition to the nine trucks, Elfledo also acquired five other motor
vehicles.

On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners
claimed that respondent took over the administration of the aforementioned properties,
which belonged to the estate of Jose, without their consent and approval. Claiming that they
are co-owners of the properties, petitioners required respondent to submit an accounting of
all income, profits and rentals received from the estate of Elfledo, and to surrender the
administration thereof. Respondent refused; thus, the filing of this case.

Respondent traversed petitioners' allegations and claimed that Elfledo was himself a
partner of Norberto and Jimmy. Respondent also claimed that per testimony of Cresencia,
sometime in 1980, Jose gave Elfledo ₱50,000.00 as the latter's capital in an informal
partnership with Jimmy and Norberto. When Elfledo and respondent got married in 1981,
the partnership only had one truck; but through the efforts of Elfledo, the business
flourished. Other than this trucking business, Elfledo, together with respondent, engaged
in other business ventures. Thus, they were able to buy real properties and to put up their
own car assembly and repair business. When Norberto was ambushed and killed on July
16, 1993, the trucking business started to falter. When Elfledo died on May 18, 1995 due to
a heart attack, respondent talked to Jimmy and to the heirs of Norberto, as she could no
longer run the business. Jimmy suggested that three out of the nine trucks be given to him
as his share, while the other three trucks be given to the heirs of Norberto. However,
Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the same to
respondent, who paid for them in installments.

Respondent also alleged that when Jose died in 1981, he left no known assets, and the
partnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed
that Jose left no properties that Elfledo could have held in trust. Respondent maintained
that all the properties involved in this case were purchased and acquired through her and
her husband’s joint efforts and hard work, and without any participation or contribution
from petitioners or from Jose. Respondent submitted that these are conjugal partnership
properties; and thus, she had the right to refuse to render an accounting for the income or
profits of their own business.

Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of
petitioners, thus:

WHEREFORE, premises considered, judgment is hereby rendered:

1) Ordering the partition of the above-mentioned properties equally between the plaintiffs
and heirs of Jose Lim and the defendant Juliet Villa-Lim; and

2) Ordering the defendant to submit an accounting of all incomes, profits and rentals
received by her from said properties.

SO ORDERED.

Aggrieved, respondent appealed to the CA.

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners'
complaint for lack of merit. Undaunted, petitioners filed their Motion for
Reconsideration,5 which the CA, however, denied in its Resolution6 dated May 8, 2006.

Hence, this Petition, raising the sole question, viz.:

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE

PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN
GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON THE ISSUE OF THE
IDENTITY OF THE OTHER PARTNERS IN THE PARTNERSHIP?7

In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving
partner, Elfledo was not a partner; and that he and Norberto entered into a partnership
with Jose. Thus, the CA erred in not giving that testimony greater weight than that of
Cresencia, who was merely the spouse of Jose and not a party to the partnership.8

Respondent counters that the issue raised by petitioners is not proper in a petition for
review on certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the
review, evaluation, calibration, and re-weighing of the factual findings of the CA. Moreover,
respondent invokes the rationale of the CA decision that, in light of the admissions of
Cresencia and Edison and the testimony of respondent, the testimony of Jimmy was
effectively refuted; accordingly, the CA's reversal of the RTC's findings was fully justified.9
We resolve first the procedural matter regarding the propriety of the instant Petition.

Verily, the evaluation and calibration of the evidence necessarily involves consideration of
factual issues — an exercise that is not appropriate for a petition for review on certiorari
under Rule 45. This rule provides that the parties may raise only questions of law, because
the Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze again
and weigh the evidence introduced in and considered by the tribunals below.10 When
supported by substantial evidence, the findings of fact of the CA are conclusive and binding
on the parties and are not reviewable by this Court, unless the case falls under any of the
following recognized exceptions:

(1) When the conclusion is a finding grounded entirely on speculation, surmises and
conjectures;

(2) When the inference made is manifestly mistaken, absurd or impossible;

(3) Where there is a grave abuse of discretion;

(4) When the judgment is based on a misapprehension of facts;

(5) When the findings of fact are conflicting;

(6) When the Court of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee;

(7) When the findings are contrary to those of the trial court;

(8) When the findings of fact are conclusions without citation of specific evidence on which
they are based;

(9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs
are not disputed by the respondents; and

(10) When the findings of fact of the Court of Appeals are premised on the supposed absence
of evidence and contradicted by the evidence on record.11

We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus,
our review of such findings is warranted.

On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money, effects, labor,
and skill in lawful commerce or business, with the understanding that there shall be a
proportionate sharing of the profits and losses among them. A contract of partnership is
defined by the Civil Code as one where two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits
among themselves.12

Undoubtedly, the best evidence would have been the contract of partnership or the articles
of partnership. Unfortunately, there is none in this case, because the alleged partnership
was never formally organized. Nonetheless, we are asked to determine who between Jose
and Elfledo was the "partner" in the trucking business.

A careful review of the records persuades us to affirm the CA decision. The evidence
presented by petitioners falls short of the quantum of proof required to establish that: (1)
Jose was the partner and not Elfledo; and (2) all the properties acquired by Elfledo and
respondent form part of the estate of Jose, having been derived from the alleged partnership.

Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of
evidence against respondent. It must be considered and weighed along with petitioners'
other evidence vis-à-vis respondent's contrary evidence. In civil cases, the party having the
burden of proof must establish his case by a preponderance of evidence. "Preponderance of
evidence" is the weight, credit, and value of the aggregate evidence on either side and is
usually considered synonymous with the term "greater weight of the evidence" or "greater
weight of the credible evidence." "Preponderance of evidence" is a phrase that, in the last
analysis, means probability of the truth. It is evidence that is more convincing to the court
as worthy of belief than that which is offered in opposition thereto.13 Rule 133, Section 1 of
the Rules of Court provides the guidelines in determining preponderance of evidence, thus:

SECTION I. Preponderance of evidence, how determined. In civil cases, the party having
burden of proof must establish his case by a preponderance of evidence. In determining
where the preponderance or superior weight of evidence on the issues involved lies, the court
may consider all the facts and circumstances of the case, the witnesses' manner of testifying,
their intelligence, their means and opportunity of knowing the facts to which they are
testifying, the nature of the facts to which they testify, the probability or improbability of
their testimony, their interest or want of interest, and also their personal credibility so far
as the same may legitimately appear upon the trial. The court may also consider the number
of witnesses, though the preponderance is not necessarily with the greater number.

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals14 is enlightening.
Therein, we cited Article 1769 of the Civil Code, which provides:

Art. 1769. In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are
not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such
co-owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any property from
which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits
were received in payment:

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

Applying the legal provision to the facts of this case, the following circumstances tend to
prove that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified
that Jose gave Elfledo ₱50,000.00, as share in the partnership, on a date that coincided with
the payment of the initial capital in the partnership;15 (2) Elfledo ran the affairs of the
partnership, wielding absolute control, power and authority, without any intervention or
opposition whatsoever from any of petitioners herein;16 (3) all of the properties, particularly
the nine trucks of the partnership, were registered in the name of Elfledo; (4) Jimmy
testified that Elfledo did not receive wages or salaries from the partnership, indicating that
what he actually received were shares of the profits of the business;17 and (5) none of the
petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,18 a demand for periodic
accounting is evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and respondent formed part of
the estate of Jose, having been derived from Jose's alleged partnership with Jimmy and
Norberto. They failed to refute respondent's claim that Elfledo and respondent engaged in
other businesses. Edison even admitted that Elfledo also sold Interwood lumber as a
sideline.19 Petitioners could not offer any credible evidence other than their bare assertions.
Thus, we apply the basic rule of evidence that between documentary and oral evidence, the
former carries more weight.20

Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a hired help but one of the partners
in the trucking business, active and visible in the running of its affairs from day one until
this ceased operations upon his demise. The extent of his control, administration and
management of the partnership and its business, the fact that its properties were placed in
his name, and that he was not paid salary or other compensation by the partners, are
indicative of the fact that Elfledo was a partner and a controlling one at that. It is apparent
that the other partners only contributed in the initial capital but had no say thereafter on
how the business was ran. Evidently it was through Elfredo’s efforts and hard work that
the partnership was able to acquire more trucks and otherwise prosper. Even the appellant
participated in the affairs of the partnership by acting as the bookkeeper sans
salary.1avvphi1

It is notable too that Jose Lim died when the partnership was barely a year old, and the
partnership and its business not only continued but also flourished. If it were true that it
was Jose Lim and not Elfledo who was the partner, then upon his death the partnership
should have

been dissolved and its assets liquidated. On the contrary, these were not done but instead
its operation continued under the helm of Elfledo and without any participation from the
heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was through their own
concerted efforts and hard work. Elfledo did not limit himself to the business of their
partnership but engaged in other lines of businesses as well.

In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they
are amply supported by the law and by the evidence on record.

WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision
dated June 29, 2005 is AFFIRMED. Costs against petitioners.

SO ORDERED.
 FIRST DIVISION

G.R. No. 127405 October 4, 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No.
41616,1 affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil
Case No. 88-509.2

Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend Company,
a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted
as capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and
sales force while Tocao hired and fired employees, determined commissions and/or salaries
of the employees, and assigned them to different branches. The parties agreed that Belo’s
name should not appear in any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anay’s name in securing distributorship of cookware
from that company. The parties agreed further that Anay would be entitled to: (1) ten
percent (10%) of the annual net profits of the business; (2) overriding commission of six
percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would
make; and (4) two percent (2%) for her demonstration services. The agreement was not
reduced to writing on the strength of Belo’s assurances that he was sincere, dependable and
honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware business
took off successfully. They operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocao’s name, with office at 712 Rufino Building,
Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay.
Thereafter, Roger Muencheberg of West Bend Company invited Anay to the
distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and
to the southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-
26, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as president
and general manager of Geminesse Enterprise, even wrote a letter to the Visa Section of the
U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:

"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for
twenty (20) years now, acquired the distributorship of Royal Queen cookware for Geminesse
Enterprise, is the Vice President Sales Marketing and a business partner of our company,
will attend in response to the invitation." (Italics supplied.)3

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of
saving the business on account of the unsatisfactory sales record in the Makati and Cubao
offices. On August 31, 1987, she received a plaque of appreciation from the administrative
and sales people through Marjorie Tocao4 for her excellent job performance. On October 7,
1987, in the presence of Anay, Belo signed a memo5 entitling her to a thirty-seven percent
(37%) commission for her personal sales "up Dec 31/87." Belo explained to her that said
commission was apart from her ten percent (10%) share in the profits. On October 9, 1987,
Anay learned that Marjorie Tocao had signed a letter6 addressed to the Cubao sales office
to the effect that she was no longer the vice-president of Geminesse Enterprise. The
following day, October 10, she received a note from Lina T. Cruz, marketing manager, that
Marjorie Tocao had barred her from holding office and conducting demonstrations in both
Makati and Cubao offices.7 Anay attempted to contact Belo. She wrote him twice to demand
her overriding commission for the period of January 8, 1988 to February 5, 1988 and the
audit of the company to determine her share in the net profits. When her letters were not
answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was
not answered.
Anay still received her five percent (5%) overriding commission up to December 1987. The
following year, 1988, she did not receive the same commission although the company netted
a gross sales of P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money
with damages8 against Marjorie D. Tocao and William Belo before the Regional Trial Court
of Makati, Branch 140.

In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally,
the following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to
February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary
damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from
the inception of its business operation until she was "illegally dismissed" to determine her
ten percent (10%) share in the net profits. She further prayed that she be paid the five
percent (5%) "overriding commission" on the remaining 150 West Bend cookware sets before
her "dismissal."

In their answer,9 Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay
that was "neither reduced in writing, nor ratified," was "either unenforceable or void or
inexistent." As far as Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely
acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and
her complaint referred to either her compensation or dismissal, such complaint should have
been lodged with the Department of Labor and not with the regular court.

Petitioners (defendants therein) further alleged that Anay filed the complaint on account of
"ill-will and resentment" because Marjorie Tocao did not allow her to "lord it over in the
Geminesse Enterprise." Anay had acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the ones who suffered actual damages
"including unreturned and unaccounted stocks of Geminesse Enterprise," and "serious
anxiety, besmirched reputation in the business world, and various damages not less than
P500,000.00." They also alleged that, to "vindicate their names," they had to hire counsel
for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was
an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are
entitled to damages.10

In their defense, Belo denied that Anay was supposed to receive a share in the profit of the
business. He, however, admitted that the two had agreed that Anay would receive a three
to four percent (3-4%) share in the gross sales of the cookware. He denied contributing
capital to the business or receiving a share in its profits as he merely served as a guarantor
of Marjorie Tocao, who was new in the business. He attended and/or presided over business
meetings of the venture in his capacity as a guarantor but he never participated in decision-
making. He claimed that he wrote the memo granting the plaintiff thirty-seven percent
(37%) commission upon her dismissal from the business venture at the request of Tocao,
because Anay had no other income.

For her part, Marjorie Tocao denied having entered into an oral partnership agreement with
Anay. However, she admitted that Anay was an expert in the cookware business and hence,
they agreed to grant her the following commissions: thirty-seven percent (37%) on personal
sales; five percent (5%) on gross sales; two percent (2%) on product demonstrations, and two
percent (2%) for recruitment of personnel. Marjorie denied that they agreed on a ten percent
(10%) commission on the net profits. Marjorie claimed that she got the capital for the
business out of the sale of the sewing machines used in her garments business and from
Peter Lo, a Singaporean friend-financier who loaned her the funds with interest. Because
she treated Anay as her "co-equal," Marjorie received the same amounts of commissions as
her. However, Anay failed to account for stocks valued at P200,000.00.

On April 22, 1993, the trial court rendered a decision the dispositive part of which is as
follows:

"WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs
for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine
the ten percent (10%) share of plaintiff in the net profits of the cookware business;

2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred
and fifty (150) cookware sets available for disposition when plaintiff was wrongfully
excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which
for the period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary

damages, and

5. Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00 as costs of suit.

SO ORDERED."

The trial court held that there was indeed an "oral partnership agreement between the
plaintiff and the defendants," based on the following: (a) there was an intention to create a
partnership; (b) a common fund was established through contributions consisting of money
and industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth
Bantilan, Anay’s cousin and the administrative officer of Geminesse Enterprise from August
21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg of West Bend
Company stating that he awarded the distributorship to Anay and Marjorie Tocao because
he was convinced that with Marjorie’s financial contribution and Anay’s experience, the
combination of the two would be invaluable to the partnership, also supported that
conclusion. Belo’s claim that he was merely a "guarantor" has no basis since there was no
written evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a
memo giving Anay 37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.

The trial court further held that the payment of commissions did not preclude the existence
of the partnership inasmuch as such practice is often resorted to in business circles as an
impetus to bigger sales volume. It did not matter that the agreement was not in writing
because Article 1771 of the Civil Code provides that a partnership may be "constituted in
any form." The fact that Geminesse Enterprise was registered in Marjorie Tocao’s name is
not determinative of whether or not the business was managed and operated by a sole
proprietor or a partnership. What was registered with the Bureau of Domestic Trade was
merely the business name or style of Geminesse Enterprise.

The trial court finally held that a partner who is excluded wrongfully from a partnership is
an innocent partner. Hence, the guilty partner must give him his due upon the dissolution
of the partnership as well as damages or share in the profits "realized from the
appropriation of the partnership business and goodwill." An innocent partner thus possesses
"pecuniary interest in every existing contract that was incomplete and in the trade name of
the co-partnership and assets at the time he was wrongfully expelled."

Petitioners’ appeal to the Court of Appeals11 was dismissed, but the amount of damages
awarded by the trial court were reduced to P50,000.00 for moral damages and P50,000.00
as exemplary damages. Their Motion for Reconsideration was denied by the Court of
Appeals for lack of merit.12 Petitioners Belo and Marjorie Tocao are now before this Court
on a petition for review on certiorari, asserting that there was no business partnership
between them and herein private respondent Nenita A. Anay who is, therefore, not entitled
to the damages awarded to her by the Court of Appeals.

Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise "came into being" exactly a year before the "alleged partnership" was formed,
and that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00
with petitioner Tocao contributing nothing, without any "memorandum whatsoever
regarding the alleged partnership."13

The issue of whether or not a partnership exists is a factual matter which are within the
exclusive domain of both the trial and appellate courts. This Court cannot set aside factual
findings of such courts absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.14 In this case, both the trial court and the Court of
Appeals are one in ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.

To be considered a juridical personality, a partnership must fulfill these requisites: (1) two
or more persons bind themselves to contribute money, property or industry to a common
fund; and (2) intention on the part of the partners to divide the profits among
themselves.15 It may be constituted in any form; a public instrument is necessary only where
immovable property or real rights are contributed thereto.16 This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a written
one. Where no immovable property or real rights are involved, what matters is that the
parties have complied with the requisites of a partnership. The fact that there appears to
be no record in the Securities and Exchange Commission of a public instrument embodying
the partnership agreement pursuant to Article 1772 of the Civil Code 17 did not cause the
nullification of the partnership. The pertinent provision of the Civil Code on the matter
states:

Art. 1768. The partnership has a juridical personality separate and distinct from that of
each of the partners, even in case of failure to comply with the requirements of article 1772,
first paragraph.

Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It was
through her reputation with the West Bend Company that the partnership was able to open
the business of distributorship of that company’s cookware products; it was through the
same efforts that the business was propelled to financial success. Petitioner Tocao herself
admitted private respondent’s indispensable role in putting up the business when, upon
being asked if private respondent held the positions of marketing manager and vice-
president for sales, she testified thus:

"A: No, sir at the start she was the marketing manager because there were no one to sell
yet, it’s only me there then her and then two (2) people, so about four (4). Now, after that
when she recruited already Oscar Abella and Lina Torda-Cruz these two (2) people were
given the designation of marketing managers of which definitely Nita as superior to them
would be the Vice President."18

By the set-up of the business, third persons were made to believe that a partnership had
indeed been forged between petitioners and private respondents. Thus, the communication
dated June 4, 1986 of Missy Jagler of West Bend Company to Roger Muencheberg of the
same company states:

"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations.
Marge does not have cookware experience. Nita Anay has started to gather former
managers, Lina Torda and Dory Vista. She has also gathered former demonstrators, Betty
Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key people and
build up the organization. All they need is the finance and the products to sell."19

On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow in
the face of the established fact that he presided over meetings regarding matters affecting
the operation of the business. Moreover, his having authorized in writing on October 7, 1987,
on a stationery of his own business firm, Wilcon Builders Supply, that private respondent
should receive thirty-seven (37%) of the proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary interest in the business. His claim
that he was merely a guarantor is belied by that personal act of proprietorship in the
business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under
Article 2053 of the Civil Code,20 he should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that guaranty must be "express,"
Article 1403, the Statute of Frauds, requires that "a special promise to answer for the debt,
default or miscarriage of another" be in writing.21

Petitioner Tocao, a former ramp model,22 was also a capitalist in the partnership. She
claimed that she herself financed the business. Her and petitioner Belo’s roles as both
capitalists to the partnership with private respondent are buttressed by petitioner Tocao’s
admissions that petitioner Belo was her boyfriend and that the partnership was not their
only business venture together. They also established a firm that they called "Wiji," the
combination of petitioner Belo’s first name, William, and her nickname, Jiji. 23 The special
relationship between them dovetails with petitioner Belo’s claim that he was acting in
behalf of petitioner Tocao. Significantly, in the early stage of the business operation,
petitioners requested West Bend Company to allow them to "utilize their banking and
trading facilities in Singapore" in the matter of importation and payment of the cookware
products.24 The inevitable conclusion, therefore, was that petitioners merged their
respective capital and infused the amount into the partnership of distributing cookware
with private respondent as the managing partner.

The business venture operated under Geminesse Enterprise did not result in an employer-
employee relationship between petitioners and private respondent. While it is true that the
receipt of a percentage of net profits constitutes only prima facie evidence that the recipient
is a partner in the business,25 the evidence in the case at bar controverts an employer-
employee relationship between the parties. In the first place, private respondent had a voice
in the management of the affairs of the cookware distributorship,26 including selection of
people who would constitute the administrative staff and the sales force. Secondly,
petitioner Tocao’s admissions militate against an employer-employee relationship. She
admitted that, like her who owned Geminesse Enterprise,27 private respondent received
only commissions and transportation and representation allowances28 and not a fixed
salary.29 Petitioner Tocao testified:

"Q: Of course. Now, I am showing to you certain documents already marked as Exhs. ‘X’ and
‘Y.’ Please go over this. Exh. ‘Y’ is denominated `Cubao overrides’ 8-21-87 with ending
August 21, 1987, will you please go over this and tell the Honorable Court whether you ever
came across this document and know of your own knowledge the amount ---

A: Yes, sir this is what I am talking about earlier. That’s the one I am telling you earlier a
certain percentage for promotions, advertising, incentive.

Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which
I quote: ‘Overrides Marjorie Ann Tocao P21,410.50’ this means that you have received this
amount?

A: Oh yes, sir.

Q: I see. And, by way of amplification this is what you are saying as one representing
commission, representation, advertising and promotion?

A: Yes, sir.

Q: I see. Below your name is the words and figure and I quote ‘Nita D. Anay P21,410.50’,
what is this?

A: That’s her overriding commission.

Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there
being the same P21,410.50 is merely by coincidence?

A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know
in a sense because of her expertise in the business she is vital to my business. So, as part of
the incentive I offer her the same thing.

Q: So, in short you are saying that this you have shared together, I mean having gotten from
the company P21,140.50 is your way of indicating that you were treating her as an equal?

A: As an equal.

Q: As an equal, I see. You were treating her as an equal?

A: Yes, sir.
Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati the other one is ---

A: That is the same thing, sir.

Q: With ending August 21, words and figure ‘Overrides Marjorie Ann Tocao P15,314.25’ the
amount there you will acknowledge you have received that?

A: Yes, sir.

Q: Again in concept of commission, representation, promotion, etc.?

A: Yes, sir.

Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication
that she received the same amount?

A: Yes, sir.

Q: And, as in your previous statement it is not by coincidence that these two (2) are the
same?

A: No, sir.

Q: It is again in concept of you treating Miss Anay as your equal?

A: Yes, sir." (Italics supplied.)30

If indeed petitioner Tocao was private respondent’s employer, it is difficult to believe that
they shall receive the same income in the business. In a partnership, each partner must
share in the profits and losses of the venture, except that the industrial partner shall not be
liable for the losses.31 As an industrial partner, private respondent had the right to demand
for a formal accounting of the business and to receive her share in the net profit.32

The fact that the cookware distributorship was operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of
Domestic Trade on August 19, 1987 was merely the name of that enterprise. 33 While it is
true that in her undated application for renewal of registration of that firm name, petitioner
Tocao indicated that it would be engaged in retail of "kitchenwares, cookwares, utensils,
skillet,"34 she also admitted that the enterprise was only "60% to 70% for the cookware
business," while 20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier.35 Indubitably then, the business name Geminesse Enterprise was used
only for practical reasons - it was utilized as the common name for petitioner Tocao’s various
business activities, which included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return the "unaccounted
and unremitted stocks of Geminesse Enterprise amounting to P208,250.00." 36 Obviously a
ploy to offset the damages awarded to private respondent, that claim, more than anything
else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this
Court said:

"The best evidence of the existence of the partnership, which was not yet terminated (though
in the winding up stage), were the unsold goods and uncollected receivables, which were
presented to the trial court. Since the partnership has not been terminated, the petitioner
and private complainant remained as co-partners. x x x."37

It is not surprising then that, even after private respondent had been unceremoniously
booted out of the partnership in October 1987, she still received her overriding commission
until December 1987.

Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the

partnership to reap for herself and/or for petitioner Belo financial gains resulting from
private respondent’s efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert herself to the extent
that she would even shout at private respondent in front of other people.38 Her instruction
to Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in
both the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation,39 and resulted in a falling out
between the two. However, a mere falling out or misunderstanding between partners does
not convert the partnership into a sham organization.40 The partnership exists until
dissolved under the law. Since the partnership created by petitioners and private
respondent has no fixed term and is therefore a partnership at will predicated on their
mutual desire and consent, it may be dissolved by the will of a partner. Thus:

"x x x. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn, dependent
on the constancy of that mutual resolve, along with each partner’s capability to give it, and
the absence of cause for dissolution provided by the law itself. Verily, any one of the partners
may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however,
act in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages."41

An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personae allows the
partners to have the power, although not necessarily the right to dissolve the partnership.42

In this case, petitioner Tocao’s unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse
Enterprise.43 By that memo, petitioner Tocao effected her own withdrawal from the
partnership and considered herself as having ceased to be associated with the partnership
in the carrying on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.44

The winding up of partnership affairs has not yet been undertaken by the
partnership.1âwphi1 This is manifest in petitioners’ claim for stocks that had been
entrusted to private respondent in the pursuit of the partnership business.

The determination of the amount of damages commensurate with the factual findings upon
which it is based is primarily the task of the trial court.45 The Court of Appeals may modify
that amount only when its factual findings are diametrically opposed to that of the lower
court,46 or the award is palpably or scandalously and unreasonably excessive. 47 However,
exemplary damages that are awarded "by way of example or correction for the public
good,"48should be reduced to P50,000.00, the amount correctly awarded by the Court of
Appeals. Concomitantly, the award of moral damages of P100,000.00 was excessive and
should be likewise reduced to P50,000.00. Similarly, attorney’s fees that should be granted
on account of the award of exemplary damages and petitioners’ evident bad faith in refusing
to satisfy private respondent’s plainly valid, just and demandable claims,49 appear to have
been excessively granted by the trial court and should therefore be reduced to P25,000.00.

WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership
among petitioners and private respondent is ordered dissolved, and the parties are ordered
to effect the winding up and liquidation of the partnership pursuant to the pertinent
provisions of the Civil Code. This case is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed decisions of the Regional Trial Court
and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the
partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code,
in order to determine private respondent’s ten percent (10%) share in the net profits of the
partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%)
overriding commission for the one hundred and fifty (150) cookware sets available for
disposition since the time private respondent was wrongfully excluded from the partnership
by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding
commission on the total production which, for the period covering January 8, 1988 to
February 5, 1988, amounted to P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages
in the amount of P50,000.00, exemplary damages in the amount of P50,000.00 and
attorney’s fees in the amount of P25,000.00.

SO ORDERED.
 SECOND DIVISION

G.R. No. 126881 October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY,respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the
Decision1 dated March 13, 1996 of the former Fifth Division2 of the Court of Appeals in CA-
G.R. CV No. 47937, the dispositive portion of which states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the
complaint dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-
law spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon
and Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit
against the decedent's brother TAN ENG LAY on February 19, 1990. The
complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio City
was for accounting, liquidation and winding up of the alleged partnership formed after
World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners
filed an amended complaint4 impleading private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the
trial court in its Order dated May 3, 1991.5

The amended complaint principally alleged that after the second World War, Tan Eng Kee
and Tan Eng Lay, pooling their resources and industry together, entered into a partnership
engaged in the business of selling lumber and hardware and construction supplies. They
named their enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's
death. Petitioners herein averred that the business prospered due to the hard work and
thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his
children caused the conversion of the partnership "Benguet Lumber" into a corporation
called "Benguet Lumber Company." The incorporation was purportedly a ruse to deprive
Tan Eng Kee and his heirs of their rightful participation in the profits of the business.
Petitioners prayed for accounting of the partnership assets, and the dissolution, winding up
and liquidation thereof, and the equal division of the net assets of Benguet Lumber.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6 on April 12,
1995, to wit:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

a) Declaring that Benguet Lumber is a joint venture which is akin to a particular

partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or
partners in a business venture and/or particular partnership called Benguet Lumber and
as such should share in the profits and/or losses of the business venture or particular
partnership;

c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet
Lumber Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee
have a legal right to share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or
as partner in a particular partnership have descended to the plaintiffs who are his legal
heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of
Benguet Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber
Company, Inc. so the plaintiffs know their proper share in the business;

f) Ordering the appointment of a receiver to preserve and/or administer the assets of

Benguet Lumber Company, Inc. until such time that said corporation is finally liquidated
are directed to submit the name of any person they want to be appointed as receiver failing
in which this Court will appoint the Branch Clerk of Court or another one who is qualified
to act as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in
filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996,
rendered the assailed decision reversing the judgment of the trial court. Petitioners' motion
for reconsideration7 was denied by the Court of Appeals in a Resolution8 dated October 11,
1996.

Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng
Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding.
Petitioners complained that Exhibits "4" to "4-U" offered by the defendants before the trial
court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet
Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also
filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean,
Mary and Willy, all surnamed Tan, for alleged falsification of commercial documents by a
private individual. On March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1,
wherein the charges were filed, rendered judgment9 dismissing the cases for insufficiency of
evidence.

In their assignment of errors, petitioners claim that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG
LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES;
AND (E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP
(PAGE 13, DECISION).

II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-

SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER
WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN
EMPLOYEE THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE

FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH
PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE
THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE
SECURITIES AND EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING
AT THE BENGUET LUMBER COMPOUND;

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE
EMPLOYEES OF BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE
EMPLOYEES THEREIN;

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE
PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO
THE SUPPLIERS (PAGE 18, DECISION).

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE:
ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ
TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT
KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A
PARTNERSHIP (PAGE 16-17, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG
LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS
DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO
SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17,
DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals
will not be disturbed on appeal if such are supported by the evidence. 10 Our jurisdiction, it
must be emphasized, does not include review of factual issues. Thus:

Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The petition shall raise only questions of
law which must be distinctly set forth.11 [emphasis supplied]

Admitted exceptions have been recognized, though, and when present, may compel us to
analyze the evidentiary basis on which the lower court rendered judgment. Review of factual
issues is therefore warranted:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the appellate court, in making its findings, goes beyond the issues of the case, and
such findings are contrary to the admissions of both appellant and appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly
considered, will justify a different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence on
which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence
but such findings are contradicted by the evidence on record.12

In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quo over extended the issue because while the plaintiffs mentioned
only the existence of a partnership, the Court in turn went beyond that by justifying the
existence of a joint venture.

When mention is made of a joint venture, it would presuppose parity of standing between
the parties, equal proprietary interest and the exercise by the parties equally of the conduct
of the business, thus:

xxx xxx xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet
Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is
because during the war, the entire stocks of the pre-war Benguet Lumber were confiscated
if not burned by the Japanese. After the war, because of the absence of capital to start a
lumber and hardware business, Lay and Kee pooled the proceeds of their individual
businesses earned from buying and selling military supplies, so that the common fund would
be enough to form a partnership, both in the lumber and hardware business. That Lay and
Kee actually established the Benguet Lumber in Baguio City, was even testified to by
witnesses. Because of the pooling of resources, the post-war Benguet Lumber was eventually
established. That the father of the plaintiffs and Lay were partners, is obvious from the fact
that: (1) they conducted the affairs of the business during Kee's lifetime, jointly, (2) they
were the ones giving orders to the employees, (3) they were the ones preparing orders from
the suppliers, (4) their families stayed together at the Benguet Lumber compound, and (5)
all their children were employed in the business in different capacities.

xxx xxx xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was
no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time fixed for the duration of the partnership.
There was even no attempt to submit an accounting corresponding to the period after the
war until Kee's death in 1984. It had no business book, no written account nor any
memorandum for that matter and no license mentioning the existence of a partnership
[citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The certification dated
March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the only registered owner of the
Benguet Lumber and Hardware. His application for registration, effective 1954, in fact
mentioned that his business started in 1945 until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an employee of the Benguet Lumber
Company, on the basis of his SSS coverage effective 1958, Exhibit "3". In the Payrolls,
Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee was similarly listed only as
an employee; precisely, he was on the payroll listing. In the Termination Notice, Exhibit "5",
Lay was mentioned also as the proprietor.

xxx xxx xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in
any form, but when an immovable is constituted, the execution of a public instrument
becomes necessary. This is equally true if the capitalization exceeds P3,000.00, in which
case a public instrument is also necessary, and which is to be recorded with the Securities
and Exchange Commission. In this case at bar, we can easily assume that the business
establishment, which from the language of the appellees, prospered (pars. 5 & 9,
Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real properties
and to the fact that it is now a compound. The execution of a public instrument, on the other
hand, was never established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only Lay and
the members of his family. There is no proof either that the capital assets of the partnership,
assuming them to be in existence, were maliciously assigned or transferred by Lay,
supposedly to the corporation and since then have been treated as a part of the latter's
capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint.

These are not evidences supporting the existence of a partnership:

1) That Kee was living in a bunk house just across the lumber store, and then in a room in
the bunk house in Trinidad, but within the compound of the lumber establishment, as
testified to by Tandoc; 2) that both Lay and Kee were seated on a table and were
"commanding people" as testified to by the son, Elpidio Tan; 3) that both were supervising
the laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly
being told by Kee that the proceeds of the 80 pieces of the G.I. sheets were added to the
business.

Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral
or written. However, if it involves real property or where the capital is P3,000.00 or more,
the execution of a contract is necessary; 2) the capacity of the parties to execute the contract;
3) money property or industry contribution; 4) community of funds and interest, mentioning
equality of the partners or one having a proportionate share in the benefits; and 5) intention
to divide the profits, being the true test of the partnership. The intention to join in the
business venture for the purpose of obtaining profits thereafter to be divided, must be
established. We cannot see these elements from the testimonial evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had
adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint
venture. In this connection, we have held that whether a partnership exists is a factual
matter; consequently, since the appeal is brought to us under Rule 45, we cannot entertain
inquiries relative to the correctness of the assessment of the evidence by the court a
quo.13 Inasmuch as the Court of Appeals and the trial court had reached conflicting
conclusions, perforce we must examine the record to determine if the reversal was justified.

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in
Benguet Lumber. A contract of partnership is defined by law as one where:

. . . two or more persons bind themselves to contribute money, property, or industry to a

common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.14

Thus, in order to constitute a partnership, it must be established that (1) two or more
persons bound themselves to contribute money, property, or industry to a common fund, and
(2) they intend to divide the profits among themselves.15 The agreement need not be formally
reduced into writing, since statute allows the oral constitution of a partnership, save in two
instances: (1) when immovable property or real rights are contributed, 16 and (2) when the
partnership has a capital of three thousand pesos or more.17 In both cases, a public
instrument is required.18 An inventory to be signed by the parties and attached to the public
instrument is also indispensable to the validity of the partnership whenever immovable
property is contributed to the partnership.19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint
venture, which it said is akin to a particular partnership.20 A particular partnership is
distinguished from a joint adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal
partnership, with no firm name and no legal personality. In a joint account, the
participating merchants can transact business under their own name, and can be
individually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination may continue for a number of
years; a partnership generally relates to a continuing business of various transactions of a
certain kind.21

A joint venture "presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital or property
contributed, and where each party exercises equal rights in the conduct of the
business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation,
et. al.,23 we expressed the view that a joint venture may be likened to a particular
partnership, thus:

The legal concept of a joint venture is of common law origin. It has no precise legal definition,
but it has been generally understood to mean an organization formed for some temporary
purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the
partnership, since their elements are similar — community of interest in the business,
sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F.
2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal.
2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdiction is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d.
500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed.
811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or universal, and a particular partnership may
have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore
that under Philippine law, a joint venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however engage in a joint venture with
others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-Campos
Comments, Notes and Selected Cases, Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the
articles of partnership but there is none. The alleged partnership, though, was never
formally organized. In addition, petitioners point out that the New Civil Code was not yet
in effect when the partnership was allegedly formed sometime in 1945, although the
contrary may well be argued that nothing prevented the parties from complying with the
provisions of the New Civil Code when it took effect on August 30, 1950. But all that is in
the past. The net effect, however, is that we are asked to determine whether a partnership
existed based purely on circumstantial evidence. A review of the record persuades us that
the Court of Appeals correctly reversed the decision of the trial court. The evidence
presented by petitioners falls short of the quantum of proof required to establish a
partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng
Lay, could have expounded on the precise nature of the business relationship between them.
In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee
allegedly contributed his resources to a common fund for the purpose of establishing a
partnership. The testimonies to that effect of petitioners' witnesses is directly controverted
by Tan Eng Lay. It should be noted that it is not with the number of witnesses wherein
preponderance lies;24 the quality of their testimonies is to be considered. None of petitioners'
witnesses could suitably account for the beginnings of Benguet Lumber Company, except
perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo.25 He stated
that when he met Tan Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers.26 Tan Eng
Lay, however, denied knowledge of this meeting or of the conversation between Peralta and
his brother.27 Tan Eng Lay consistently testified that he had his business and his brother
had his, that it was only later on that his said brother, Tan Eng Kee, came to work for him.
Be that as it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not
an indicium of the existence of a partnership.28

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was
allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and losses.29 Each has the right to
demand an accounting as long as the partnership exists.30 We have allowed a scenario
wherein "[i]f excellent relations exist among the partners at the start of the business and
all the partners are more interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly plausible." 31 But in the situation
in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is
presumed to take ordinary care of his concerns.32 As we explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second
place, she did not furnish any help or intervention in the management of the theatre. In the
third place, it does not appear that she has even demanded from defendant any accounting
of the expenses and earnings of the business. Were she really a partner, her first concern
should have been to find out how the business was progressing, whether the expenses were
legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to
any of the acts that a partner should have done; all that she did was to receive her share of
P3,000.00 a month, which cannot be interpreted in any manner than a payment for the use
of the premises which she had leased from the owners. Clearly, plaintiff had always acted
in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows
that both parties considered this offer as the real contract between them. 33 [emphasis
supplied]

A demand for periodic accounting is evidence of a partnership.34 During his lifetime, Tan
Eng Kee appeared never to have made any such demand for accounting from his brother,
Tang Eng Lay.

This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of
payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet
Lumber, as it was then called. The authenticity of these documents was questioned by
petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his wife
and children. As aforesaid, the criminal cases were dismissed for insufficiency of evidence.
Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as wages of an employee.
In connection therewith, Article 1769 of the Civil Code provides:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are
not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such
co-owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any property which
the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits
were received in payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an
employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would
still be back to square one, so to speak, since they did not present and offer evidence that
would show that Tan Eng Kee received amounts of money allegedly representing his share
in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng
Kee, received, if any, as his share in the profits of Benguet Lumber Company for any
particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended
to divide the profits of the business between themselves, which is one of the essential
features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a
partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were supervising the employees; that both were the
ones who determined the price at which the stocks were to be sold; and that both placed
orders to the suppliers of the Benguet Lumber Company. They also point out that the
families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber
Company compound, a privilege not extended to its ordinary employees.

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above enumerated powers
and privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in
Benguet Lumber for the following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and directions to his
subordinates. So long, therefore, that an employee's position is higher in rank, it is not
unusual that he orders around those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the
owner, can order materials from suppliers for and in behalf of Benguet Lumber.
Furthermore, even a partner does not necessarily have to perform this particular task. It is,
thus, not an indication that Tan Eng Kee was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this
privilege was not accorded to other employees, the undisputed fact remains that Tan Eng
Kee is the brother of Tan Eng Lay. Naturally, close personal relations existed between them.
Whatever privileges Tan Eng Lay gave his brother, and which were not given the other
employees, only proves the kindness and generosity of Tan Eng Lay towards a blood relative.

(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in
connection with the pricing of stocks, this does not adequately prove the existence of a
partnership relation between them. Even highly confidential employees and the owners of
a company sometimes argue with respect to certain matters which, in no way indicates that
they are partners as to each other.35

In the instant case, we find private respondent's arguments to be well-taken. Where

circumstances taken singly may be inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may be such as to support a finding
of the existence of the parties' intent.36 Yet, in the case at bench, even the aforesaid
circumstances when taken together are not persuasive indicia of a partnership. They only
tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber, but in
what capacity is unclear. We cannot discount the likelihood that as a member of the family,
he occupied a niche above the rank-and-file employees. He would have enjoyed liberties
otherwise unavailable were he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual, superiority over his fellow
employees, thereby entitling him to exercise powers of supervision. It may even be that
among his duties is to place orders with suppliers. Again, the circumstances proffered by
petitioners do not provide a logical nexus to the conclusion desired; these are not
inconsistent with the powers and duties of a manager, even in a business organized and run
as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation

to speak of. Hence, the petition must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of
Appeals is hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.
 SECOND DIVISION

G.R. No. 142293 February 27, 2003

VICENTE SY, TRINIDAD PAULINO, 6B’S TRUCKING CORPORATION, and

SBT1 TRUCKING CORPORATION, petitioners,
vs.
HON. COURT OF APPEALS and JAIME SAHOT, respondents.

DECISION

QUISUMBING, J.:

This petition for review seeks the reversal of the decision2 of the Court of Appeals dated
February 29, 2000, in CA-G.R. SP No. 52671, affirming with modification the decision3 of
the National Labor Relations Commission promulgated on June 20, 1996 in NLRC NCR CA
No. 010526-96. Petitioners also pray for the reinstatement of the decision 4 of the Labor
Arbiter in NLRC NCR Case No. 00-09-06717-94.

Culled from the records are the following facts of this case:

Sometime in 1958, private respondent Jaime Sahot5 started working as a truck helper for
petitioners’ family-owned trucking business named Vicente Sy Trucking. In 1965, he
became a truck driver of the same family business, renamed T. Paulino Trucking Service,
later 6B’s Trucking Corporation in 1985, and thereafter known as SBT Trucking
Corporation since 1994. Throughout all these changes in names and for 36 years, private
respondent continuously served the trucking business of petitioners.

In April 1994, Sahot was already 59 years old. He had been incurring absences as he was
suffering from various ailments. Particularly causing him pain was his left thigh, which
greatly affected the performance of his task as a driver. He inquired about his medical and
retirement benefits with the Social Security System (SSS) on April 25, 1994, but discovered
that his premium payments had not been remitted by his employer.

Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically
examined and treated for EOR, presleyopia, hypertensive retinopathy G II (Annexes "G-5"
and "G-3", pp. 48, 104, respectively),6 HPM, UTI, Osteoarthritis (Annex "G-4", p. 105),7 and
heart enlargement (Annex G, p. 107).8 On said grounds, Belen Paulino of the SBT Trucking
Service management told him to file a formal request for extension of his leave. At the end
of his week-long absence, Sahot applied for extension of his leave for the whole month of
June, 1994. It was at this time when petitioners allegedly threatened to terminate his
employment should he refuse to go back to work.

At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to
work, But he could not retire on pension because petitioners never paid his correct SSS
premiums. The fact remained he could no longer work as his left thigh hurt abominably.
Petitioners ended his dilemma. They carried out their threat and dismissed him from work,
effective June 30, 1994. He ended up sick, jobless and penniless.

On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint
for illegal dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the
recovery of separation pay and attorneys fees against Vicente Sy and Trinidad Paulino-Sy,
Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6B’s Trucking and SBT
Trucking, herein petitioners.

For their part, petitioners admitted they had a trucking business in the 1950s but denied
employing helpers and drivers. They contend that private respondent was not illegally
dismissed as a driver because he was in fact petitioner’s industrial partner. They add that
it was not until the year 1994, when SBT Trucking Corporation was established, and only
then did respondent Sahot become an employee of the company, with a monthly salary that
reached P4,160.00 at the time of his separation.

Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and
was not able to report for work for almost seven days. On June 1, 1994, Sahot asked
permission to extend his leave of absence until June 30, 1994. It appeared that from the
expiration of his leave, private respondent never reported back to work nor did he file an
extension of his leave. Instead, he filed the complaint for illegal dismissal against the
trucking company and its owners.

Petitioners add that due to Sahot’s refusal to work after the expiration of his authorized
leave of absence, he should be deemed to have voluntarily resigned from his work. They
contended that Sahot had all the time to extend his leave or at least inform petitioners of
his health condition. Lastly, they cited NLRC Case No. RE-4997-76, entitled "Manuelito
Jimenez et al. vs. T. Paulino Trucking Service," as a defense in view of the alleged similarity
in the factual milieu and issues of said case to that of Sahot’s, hence they are in pari
material and Sahot’s complaint ought also to be dismissed.

The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled
that there was no illegal dismissal in Sahot’s case. Private respondent had failed to report
to work. Moreover, said the Labor Arbiter, petitioners and private respondent were
industrial partners before January 1994. The Labor Arbiter concluded by ordering
petitioners to pay "financial assistance" of P15,000 to Sahot for having served the company
as a regular employee since January 1994 only.

On appeal, the National Labor Relations Commission modified the judgment of the Labor
Arbiter. It declared that private respondent was an employee, not an industrial partner,
since the start. Private respondent Sahot did not abandon his job but his employment was
terminated on account of his illness, pursuant to Article 2849 of the Labor Code. Accordingly,
the NLRC ordered petitioners to pay private respondent separation pay in the amount of
P60,320.00, at the rate of P2,080.00 per year for 29 years of service.

Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision
dated February 29, 2000, the appellate court affirmed with modification the judgment of the
NLRC. It held that private respondent was indeed an employee of petitioners since 1958. It
also increased the amount of separation pay awarded to private respondent to P74,880,
computed at the rate of P2,080 per year for 36 years of service from 1958 to 1994. It decreed:

WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB

Trucking Corporation is hereby directed to pay complainant Jaime Sahot the sum of
SEVENTY-FOUR THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and
for his separation pay.10

Hence, the instant petition anchored on the following contentions:

RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED]

DECISION AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL
LABOR RELATIONS COMMISSION DECIDED NOT IN ACCORD WITH LAW AND PUT
AT NAUGHT ARTICLE 402 OF THE CIVIL CODE.11

II
RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT
THE NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL
FINDINGS OF THE LABOR ARBITER AS THE LATTER WAS IN A BETTER POSITION
TO OBSERVE THE DEMEANOR AND DEPORTMENT OF THE WITNESSES IN THE
CASE OF ASSOCIATION OF INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS
NATIONAL CAPITAL REGION (305 SCRA 233).12

III

PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING

CORPORATION.13

Three issues are to be resolved: (1) Whether or not an employer-employee relationship

existed between petitioners and respondent Sahot; (2) Whether or not there was valid
dismissal; and (3) Whether or not respondent Sahot is entitled to separation pay.

Crucial to the resolution of this case is the determination of the first issue. Before a case for
illegal dismissal can prosper, an employer-employee relationship must first be established.14

Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found that
respondent Sahot was not an employee but was in fact, petitioners’ industrial partner. 15 It
is contended that it was the Labor Arbiter who heard the case and had the opportunity to
observe the demeanor and deportment of the parties. The same conclusion, aver petitioners,
is supported by substantial evidence.16 Moreover, it is argued that the findings of fact of the
Labor Arbiter was wrongly overturned by the NLRC when the latter made the following
pronouncement:

We agree with complainant that there was error committed by the Labor Arbiter when he
concluded that complainant was an industrial partner prior to 1994. A computation of the
age of complainant shows that he was only twenty-three (23) years when he started working
with respondent as truck helper. How can we entertain in our mind that a twenty-three (23)
year old man, working as a truck helper, be considered an industrial partner. Hence we rule
that complainant was only an employee, not a partner of respondents from the time
complainant started working for respondent.17

Because the Court of Appeals also found that an employer-employee relationship existed,
petitioners aver that the appellate court’s decision gives an "imprimatur" to the "illegal"
finding and conclusion of the NLRC.
Private respondent, for his part, denies that he was ever an industrial partner of petitioners.
There was no written agreement, no proof that he received a share in petitioners’ profits,
nor was there anything to show he had any participation with respect to the running of the
business.18

The elements to determine the existence of an employment relationship are: (a) the selection
and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and
(d) the employer’s power to control the employee’s conduct. The most important element is
the employer’s control of the employee’s conduct, not only as to the result of the work to be
done, but also as to the means and methods to accomplish it.19

As found by the appellate court, petitioners owned and operated a trucking business since
the 1950s and by their own allegations, they determined private respondent’s wages and
rest day.20 Records of the case show that private respondent actually engaged in work as an
employee. During the entire course of his employment he did not have the freedom to
determine where he would go, what he would do, and how he would do it. He merely followed
instructions of petitioners and was content to do so, as long as he was paid his wages. Indeed,
said the CA, private respondent had worked as a truck helper and driver of petitioners not
for his own pleasure but under the latter’s control.

Article 176721 of the Civil Code states that in a contract of partnership two or more persons
bind themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves.22 Not one of these circumstances is
present in this case. No written agreement exists to prove the partnership between the
parties. Private respondent did not contribute money, property or industry for the purpose
of engaging in the supposed business. There is no proof that he was receiving a share in the
profits as a matter of course, during the period when the trucking business was under
operation. Neither is there any proof that he had actively participated in the management,
administration and adoption of policies of the business. Thus, the NLRC and the CA did not
err in reversing the finding of the Labor Arbiter that private respondent was an industrial
partner from 1958 to 1994.

On this point, we affirm the findings of the appellate court and the NLRC. Private
respondent Jaime Sahot was not an industrial partner but an employee of petitioners from
1958 to 1994. The existence of an employer-employee relationship is ultimately a question
of fact23 and the findings thereon by the NLRC, as affirmed by the Court of Appeals, deserve
not only respect but finality when supported by substantial evidence. Substantial evidence
is such amount of relevant evidence which a reasonable mind might accept as adequate to
justify a conclusion.24

Time and again this Court has said that "if doubt exists between the evidence presented by
the employer and the employee, the scales of justice must be tilted in favor of the
latter."25 Here, we entertain no doubt. Private respondent since the beginning was an
employee of, not an industrial partner in, the trucking business.

Coming now to the second issue, was private respondent validly dismissed by petitioners?

Petitioners contend that it was private respondent who refused to go back to work. The
decision of the Labor Arbiter pointed out that during the conciliation proceedings,
petitioners requested respondent Sahot to report back for work. However, in the same
proceedings, Sahot stated that he was no longer fit to continue working, and instead he
demanded separation pay. Petitioners then retorted that if Sahot did not like to work as a
driver anymore, then he could be given a job that was less strenuous, such as working as a
checker. However, Sahot declined that suggestion. Based on the foregoing recitals,
petitioners assert that it is clear that Sahot was not dismissed but it was of his own volition
that he did not report for work anymore.

In his decision, the Labor Arbiter concluded that:

While it may be true that respondents insisted that complainant continue working with
respondents despite his alleged illness, there is no direct evidence that will prove that
complainant’s illness prevents or incapacitates him from performing the function of a driver.
The fact remains that complainant suddenly stopped working due to boredom or otherwise
when he refused to work as a checker which certainly is a much less strenuous job than a
driver.26

But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the Court
of Appeals, held that:

While it was very obvious that complainant did not have any intention to report back to
work due to his illness which incapacitated him to perform his job, such intention cannot be
construed to be an abandonment. Instead, the same should have been considered as one of
those falling under the just causes of terminating an employment. The insistence of
respondent in making complainant work did not change the scenario.
It is worthy to note that respondent is engaged in the trucking business where physical
strength is of utmost requirement (sic). Complainant started working with respondent as
truck helper at age twenty-three (23), then as truck driver since 1965. Complainant was
already fifty-nine (59) when the complaint was filed and suffering from various illness
triggered by his work and age.

x x x27

In termination cases, the burden is upon the employer to show by substantial evidence that
the termination was for lawful cause and validly made.28 Article 277(b) of the Labor Code
puts the burden of proving that the dismissal of an employee was for a valid or authorized
cause on the employer, without distinction whether the employer admits or does not admit
the dismissal.29 For an employee’s dismissal to be valid, (a) the dismissal must be for a valid
cause and (b) the employee must be afforded due process.30

Article 284 of the Labor Code authorizes an employer to terminate an employee on the
ground of disease, viz:

Art. 284. Disease as a ground for termination- An employer may terminate the services of
an employee who has been found to be suffering from any disease and whose continued
employment is prohibited by law or prejudicial to his health as well as the health of his co-
employees: xxx

However, in order to validly terminate employment on this ground, Book VI, Rule I, Section
8 of the Omnibus Implementing Rules of the Labor Code requires:

Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease and
his continued employment is prohibited by law or prejudicial to his health or to the health
of his co-employees, the employer shall not terminate his employment unless there is a
certification by competent public health authority that the disease is of such nature or at
such a stage that it cannot be cured within a period of six (6) months even with proper
medical treatment. If the disease or ailment can be cured within the period, the employer
shall not terminate the employee but shall ask the employee to take a leave. The employer
shall reinstate such employee to his former position immediately upon the restoration of his
normal health. (Italics supplied).

As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC,31 the requirement
for a medical certificate under Article 284 of the Labor Code cannot be dispensed with;
otherwise, it would sanction the unilateral and arbitrary determination by the employer of
the gravity or extent of the employee’s illness and thus defeat the public policy in the
protection of labor.

In the case at bar, the employer clearly did not comply with the medical certificate
requirement before Sahot’s dismissal was effected. In the same case of Sevillana vs. I.T.
(International) Corp., we ruled:

Since the burden of proving the validity of the dismissal of the employee rests on the
employer, the latter should likewise bear the burden of showing that the requisites for a
valid dismissal due to a disease have been complied with. In the absence of the required
certification by a competent public health authority, this Court has ruled against the
validity of the employee’s dismissal. It is therefore incumbent upon the private respondents
to prove by the quantum of evidence required by law that petitioner was not dismissed, or
if dismissed, that the dismissal was not illegal; otherwise, the dismissal would be
unjustified. This Court will not sanction a dismissal premised on mere conjectures and
suspicions, the evidence must be substantial and not arbitrary and must be founded on
clearly established facts sufficient to warrant his separation from work.32

In addition, we must likewise determine if the procedural aspect of due process had been
complied with by the employer.

From the records, it clearly appears that procedural due process was not observed in the
separation of private respondent by the management of the trucking company. The
employer is required to furnish an employee with two written notices before the latter is
dismissed: (1) the notice to apprise the employee of the particular acts or omissions for which
his dismissal is sought, which is the equivalent of a charge; and (2) the notice informing the
employee of his dismissal, to be issued after the employee has been given reasonable
opportunity to answer and to be heard on his defense.33 These, the petitioners failed to do,
even only for record purposes. What management did was to threaten the employee with
dismissal, then actually implement the threat when the occasion presented itself because of
private respondent’s painful left thigh.

All told, both the substantive and procedural aspects of due process were violated. Clearly,
therefore, Sahot’s dismissal is tainted with invalidity.
On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled to
separation pay. The law is clear on the matter. An employee who is terminated because of
disease is entitled to "separation pay equivalent to at least one month salary or to one-half
month salary for every year of service, whichever is greater xxx."34 Following the formula
set in Art. 284 of the Labor Code, his separation pay was computed by the appellate court
at P2,080 times 36 years (1958 to 1994) or P74,880. We agree with the computation, after
noting that his last monthly salary was P4,160.00 so that one-half thereof is P2,080.00.
Finding no reversible error nor grave abuse of discretion on the part of appellate court, we
are constrained to sustain its decision. To avoid further delay in the payment due the
separated worker, whose claim was filed way back in 1994, this decision is immediately
executory. Otherwise, six percent (6%) interest per annum should be charged thereon, for
any delay, pursuant to provisions of the Civil Code.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated
February 29, 2000 is AFFIRMED. Petitioners must pay private respondent Jaime Sahot his
separation pay for 36 years of service at the rate of one-half monthly pay for every year of
service, amounting to P74,880.00, with interest of six per centum (6%) per annum from
finality of this decision until fully paid.

Costs against petitioners.

SO ORDERED.
 FIRST DIVISION

G.R. No. 114311 November 29, 1996

COSMIC LUMBER CORPORATION, petitioner,

vs.
COURT OF APPEAL and ISIDRO PEREZ, respondents.

BELLOSILLO, J.:

COSMIC LUMBER CORPORATION through its General Manager executed on 28 January

1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact —

. . . to initiate, institute and file any court action for the ejectment of third persons and/or
squatters of the entire lot 9127 and 443 and covered by TCT Nos. 37648 and 37649, for the
said squatters to remove their houses and vacate the premises in order that the corporation
may take material possession of the entire lot, and for this purpose, to appear at the pre-
trial conference and enter into any stipulation of facts and/or compromise agreement so far
as it shall protect the rights and interest of the corporation in the aforementioned lots. 1

On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted

an action for the ejectment of private respondent Isidro Perez and recover the possession of
a portion of Lot No. 443 before the Regional Trial Court of Dagupan, docketed as Civil Case
No. D-7750. 2

On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with

respondent Perez, the terms of which follow:

1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer Rodolfo dela
Cruz the area at present occupied by defendant wherein his house is located is 333 square
meters on the easternmost part of lot 443 and which portion has been occupied by defendant
for several years now;

2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-fact
the sum of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the defendant by virtue of
this compromise agreement over said portion of 333 square m. of lot 443 which portion will
be located on the easternmost part as indicated in the sketch as annex A;

4. Whatever expenses of subdivision, registration, and other incidental expenses shall be

shouldered by the defendant. 3

On 27 November 1985 the "Compromise Agreement" was approved by the trial court and
judgment was rendered in accordance therewith. 4

Although the decision became final and executory it was not executed within the 5-year
period from date of its finality allegedly due to the failure of petitioner to produce the
owner's duplicate copy of Title No. 37649 needed to segregate from Lot No. 443 the portion
sold by the attorney-in-fact, Paz G. Villamil-Estrada, to private respondent under the
compromise agreement. Thus on 25 January 1993 respondent filed a complaint to revive the
judgment, docketed as Civil Case No. D-10459. 5

Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the
revival of judgment was served upon it that it came to know of the compromise agreement
entered into between Paz G. Villamil-Estrada and respondent Isidro Perez upon which the
trial court based its decision of 26 July 1993 in Civil Case No. D-7750. Forthwith, upon
learning of the fraudulent transaction, petitioner sought annulment of the decision of the
trial court before respondent Court of Appeals on the ground that the compromise
agreement was void because: (a) the attorney-in-fact did not have the authority to dispose
of, sell, encumber or divest the plaintiff of its ownership over its real property or any portion
thereof; (b) the authority of the attorney-in-fact was confined to the institution and filing of
an ejectment case against third persons/squatters on the property of the plaintiff, and to
cause their eviction therefrom; (c) while the special power of attorney made mention of an
authority to enter into a compromise agreement, such authority was in connection with, and
limited to, the eviction of third persons/squatters thereat, in order that "the corporation may
take material possession of the entire lot;" (d) the amount of P26,640.00 alluded to as alleged
consideration of said agreement was never received by the plaintiff; (e) the private
defendant acted in bad faith in. the execution of said agreement knowing fully well the want
of authority of the attorney-in-fact to sell, encumber or dispose of the real property of
plaintiff; and, (f) the disposal of a corporate property indispensably requires a Board
Resolution of its Directors, a fact which is wanting in said Civil Case No. D-7750, and the
General Manager is not the proper officer to encumber a corporate property. 6

On 29 October 1993 respondent court dismissed the complaint on the basis of its finding
that not one of the grounds for annulment, namely, lack of jurisdiction, fraud or illegality
was shown to exist. 7 It also denied the motion for reconsideration filed by petitioner,
discoursing that the alleged nullity of the compromise judgment on the ground that
petitioner's attorney-in-fact Villamil-Estrada was not authorized to sell the subject propety
may be raised as a defense in the execution of the compromise judgment as it does not bind
petitioner, but not as a ground for annulment of judgment because it does not affect the
jurisdiction of the trial court over the action nor does it amount to extrinsic fraud. 8

Petitioner challenges this verdict. It argues that the decision of the trial court is void
because the compromise agreement upon which it was based is void. Attorney-in-fact
Villamil-Estrada did not possess the authority to sell or was she armed with a Board
Resolution authorizing the sale of its property. She was merely empowered to enter into a
compromise agreement in the recovery suit she was authorized to file against persons
squatting on Lot No. 443, such authority being expressly confined to the "ejectment of third
persons or squatters of . . . lot . . . (No.) 443 . . . for the said squatters to remove their houses
and vacate the premises in order that the corporation may take material possession of the
entire lot . . ."

We agree with petitioner. The authority granted Villamil-Estrada under the special power
of attorney was explicit and exclusionary: for her to institute any action in court to eject all
persons found on Lots Nos. 9127 and 443 so that petitioner could take material possession
thereof, and for this purpose, to appear at the pre-trial and enter into any stipulation of
facts and/or compromise agreement but only insofar as this was protective of the rights and
interests of petitioner in the property. Nowhere in this authorization was Villamil-Estrada
granted expressly or impliedly any power to sell the subject property nor a portion thereof.
Neither can a conferment of the power to sell be validly inferred from the specific authority
"to enter into a compromise agreement" because of the explicit limitation fixed by the
grantor that the compromise entered into shall only be "so far as it shall protect the rights
and interest of the corporation in the aforementioned lots." In the context of the specific
investiture of powers to Villamil-Estrada, alienation by sale of an immovable certainly
cannot be deemed protective of the right of petitioner to physically possess the same, more
so when the land was being sold for a price of P80.00 per square meter, very much less than
its assessed value of P250.00 per square meter, and considering further that petitioner
never received the proceeds of the sale.

When the sale of a piece of land or any interest thereon is through an agent, the authority
of the latter shall be in writing; otherwise, the sale shall be void. 9 Thus the authority of an
agent to execute a contract for the sale of real estate must be conferred in writing and must
give him specific authority, either to conduct the general business of the principal or to
execute a binding contract containing terms and conditions which are in the contract he did
execute. 10 A special power of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration. 11The express mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly mentions a sale or that includes
a sale as a necessary ingredient of the act mentioned. 12 For the principal to confer the right
upon an agent to sell real estate, a power of attorney must so express the powers of the
agent in clear and unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be given the document. 13

It is therefore clear that by selling to respondent Perez a portion of petitioner's land through
a compromise agreement, Villamil-Estrada acted without or in obvious authority. The
sale ipso jure is consequently void. So is the compromise agreement. This being the case,
the judgment based thereon is necessarily void. Antipodal to the opinion expressed by
respondent court in resolving petitioner's motion for reconsideration, the nullity of the
settlement between Villamil-Estrada and Perez impaired the jurisdiction of the trial court
to render its decision based on the compromise agreement. In Alviar v. Court of First
Instance of La Union, 14 the Court held —

. . . this court does not hesitate to hold that the judgment in question is null and void ab
initio. It is not binding upon and cannot be executed against the petitioners. It is evident
that the compromise upon which the judgment was based was not subscribed by them . . .
Neither could Attorney Ortega bind them validly in the compromise because he had no
special authority . . .

As the judgment in question is null and void ab initio, it is evident that the court acquired
no jurisdiction to render it, much less to order the execution thereof . . .
. . . A judgment, which is null and void ab initio, rendered by a court without jurisdiction to
do so, is without legal efficacy and may properly be impugned in any proceeding by the party
against whom it is sought to be enforced . . .

This ruling was adopted in Jacinto v. Montesa,15 by Mr. Justice J. B.L. Reyes, a much-
respected authority on civil law, where the Court declared that a judgment based on a
compromise entered into by an attorney without specific authority from the client is void.
Such judgment may be impugned and its execution restrained in any proceeding by the
party against whom it is sought to be enforced. The Court also observed that a defendant
against whom a judgment based on a compromise is sought to be enforced may file a petition
for certiorari to quash the execution. He could not move to have the compromise set aside
and then appeal from the order of denial since he was not a party to the compromise. Thus
it would appear that the obiter of the appellate court that the alleged nullity of the
compromise agreement should be raised as a defense against its enforcement is not legally
feasible. Petitioner could not be in a position to question the compromise agreement in the
action to revive the compromise judgment since it was never privy to such agreement.
Villamil-Estrada who signed the compromise agreement may have been the attorney-in-fact
but she could not legally bind petitioner thereto as she was not entrusted with a special
authority to sell the land, as required in Art. 1878, par. (5), of the Civil Code.

Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of
Appeals to annul and set aside judgments of Regional Trial Courts. 16 "Thus, the
Intermediate Appellant Court (now Court of Appeals) shall exercise . . . (2) Exclusive
original jurisdiction over action for annulment of judgments of the Regional Trial Courts . .
." However, certain requisites must first be established before a final and executory
judgment can be the subject of an action for annulment. It must either be void for want of
jurisdiction or for lack of due process of law, or it has been obtained by fraud. 17

Conformably with law and the above-cited authorities, the petition to annul the decision of
the trial court in Civil Case No. D-7750 before the Court of Appeals was proper. Emanating
as it did from a void compromise agreement, the trial court had no jurisdiction to render a
judgment based thereon. 18

It would also appear, and quite contrary to the finding of the appellate court, that the highly
reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case No. 7750
constituted an extrinsic or collateral fraud by reason of which the judgment rendered
thereon should have been struck down. Not all the legal semantics in the world can becloud
the unassailable fact that petitioner was deceived and betrayed by its attorney-in-fact,
Villamil-Estrada deliberately concealed from petitioner, her principal, that a compromise
agreement had been forged with the end-result that a portion of petitioner's property was
sold to the deforciant, literally for a song. Thus completely kept unaware of its agent's
artifice, petitioner was not accorded even a fighting chance to repudiate the settlement so
much so that the judgment based thereon became final and executory.

For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow
limits. Fraud may assume different shapes and be committed in as many different ways and
here lies the danger of attempting to define fraud. For man in his ingenuity and fertile
imagination will always contrive new schemes to fool the unwary.

There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is
one the effect of which prevents a party from hearing a trial, or real contest, or from
presenting all of his case to the court, or where it operates upon matters, not pertaining to
the judgment itself, but to the manner in which it was procured so that there is not a fair
submission of the controversy. In other words, extrinsic fraud refers to any fraudulent act
of the prevailing party in the litigation which is committed outside of the trial of the case,
whereby the defeated party has been prevented from exhibiting fully his side of the case by
fraud or deception practiced on him by his opponent. 19 Fraud is extrinsic where the
unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as by keeping him away from court, a false promise of a
compromise; or where the defendant never had knowledge of the suit, being kept in
ignorance by the acts of the plaintiff; or where an attorney fraudulently or without authority
connives at his defeat; these and similar cases which show that there has never been a real
contest in the trial or hearing of the case are reasons for which a new suit may be sustained
to set aside and annul the former judgment and open the case for a new and fair hearing. 20

It may be argued that petitioner knew of the compromise agreement since the principal is
chargeable with and bound by the knowledge of or notice to his agent received while the
agent was acting as such. But the general rule is intended to protect those who exercise good
faith and not as a shield for unfair dealing. Hence there is a well-established exception to
the general rule as where the conduct and dealings of the agent are such as to raise a clear
presumption that he will not communicate to the principal the facts in controversy. 21The
logical reason for this exception is that where the agent is committing a fraud, it would be
contrary to common sense to presume or to expect that he would communicate the facts to
the principal. Verily, when an agent is engaged in the perpetration of a fraud upon his
principal for his own exclusive benefit, he is not really acting for the principal but is really
acting for himself, entirely outside the scope of his agency. 22 Indeed, the basic tenets of
agency rest on the highest considerations of justice, equity and fair play, and an agent will
not be permitted to pervert his authority to his own personal advantage, and his act in secret
hostility to the interests of his principal transcends the power afforded him. 23

WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court
of Appeals dated 29 October 1993 and 10 March 1994, respectively, as well as the decision
of the Regional Trial Court of Dagupan City in Civil Case No. D-7750 dated 27 November
1985, are NULLIFIED and SET ASIDE. The "Compromise Agreement" entered into
between Attorney-in-fact Paz G. Villamil-Estrada and respondent Isidro Perez is declared
VOID. This is without prejudice to the right of petitioner to pursue its complaint against
private respondent Isidro Perez in Civil Case No. D-7750 for the recovery of possession of a
portion of Lot No. 443.

SO ORDERED
 G.R. No. 163720 December 16, 2004

GENEVIEVE LIM, petitioner,

vs.
FLORENCIO SABAN, respondents.

DECISION

TINGA, J.:

Before the Court is a Petition for Review on Certiorari assailing the Decision1 dated October
27, 2003 of the Court of Appeals, Seventh Division, in CA-G.R. V No. 60392.2

The late Eduardo Ybañez (Ybañez), the owner of a 1,000-square meter lot in Cebu City (the
"lot"), entered into an Agreement and Authority to Negotiate and Sell (Agency Agreement)
with respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency
Agreement, Ybañez authorized Saban to look for a buyer of the lot for Two Hundred
Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts
needed for payment of taxes, transfer of title and other expenses incident to the sale, as well
as Saban’s commission for the sale.3

Through Saban’s efforts, Ybañez and his wife were able to sell the lot to the petitioner
Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on
March 10, 1994. The price of the lot as indicated in the Deed of Absolute Sale is Two
Hundred Thousand Pesos (P200,000.00).4 It appears, however, that the vendees agreed to
purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00), inclusive of
taxes and other incidental expenses of the sale. After the sale, Lim remitted to Saban the
amounts of One Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00)
for payment of taxes due on the transaction as well as Fifty Thousand Pesos (P50,000.00)
as broker’s commission.5 Lim also issued in the name of Saban four postdated checks in the
aggregate amount of Two Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos
(P236,743.00). These checks were Bank of the Philippine Islands (BPI) Check No. 1112645
dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19, 1994
for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable
PCI Bank Check No. 021491B dated June 20, 1994 for P168,000.00.
Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to Lim. In the letter
Ybañez asked Lim to cancel all the checks issued by her in Saban’s favor and to "extend
another partial payment" for the lot in his (Ybañez’s) favor.6

After the four checks in his favor were dishonored upon presentment, Saban filed
a Complaint for collection of sum of money and damages against Ybañez and Lim with the
Regional Trial Court (RTC) of Cebu City on August 3, 1994.7 The case was assigned to
Branch 20 of the RTC.

In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot
for P600,000.00, i.e., with a mark-up of Four Hundred Thousand Pesos (P400,000.00) from
the price set by Ybañez. Of the total purchase price of P600,000.00, P200,000.00 went to
Ybañez, P50,000.00 allegedly went to Lim’s agent, and P113,257.00 was given to Saban to
cover taxes and other expenses incidental to the sale. Lim also issued four (4) postdated
checks8 in favor of Saban for the remaining P236,743.00.9

Saban alleged that Ybañez told Lim that he (Saban) was not entitled to any commission for
the sale since he concealed the actual selling price of the lot from Ybañez and because he
was not a licensed real estate broker. Ybañez was able to convince Lim to cancel all four
checks.

Saban further averred that Ybañez and Lim connived to deprive him of his sales commission
by withholding payment of the first three checks. He also claimed that Lim failed to make
good the fourth check which was dishonored because the account against which it was drawn
was closed.

In his Answer, Ybañez claimed that Saban was not entitled to any commission because he
concealed the actual selling price from him and because he was not a licensed real estate
broker.

Lim, for her part, argued that she was not privy to the agreement between Ybañez and
Saban, and that she issued stop payment orders for the three checks because Ybañez
requested her to pay the purchase price directly to him, instead of coursing it through
Saban. She also alleged that she agreed with Ybañez that the purchase price of the lot was
only P200,000.00.
Ybañez died during the pendency of the case before the RTC. Upon motion of his counsel,
the trial court dismissed the case only against him without any objection from the other
parties.10

On May 14, 1997, the RTC rendered its Decision11 dismissing Saban’s complaint, declaring
the four (4) checks issued by Lim as stale and non-negotiable, and absolving Lim from any
liability towards Saban.

Saban appealed the trial court’s Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated its Decision12 reversing the trial
court’s ruling. It held that Saban was entitled to his commission amounting
to P236,743.00.13

The Court of Appeals ruled that Ybañez’s revocation of his contract of agency with Saban
was invalid because the agency was coupled with an interest and Ybañez effected the
revocation in bad faith in order to deprive Saban of his commission and to keep the profits
for himself.14

The appellate court found that Ybañez and Lim connived to deprive Saban of his
commission. It declared that Lim is liable to pay Saban the amount of the purchase price of
the lot corresponding to his commission because she issued the four checks knowing that
the total amount thereof corresponded to Saban’s commission for the sale, as the agent of
Ybañez. The appellate court further ruled that, in issuing the checks in payment of Saban’s
commission, Lim acted as an accommodation party. She signed the checks as drawer,
without receiving value therefor, for the purpose of lending her name to a third person. As
such, she is liable to pay Saban as the holder for value of the checks.15

Lim filed a Motion for Reconsideration of the appellate court’s Decision, but her Motion was
denied by the Court of Appeals in a Resolution dated May 6, 2004.16

Not satisfied with the decision of the Court of Appeals, Lim filed the present petition.

Lim argues that the appellate court ignored the fact that after paying her agent and
remitting to Saban the amounts due for taxes and transfer of title, she paid the balance of
the purchase price directly to Ybañez.17

She further contends that she is not liable for Ybañez’s debt to Saban under the Agency
Agreement as she is not privy thereto, and that Saban has no one but himself to blame for
consenting to the dismissal of the case against Ybañez and not moving for his substitution
by his heirs.18

Lim also assails the findings of the appellate court that she issued the checks as an
accommodation party for Ybañez and that she connived with the latter to deprive Saban of
his commission.19

Lim prays that should she be found liable to pay Saban the amount of his commission, she
should only be held liable to the extent of one-third (1/3) of the amount, since she had two
co-vendees (the Spouses Lim) who should share such liability.20

In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00,
which consisted of the P200,000.00 which would be paid to Ybañez, the P50,000.00 due to
her broker, the P113,257.00 earmarked for taxes and other expenses incidental to the sale
and Saban’s commission as broker for Ybañez. According to Saban, Lim assumed the
obligation to pay him his commission. He insists that Lim and Ybañez connived to unjustly
deprive him of his commission from the negotiation of the sale.21

The issues for the Court’s resolution are whether Saban is entitled to receive his commission
from the sale; and, assuming that Saban is entitled thereto, whether it is Lim who is liable
to pay Saban his sales commission.

The Court gives due course to the petition, but agrees with the result reached by the Court
of Appeals.

The Court affirms the appellate court’s finding that the agency was not revoked since
Ybañez requested that Lim make stop payment orders for the checks payable to Saban only
after the consummation of the sale on March 10, 1994. At that time, Saban had already
performed his obligation as Ybañez’s agent when, through his (Saban’s) efforts, Ybañez
executed the Deed of Absolute Sale of the lot with Lim and the Spouses Lim.

To deprive Saban of his commission subsequent to the sale which was consummated
through his efforts would be a breach of his contract of agency with Ybañez which expressly
states that Saban would be entitled to any excess in the purchase price after deducting
the P200,000.00 due to Ybañez and the transfer taxes and other incidental expenses of the
sale.22
In Macondray & Co. v. Sellner,23 the Court recognized the right of a broker to his commission
for finding a suitable buyer for the seller’s property even though the seller himself
consummated the sale with the buyer.24 The Court held that it would be in the height of
injustice to permit the principal to terminate the contract of agency to the prejudice of the
broker when he had already reaped the benefits of the broker’s efforts.

In Infante v. Cunanan, et al.,25 the Court upheld the right of the brokers to their
commissions although the seller revoked their authority to act in his behalf after they had
found a buyer for his properties and negotiated the sale directly with the buyer whom he
met through the brokers’ efforts. The Court ruled that the seller’s withdrawal in bad faith
of the brokers’ authority cannot unjustly deprive the brokers of their commissions as the
seller’s duly constituted agents.

The pronouncements of the Court in the aforecited cases are applicable to the present case,
especially considering that Saban had completely performed his obligations under his
contract of agency with Ybañez by finding a suitable buyer to preparing the Deed of Absolute
Sale between Ybañez and Lim and her co-vendees. Moreover, the contract of agency very
clearly states that Saban is entitled to the excess of the mark-up of the price of the lot after
deducting Ybañez’s share of P200,000.00 and the taxes and other incidental expenses of the
sale.

However, the Court does not agree with the appellate court’s pronouncement that Saban’s
agency was one coupled with an interest. Under Article 1927 of the Civil Code, an agency
cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is appointed manager of a partnership in the
contract of partnership and his removal from the management is unjustifiable. Stated
differently, an agency is deemed as one coupled with an interest where it is established for
the mutual benefit of the principal and of the agent, or for the interest of the principal and
of third persons, and it cannot be revoked by the principal so long as the interest of the agent
or of a third person subsists. In an agency coupled with an interest, the agent’s interest
must be in the subject matter of the power conferred and not merely an interest in the
exercise of the power because it entitles him to compensation. When an agent’s interest is
confined to earning his agreed compensation, the agency is not one coupled with an interest,
since an agent’s interest in obtaining his compensation as such agent is an ordinary incident
of the agency relationship.26
Saban’s entitlement to his commission having been settled, the Court must now determine
whether Lim is the proper party against whom Saban should address his claim.

Saban’s right to receive compensation for negotiating as broker for Ybañez arises from the
Agency Agreement between them. Lim is not a party to the contract. However, the record
reveals that she had knowledge of the fact that Ybañez set the price of the lot at P200,000.00
and that the P600,000.00—the price agreed upon by her and Saban—was more than the
amount set by Ybañez because it included the amount for payment of taxes and for Saban’s
commission as broker for Ybañez.

According to the trial court, Lim made the following payments for the lot: P113,257.00 for
taxes, P50,000.00 for her broker, and P400.000.00 directly to Ybañez, or a total of Five
Hundred Sixty Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00). 27 Lim, on
the other hand, claims that on March 10, 1994, the date of execution of the Deed of Absolute
Sale, she paid directly to Ybañez the amount of One Hundred Thousand Pesos (P100,000.00)
only, and gave to Saban P113,257.00 for payment of taxes and P50,000.00 as his
commission,28 and One Hundred Thirty Thousand Pesos (P130,000.00) on June 28,
1994,29 or a total of Three Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos
(P393,257.00). Ybañez, for his part, acknowledged that Lim and her co-vendees paid
him P400,000.00 which he said was the full amount for the sale of the lot.30 It thus appears
that he received P100,000.00 on March 10, 1994, acknowledged receipt (through Saban) of
the P113,257.00 earmarked for taxes and P50,000.00 for commission, and received the
balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to
Ybañez. Apparently, although the amount actually paid by Lim was P393,257.00, Ybañez
rounded off the amount to P400,000.00 and waived the difference.

Lim’s act of issuing the four checks amounting to P236,743.00 in Saban’s favor belies her
claim that she and her co-vendees did not agree to purchase the lot at P600,000.00. If she
did not agree thereto, there would be no reason for her to issue those checks which is the
balance of P600,000.00 less the amounts of P200,000.00 (due to Ybañez), P50,000.00
(commission), and the P113,257.00 (taxes). The only logical conclusion is that Lim changed
her mind about agreeing to purchase the lot at P600,000.00 after talking to Ybañez and
ultimately realizing that Saban’s commission is even more than what Ybañez received as
his share of the purchase price as vendor. Obviously, this change of mind resulted to the
prejudice of Saban whose efforts led to the completion of the sale between the latter, and
Lim and her co-vendees. This the Court cannot countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the
facts therein are similar to the circumstances of the present case. In that case, Consejo
Infante asked Jose Cunanan and Juan Mijares to find a buyer for her two lots and the house
built thereon for Thirty Thousand Pesos (P30,000.00) . She promised to pay them five
percent (5%) of the purchase price plus whatever overprice they may obtain for the property.
Cunanan and Mijares offered the properties to Pio Noche who in turn expressed willingness
to purchase the properties. Cunanan and Mijares thereafter introduced Noche to Infante.
However, the latter told Cunanan and Mijares that she was no longer interested in selling
the property and asked them to sign a document stating that their written authority to act
as her agents for the sale of the properties was already cancelled. Subsequently, Infante
sold the properties directly to Noche for Thirty One Thousand Pesos (P31,000.00). The Court
upheld the right of Cunanan and Mijares to their commission, explaining that—

…[Infante] had changed her mind even if respondent had found a buyer who was willing to
close the deal, is a matter that would not give rise to a legal consequence if [Cunanan and
Mijares] agreed to call off the transaction in deference to the request of [Infante]. But the
situation varies if one of the parties takes advantage of the benevolence of the other and
acts in a manner that would promote his own selfish interest. This act is unfair as would
amount to bad faith. This act cannot be sanctioned without according the party prejudiced
the reward which is due him. This is the situation in which [Cunanan and Mijares] were
placed by [Infante]. [Infante] took advantage of the services rendered by [Cunanan and
Mijares], but believing that she could evade payment of their commission, she made use of
a ruse by inducing them to sign the deed of cancellation….This act of subversion cannot be
sanctioned and cannot serve as basis for [Infante] to escape payment of the commission
agreed upon.31

The appellate court therefore had sufficient basis for concluding that Ybañez and Lim
connived to deprive Saban of his commission by dealing with each other directly and
reducing the purchase price of the lot and leaving nothing to compensate Saban for his
efforts.
Considering the circumstances surrounding the case, and the undisputed fact that Lim had
not yet paid the balance of P200,000.00 of the purchase price of P600,000.00, it is just and
proper for her to pay Saban the balance of P200,000.00.

Furthermore, since Ybañez received a total of P230,000.00 from Lim, or an excess

of P30,000.00 from his asking price of P200,000.00, Saban may claim such excess from
Ybañez’s estate, if that remedy is still available,32 in view of the trial court’s dismissal of
Saban’s complaint as against Ybañez, with Saban’s express consent, due to the latter’s
demise on November 11, 1994.33

The appellate court however erred in ruling that Lim is liable on the checks because she
issued them as an accommodation party. Section 29 of the Negotiable Instruments Law
defines an accommodation party as a person "who has signed the negotiable instrument as
maker, drawer, acceptor or indorser, without receiving value therefor, for the purpose of
lending his name to some other person." The accommodation party is liable on the
instrument to a holder for value even though the holder at the time of taking the instrument
knew him or her to be merely an accommodation party. The accommodation party may of
course seek reimbursement from the party accommodated.34

As gleaned from the text of Section 29 of the Negotiable Instruments Law, the
accommodation party is one who meets all these three requisites, viz: (1) he signed the
instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value for the
signature; and (3) he signed for the purpose of lending his name to some other person. In
the case at bar, while Lim signed as drawer of the checks she did not satisfy the two other
remaining requisites.

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

WHEREFORE, in view of the foregoing, the petition is DISMISSED.

SO ORDERED.
 SECOND DIVISION

G.R. No. 151319 November 22, 2004

MANILA MEMORIAL PARK CEMETERY, INC., petitioner,

vs.
PEDRO L. LINSANGAN, respondent.

DECISION

TINGA, J.:

For resolution in this case is a classic and interesting texbook question in the law on agency.

This is a petition for review assailing the Decision1 of the Court of Appeals dated 22 June
2001, and its Resolution2dated 12 December 2001 in CA G.R. CV No. 49802 entitled "Pedro
L. Linsangan v. Manila Memorial Cemetery, Inc. et al.," finding Manila Memorial Park
Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C. Baluyot to respondent
Atty. Pedro L. Linsangan.

The facts of the case are as follows:

Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden
State at the Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot,
a former owner of a memorial lot under Contract No. 25012 was no longer interested in
acquiring the lot and had opted to sell his rights subject to reimbursement of the amounts
he already paid. The contract was for P95,000.00. Baluyot reassured Atty. Linsangan that
once reimbursement is made to the former buyer, the contract would be transferred to him.
Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the amount to be
reimbursed to the original buyer and to complete the down payment to MMPCI. 3 Baluyot
issued handwritten and typewritten receipts for these payments.4

Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued
Contract No. 28660, a new contract covering the subject lot in the name of the latter instead
of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him that he
would still be paying the old price of P95,000.00 with P19,838.00 credited as full down
payment leaving a balance of about P75,000.00.5
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block
83, Garden Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912
dated 6 April 1985 for the amount of P19,838.00. Contract No. 28660 has a listed price of
P132,250.00. Atty. Linsangan objected to the new contract price, as the same was not the
amount previously agreed upon. To convince Atty. Linsangan, Baluyot executed a
document6 confirming that while the contract price is P132,250.00, Atty. Linsangan would
pay only the original price of P95,000.00.

The document reads in part:

The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference
will be issued as discounted to conform to the previous price as previously agreed upon. ---
P95,000.00

Prepared by:

(Signed)

(MRS.) FLORENCIA C. BALUYOT

Agency Manager
Holy Cross Memorial Park

4/18/85

Dear Atty. Linsangan:

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

(Signed)

FLORENCIA C. BALUYOT

By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official
Receipt No. 118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated
checks of P1,800.00 each in favor of MMPCI. The next year, or on 29 April 1986, Atty.
Linsangan again issued twelve (12) postdated checks in favor of MMPCI.

On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was
cancelled for reasons the latter could not explain, and presented to him another proposal for
the purchase of an equivalent property. He refused the new proposal and insisted that
Baluyot and MMPCI honor their undertaking.

For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty.
Linsangan filed a Complaint7 for Breach of Contract and Damages against the former.

Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660
was cancelled conformably with the terms of the contract8 because of non-payment of
arrearages.9 MMPCI stated that Baluyot was not an agent but an independent contractor,
and as such was not authorized to represent MMPCI or to use its name except as to the
extent expressly stated in the Agency Manager Agreement.10 Moreover, MMPCI was not
aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in fact
received a down payment and monthly installments as indicated in the contract. 11 Official
receipts showing the application of payment were turned over to Baluyot whom Atty.
Linsangan had from the beginning allowed to receive the same in his behalf. Furthermore,
whatever misimpression that Atty. Linsangan may have had must have been rectified by
the Account Updating Arrangement signed by Atty. Linsangan which states that he
"expressly admits that Contract No. 28660 'on account of serious delinquency…is now due
for cancellation under its terms and conditions.'''12

The trial court held MMPCI and Baluyot jointly and severally liable.13 It found that Baluyot
was an agent of MMPCI and that the latter was estopped from denying this agency, having
received and enchased the checks issued by Atty. Linsangan and given to it by Baluyot.
While MMPCI insisted that Baluyot was authorized to receive only the down payment, it
allowed her to continue to receive postdated checks from Atty. Linsangan, which it in turn
consistently encashed.14

The dispositive portion of the decision reads:

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

plaintiff declaring Contract No. 28660 as valid and subsisting and ordering defendants to
perform their undertakings thereof which covers burial lot No. A11 (15), Block 83, Section
Garden I, Holy Cross Memorial Park located at Novaliches, Quezon City. All payments
made by plaintiff to defendants should be credited for his accounts. NO DAMAGES, NO
ATTORNEY'S FEES but with costs against the defendants.

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

SO ORDERED.15

MMPCI appealed the trial court's decision to the Court of Appeals.16 It claimed that Atty.
Linsangan is bound by the written contract with MMPCI, the terms of which were clearly
set forth therein and read, understood, and signed by the former.17 It also alleged that Atty.
Linsangan, a practicing lawyer for over thirteen (13) years at the time he entered into the
contract, is presumed to know his contractual obligations and is fully aware that he cannot
belatedly and unilaterally change the terms of the contract without the consent, much less
the knowledge of the other contracting party, which was MMPCI. And in this case, MMPCI
did not agree to a change in the contract and in fact implemented the same pursuant to its
clear terms. In view thereof, because of Atty. Linsangan's delinquency, MMPCI validly
cancelled the contract.

MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as
the latter exceeded the terms of her agency, neither did MMPCI ratify Baluyot's acts. It
added that it cannot be charged with making any misrepresentation, nor of having allowed
Baluyot to act as though she had full powers as the written contract expressly stated the
terms and conditions which Atty. Linsangan accepted and understood. In canceling the
contract, MMPCI merely enforced the terms and conditions imposed therein.18

Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the
former's obligation, as a party knowingly dealing with an alleged agent, to determine the
limitations of such agent's authority, particularly when such alleged agent's actions were
patently questionable. According to MMPCI, Atty. Linsangan did not even bother to verify
Baluyot's authority or ask copies of official receipts for his payments.19

The Court of Appeals affirmed the decision of the trial court. It upheld the trial court's
finding that Baluyot was an agent of MMPCI at the time the disputed contract was entered
into, having represented MMPCI's interest and acting on its behalf in the dealings with
clients and customers. Hence, MMPCI is considered estopped when it allowed Baluyot to
act and represent MMPCI even beyond her authority.20 The appellate court likewise found
that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in
its behalf and stead. While Baluyot's authority "may not have been expressly conferred upon
her, the same may have been derived impliedly by habit or custom, which may have been
an accepted practice in the company for a long period of time."21 Thus, the Court of Appeals
noted, innocent third persons such as Atty. Linsangan should not be prejudiced where the
principal failed to adopt the needed measures to prevent misrepresentation. Furthermore,
if an agent misrepresents to a purchaser and the principal accepts the benefits of such
misrepresentation, he cannot at the same time deny responsibility for such
misrepresentation.22 Finally, the Court of Appeals declared:

There being absolutely nothing on the record that would show that the court a quo
overlooked, disregarded, or misinterpreted facts of weight and significance, its factual
findings and conclusions must be given great weight and should not be disturbed by this
Court on appeal.

WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed
decision in Civil Case No. 88-1253 of the Regional Trial Court, National Capital Judicial
Region, Branch 57 of Makati, is hereby AFFIRMED in toto.

SO ORDERED.23

MMPCI filed its Motion for Reconsideration,24 but the same was denied for lack of merit.25

In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred
in disregarding the plain terms of the written contract and Atty. Linsangan's failure to abide
by the terms thereof, which justified its cancellation. In addition, even assuming that
Baluyot was an agent of MMPCI, she clearly exceeded her authority and Atty. Linsangan
knew or should have known about this considering his status as a long-practicing lawyer.
MMPCI likewise claims that the Court of Appeals erred in failing to consider that the facts
and the applicable law do not support a judgment against Baluyot only "up to the extent of
costs."26

Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and
in fact faithfully performed his contractual obligations and complied with them in good faith
for at least two years.27 He claims that contrary to MMPCI's position, his profession as a
lawyer is immaterial to the validity of the subject contract and the case at bar. 28 According
to him, MMPCI had practically admitted in its Petition that Baluyot was its agent, and
thus, the only issue left to be resolved is whether MMPCI allowed Baluyot to act as though
she had full powers to be held solidarily liable with the latter.29

We find for the petitioner MMPCI.

The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of
Court is limited to reviewing only errors of law, not fact, unless the factual findings
complained of are devoid of support by the evidence on record or the assailed judgment is
based on misapprehension of facts.30 In BPI Investment Corporation v. D.G. Carreon
Commercial Corporation,31 this Court ruled:

There are instances when the findings of fact of the trial court and/or Court of Appeals may
be reviewed by the Supreme Court, such as (1) when the conclusion is a finding grounded
entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when the Court of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee; (7) when the
findings are contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in
the petition as well as in the petitioners' main and reply briefs are not disputed by the
respondents; and (10) the findings of fact of the Court of Appeals are premised on the
supposed absence of evidence and contradicted by the evidence on record.32

In the case at bar, the Court of Appeals committed several errors in the apprehension of the
facts of the case, as well as made conclusions devoid of evidentiary support, hence we review
its findings of fact.

By the contract of agency, a person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter.33 Thus,
the elements of agency are (i) consent, express or implied, of the parties to establish the
relationship; (ii) the object is the execution of a juridical act in relation to a third person;
(iii) the agent acts as a representative and not for himself; and (iv) the agent acts within the
scope of his authority.34
In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its
Agency Manager Agreement; an agency manager such as Baluyot is considered an
independent contractor and not an agent.35However, in the same contract, Baluyot as
agency manager was authorized to solicit and remit to MMPCI offers to purchase interment
spaces belonging to and sold by the latter.36 Notwithstanding the claim of MMPCI that
Baluyot was an independent contractor, the fact remains that she was authorized to solicit
solely for and in behalf of MMPCI. As properly found both by the trial court and the Court
of Appeals, Baluyot was an agent of MMPCI, having represented the interest of the latter,
and having been allowed by MMPCI to represent it in her dealings with its
clients/prospective buyers.

Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by
the contract procured by Atty. Linsangan and solicited by Baluyot.

Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces
obtained on forms provided by MMPCI. The terms of the offer to purchase, therefore, are
contained in such forms and, when signed by the buyer and an authorized officer of MMPCI,
becomes binding on both parties.

The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by
MMPCI showed a total list price of P132,250.00. Likewise, it was clearly stated therein that
"Purchaser agrees that he has read or has had read to him this agreement, that he
understands its terms and conditions, and that there are no covenants, conditions,
warranties or representations other than those contained herein."37 By signing the Offer to
Purchase, Atty. Linsangan signified that he understood its contents. That he and Baluyot
had an agreement different from that contained in the Offer to Purchase is of no moment,
and should not affect MMPCI, as it was obviously made outside Baluyot's authority. To
repeat, Baluyot's authority was limited only to soliciting purchasers. She had no authority
to alter the terms of the written contract provided by MMPCI. The document/letter
"confirming" the agreement that Atty. Linsangan would have to pay the old price was
executed by Baluyot alone. Nowhere is there any indication that the same came from
MMPCI or any of its officers.

It is a settled rule that persons dealing with an agent are bound at their peril, if they would
hold the principal liable, to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon them to
establish it.38 The basis for agency is representation and a person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the agent. 39 If he does
not make such an inquiry, he is chargeable with knowledge of the agent's authority and his
ignorance of that authority will not be any excuse.40

As noted by one author, the ignorance of a person dealing with an agent as to the scope of
the latter's authority is no excuse to such person and the fault cannot be thrown upon the
principal.41 A person dealing with an agent assumes the risk of lack of authority in the
agent. He cannot charge the principal by relying upon the agent's assumption of authority
that proves to be unfounded. The principal, on the other hand, may act on the presumption
that third persons dealing with his agent will not be negligent in failing to ascertain the
extent of his authority as well as the existence of his agency.42

In the instant case, it has not been established that Atty. Linsangan even bothered to
inquire whether Baluyot was authorized to agree to terms contrary to those indicated in the
written contract, much less bind MMPCI by her commitment with respect to such
agreements. Even if Baluyot was Atty. Linsangan's friend and known to be an agent of
MMPCI, her declarations and actions alone are not sufficient to establish the fact or extent
of her authority.43 Atty. Linsangan as a practicing lawyer for a relatively long period of time
when he signed the contract should have been put on guard when their agreement was not
reflected in the contract. More importantly, Atty. Linsangan should have been alerted by
the fact that Baluyot failed to effect the transfer of rights earlier promised, and was unable
to make good her written commitment, nor convince MMPCI to assent thereto, as evidenced
by several attempts to induce him to enter into other contracts for a higher consideration.
As properly pointed out by MMPCI, as a lawyer, a greater degree of caution should be
expected of Atty. Linsangan especially in dealings involving legal documents. He did not
even bother to ask for official receipts of his payments, nor inquire from MMPCI directly to
ascertain the real status of the contract, blindly relying on the representations of Baluyot.
A lawyer by profession, he knew what he was doing when he signed the written contract,
knew the meaning and value of every word or phrase used in the contract, and more
importantly, knew the legal effects which said document produced. He is bound to accept
responsibility for his negligence.

The trial and appellate courts found MMPCI liable based on ratification and estoppel. For
the trial court, MMPCI's acts of accepting and encashing the checks issued by Atty.
Linsangan as well as allowing Baluyot to receive checks drawn in the name of MMPCI
confirm and ratify the contract of agency. On the other hand, the Court of Appeals faulted
MMPCI in failing to adopt measures to prevent misrepresentation, and declared that in
view of MMPCI's acceptance of the benefits of Baluyot's misrepresentation, it can no longer
deny responsibility therefor.

The Court does not agree. Pertinent to this case are the following provisions of the Civil
Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with
whom the agent contracted is aware of the limits of the powers granted by the principal. In
this case, however, the agent is liable if he undertook to secure the principal's ratification.

Art. 1910. The principal must comply with all the obligations that the agent may have
contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable
with the agent if the former allowed the latter to act as though he had full powers.

Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless
he ratifies them, expressly or impliedly. Only the principal can ratify; the agent cannot
ratify his own unauthorized acts. Moreover, the principal must have knowledge of the acts
he is to ratify.44

Ratification in agency is the adoption or confirmation by one person of an act performed on

his behalf by another without authority. The substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority. Ordinarily, the principal must have
full knowledge at the time of ratification of all the material facts and circumstances relating
to the unauthorized act of the person who assumed to act as agent. Thus, if material facts
were suppressed or unknown, there can be no valid ratification and this regardless of the
purpose or lack thereof in concealing such facts and regardless of the parties between whom
the question of ratification may arise.45Nevertheless, this principle does not apply if the
principal's ignorance of the material facts and circumstances was willful, or that the
principal chooses to act in ignorance of the facts.46 However, in the absence of circumstances
putting a reasonably prudent man on inquiry, ratification cannot be implied as against the
principal who is ignorant of the facts.47

No ratification can be implied in the instant case.

A perusal of Baluyot's Answer48 reveals that the real arrangement between her and Atty.
Linsangan was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot
was to shoulder the counterpart amount of P1,455.00 to meet the P3,255.00 monthly
installments as indicated in the contract. Thus, every time an installment falls due,
payment was to be made through a check from Atty. Linsangan for P1,800.00 and a cash
component of P1,455.00 from Baluyot.49 However, it appears that while Atty. Linsangan
issued the post-dated checks, Baluyot failed to come up with her part of the bargain. This
was supported by Baluyot's statements in her letter50 to Mr. Clyde Williams, Jr., Sales
Manager of MMPCI, two days after she received the copy of the Complaint. In the letter,
she admitted that she was remiss in her duties when she consented to Atty. Linsangan's
proposal that he will pay the old price while the difference will be shouldered by her. She
likewise admitted that the contract suffered arrearages because while Atty. Linsangan
issued the agreed checks, she was unable to give her share of P1,455.00 due to her own
financial difficulties. Baluyot even asked for compassion from MMPCI for the error she
committed.

Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as
MMPCI is concerned, the contract price was P132,250.00, as stated in the Offer to Purchase
signed by Atty. Linsangan and MMPCI's authorized officer. The down payment of
P19,838.00 given by Atty. Linsangan was in accordance with the contract as well. Payments
of P3,235.00 for at least two installments were likewise in accord with the contract, albeit
made through a check and partly in cash. In view of Baluyot's failure to give her share in
the payment, MMPCI received only P1,800.00 checks, which were clearly insufficient
payment. In fact, Atty. Linsangan would have incurred arrearages that could have caused
the earlier cancellation of the contract, if not for MMPCI's application of some of the checks
to his account. However, the checks alone were not sufficient to cover his obligations.

If MMPCI was aware of the arrangement, it would have refused the latter's check payments
for being insufficient. It would not have applied to his account the P1,800.00 checks.
Moreover, the fact that Baluyot had to practically explain to MMPCI's Sales Manager the
details of her "arrangement" with Atty. Linsangan and admit to having made an error in
entering such arrangement confirm that MMCPI had no knowledge of the said agreement.
It was only when Baluyot filed her Answer that she claimed that MMCPI was fully aware
of the agreement.

Neither is there estoppel in the instant case. The essential elements of estoppel are (i)
conduct of a party amounting to false representation or concealment of material facts or at
least calculated to convey the impression that the facts are otherwise than, and inconsistent
with, those which the party subsequently attempts to assert; (ii) intent, or at least
expectation, that this conduct shall be acted upon by, or at least influence, the other party;
and (iii) knowledge, actual or constructive, of the real facts.51

While there is no more question as to the agency relationship between Baluyot and MMPCI,
there is no indication that MMPCI let the public, or specifically, Atty. Linsangan to believe
that Baluyot had the authority to alter the standard contracts of the company. Neither is
there any showing that prior to signing Contract No. 28660, MMPCI had any knowledge of
Baluyot's commitment to Atty. Linsangan. One who claims the benefit of an estoppel on the
ground that he has been misled by the representations of another must not have been misled
through his own want of reasonable care and circumspection.52 Even assuming that Atty.
Linsangan was misled by MMPCI's actuations, he still cannot invoke the principle of
estoppel, as he was clearly negligent in his dealings with Baluyot, and could have easily
determined, had he only been cautious and prudent, whether said agent was clothed with
the authority to change the terms of the principal's written contract. Estoppel must be
intentional and unequivocal, for when misapplied, it can easily become a most convenient
and effective means of injustice.53 In view of the lack of sufficient proof showing estoppel,
we refuse to hold MMPCI liable on this score.

Likewise, this Court does not find favor in the Court of Appeals' findings that "the authority
of defendant Baluyot may not have been expressly conferred upon her; however, the same
may have been derived impliedly by habit or custom which may have been an accepted
practice in their company in a long period of time." A perusal of the records of the case fails
to show any indication that there was such a habit or custom in MMPCI that allows its
agents to enter into agreements for lower prices of its interment spaces, nor to assume a
portion of the purchase price of the interment spaces sold at such lower price. No evidence
was ever presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the Contract No.
28660 between MMPCI and by Atty. Linsangan for the purchase of an interment space in
the former's cemetery. The other is the agreement between Baluyot and Atty. Linsangan for
the former to shoulder the amount P1,455.00, or the difference between P95,000.00, the
original price, and P132,250.00, the actual contract price.

To repeat, the acts of the agent beyond the scope of his authority do not bind the principal
unless the latter ratifies the same. It also bears emphasis that when the third person knows
that the agent was acting beyond his power or authority, the principal cannot be held liable
for the acts of the agent. If the said third person was aware of such limits of authority, he is
to blame and is not entitled to recover damages from the agent, unless the latter undertook
to secure the principal's ratification.54

This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty.
Linsangan. By affixing his signature in the contract, Atty. Linsangan assented to the terms
and conditions thereof. When Atty. Linsangan incurred delinquencies in payment, MMCPI
merely enforced its rights under the said contract by canceling the same.

Being aware of the limits of Baluyot's authority, Atty. Linsangan cannot insist on what he
claims to be the terms of Contract No. 28660. The agreement, insofar as the P95,000.00
contract price is concerned, is void and cannot be enforced as against MMPCI. Neither can
he hold Baluyot liable for damages under the same contract, since there is no evidence
showing that Baluyot undertook to secure MMPCI's ratification. At best, the "agreement"
between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is
concerned, it bound itself to sell its interment space to Atty. Linsangan for P132,250.00
under Contract No. 28660, and had in fact received several payments in accordance with
the same contract. If the contract was cancelled due to arrearages, Atty. Linsangan's
recourse should only be against Baluyot who personally undertook to pay the difference
between the true contract price of P132,250.00 and the original proposed price of
P95,000.00. To surmise that Baluyot was acting on behalf of MMPCI when she promised to
shoulder the said difference would be to conclude that MMPCI undertook to pay itself the
difference, a conclusion that is very illogical, if not antithetical to its business interests.

However, this does not preclude Atty. Linsangan from instituting a separate action to
recover damages from Baluyot, not as an agent of MMPCI, but in view of the latter's breach
of their separate agreement. To review, Baluyot obligated herself to pay P1,455.00 in
addition to Atty. Linsangan's P1,800.00 to complete the monthly installment payment under
the contract, which, by her own admission, she was unable to do due to personal financial
difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and
were it not for Baluyot's failure to provide the balance, Contract No. 28660 would not have
been cancelled. Thus, Atty. Linsangan has a cause of action against Baluyot, which he can
pursue in another case.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals
dated 22 June 2001 and its Resolution dated 12 December 2001 in CA- G.R. CV No. 49802,
as well as the Decision in Civil Case No. 88-1253 of the Regional Trial Court, Makati City
Branch 57, are hereby REVERSED and SET ASIDE. The Complaint in Civil Case No. 88-
1253 is DISMISSED for lack of cause of action. No pronouncement as to costs.

SO ORDERED.
 THIRD DIVISION

G.R. NO. 150066 April 13, 2007

SPS. EMMANUEL (deceased) and EDNA CHUA and SPS. MANUEL and MARIA
CHUA, Petitioners,
vs.
MSGR. VIRGILIO SORIANO. Substituted by Sister Mary Virgilia Celestino
Soriano, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Decision1dated September 21, 2001 of the Court of Appeals (CA) in CA-G.R.
CV No. 56568 which affirmed with modification the Decision2 dated July 10, 1997 of the
Regional Trial Court, Branch 81, Quezon City (RTC) in Civil Case No. Q-90-6439.

The factual background of the case is as follows:

Msgr. Virgilio C. Soriano (Soriano) owned a 1,600 square meter parcel of land located
in Barangay Banlat, Quezon City, covered by Transfer Certificate of Title (TCT) No. 363471
of the Registry of Deeds of Quezon City.

Sometime in the early months of 1988, Soriano’s first cousin and godson, Emmanuel C.
Celestino, Sr. (Celestino) asked Soriano to lend him TCT No. 363471 as a security for a loan
to be used in the business operation of Celestino’s company, Digital Philippines,
Inc.3 Acceding to Celestino’s request, Soriano executed on March 29, 1988 a Special Power
of Attorney (SPA) authorizing Celestino to mortgage said property.4

Then came the June 11, 1988 fire that gutted a portion of the Quezon City Hall and
destroyed in the process the original copy of TCT No. 363471 on file with the Registry of
Deeds of Quezon City.

On August 22, 1988, Soriano executed a SPA authorizing Celestino and one Carlito Castro
to initiate administrative reconstitution proceedings of TCT No. 363471.5 On April 17, 1990,
the reconstituted title, TCT No. RT-3611 (363471) PR 1686, was issued.6
During the pendency of the administrative reconstitution proceedings, Soriano asked
Celestino whether there was any truth to the spreading rumor that he had already sold the
subject property.7 Celestino denied the rumor but informed Soriano that the subject
property was mortgaged with a foreign bank.8 Dissatisfied with Celestino's explanation,
Soriano made inquiries with the Registry of Deeds of Quezon City9 and discovered, to his
dismay, that TCT No. 363471 had been canceled by TCT No. 1451410 in the name of spouses
Emmanuel and Edna Chua and spouses Manuel and Maria Chua (Chuas). By virtue of a
SPA11 dated March 9, 1989 with Soriano's purported signature, Celestino sold to the Chuas
the property in an Absolute Deed of Sale12 dated July 4, 1989 for ₱500,000.00.

Claiming that his signature in the SPA is a forgery, Soriano filed on August 20, 1990 a
complaint against Celestino and the Chuas for annulment of deed of sale and special power
of attorney, cancellation of title and reconveyance with damages.13

The defense of Celestino is that he was duly authorized to sell the property 14 while the
Chuas contend that they are purchasers in good faith since they bought the property from
Celestino by virtue of a SPA which was duly inscribed and annotated on the owner's
duplicate of the TCT and the tax declaration and that they have duly inspected the property
before purchasing it.15

Soriano died during the pendency of the trial.16 He was substituted by his sister, Florencia
Celestino Soriano, also known as Sister Mary Virgilia Celestino Soriano (Sis. Soriano).17

On July 10, 1997, the RTC rendered its Decision18 in favor of Soriano, the dispositive portion
of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Declaring the special power of attorney dated March 19, 1985 and the Deed of Sale dated
July 4, 1989 as without legal force and effect;

2. Declaring Transfer Certificate of Title No. 14514 in the name of the defendants Chuas as
null and void;

3. Directing defendants Chuas to reconvey the subject property to plaintiff Soriano.

4. Ordering defendant Celestino to pay to the plaintiff the amounts of ₱100,000.00 as moral
damages, ₱20,000.00 as attorney’s fees and ₱10,000.00 as litigation expenses;
5. Ordering defendant Celestino to pay to the defendants Chuas the amount of ₱500,000.00
plus interest at the legal rate from July 4, 1989 until fully paid;

6. Ordering defendant Celestino to pay the defendants Chuas the amounts of ₱20,000.00 as
attorney’s fees and ₱10,000.00 as litigation expenses.

With costs against defendant Celestino.

SO ORDERED.19

The RTC held that Soriano's purported signature in the SPA dated March 9, 1989 is a
forgery based on the opinion of expert witness Arcadio A. Ramos, Chief of the Questioned
Documents Division of the National Bureau of Investigation (NBI), that a comparison of
Soriano's sample signature and the one appearing on the SPA dated March 9, 1989 revealed
that they were "not written by one and the same person;"20 that the Chuas are not
purchasers in good faith since they did not personally verify the title of the subject property
but relied only upon its tax declaration; that the Chuas were placed on guard to ascertain
the authenticity of the authority of Celestino since they were not dealing with Soriano, the
registered owner.

Dissatisfied, Celestino and the Chuas filed separate appeals with the CA, docketed singly
as CA-G.R. No. 56568.21On September 21, 2001, the CA rendered its Decision,22 the
dispositive portion of which reads:

WHEREFORE, for the lack of merit, this Court DISMISSES the appeal and AFFIRMS the
appealed Decision except paragraph number 3 of the dispositive part which is hereby
completely DELETED and replaced with the following: 3. The Register of Deeds of Quezon
City is ordered to reinstate and reactivate Transfer Certificate of Title No. RT-3611 (363471)
PR-1686 in the name of appellee Soriano.

SO ORDERED.23

The CA held that that there was no cogent reason to set aside the RTC’s reliance on the
testimony of the expert witness since there is no contrary evidence to rebut the same. The
CA also agreed with the RTC’s findings that the Chuas are not purchasers in good faith
since they failed to determine the veracity of Celestino’s alleged authority to sell the
property.
No appeal was filed by Celestino. The Chuas filed the present petition anchored on the
following grounds:

THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION IN A WAY NOT

PROBABLY IN ACCORD WITH THE LAW AND WITH THE DECISIONS OF THE
HONORABLE SUPREME COURT; AND

THE HONORABLE COURT OF APPEALS HAS SO FAR DEPARTED FROM THE

ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS.24

The Chuas argue that they are purchasers in good faith since they dealt with Celestino who
had in his possession the owner's duplicate title and the SPA dated March 9, 1989 with
Soriano’s purported signature; that the SPA was inscribed and annotated in the owner's
duplicate title; that since verification with the original title in the Registry of Deeds of
Quezon City was not possible, they checked the tax declaration of the property; that the SPA
dated March 9, 1989 was duly annotated in the tax declaration; that they inspected the
property and found three squatter occupants; that they paid off the two squatters and
appointed the third squatter occupant as caretaker of the property; that Soriano was
responsible for his predicament since he entrusted the owner’s duplicate title to Celestino;
that the fact that Soriano’s purported signature in the SPA dated March 9, 1989 was later
declared by the NBI handwriting expert as a forgery is of no moment since they are not
handwriting experts and they had the right to assume that the SPA was perfectly legal for
otherwise, it could not have been annotated at the back of the title.

Sis. Soriano, on the other hand, avers that the Chuas are not purchasers in good faith since
they failed to check the veracity of Celestino's alleged authority to sell the property; that
had the Chuas conferred with Soriano about the sale transaction proposed by Celestino,
they would have readily discovered the fraud being then hatched by Celestino.

Emmanuel Chua died during the pendency of the present petition.25 He was substituted by
his surviving spouse and co-petitioner, Edna L. Chua, and his children, Erlyn, Ericson,
Emmanuel and Elise, all surnamed Chua.26

The sole issue to be resolved in the present petition is this: whether or not the Chuas are
purchasers in good faith.
The question of whether or not a person is a purchaser in good faith is a factual matter that
will generally be not delved into by this Court, since only questions of law may be raised in
petitions for review.27

The established rule is that in the exercise of the Supreme Court’s power of review, the
Court, not being a trier of facts, does not normally embark on a re-examination of the
evidence presented by the contending parties during the trial of the case considering that
the findings of facts of the CA are conclusive and binding on the Court.28 This rule, however,
has several well-recognized exceptions: (1) when the findings are grounded entirely on
speculation, 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
in making its findings the Court of Appeals went beyond the issues of the case, or its findings
are contrary to the admissions of both the appellant and the appellee; (7) when the findings
are contrary to the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well
as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when
the findings of fact are premised on the supposed absence of evidence and contradicted by
the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.29 Exception (4) is present in the instant case.

A purchaser in good faith is one who buys property without notice that some other person
has a right to or interest in such property and pays its fair price before he has notice of the
adverse claims and interest of another person in the same property. The honesty of intention
which constitutes good faith implies a freedom from knowledge of circumstances which
ought to put a person on inquiry.30 As the Court enunciated in Lim v. Chuatoco:31

x x x good faith consists in the possessor’s belief that the person from whom he received the
thing was the owner of the same and could convey his title. Good faith, while it is always to
be presumed in the absence of proof to the contrary, requires a well founded belief that the
person from whom title was received was himself the owner of the land, with the right to
convey it. There is good faith where there is an honest intention to abstain from taking any
unconscientious advantage from another. Otherwise stated, good faith is the opposite of
fraud and it refers to the state of mind which is manifested by the acts of the individual
concerned.32

Consistently, this Court has ruled that every person dealing with registered land may safely
rely on the correctness of the certificate of title issued therefor and the law will in no way
oblige him to go beyond the certificate to determine the condition of the property. Where
there is nothing in the certificate of title to indicate any cloud or vice in the ownership of
the property, or any encumbrance thereon, the purchaser is not required to explore further
than what the Torrens Title upon its face indicates in quest for any hidden defects or
inchoate right that may subsequently defeat his right thereto.33

However, when a person who deals with registered land through someone who is not the
registered owner, he is expected to look behind the certificate of title and examine all the
factual circumstances, in order to determine if the vendor has the capacity to transfer any
interest in the land.34 He has the duty to ascertain the identity of the person with whom he
is dealing and the latter’s legal authority to convey.35

The law "requires a higher degree of prudence from one who buys from a person who is not
the registered owner, although the land object of the transaction is registered. While one
who buys from the registered owner does not need to look behind the certificate of title, one
who buys from one who is not the registered owner is expected to examine not only the
certificate of title but all factual circumstances necessary for him to determine if there are
any flaws in the title of the transferor, or in his capacity to transfer the land."36

The strength of buyer’s inquiry on the seller’s capacity or legal authority to sell depends on
the proof of capacity of the seller. If the proof of capacity consists of a special power of
attorney duly notarized, mere inspection of the face of such public document already
constitutes sufficient inquiry. If no such special power of attorney is provided or there is one
but there appear flaws in its notarial acknowledgment, mere inspection of the document
will not do; the buyer must show that his investigation went beyond the document and into
the circumstances of its execution.37

In the present case, the Chuas were dealing with Celestino, Soriano’s attorney-in-fact, who
presented Soriano’s duplicate title, a SPA dated March 9, 1989 with Soriano’s purported
signature, and tax declaration.
An examination of the assailed SPA shows that it is valid and regular on its face. It contains
a notarial seal.38 A notarial seal is a mark, image or impression on a document which would
indicate that the notary public has officially signed it.39 The long-standing rule is that
documents acknowledged before a notary public have the evidentiary weight with respect
to their due execution and regularity.40 The assailed SPA is a notarized document and
therefore, presumed to be valid and duly executed.

Thus, the reliance by the Chuas on the notarial acknowledgment found in the duly notarized
SPA presented by Celestino is sufficient evidence of good faith. The Chuas need not prove
anything more for it is already the function of the notarial acknowledgment to establish the
appearance of the parties to the document, its due execution and authenticity.41

Moreover, the SPA was accepted by the Register of Deeds. It was registered with the
Registry of Deeds of Quezon City42 and inscribed and annotated in the owner's duplicate
title,43 further bolstering the appearance of due execution and regularity.

The fact that Soriano's purported signature in the SPA dated March 9, 1989 was declared
to be a forgery does not alter the Chuas’ status as purchasers in good faith. The Court's
recent pronouncements in Bautista v. Silva44 are enlightening to quote:

When the document under scrutiny is a special power of attorney that is duly notarized, we
know it to be a public document where the notarial acknowledgment is prima facie evidence
of the fact of its due execution. A purchaser presented with such a document would have no
choice between knowing and finding out whether a forger lurks beneath the signature on it.
The notarial acknowledgment has removed the choice from him and replaced it with a
presumption sanctioned by law that the affiant appeared before the notary public and
acknowledged that he executed the document, understood its import and signed it. In
reality, he is deprived of such choice not because he is incapable of knowing and finding out
but because, under our notarial system, he has been given the luxury of merely relying on
the presumption of regularity of a duly notarized SPA. And he cannot be faulted for that
because it is precisely that fiction of regularity which holds together commercial
transactions across borders and time.45

Thus, the fact that Soriano’s signature in the SPA dated March 9, 1989 was subsequently
declared by the trial court to have been falsified would not revoke the title subsequently
issued title in favor of the Chuas. With the property in question having already passed to
the hands of purchasers in good faith, it is now of no moment that some irregularity
attended the issuance of the SPA, consistent with our pronouncement in Heirs of Spouses
Benito Gavino and Juana Euste v. Court of Appeals,46 to wit:

x x x, the general rule that the direct result of a previous void contract cannot be valid , is
inapplicable in this case as it will directly contravene the Torrens system of registration.
Where innocent third persons, relying on the correctness of the certificate of title thus
issued, acquire rights over the property, the court cannot disregard such rights and order
the cancellation of the certificate. The effect of such outright cancellation will be to impair
public confidence in the certificate of title. The sanctity of the Torrens system must be
preserved; otherwise, everyone dealing with the property registered under the system will
have to inquire in every instance as to whether the title had been regularly or irregularly
issued, contrary to the evident purpose of the law.47

Being purchasers in good faith, the Chuas already acquired valid title to the property. A
purchaser in good faith holds an indefeasible title to the property and he is entitled to the
protection of the law. Accordingly, TCT No. 14514 issued in the name of the Chuas is valid.
The amount of ₱500,000.00, representing the purchase price in the Absolute Deed of
Sale48 dated July 4, 1989, which the RTC directed Celestino to pay to the Chuas should
instead be paid to Soriano as part of the actual damages awarded to him. Such amount shall
earn interest rate of 6% from August 20, 1990, the time of the filing of the complaint until
its full payment before finality of judgment. After the judgment becomes final and executory
until the obligation is satisfied, the amount due shall earn interest at 12% per year, the
interim period being deemed equivalent to a forbearance of credit.49

For the Court to uphold the effects of a SPA that is rooted in falsity may be disconcerting.
Yet whatever sympathies may be judicially appreciated for the deceived party must be
balanced in deference to the protection afforded by law to the purchaser in good faith. If
such innocence or good faith is established by the evidence, or insufficiently rebutted by the
disputant, then the corresponding duty of the Court is simply to affirm the rights of the
purchaser in good faith. It is mischief at worse, and error at least, for a court to misread or
inflate the facts to justify a ruling for the defrauded party, no matter how wronged he or she
may be.50

WHEREFORE, the petition is GRANTED. Petitioners are hereby declared purchasers in

good faith. Accordingly, the Decision of the Court of Appeals dated September 21, 2001 in
CA-G.R. CV No. 56568 is PARTLY REVERSED and SET ASIDE insofar as it affirms the
Decision of the Regional Trial Court, Branch 81, Quezon City dated July 10, 1997 in Civil
Case No. Q-90-6439 finding the Chuas as purchasers in bad faith.

The Decision dated July 10, 1997 of the Regional Trial Court, Branch 81, Quezon City (RTC)
in Civil Case No. Q-90-6439 is MODIFIED to read as follows:

1. Declaring the special power of attorney dated March 9, 1985 and the Deed of Sale dated
July 4, 1989 and the Transfer Certificate of Title No. 14514 in the name of the defendants
Chuas as valid;

2. Ordering Celestino to pay plaintiff the amount of ₱500,000.00 as actual damages, with
interest rate of 6% p.a. computed from the time of the filing of the complaint until its full
payment before finality of judgment; thereafter, if the amount adjudged remains unpaid,
the interest rate shall be 12% p.a. computed from the time the judgment becomes final and
executory until fully satisfied;

3. Ordering defendant Celestino to pay to the plaintiff the amounts of ₱100,000.00 as moral
damages, ₱20,000.00 as attorney’s fees and ₱10,000.00 as litigation expenses;

With costs against defendant Celestino.

SO ORDERED.
 SECOND DIVISION

G.R. No. 187769 June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.

DECISION

BRION, J.:

Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court
is the decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the
Court of Appeals (CA) in CA-G.R. CV No. 82301. The appellate court affirmed the decision
of the Regional Trial Court (RTC) of Quezon City, Branch 77, dismissing the complaint for
declaration of nullity of loan filed by petitioner Alvin Patrimonio and ordering him to pay
respondent Octavio Marasigan III (Marasigan) the sum of ₱200,000.00.

The Factual Background

The facts of the case, as shown by the records, are briefly summarized below.

The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business
venture under the name of Slam Dunk Corporation (Slum Dunk), a production outfit that
produced mini-concerts and shows related to basketball. Petitioner was already then a
decorated professional basketball player while Gutierrez was a well-known sports
columnist.

In the course of their business, the petitioner pre-signed several checks to answer for the
expenses of Slam Dunk. Although signed, these checks had no payee’s name, date or
amount. The blank checks were entrusted to Gutierrez with the specific instruction not to
fill them out without previous notification to and approval by the petitioner. According to
petitioner, the arrangement was made so that he could verify the validity of the payment
and make the proper arrangements to fund the account.

In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to
Marasigan (the petitioner’s former teammate), to secure a loan in the amount of ₱200,000.00
on the excuse that the petitioner needed the money for the construction of his house. In
addition to the payment of the principal, Gutierrez assured Marasigan that he would be
paid an interest of 5% per month from March to May 1994.

After much contemplation and taking into account his relationship with the petitioner and
Gutierrez, Marasigan acceded to Gutierrez’ request and gave him ₱200,000.00 sometime in
February 1994. Gutierrez simultaneously delivered to Marasigan one of the blank checks
the petitioner pre-signed with Pilipinas Bank, Greenhills Branch, Check No. 21001764 with
the blank portions filled out with the words "Cash" "Two Hundred Thousand Pesos Only",
and the amount of "₱200,000.00". The upper right portion of the check corresponding to the
date was also filled out with the words "May 23, 1994" but the petitioner contended that the
same was not written by Gutierrez.

On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason
"ACCOUNT CLOSED." It was later revealed that petitioner’s account with the bank had
been closed since May 28, 1993.

Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand
letters to the petitioner asking for the payment of ₱200,000.00, but his demands likewise
went unheeded. Consequently, he filed a criminal case for violation of B.P. 22 against the
petitioner, docketed as Criminal Case No. 42816.

On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a
Complaint for Declaration of Nullity of Loan and Recovery of Damages against Gutierrez
and co-respondent Marasigan. He completely denied authorizing the loan or the check’s
negotiation, and asserted that he was not privy to the parties’ loan agreement.

Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22,
1997,Gutierrez was declared in default.

The Ruling of the RTC

The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that the petitioner, in
issuing the pre-signed blank checks, had the intention of issuing a negotiable instrument,
albeit with specific instructions to Gutierrez not to negotiate or issue the check without his
approval. While under Section 14 of the Negotiable Instruments Law Gutierrez had the
prima facie authority to complete the checks by filling up the blanks therein, the RTC ruled
that he deliberately violated petitioner’s specific instructions and took advantage of the
trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly
dismissed the petitioner’s complaint for declaration of nullity of the loan. It ordered the
petitioner to pay Marasigan the face value of the check with a right to claim reimbursement
from Gutierrez.

The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is
not a holder in due course. He contended that when Marasigan received the check, he knew
that the same was without a date, and hence, incomplete. He also alleged that the loan was
actually between Marasigan and Gutierrez with his check being used only as a security.

The Ruling of the CA

On September 24, 2008, the CA affirmed the RTC ruling, although premised on different
factual findings. After careful analysis, the CA agreed with the petitioner that Marasigan
is not a holder in due course as he did not receive the check in good faith.

The CA also concluded that the check had been strictly filled out by Gutierrez in accordance
with the petitioner’s authority. It held that the loan may not be nullified since it is grounded
on an obligation arising from law and ruled that the petitioner is still liable to pay
Marasigan the sum of ₱200,000.00.

After the CA denied the subsequent motion for reconsideration that followed, the petitioner
filed the present petition for review on certiorari under Rule 45 of the Revised Rules of
Court.

The Petition

The petitioner argues that: (1) there was no loan between him and Marasigan since he never
authorized the borrowing of money nor the check’s negotiation to the latter; (2) under Article
1878 of the Civil Code, a special power of attorney is necessary for an individual to make a
loan or borrow money in behalf of another; (3) the loan transaction was between Gutierrez
and Marasigan, with his check being used only as a security; (4) the check had not been
completely and strictly filled out in accordance with his authority since the condition that
the subject check can only be used provided there is prior approval from him, was not
complied with; (5) even if the check was strictly filled up as instructed by the petitioner,
Marasigan is still not entitled to claim the check’s value as he was not a holder in due course;
and (6) by reason of the bad faith in the dealings between the respondents, he is entitled to
claim for damages.
The Issues

Reduced to its basics, the case presents to us the following issues:

1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent

Marasigan to petitioner, through respondent Gutierrez, may be nullified for being void;

2. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00
loan;

3. Whether respondent Gutierrez has completely filled out the subject check strictly under
the authority given by the petitioner; and

4. Whether Marasigan is a holder in due course.

The Court’s Ruling

The petition is impressed with merit.

We note at the outset that the issues raised in this petition are essentially factual in nature.
The main point of inquiry of whether the contract of loan may be nullified, hinges on the
very existence of the contract of loan – a question that, as presented, is essentially, one of
fact. Whether the petitioner authorized the borrowing; whether Gutierrez completely filled
out the subject check strictly under the petitioner’s authority; and whether Marasigan is a
holder in due course are also questions of fact, that, as a general rule, are beyond the scope
of a Rule 45 petition.

The rule that questions of fact are not the proper subject of an appeal by certiorari, as a
petition for review under Rule 45 is limited only to questions of law, is not an absolute rule
that admits of no exceptions. One notable exception is when the findings off act of both the
trial court and the CA are conflicting, making their review necessary.5 In the present case,
the tribunals below arrived at two conflicting factual findings, albeit with the same
conclusion, i.e., dismissal of the complaint for nullity of the loan. Accordingly, we will
examine the parties’ evidence presented.

I. Liability Under the Contract of Loan

The petitioner seeks to nullify the contract of loan on the ground that he never authorized
the borrowing of money. He points to Article 1878, paragraph 7 of the Civil Code, which
explicitly requires a written authority when the loan is contracted through an agent. The
petitioner contends that absent such authority in writing, he should not be held liable for
the face value of the check because he was not a party or privy to the agreement.

Contracts of Agency May be Oral Unless The Law Requires a Specific Form

Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person
"binds himself to render some service or to do something in representation or on behalf of
another, with the consent or authority of the latter." 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.

As a general rule, a contract of agency may be oral.6 However, it must be written when the
law requires a specific form, for example, in a sale of a piece of land or any interest therein
through an agent.

Article 1878 paragraph 7 of the Civil Code expressly requires a special power of authority
before an agent can loan or borrow money in behalf of the principal, to wit:

Art. 1878. Special powers of attorney are necessary in the following cases:

xxxx

(7) To loan or borrow money, unless the latter act be urgent and indispensable for the
preservation of the things which are under administration. (emphasis supplied)

Article 1878 does not state that the authority be in writing. As long as the mandate is
express, such authority may be either oral or written. We unequivocably declared in Lim
Pin v. Liao Tian, et al.,7 that the requirement under Article 1878 of the Civil Code refers to
the nature of the authorization and not to its form. Be that as it may, the authority must be
duly established by competent and convincing evidence other than the self serving assertion
of the party claiming that such authority was verbally given, thus:

The requirements of a special power of attorney in Article 1878 of the Civil Code and of a
special authority in Rule 138 of the Rules of Court refer to the nature of the authorization
and not its form. The requirements are met if there is a clear mandate from the principal
specifically authorizing the performance of the act. As early as 1906, this Court in Strong v.
Gutierrez-Repide (6 Phil. 680) stated that such a mandate may be either oral or written, the
one vital thing being that it shall be express. And more recently, We stated that, if the
special authority is not written, then it must be duly established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their clients, a special
authority. And while the same does not state that the special authority be in writing the
Court has every reason to expect that, if not in writing, the same be duly established by
evidence other than the self-serving assertion of counsel himself that such authority was
verbally given him.(Home Insurance Company vs. United States lines Company, et al., 21
SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225). (emphasis supplied).

The Contract of Loan Entered Into by Gutierrez in Behalf of the Petitioner Should be
Nullified for Being Void; Petitioner is Not Bound by the Contract of Loan.

A review of the records reveals that Gutierrez did not have any authority to borrow money
in behalf of the petitioner.1âwphi1Records do not show that the petitioner executed any
special power of attorney (SPA) in favor of Gutierrez. In fact, the petitioner’s testimony
confirmed that he never authorized Gutierrez (or anyone for that matter), whether verbally
or in writing, to borrow money in his behalf, nor was he aware of any such transaction:

ALVIN PATRIMONIO (witness)

ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of Attorney in writing
authorizing him to borrow using your money?

WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8

xxxx

Marasigan however submits that the petitioner’s acts of pre-signing the blank checks and
releasing them to Gutierrez suffice to establish that the petitioner had authorized Gutierrez
to fill them out and contract the loan in his behalf.

Marasigan’s submission fails to persuade us.

In the absence of any authorization, Gutierrez could not enter into a contract of loan in
behalf of the petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted
by de Villa secured by real estate mortgages in the name of East Cordillera Mining
Corporation, in the absence of an SPA conferring authority on de Villa, there is no basis to
hold the corporation liable, to wit:

The power to borrow money is one of those cases where corporate officers as agents of the
corporation need a special power of attorney. In the case at bar, no special power of attorney
conferring authority on de Villa was ever presented. x x x There was no showing that
respondent corporation ever authorized de Villa to obtain the loans on its behalf.

xxxx

Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold
the corporation liable since there was no authority, express, implied or apparent, given to
de Villa to borrow money from petitioner. Neither was there any subsequent ratification of
his act.

xxxx

The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after
his death). (citations omitted; emphasis supplied).

This principle was also reiterated in the case of Gozun v. Mercado,10 where this court held:

Petitioner submits that his following testimony suffices to establish that respondent had
authorized Lilian to obtain a loan from him.

xxxx

Petitioner’s testimony failed to categorically state, however, whether the loan was made on
behalf of respondent or of his wife. While petitioner claims that Lilian was authorized by
respondent, the statement of account marked as Exhibit "A" states that the amount was
received by Lilian "in behalf of Mrs. Annie Mercado.

It bears noting that Lilian signed in the receipt in her name alone, without indicating
therein that she was acting for and in behalf of respondent. She thus bound herself in her
personal capacity and not as an agent of respondent or anyone for that matter.

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on
real property executed by an agent, it must upon its face purport to be made, signed and
sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough
merely that the agent was in fact authorized to make the mortgage, if he has not acted in
the name of the principal. x x x (emphasis supplied).

In the absence of any showing of any agency relations or special authority to act for and in
behalf of the petitioner, the loan agreement Gutierrez entered into with Marasigan is null
and void. Thus, the petitioner is not bound by the parties’ loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not
legally sufficient because the authority to enter into a loan can never be presumed. The
contract of agency and the special fiduciary relationship inherent in this contract must exist
as a matter of fact. The person alleging it has the burden of proof to show, not only the fact
of agency, but also its nature and extent.11 As we held in People v. Yabut:12

Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut,
Jr., in Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly
taken as delivery of the checks to the complainant Alicia P. Andan at Caloocan City to fix
the venue there. He did not take delivery of the checks as holder, i.e., as "payee" or
"indorsee." And there appears to beno contract of agency between Yambao and Andan so as
to bind the latter for the acts of the former. Alicia P. Andan declared in that sworn testimony
before the investigating fiscal that Yambao is but her "messenger" or "part-time employee."
There was no special fiduciary relationship that permeated their dealings. For a contract of
agency to exist, the consent of both parties is essential, the principal consents that the other
party, the agent, shall act on his behalf, and the agent consents so to act. It must exist as a
fact. The law makes no presumption thereof. The person alleging it has the burden of proof
to show, not only the fact of its existence, but also its nature and extent. This is more
imperative when it is considered that the transaction dealt with involves checks, which are
not legal tender, and the creditor may validly refuse the same as payment of obligation.(at
p. 630). (emphasis supplied)

The records show that Marasigan merely relied on the words of Gutierrez without securing
a copy of the SPA in favor of the latter and without verifying from the petitioner whether
he had authorized the borrowing of money or release of the check. He was thus bound by
the risk accompanying his trust on the mere assurances of Gutierrez.

No Contract of Loan Was Perfected Between Marasigan And Petitioner, as The Latter’s
Consent Was Not Obtained.

Another significant point that the lower courts failed to consider is that a contract of loan,
like any other contract, is subject to the rules governing the requisites and validity of
contracts in general.13 Article 1318 of the Civil Code14enumerates the essential requisites
for a valid contract, namely:

1. consent of the contracting parties;

2. object certain which is the subject matter of the contract; and

3. cause of the obligation which is established.

In this case, the petitioner denied liability on the ground that the contract lacked the
essential element of consent. We agree with the petitioner. As we explained above, Gutierrez
did not have the petitioner’s written/verbal authority to enter into a contract of loan. While
there may be a meeting of the minds between Gutierrez and Marasigan, such agreement
cannot bind the petitioner whose consent was not obtained and who was not privy to the
loan agreement. Hence, only Gutierrez is bound by the contract of loan.

True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into
the hands of Marasigan. This act, however, does not constitute sufficient authority to borrow
money in his behalf and neither should it be construed as petitioner’s grant of consent to
the parties’ loan agreement. Without any evidence to prove Gutierrez’ authority, the
petitioner’s signature in the check cannot be taken, even remotely, as sufficient
authorization, much less, consent to the contract of loan. Without the consent given by one
party in a purported contract, such contract could not have been perfected; there simply was
no contract to speak of.15

With the loan issue out of the way, we now proceed to determine whether the petitioner can
be made liable under the check he signed.

II. Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in Section 14 of the
Negotiable Instruments Law (NIL) which states:

Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it by
filling up the blanks therein. And a signature on a blank paper delivered by the person
making the signature in order that the paper may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such for any amount. In order, however,
that any such instrument when completed may be enforced against any person who became
a party thereto prior to its completion, it must be filled up strictly in accordance with the
authority given and within a reasonable time. But if any such instrument, after completion,
is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands,
and he may enforce it as if it had been filled up strictly in accordance with the authority
given and within a reasonable time.

This provision applies to an incomplete but delivered instrument. Under this rule, if the
maker or drawer delivers a pre-signed blank paper to another person for the purpose of
converting it into a negotiable instrument, that person is deemed to have prima facie
authority to fill it up. It merely requires that the instrument be in the possession of a person
other than the drawer or maker and from such possession, together with the fact that the
instrument is wanting in a material particular, the law presumes agency to fill up the
blanks.16

In order however that one who is not a holder in due course can enforce the instrument
against a party prior to the instrument’s completion, two requisites must exist: (1) that the
blank must be filled strictly in accordance with the authority given; and (2) it must be filled
up within a reasonable time. If it was proven that the instrument had not been filled up
strictly in accordance with the authority given and within a reasonable time, the maker can
set this up as a personal defense and avoid liability. However, if the holder is a holder in
due course, there is a conclusive presumption that authority to fill it up had been given and
that the same was not in excess of authority.17

In the present case, the petitioner contends that there is no legal basis to hold him liable
both under the contract and loan and under the check because: first, the subject check was
not completely filled out strictly under the authority he has given and second, Marasigan
was not a holder in due course.

Marasigan is Not a Holder in Due Course

The Negotiable Instruments Law (NIL) defines a holder in due course, thus:

Sec. 52 — A holder in due course is a holder who has taken the instrument under the
following conditions:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that it had
been previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him he had no notice of any infirmity in the
instrument or defect in the title of the person negotiating it.(emphasis supplied)

Section 52(c) of the NIL states that a holder in due course is one who takes the instrument
"in good faith and for value." It also provides in Section 52(d) that in order that one may be
a holder in due course, it is necessary that at the time it was negotiated to him he had no
notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Acquisition in good faith means taking without knowledge or notice of equities of any sort
which could beset up against a prior holder of the instrument.18 It means that he does not
have any knowledge of fact which would render it dishonest for him to take a negotiable
paper. The absence of the defense, when the instrument was taken, is the essential element
of good faith.19

As held in De Ocampo v. Gatchalian:20

In order to show that the defendant had "knowledge of such facts that his action in taking
the instrument amounted to bad faith," it is not necessary to prove that the defendant knew
the exact fraud that was practiced upon the plaintiff by the defendant's assignor, it being
sufficient to show that the defendant had notice that there was something wrong about his
assignor's acquisition of title, although he did not have notice of the particular wrong that
was committed.

It is sufficient that the buyer of a note had notice or knowledge that the note was in some
way tainted with fraud. It is not necessary that he should know the particulars or even the
nature of the fraud, since all that is required is knowledge of such facts that his action in
taking the note amounted bad faith.

The term ‘bad faith’ does not necessarily involve furtive motives, but means bad faith in a
commercial sense. The manner in which the defendants conducted their Liberty Loan
department provided an easy way for thieves to dispose of their plunder. It was a case of "no
questions asked." Although gross negligence does not of itself constitute bad faith, it is
evidence from which bad faith may be inferred. The circumstances thrust the duty upon the
defendants to make further inquiries and they had no right to shut their eyes deliberately
to obvious facts. (emphasis supplied).
In the present case, Marasigan’s knowledge that the petitioner is not a party or a privy to
the contract of loan, and correspondingly had no obligation or liability to him, renders him
dishonest, hence, in bad faith. The following exchange is significant on this point:

WITNESS: AMBET NABUS

Q: Now, I refer to the second call… after your birthday. Tell us what you talked about?

A: Since I celebrated my birthday in that place where Nap and I live together with the other
crew, there were several visitors that included Danny Espiritu. So a week after my birthday,
Bong Marasigan called me up again and he was fuming mad. Nagmumura na siya.
Hinahanap niya si… hinahanap niya si Nap, dahil pinagtataguan na siya at sinabi na niya
na kailangan I-settle na niya yung utang ni Nap, dahil…

xxxx

WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan
ang tsekeng tumalbog… (He told me that we have to fix it up before it…) mauwi pa kung
saan…

xxxx

Q: What was your reply, if any?

A: I actually asked him. Kanino ba ang tseke na sinasabi mo?

(Whose check is it that you are referring to or talking about?)

Q: What was his answer?

A: It was Alvin’s check.

Q: What was your reply, if any?

A: I told him do you know that it is not really Alvin who borrowed money from you or what
you want to appear…

xxxx

Q: What was his reply?

A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit
dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71; emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the rule
that a possessor of the instrument is prima facie a holder in due course is inapplicable. As
correctly noted by the CA, his inaction and failure to verify, despite knowledge of that the
petitioner was not a party to the loan, may be construed as gross negligence amounting to
bad faith.

Yet, it does not follow that simply because he is not a holder in due course, Marasigan is
already totally barred from recovery. The NIL does not provide that a holder who is not a
holder in due course may not in any case recover on the instrument.22 The only disadvantage
of a holder who is not in due course is that the negotiable instrument is subject to defenses
as if it were non-negotiable.23 Among such defenses is the filling up blank not within the
authority.

On this point, the petitioner argues that the subject check was not filled up strictly on the
basis of the authority he gave. He points to his instruction not to use the check without his
prior approval and argues that the check was filled up in violation of said instruction.

Check Was Not Completed Strictly Under The Authority Given by The Petitioner

Our own examination of the records tells us that Gutierrez has exceeded the authority to
fill up the blanks and use the check.1âwphi1 To repeat, petitioner gave Gutierrez pre-signed
checks to be used in their business provided that he could only use them upon his approval.
His instruction could not be any clearer as Gutierrez’ authority was limited to the use of the
checks for the operation of their business, and on the condition that the petitioner’s prior
approval be first secured.

While under the law, Gutierrez had a prima facie authority to complete the check, such
prima facie authority does not extend to its use (i.e., subsequent transfer or negotiation)once
the check is completed. In other words, only the authority to complete the check is presumed.
Further, the law used the term "prima facie" to underscore the fact that the authority which
the law accords to a holder is a presumption juris tantumonly; hence, subject to subject to
contrary proof. Thus, evidence that there was no authority or that the authority granted
has been exceeded may be presented by the maker in order to avoid liability under the
instrument.
In the present case, no evidence is on record that Gutierrez ever secured prior approval from
the petitioner to fill up the blank or to use the check. In his testimony, petitioner asserted
that he never authorized nor approved the filling up of the blank checks, thus:

ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to write the date, May
23, 1994?

WITNESS: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?

A: No, sir.

Q: Did you authorize anyone including Nap Gutierrez to write the figure ₱200,000 in this
check?

A: No, sir.

Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words
₱200,000 only xx in this check?

A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24

Notably, Gutierrez was only authorized to use the check for business expenses; thus, he
exceeded the authority when he used the check to pay the loan he supposedly contracted for
the construction of petitioner's house. This is a clear violation of the petitioner's instruction
to use the checks for the expenses of Slam Dunk. It cannot therefore be validly concluded
that the check was completed strictly in accordance with the authority given by the
petitioner.

Considering that Marasigan is not a holder in due course, the petitioner can validly set up
the personal defense that the blanks were not filled up in accordance with the authority he
gave. Consequently, Marasigan has no right to enforce payment against the petitioner and
the latter cannot be obliged to pay the face value of the check.

WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the

petitioner Alvin Patrimonio's petition for review on certiorari. The appealed Decision dated
September 24, 2008 and the Resolution dated April 30, 2009 of the Court of Appeals are
consequently ANNULLED AND SET ASIDE. Costs against the respondents.

SO ORDERED.