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G.R. No. 156262 July 14, 2005
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses ANASTACIO
and MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves the collection of a sum of money.
Specifically, this case arose from the failure of petitioners to pay respondents’
predecessor-in-interest. This fact was shown by the non-encashment of checks issued
by a third person, but indorsed by herein Petitioner Maria Tuazon in favor of the said
predecessor. Under these circumstances, to enable respondents to collect on the
indebtedness, the check drawer need not be impleaded in the Complaint. Thus, the
suit is directed, not against the drawer, but against the debtor who indorsed the
checks in payment of the obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging
the July 31, 2002 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 46535. The
decretal portion of the assailed Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED."
On the other hand, the affirmed Decision3 of Branch 34 of the Regional Trial Court
(RTC) of Gapan, Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to
pay the plaintiffs, as follows:
"1. The sum of ₱1,750,050.00, with interests from the filing of the second amended
complaint;
"2. The sum of ₱50,000.00, as attorney’s fees;
"3. The sum of ₱20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988,
spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the
deceased Bartolome] Ramos [predecessor-in-interest of respondents]. That of this
[quantity,] x x x only 4,437 cavans [have been paid for so far], leaving unpaid 3,889
cavans valued at ₱1,211,919.00. In payment therefor, the spouses Tuazon issued x x x
[several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to
insufficiency of funds. [Respondents] advanced that before issuing said checks[,]
spouses Tuazon already knew that they had no available fund to support the checks,
and they failed to provide for the payment of these despite repeated demands made
on them.
"[Respondents] averred that because spouses Tuazon anticipated that they would be
sued, they conspired with the other [defendants] to defraud them as creditors by
executing x x x fictitious sales of their properties. They executed x x x simulated
sale[s] [of three lots] in favor of the x x x spouses Buenaventura x x x[,] as well as
their residential lot and the house thereon[,] all located at Nueva Ecija, and another
simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the Land
Transportation Office of Cabanatuan City on September 7, 1988. [Co-petitioner]
Melecio Tuazon, a son of spouses Tuazon, registered a fictitious Deed of Sale on July
19, 1988 x x x over a residential lot located at Nueva Ecija. Another simulated sale of
a Toyota Willys was executed on January 25, 1988 in favor of their other son, [co-
petitioner] Alejandro Tuazon x x x. As a result of the said sales, the titles of these
properties issued in the names of spouses Tuazon were cancelled and new ones were
issued in favor of the [co-]defendants spouses Buenaventura, Alejandro Tuazon and
Melecio Tuazon. Resultantly, by the said ante-dated and simulated sales and the
corresponding transfers there was no more property left registered in the names of
spouses Tuazon answerable to creditors, to the damage and prejudice of
[respondents].
"For their part, defendants denied having purchased x x x rice from [Bartolome]
Ramos. They alleged that it was Magdalena Ramos, wife of said deceased, who
CASES: Agency
owned and traded the merchandise and Maria Tuazon was merely her agent. They
argued that it was Evangeline Santos who was the buyer of the rice and issued the
checks to Maria Tuazon as payments therefor. In good faith[,] the checks were
received [by petitioner] from Evangeline Santos and turned over to Ramos without
knowing that these were not funded. And it is for this reason that [petitioners] have
been insisting on the inclusion of Evangeline Santos as an indispensable party, and
her non-inclusion was a fatal error. Refuting that the sale of several properties were
fictitious or simulated, spouses Tuazon contended that these were sold because they
were then meeting financial difficulties but the disposals were made for value and in
good faith and done before the filing of the instant suit. To dispute the contention of
plaintiffs that they were the buyers of the rice, they argued that there was no sales
invoice, official receipts or like evidence to prove this. They assert that they were
merely agents and should not be held answerable."5
The corresponding civil and criminal cases were filed by respondents against Spouses
Tuazon. Those cases were later consolidated and amended to include Spouses
Anastacio and Mary Buenaventura, with Alejandro Tuazon and Melecio Tuazon as
additional defendants. Having passed away before the pretrial, Bartolome Ramos was
substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners
moved to file a third-party complaint against her. Allegedly, she was primarily liable to
respondents, because she was the one who had purchased the merchandise from
their predecessor, as evidenced by the fact that the checks had been drawn in her
name. The RTC, however, denied petitioners’ Motion.
Since the trial court acquitted petitioners in all three of the consolidated criminal
cases, they appealed only its decision finding them civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to prove the existence of
an agency between respondents and Spouses Tuazon. The appellate court disbelieved
petitioners’ contention that Evangeline Santos should have been impleaded as an
indispensable party. Inasmuch as all the checks had been indorsed by Maria Tuazon,
who thereby became liable to subsequent holders for the amounts stated in those
checks, there was no need to implead Santos.
Hence, this Petition.6
Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners
are not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering judgment
against the petitioners despite x x x the failure of the respondents to include in their
action Evangeline Santos, an indispensable party to the suit."7
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Court’s role in a petition under Rule 45
is limited to reviewing errors of law allegedly committed by the Court of Appeals.
Factual findings of the trial court, especially when affirmed by the CA, are conclusive
on the parties and this Court.8 Petitioners have not given us sufficient reasons to
deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do something
in representation or on behalf of another, with the latter’s consent or authority. 9 The
following are the elements of agency: (1) the parties’ consent, express or implied, to
establish the relationship; (2) the object, which is the execution of a juridical act in
relation to a third person; (3) the representation, by which the one who acts as an
agent does so, not for oneself, but as a representative; (4) the limitation that the
agent acts within the scope of his or her authority. 10 As the basis of agency is
representation, there must be, on the part of the principal, an actual intention to
appoint, an intention naturally inferable from the principal’s words or actions. In the
same manner, there must be an intention on the part of the agent to accept the
appointment and act upon it. Absent such mutual intent, there is generally no
agency.11
This Court finds no reversible error in the findings of the courts a quo that petitioners
were the rice buyers themselves; they were not mere agents of respondents in their
rice dealership. The question of whether a contract is one of sale or of agency
depends on the intention of the parties.12
The declarations of agents alone are generally insufficient to establish the fact or
extent of their authority.13 The law makes no presumption of agency; proving its
existence, nature and extent is incumbent upon the person alleging it. 14 In the
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present case, petitioners raise the fact of agency as an affirmative defense, yet fail to
prove its existence.

The Court notes that petitioners, on their own behalf, sued Evangeline Santos for
collection of the amounts represented by the bounced checks, in a separate civil case
that they sought to be consolidated with the current one. If, as they claim, they were
mere agents of respondents, petitioners should have brought the suit against Santos
for and on behalf of their alleged principal, in accordance with Section 2 of Rule 3 of
the Rules on Civil Procedure.15 Their filing a suit against her in their own
names negates their claim that they acted as mere agents in selling the rice obtained
from Bartolome Ramos.

Second Issue:

Indispensable Party

Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be
impleaded as an indispensable party. They insist that respondents’ Complaint against
them is based on the bouncing checks she issued; hence, they point to her as the
person primarily liable for the obligation.

We hold that respondents’ cause of action is clearly founded on petitioners’ failure to

pay the purchase price of the rice. The trial court held that Petitioner Maria Tuazon
had indorsed the questioned checks in favor of respondents, in accordance with
Sections 31 and 63 of the Negotiable Instruments Law.16 That Santos was the drawer
of the checks is thus immaterial to the respondents’ cause of action.

As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the
checks were to be accepted or paid, or both, according to their tenor; and that in
case they were dishonored, she would pay the corresponding amount. 17After an
instrument is dishonored by nonpayment, indorsers cease to be merely secondarily
liable; they become principal debtors whose liability becomes identical to that of the
original obligor. The holder of a negotiable instrument need not even proceed against
the maker before suing the indorser. 18 Clearly, Evangeline Santos -- as the drawer of
the checks -- is not an indispensable party in an action against Maria Tuazon, the
indorser of the checks.

Indispensable parties are defined as "parties in interest without whom no final

determination can be had."19 The instant case was originally one for the collection of
the purchase price of the rice bought by Maria Tuazon from respondents’
predecessor. In this case, it is clear that there is no privity of contract between
respondents and Santos. Hence, a final determination of the rights and interest of the
parties may be made without any need to implead her.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioners.

SO ORDERED.

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G.R. No. 117356 June 19, 2000
VICTORIAS MILLING CO., INC., petitioner,
vs.
COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV
No. 31717, as well as the respondent court's resolution of September 30, 1994
modifying said decision. Both decision and resolution amended the judgment dated
February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case
No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner
Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued
several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among
these was SLDR No. 1214M, which gave rise to the instant case. Dated October 16,
1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms
and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated
October 16, 1989." 1 The transaction it covered was a "direct sale."2The SLDR also
contains an additional note which reads: "subject for (sic) availability of a (sic) stock
at NAWACO (warehouse)."3
On October 25, 1989, STM sold to private respondent Consolidated Sugar
Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one
check dated October 25, 1989 and three checks postdated November 13, 1989 in
payment. That same day, CSC wrote petitioner that it had been authorized by STM to
withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy
of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to withdraw
for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-
Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000
bags."4
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00
with petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated
October 27, 1989 acknowledging receipt of the said checks in payment of 50,000
bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO
warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been
released, petitioner refused to allow further withdrawals of sugar against SLDR No.
1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that
SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused
further withdrawals of sugar from petitioner's warehouse despite the fact that only
2,000 bags had been withdrawn.5 CSC thus inquired when it would be allowed to
withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further
withdrawals of sugar against SLDR No. 1214M because STM had already dwithdrawn
all the sugar covered by the cleared checks. 6
On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance
of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount
of STM's cleared checks had been fully withdrawn and hence, there would be no
more deliveries of the commodity to STM's account. Petitioner also noted that CSC
had represented itself to be STM's agent as it had withdrawn the 2,000 bags against
SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil
Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of
St. Therese Merchandising) and herein petitioner. Since the former could not be
served with summons, the case proceeded only against the latter. During the trial, it
was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy
who could not be reached through summons.7 CSC, however, did not bother
to pursue its case against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by
SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the
sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by
SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits,
P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation
expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000
bags.8 Since STM had already drawn in full all the sugar corresponding to the amount
of its cleared checks, it could no longer authorize further delivery of sugar to CSC.
Petitioner also contended that it had no privity of contract with CSC.
CASES: Agency
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Petitioner explained that the SLDRs, which it had issued, were not documents of title,
but mere delivery receipts issued pursuant to a series of transactions entered into
between it and STM. The SLDRs prescribed delivery of the sugar to the party specified
therein and did not authorize the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-
conspirator to defraud it through a misrepresentation that CSC was an innocent
purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to
pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as
exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that
cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the
merits.
As earlier stated, the trial court rendered its judgment favoring private respondent
CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor
of the plaintiff and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the
plaintiff 23,000 bags of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of
P920,000.00 as unrealized profits, the amount of P800,000.00 as
exemplary damages and the amount of P1,357,000.00, which is 10% of
the acquisition value of the undelivered bags of refined sugar in the
amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."9
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the
purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered
by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the 25,000 bags
of sugar bought by her covered by SLDR No. 1213 on the same date, October 16,
1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive which
are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising in
favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar
covered by SLDR No. 1213 and 1214. Said checks appear to have been honored and
duly credited to the account of Victorias Milling Company because on October 27,
1989 Victorias Milling Company issued official receipt no. 34734 in favor of St.
Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1). The
testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer
printout of defendant Victorias Milling Company showing the quantity and value of
the purchases made by St. Therese Merchandising, the SLDR no. issued to cover the
purchase, the official reciept no. and the status of payment. It is clear in Exhibit 'F'
that with respect to the sugar covered by SLDR No. 1214 the same has been fully paid
as indicated by the word 'cleared' appearing under the column of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the
purchase price of the 25,000 bags of sugar purchased by St. Therese Merchandising
covered by SLDR No. 1214 has not been fully paid is supported only by the testimony
of Arnulfo Caintic, witness for defendant Victorias Milling Company. The Court notes
that the testimony of Arnulfo Caintic is merely a sweeping barren assertion that the
purchase price has not been fully paid and is not corroborated by any positive
evidence. There is an insinuation by Arnulfo Caintic in his testimony that the
postdated checks issued by the buyer in payment of the purchased price were
dishonored. However, said witness failed to present in Court any dishonored check or
any replacement check. Said witness likewise failed to present any bank record
showing that the checks issued by the buyer, Teresita Ng Go, in payment of the
purchase price of the sugar covered by SLDR No. 1214 were dishonored."10
Petitioner appealed the trial court’s decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a
series of transactions involving only one account or one general contract of sale.
Pursuant to this contract, STM or any of its authorized agents could withdraw bags of
sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22
SLDRs issued to STM and since the latter had already withdrawn its full quota of sugar
under the said SLDR, CSC was already precluded from seeking delivery of the 23,000
bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No.
1214M were separate and independent transactions and that the details of the series
of purchases were contained in a single statement with a consolidated summary of
cleared check payments and sugar stock withdrawals because this a more convenient
system than issuing separate statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the
transaction between petitioner and STM involving SLDR No. 1214M was a separate,
independent, and single transaction; (b) Whether or not CSC had the capacity to sue
on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the
rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to
deliver 23,000 bags allegedly unwithdrawn.
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On February 24, 1994, the Court of Appeals rendered its decision modifying the trial
court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders
defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR
No. 1214M;
"2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the
undelivered bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."11
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision
to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders
defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR
No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."12
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit ‘F' We relied upon in fixing the number of bags of sugar which remained
undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit
that courts should consider the evidence only for the purpose for which it was
offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the
party against whom the evidence is presented to object thereto if he deems it
necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit ‘F'
which was offered to prove that checks in the total amount of P15,950,000.00 had
been cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to
prove the proposition that 12,586 bags of sugar remained undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and
Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-
appellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR
after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit
I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters
to defendant-appellant asking the latter to allow it to withdraw the remaining 23,000
bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged
that sugar delivery to the STM corresponded only to the value of cleared checks; and
that all sugar corresponded to cleared checks had been withdrawn. Defendant-
appellant did not rebut plaintiff-appellee's assertions. It did not present evidence to
show how many bags of sugar had been withdrawn against SLDR No. 1214M,
precisely because of its theory that all sales in question were a series of one single
transaction and withdrawal of sugar depended on the clearing of checks paid
therefor.
"After a second look at the evidence, We see no reason to overturn the findings of
the trial court on this point."13
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private
respondent's specially informing petitioner that respondent was
authorized by buyer STM to withdraw sugar against SLDR No. 1214M
"for and in our (STM) behalf," (emphasis in the original) private
respondent's withdrawing 2,000 bags of sugar for STM, and STM's
empowering other persons as its agents to withdraw sugar against the
same SLDR No. 1214M, rendered respondent like the other persons, an
agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA
252, and precluded it from subsequently claiming and proving being an
assignee of SLDR No. 1214M and from suing by itself for its enforcement
because it was conclusively presumed to be an agent (Sec. 2, Rule 131,
Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).
"2. The Court of Appeals erred in manifestly and arbitrarily ignoring and
disregarding certain relevant and undisputed facts which, had they been
considered, would have shown that petitioner was not liable, except for
69 bags of sugar, and which would justify review of its conclusion of facts
by this Honorable Court.
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Page 4 of 104
"3. The Court of Appeals misapplied the law on compensation under
Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that
compensation applied only to credits from one SLDR or contract and not
to those from two or more distinct contracts between the same parties;
and erred in denying petitioner's right to setoff all its credits arising prior
to notice of assignment from other sales or SLDRs against private
respondent's claim as assignee under SLDR No. 1214M, so as to
extinguish or reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more distinct contracts
between the same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or
liquidation of accounts in Exh. ‘F’ between petitioner and STM,
respondent's admission of its balance, and STM's acquiescence thereto
by silence for almost one year did not render Exh. `F' an account stated
and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the
assigned SLDR No. 1214, namely, (a) its subject matter being generic,
and (b) the sale of sugar being subject to its availability at the Nawaco
warehouse, made the sale conditional and prevented STM or private
respondent from acquiring title to the sugar; and the non-availability of
sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands"
doctrine precluded respondent from seeking judicial reliefs (sic) from
petitioner, its only remedy being against its assignor." 14
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC
was an agent of STM and hence, estopped to sue upon SLDR No. 1214M
as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on
compensation to the transaction under SLDR No. 1214M so as to
preclude petitioner from offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the
sale of sugar under SLDR No. 1214M was a conditional sale or a contract
to sell and hence freed petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in
not applying the "clean hands doctrine" to preclude CSC from seeking
judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the
first time on appeal.1avvphi1 It is settled that an issue which was not raised during
the trial in the court below could not be raised for the first time on appeal as to do so
would be offensive to the basic rules of fair play, justice, and due
process.15 Nonetheless, the Court of Appeals opted to address this issue, hence, now
a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw
sugar against SLDR No. 1214M to show that the latter was STM's agent. The pertinent
portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to
withdraw for and in our behalf (stress supplied) the refined sugar covered by
Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16,
1989 in the total quantity of 25, 000 bags."16
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render some service
or to do something in representation or on behalf of another, with the consent or
authority of the latter."
It is clear from Article 1868 that the basis of agency is representation. 17 On the part of
the principal, there must be an actual intention to appoint18 or an intention naturally
inferable from his words or actions;19 and on the part of the agent, there must be an
intention to accept the appointment and act on it,20 and in the absence of such intent,
there is generally no agency.21 One factor which most clearly distinguishes agency
from other legal concepts is control; one person - the agent - agrees to act under the
control or direction of another - the principal. Indeed, the very word "agency" has
come to connote control by the principal.22 The control factor, more than any other,
has caused the courts to put contracts between principal and agent in a separate
category.23 The Court of Appeals, in finding that CSC, was not an agent of STM,
opined:
"This Court has ruled that where the relation of agency is dependent upon the acts of
the parties, the law makes no presumption of agency, and it is always a fact to be
proved, with the burden of proof resting upon the persons alleging the agency, to
show not only the fact of its existence, but also its nature and extent (Antonio vs.
Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish
the existence of an agency relation between plaintiff-appellee and STM. The fact
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alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and
in our (STM's) behalf" should not be eyed as pointing to the existence of an agency
relation ...It should be viewed in the context of all the circumstances obtaining.
Although it would seem STM represented plaintiff-appellee as being its agent by the
use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23
January 1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M
had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further,
plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR No.
1214M were sold and transferred by STM to it ...A conclusion that there was a valid
sale and transfer to plaintiff-appellee may, therefore, be made thus capacitating
plaintiff-appellee to sue in its own name, without need of joining its imputed
principal STM as co-plaintiff."24

In the instant case, it appears plain to us that private respondent CSC was a buyer of
the SLDFR form, and not an agent of STM. Private respondent CSC was not subject to
STM's control. The question of whether a contract is one of sale or agency depends
on the intention of the parties as gathered from the whole scope and effect of the
language employed.25 That the authorization given to CSC contained the phrase "for
and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is
the intention of the parties.26 That no agency was meant to be established by the CSC
and STM is clearly shown by CSC's communication to petitioner that SLDR No. 1214M
had been "sold and endorsed" to it.27 The use of the words "sold and endorsed"
means that STM and CSC intended a contract of sale, and not an agency. Hence, on
this score, no error was committed by the respondent appellate court when it held
that CSC was not STM's agent and could independently sue petitioner.

On the second issue, proceeding from the theory that the transactions entered into
between petitioner and STM are but serial parts of one account, petitioner insists
that its debt has been offset by its claim for STM's unpaid purchases, pursuant to
Article 1279 of the Civil Code.28 However, the trial court found, and the Court of
Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a
separate and independent transaction; it was not a serial part of a single transaction
or of one account contrary to petitioner's insistence. Evidence on record shows,
without being rebutted, that petitioner had been paid for the sugar purchased under
SLDR No. 1214M. Petitioner clearly had the obligation to deliver said commodity to
STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as
assignee of STM, were not mutually creditors and debtors of each other. No
reversible error could thereby be imputed to respondent appellate court when, it
refused to apply Article 1279 of the Civil Code to the present case.

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No.
1214M is a conditional sale or a contract to sell, with title to the sugar still remaining
with the vendor. Noteworthy, SLDR No. 1214M contains the following terms and
conditions:

"It is understood and agreed that by payment by buyer/trader of refined sugar and/or
receipt of this document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to buyer/trader and delivery to
him/it is deemed effected and completed (stress supplied) and buyer/trader assumes
full responsibility therefore…" 29

The aforequoted terms and conditions clearly show that petitioner transferred title to
the sugar to the buyer or his assignee upon payment of the purchase price. Said
terms clearly establish a contract of sale, not a contract to sell. Petitioner is now
estopped from alleging the contrary. The contract is the law between the contracting
parties.30 And where the terms and conditions so stipulated are not contrary to law,
morals, good customs, public policy or public order, the contract is valid and must be
upheld.31 Having transferred title to the sugar in question, petitioner is now obliged to
deliver it to the purchaser or its assignee.

As to the fourth issue, petitioner submits that STM and private respondent CSC have
entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly
evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing
price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the authority
given by the latter to other persons to withdraw sugar against SLDR No. 1214M after
she had sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of
"clean hands" should be applied to preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here the records bare of convincing
evidence whatsoever to support the petitioner's allegations of fraud. We are now
constrained to deem this matter purely speculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.

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G.R. No. 120465 September 9, 1999
WILLIAM UY and RODEL ROXAS, petitioners,
vs.
COURT OF APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING
AUTHORITY, respondents.
KAPUNAN, J.:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of
land by the owners thereof. By virtue of such authority, petitioners offered to sell the
lands, located in Tuba, Tadiangan, Benguet to respondent National Housing Authority
(NHA) to be utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the
acquisition of said lands, with an area of 31.8231 hectares, at the cost of P23.867
million, pursuant to which the parties executed a series of Deeds of Absolute Sale
covering the subject lands. Of the eight parcels of land, however, only five were paid
for by the NHA because of the report 1 it received from the Land Geosciences Bureau
of the Department of Environment and Natural Resources (DENR) that the remaining
area is located at an active landslide area and therefore, not suitable for development
into a housing project.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over
the three parcels of land. The NHA, through Resolution No. 2394, subsecguently
offered the amount of P1.225 million to the landowners as daños perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon
City a Complaint for Damages against NHA and its General Manager Robert Balao.
After trial, the RTC rendered a decision declaring the cancellation of the contract to
be justified. The trial court nevertheless awarded damages to plaintiffs in the sum of
P1.255 million, the same amount initially offered by NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial
court and entered a new one dismissing the complaint. It held that since there was
"sufficient justifiable basis" in cancelling the sale, "it saw no reason" for the award of
damages. The Court of Appeals also noted that petitioners were mere attorneys-in-
fact and, therefore, not the real parties-in-interest in the action before the trial court.
. . . In paragraph 4 of the complaint, plaintiffs alleged themselves
to be "sellers' agents" for the several owners of the 8 lots subject
matter of the case. Obsviously, William Uy and Rodel Roxas in
filing this case acted as attorneys-in-fact of the lot owners who
are the real parties in interest but who were omitted to be
pleaded as party-plaintiffs in the case. This omission is fatal.
Where the action is brought by an attorney-in-fact of a land
owner in his name, (as in our present action) and not in the name
of his principal, the action was properly dismissed (Ferrer vs.
Villamor, 60 SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil.
1175) because the rule is that every action must be prosecuted in
the name of the real parties-in-interest (Section 2, Rule 3, Rules
of Court).
When plaintiffs UY and Roxas sought payment of damages in
their favor in view of the partial rescission of Resolution No. 1632
and the Deed of Absolute Sale covering TCT Nos. 10998, 10999
and 11292 (Prayer complaint, page 5, RTC records), it becomes
obviously indispensable that the lot owners be included,
mentioned and named as party-plaintiffs, being the real party-in-
interest. UY and Roxas, as attorneys-in-fact or apoderados,
cannot by themselves lawfully commence this action, more so,
when the supposed special power of attorney, in their favor, was
never presented as an evidence in this case. Besides, even if
herein plaintiffs Uy and Roxas were authorized by the lot owners
to commence this action, the same must still be filed in the name
of the principal, (Filipino Industrial Corporation vs. San Diego, 23
SCRA 706 [1968]). As such indispensable party, their joinder in
the action is mandatory and the complaint may be dismissed if
not so impleaded (NDC vs. CA, 211 SCRA 422 [1992]). 2
Their motion for reconsideration having been denied, petitioners seek relief from this
Court contending that:
I. THE RESPONDENT CA ERRED IN DECLARING THAT RESPONDENT
NHA HAD ANY LEGAL BASIS FOR RESCINDING THE SALE
INVOLVING THE LAST THREE (3) PARCELS COVERED BY NHA
RESOLUTION NO. 1632.
II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD
LEGAL BASIS TO RESCIND THE SUBJECT SALE, THE RESPONDENT
CA NONETHELESS ERRED IN DENYING HEREIN PETITIONERS'
CLAIM TO DAMAGES, CONTRARY TO THE PROVISIONS OF ART.
1191 OF THE CIVIL CODE.
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III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT
COMPLAINT FINDING THAT THE PETITIONERS FAILED TO JOIN AS
INDISPENSABLE PARTY PLAINTIFF THE SELLING LOT-OWNERS. 3
We first resolve the issue raised in the the third assignment of error.
Petitioners claim that they lodged the complaint not in behalf of their principals but
in their own name as agents directly damaged by the termination of the contract. The
damages prayed for were intended not for the benefit of their principals but to
indemnify petitioners for the losses they themselves allegedly incurred as a result of
such termination. These damages consist mainly of "unearned income" and
advances. 4 Petitioners, thus, attempt to distinguish the case at bar from those
involving agents or apoderedos instituting actions in their own name but in behalf of
their principals. 5 Petitioners in this case purportedly brought the action for damages
in their own name and in their own behalf.
We find this contention unmeritorious.
Sec. 2, Rule 3 of the Rules of Court requires that every action must be prosecuted and
defended in the name of the real party-in-interest. The real party-in-interest is the
party who stands to be benefited or injured by the judgment or the party entitled to
the avails of the suit. "Interest, within the meaning of the rule, means material
interest, an interest in the issue and to be affected by the decree, as distinguished
from mere interest in the question involved, or a mere incidental interest. 6 Cases
construing the real party-in-interest provision can be more easily understood if it is
borne in mind that the true meaning of real party-in-interest may be summarized as
follows: An action shall be prosecuted in the name of the party who, by the
substantive law, has the right sought to be enforced. 7
Do petitioners, under substantive law, possess the right they seek to enforce? We
rule in the negative.
The applicable substantive law in this case is Article 1311 of the Civil Code, which
states:
Contracts take effect only between the parties, their assigns, and
heirs, except in case where the rights and obligations arising from
the contract are not transmissible by their nature, or by
stipulation, or by provision of law. . . .
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its
revocation. A mere incidental benefit or interest of a person is
not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person. (Emphasis
supplied.)
Petitioners are not parties to the contract of sale between their principals and NHA.
They are mere agents of the owners of the land subject of the sale. As agents, they
only render some service or do something in representation or on behalf of their
principals. 8 The rendering of such service did not make them parties to the contracts
of sale executed in behalf of the latter. Since a contract may be violated only by the
parties thereto as against each other, the real parties-in-interest, either as plaintiff or
defendant, in an action upon that contract must, generally, either be parties to said
contract. 9
Neither has there been any allegation, much less proof, that petitioners are the heirs
of their principals.
Are petitioners assignees to the rights under the contract of sale? In McMicking vs.
Banco Español-Filipino, 10 we held that the rule requiring every action to be
prosecuted in the name of the real party-in-interest.
. . . recognizes the assignments of rights of action and also
recognizes that when one has a right of action assigned to him he
is then the real party in interest and may maintain an action upon
such claim or right. The purpose of [this rule] is to require the
plaintiff to be the real party in interest, or, in other words, he
must be the person to whom the proceeds of the action shall
belong, and to prevent actions by persons who have no interest
in the result of the same. . . .
Thus, an agent, in his own behalf, may bring an action founded on a contract made
for his principal, as an assignee of such contract. We find the following declaration in
Section 372 (1) of the Restatement of the Law on Agency (Second): 11
Sec. 372. Agent as Owner of Contract Right
(1) Unless otherwise agreed, an agent who has or who acquires
an interest in a contract which he makes on behalf of his principal
can, although not a promisee, maintain such action thereon
maintain such action thereon as might a transferee having a
similar interest.
The Comment on subsection (1) states:
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a. Agent a transferee. One who has made a contract on behalf of Nevertheless, to forestall further litigation on the substantive aspects of this case, we
another may become an assignee of the contract and bring suit shall proceed to rule on me merits. 15
against the other party to it, as any other transferee. The customs
of business or the course of conduct between the principal and
the agent may indicate that an agent who ordinarily has merely a Petitioners submit that respondent NHA had no legal basis to "rescind" the sale of
security interest is a transferee of the principals rights under the the subject three parcels of land. The existence of such legal basis, notwithstanding,
contract and as such is permitted to bring suit. If the agent has petitioners argue that they are still entitled to an award of damages.
settled with his principal with the understanding that he is to
collect the claim against the obligor by way of reimbursing Petitioners confuse the cancellation of the contract by the NHA as a rescission of the
himself for his advances and commissions, the agent is in the contract under Article 1191 of the Civil Code. The right of rescission or, more
position of an assignee who is the beneficial owner of the chose accurately, resolution, of a party to an obligation under Article 1191 is predicated on
in action. He has an irrevocable power to sue in his principal's a breach of faith by the other party that violates the reciprocity between them. 16 The
name. . . . And, under the statutes which permit the real party in power to rescind, therefore, is given to the injured party. 17 Article 1191 states:
interest to sue, he can maintain an action in his own name. This
power to sue is not affected by a settlement between the
principal and the obligor if the latter has notice of the agent's The power to rescind obligations is implied in reciprocal
interest. . . . Even though the agent has not settled with his ones, in case one of the obligors should not comply with
principal, he may, by agreement with the principal, have a right what is incumbent upon him.
to receive payment and out of the proceeds to reimburse himself
for advances and commissions before turning the balance over to
The injured party may choose between the fulfillment and
the principal. In such a case, although there is no formal
the rescission of the obligation, with the payment of
assignment, the agent is in the position of a transferee of the
damages in either case. He may also seek rescission, even
whole claim for security; he has an irrevocable power to sue in
after he has chosen fulfillment, if the latter should become
his principal's name and, under statutes which permit the real
impossible.
party in interest to sue, he can maintain an action in his own
name.
In this case, the NHA did not rescind the contract. Indeed, it did not have the right to
do so for the other parties to the contract, the vendors, did not commit any breach,
Petitioners, however, have not shown that they are assignees of their principals to
much less a substantial breach, 18 of their obligation. Their obligation was merely to
the subject contracts. While they alleged that they made advances and that they
deliver the parcels of land to the NHA, an obligation that they fulfilled. The NHA did
suffered loss of commissions, they have not established any agreement granting
not suffer any injury by the performance thereof.
them "the right to receive payment and out of the proceeds to reimburse
[themselves] for advances and commissions before turning the balance over to the
principal[s]." The cancellation, therefore, was not a rescission under Article 1191. Rather, the
cancellation was based on the negation of the cause arising from the realization that
the lands, which were the object of the sale, were not suitable for housing.
Finally, it does not appear that petitioners are beneficiaries of a stipulation pour
autrui under the second paragraph of Article 1311 of the Civil Code. Indeed, there is
no stipulation in any of the Deeds of Absolute Sale "clearly and deliberately" Cause is the essential reason which moves the contracting parties to enter into
conferring a favor to any third person. it. 19 In other words, the cause is the immediate, direct and proximate reason which
justifies the creation of an obligation through the will of the contracting
parties. 20 Cause, which is the essential reason for the contract, should be
That petitioners did not obtain their commissions or recoup their advances because
distinguished from motive, which is the particular reason of a contracting party which
of the non-performance of the contract did not entitle them to file the action below
does not affect the other party. 21
against respondent NHA. Section 372 (2) of the Restatement of the Law on Agency
(Second) states:
For example, in a contract of sale of a piece of land, such as in this case, the cause of
the vendor (petitioners' principals) in entering into the contract is to obtain the price.
(2) An agent does not have such an interest in a contract as
For the vendee, NHA, it is the acquisition of the land. 22 The motive of the NHA, on
to entitle him to maintain an action at law upon it in his
the other hand, is to use said lands for housing. This is apparent from the portion of
own name merely because he is entitled to a portion of the
the Deeds of Absolute Sale 23 stating:
proceeds as compensation for making it or because he is
liable for its breach.
WHEREAS, under the Executive Order No. 90 dated December 17,
1986, the VENDEE is mandated to focus and concentrate its
The following Comment on the above subsection is illuminating:
efforts and resources in providing housing assistance to the
lowest thirty percent (30%) of urban income earners, thru slum
The fact that an agent who makes a contract for his upgrading and development of sites and services projects;
principal will gain or suffer loss by the performance or
nonperformance of the contract by the principal or by the
WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended
other party thereto does not entitle him to maintain an
by Letter of Instruction No. 630, prescribed slum improvement
action on his own behalf against the other party for its
and upgrading, as well as the development of sites and services
breach. An agent entitled to receive a commission from his
as the principal housing strategy for dealing with slum, squatter
principal upon the performance of a contract which he has
and other blighted communities;
made on his principal's account does not, from this fact
alone, have any claim against the other party for breach of
the contract, either in an action on the contract or xxx xxx xxx
otherwise. An agent who is not a promisee cannot maintain
an action at law against a purchaser merely because he is
entitled to have his compensation or advances paid out of WHEREAS, the VENDEE, in pursuit of and in compliance with the
the purchase price before payment to the principal. . . . above-stated purposes offers to buy and the VENDORS, in a
gesture of their willing to cooperate with the above policy and
commitments, agree to sell the aforesaid property together with
Thus, in Hopkins vs. Ives, 12 the Supreme Court of Arkansas, citing Section 372 (2) all the existing improvements there or belonging to the
above, denied the claim of a real estate broker to recover his alleged commission VENDORS;
against the purchaser in an agreement to purchase property.

NOW, THEREFORE, for and in consideration of the foregoing

In Goduco vs. Court of appeals, 13 this Court held that: premises and the terms and conditions hereinbelow stipulated,
the VENDORS hereby, sell, transfer, cede and convey unto the
VENDEE, its assigns, or successors-in-interest, a parcel of land
. . . granting that appellant had the authority to sell the property,
located at Bo. Tadiangan, Tuba, Benguet containing a total area of
the same did not make the buyer liable for the commission she
FIFTY SIX THOUSAND EIGHT HUNDRED NINETEEN (56,819)
claimed. At most, the owner of the property and the one who
SQUARE METERS, more or less . . . .
promised to give her a commission should be the one liable to
pay the same and to whom the claim should have been
directed. . . . Ordinarily, a party's motives for entering into the contract do not affect the contract.
However, when the motive predetermines the cause, the motive may be regarded as
the cause. In Liguez vs. Court of Appeals, 24 this Court, speaking through Justice J.B.L.
As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour
REYES, HELD:
autrui under the contracts of sale, they do not, under substantive law, possess the
right they seek to enforce. Therefore, they are not the real parties-in-interest in this
case. . . . it is well to note, however, that Manresa himself (Vol. 8, pp. 641-
642), while maintaining the distinction and upholding the
inoperativeness of the motives of the parties to determine the validity
Petitioners not being the real parties-in-interest, any decision rendered herein would
of the contract, expressly excepts from the rule those contracts that
be pointless since the same would not bind the real parties-in-
are conditioned upon the attainment of the motives of either party.
interest. 14

The same view is held by the Supreme Court of Spain, in its decisions
of February 4, 1941, and December 4, 1946, holding that the motive

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 Page 8 of 104

may be regarded as causa when it predetermines the purpose of the

contract.

In this case, it is clear, and petitioners do not dispute, that NHA would not have
entered into the contract were the lands not suitable for housing. In other words, the
quality of the land was an implied condition for the NHA to enter into the contract.
On the part of the NHA, therefore, the motive was the cause for its being a party to
the sale.

Were the lands indeed unsuitable for housing as NHA claimed?

We deem the findings contained in the report of the Land Geosciences Bureau dated
15 July 1991 sufficient basis for the cancellation of the sale, thus:

In Tadiangan, Tuba, the housing site is situated in an area of

moderate topography. There [are] more areas of less sloping
ground apparently habitable. The site is underlain by . . . thick
slide deposits (4-45m) consisting of huge conglomerate boulders
(see Photo No. 2) mix[ed] with silty clay materials. These clay
particles when saturated have some swelling characteristics
which is dangerous for any civil structures especially mass
housing development. 25

Petitioners contend that the report was merely "preliminary," and not conclusive, as
indicated in its title:

MEMORANDUM

TO: EDWIN G. DOMINGO

Chief, Lands Geology Division

FROM: ARISTOTLE A. RILLON

Geologist II

SUBJECT: Preliminary Assessment of

Tadiangan Housing Project in Tuba, Benguet 26

Thus, page 2 of the report states in part:

xxx xxx xxx

Actually there is a need to conduct further geottechnical [sic]

studies in the NHA property. Standard Penetration Test (SPT)
must be carried out to give an estimate of the degree of
compaction (the relative density) of the slide deposit and also the
bearing capacity of the soil materials. Another thing to consider is
the vulnerability of the area to landslides and other mass
movements due to thick soil cover. Preventive physical mitigation
methods such as surface and subsurface drainage and regrading
of the slope must be done in the area. 27

We read the quoted portion, however, to mean only that further tests are required to
determine the "degree of compaction," "the bearing capacity of the soil materials,"
and the "vulnerability of the area to landslides," since the tests already conducted
were inadequate to ascertain such geological attributes. It is only in this sense that
the assessment was "preliminary."

Accordingly, we hold that the NHA was justified in canceling the contract. The
realization of the mistake as regards the quality of the land resulted in the negation
of the motive/cause thus rendering the contract inexistent. 28 Article 1318 of the Civil
Code states that:

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established. (Emphasis supplied.)

Therefore, assuming that petitioners are parties, assignees or beneficiaries to the

contract of sale, they would not be entitled to any award of damages.

WHEREFORE, the instant petition is hereby DENIED.

SO ORDERED.

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G.R. No. 167552 April 23, 2007
EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,
vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the Decision1 of the Court of
Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP
No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T.
Echavez." The assailed Decision and Resolution affirmed the Order 3 dated 29 January
2002 rendered by Judge Antonio T. Echavez ordering the dropping of respondent
EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution of various
European industrial equipment for customers here in the Philippines. It has as one of
its customers Impact Systems Sales ("Impact Systems") which is a sole proprietorship
owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales
manager of Impact Systems and was impleaded in the court a quo in said capacity.
From January to April 1995, petitioner sold to Impact Systems various products
allegedly amounting to ninety-one thousand three hundred thirty-eight (₱91,338.00)
pesos. Subsequently, respondents sought to buy from petitioner one unit of sludge
pump valued at ₱250,000.00 with respondents making a down payment of fifty
thousand pesos (₱50,000.00). 4 When the sludge pump arrived from the United
Kingdom, petitioner refused to deliver the same to respondents without their having
fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent
EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part of which states:
1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power
Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(₱365,000.00) PESOS as payment for the purchase of one unit of
Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY
unto the ASSIGNEE6 the said receivables from Toledo Power Corporation
in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (₱365,000.00)
PESOS which receivables the ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment. 7
Following the execution of the Deed of Assignment, petitioner delivered to
respondents the sludge pump as shown by Invoice No. 12034 dated 30 June 1995. 8
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed
of Assignment, proceeded to collect from Toledo Power Company the amount of
₱365,135.29 as evidenced by Check Voucher No. 0933 9prepared by said power
company and an official receipt dated 15 August 1995 issued by Impact
Systems. 10Alarmed by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were able to make
partial payments to petitioner. On 7 October 1996, petitioner’s counsel sent
respondents a final demand letter wherein it was stated that as of 11 June 1996,
respondents’ total obligations stood at ₱295,000.00 excluding interests and
attorney’s fees.11 Because of respondents’ failure to abide by said final demand letter,
petitioner instituted a complaint for sum of money, damages, with application for
preliminary attachment against herein respondents before the Regional Trial Court of
Cebu City.12
On 8 January 1997, the trial court granted petitioner’s prayer for the issuance of writ
of preliminary attachment.13
On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted
petitioner’s allegations with respect to the sale transactions entered into by Impact
Systems and petitioner between January and April 1995. 15 He, however, disputed the
total amount of Impact Systems’ indebtedness to petitioner which, according to him,
amounted to only ₱220,000.00. 16
By way of special and affirmative defenses, respondent EDWIN alleged that he is not
a real party in interest in this case. According to him, he was acting as mere agent of
his principal, which was the Impact Systems, in his transaction with petitioner and
the latter was very much aware of this fact. In support of this argument, petitioner
points to paragraphs 1.2 and 1.3 of petitioner’s Complaint stating –
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of
Cebu City. He is the proprietor of a single proprietorship business known
as Impact Systems Sales ("Impact Systems" for brevity), with office
located at 46-A del Rosario Street, Cebu City, where he may be served
summons and other processes of the Honorable Court.
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Page 9 of 104
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a
resident of Cebu City. He is the Sales Manager of Impact Systems and is
sued in this action in such capacity.17
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default
with Motion for Summary Judgment. The trial court granted petitioner’s motion to
declare respondent ERWIN in default "for his failure to answer within the prescribed
period despite the opportunity granted"18 but it denied petitioner’s motion for
summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the
case on 16 October 2001.19 However, the conduct of the pre-trial conference was
deferred pending the resolution by the trial court of the special and affirmative
defenses raised by respondent EDWIN. 20
After the filing of respondent EDWIN’s Memorandum21 in support of his special and
affirmative defenses and petitioner’s opposition22 thereto, the trial court rendered its
assailed Order dated 29 January 2002 dropping respondent EDWIN as a party
defendant in this case. According to the trial court –
A study of Annex "G" to the complaint shows that in the Deed of Assignment,
defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales;
that [Impact] Systems Sale is a single proprietorship entity and the complaint shows
that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is
represented by its general manager Alberto de Jesus in the contract which is dated
June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems
Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment of
₱50,000.00 that Annex "H" is dated June 30, 1995 or two days after the execution of
Annex "G", thereby showing that [Impact] Systems Sales ratified the act of Edwin B.
Cuizon; the records further show that plaintiff knew that [Impact] Systems Sales, the
principal, ratified the act of Edwin B. Cuizon, the agent, when it accepted the down
payment of ₱50,000.00. Plaintiff, therefore, cannot say that it was deceived by
defendant Edwin B. Cuizon, since in the instant case the principal has ratified the act
of its agent and plaintiff knew about said ratification. Plaintiff could not say that the
subject contract was entered into by Edwin B. Cuizon in excess of his powers since
[Impact] Systems Sales made a down payment of ₱50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be
dropped as party defendant.23
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to
the Court of Appeals which, however, affirmed the 29 January 2002 Order of the
court a quo. The dispositive portion of the now assailed Decision of the Court of
Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions
reached by the public respondent in his Order dated January 29, 2002, it is hereby
AFFIRMED.24
Petitioner’s motion for reconsideration was denied by the appellate court in its
Resolution promulgated on 17 March 2005. Hence, the present petition raising, as
sole ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT
RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN
CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE
SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A
FRAUD.25
To support its argument, petitioner points to Article 1897 of the New Civil Code which
states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom
he contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of
ERWIN’s act of collecting the receivables from the Toledo Power Corporation
notwithstanding the existence of the Deed of Assignment signed by EDWIN on behalf
of Impact Systems. While said collection did not revoke the agency relations of
respondents, petitioner insists that ERWIN’s action repudiated EDWIN’s power to sign
the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his
powers as an agent, petitioner claims that he should be made personally liable for
the obligations of his principal.26
Petitioner also contends that it fell victim to the fraudulent scheme of respondents
who induced it into selling the one unit of sludge pump to Impact Systems and
signing the Deed of Assignment. Petitioner directs the attention of this Court to the
fact that respondents are bound not only by their principal and agent relationship but
are in fact full-blooded brothers whose successive contravening acts bore the obvious
signs of conspiracy to defraud petitioner. 27
In his Comment,28 respondent EDWIN again posits the argument that he is not a real
party in interest in this case and it was proper for the trial court to have him dropped
as a defendant. He insists that he was a mere agent of Impact Systems which is
owned by ERWIN and that his status as such is known even to petitioner as it is
alleged in the Complaint that he is being sued in his capacity as the sales manager of
the said business venture. Likewise, respondent EDWIN points to the Deed of
Assignment which clearly states that he was acting as a representative of Impact
Systems in said transaction.
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 Page 10 of 104

We do not find merit in the petition. CA-G.R. SP No. 71397, affirming the Order dated 29 January 2002 of the Regional
Trial Court, Branch 8, Cebu City, is AFFIRMED.

In a contract of agency, a person binds himself to render some service or to do

something in representation or on behalf of another with the latter’s consent. 29 The Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu
underlying principle of the contract of agency is to accomplish results by using the City, for the continuation of the proceedings against respondent Erwin Cuizon.
services of others – to do a great variety of things like selling, buying, manufacturing,
and transporting.30 Its purpose is to extend the personality of the principal or the
party for whom another acts and from whom he or she derives the authority to SO ORDERED.
act.31 It is said that the basis of agency is representation, that is, the agent acts for
and on behalf of the principal on matters within the scope of his authority and said
acts have the same legal effect as if they were personally executed by the
principal.32 By this legal fiction, the actual or real absence of the principal is converted
into his legal or juridical presence – qui facit per alium facit per se.33

The elements of the contract of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act in
relation to a third person; (3) the agent acts as a representative and not for himself;
(4) the agent acts within the scope of his authority.34

In this case, the parties do not dispute the existence of the agency relationship
between respondents ERWIN as principal and EDWIN as agent. The only cause of the
present dispute is whether respondent EDWIN exceeded his authority when he
signed the Deed of Assignment thereby binding himself personally to pay the
obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted
beyond the authority granted by his principal and he should therefore bear the effect
of his deed pursuant to Article 1897 of the New Civil Code.

We disagree.

Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not
personally liable to the party with whom he contracts. The same provision, however,
presents two instances when an agent becomes personally liable to a third person.
The first is when he expressly binds himself to the obligation and the second is when
he exceeds his authority. In the last instance, the agent can be held liable if he does
not give the third party sufficient notice of his powers. We hold that respondent
EDWIN does not fall within any of the exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the
sales manager of Impact Systems. As discussed elsewhere, the position of manager is
unique in that it presupposes the grant of broad powers with which to conduct the
business of the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a general
agent or manager; such a position presupposes a degree of confidence reposed and
investiture with liberal powers for the exercise of judgment and discretion in
transactions and concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an agreement to the
contrary, a managing agent may enter into any contracts that he deems reasonably
necessary or requisite for the protection of the interests of his principal entrusted to
his management. x x x.35

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-
within his authority when he signed the Deed of Assignment. To recall, petitioner
refused to deliver the one unit of sludge pump unless it received, in full, the payment
for Impact Systems’ indebtedness. 36 We may very well assume that Impact Systems
desperately needed the sludge pump for its business since after it paid the amount of
fifty thousand pesos (₱50,000.00) as down payment on 3 March 1995, 37 it still
persisted in negotiating with petitioner which culminated in the execution of the
Deed of Assignment of its receivables from Toledo Power Company on 28 June
1995.38 The significant amount of time spent on the negotiation for the sale of the
sludge pump underscores Impact Systems’ perseverance to get hold of the said
equipment. There is, therefore, no doubt in our mind that respondent EDWIN’s
participation in the Deed of Assignment was "reasonably necessary" or was required
in order for him to protect the business of his principal. Had he not acted in the way
he did, the business of his principal would have been adversely affected and he
would have violated his fiduciary relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover
both from respondents ERWIN, the principal, and EDWIN, the agent. It is well to state
here that Article 1897 of the New Civil Code upon which petitioner anchors its claim
against respondent EDWIN "does not hold that in case of excess of authority, both
the agent and the principal are liable to the other contracting party." 39 To reiterate,
the first part of Article 1897 declares that the principal is liable in cases when the
agent acted within the bounds of his authority. Under this, the agent is completely
absolved of any liability. The second part of the said provision presents the situations
when the agent himself becomes liable to a third party when he expressly binds
himself or he exceeds the limits of his authority without giving notice of his powers to
the third person. However, it must be pointed out that in case of excess of authority
by the agent, like what petitioner claims exists here, the law does not say that a third
person can recover from both the principal and the agent.40

As we declare that respondent EDWIN acted within his authority as an agent, who did
not acquire any right nor incur any liability arising from the Deed of Assignment, it
follows that he is not a real party in interest who should be impleaded in this case. A
real party in interest is one who "stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the suit." 41 In this respect, we sustain his
exclusion as a defendant in the suit before the court a quo.

WHEREFORE, premises considered, the present petition is DENIED and the Decision
dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 149353 June 26, 2006
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court
questioning the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-
G.R. CV No. 66985, which reversed the Decision dated July 29, 1998 of the Regional
Trial Court (RTC), Branch 21, City of Manila; and the CA Resolution 2 dated August 6,
2001 which denied petitioner’s Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint
for Specific Performance with Damages against Jocelyn B. Doles (petitioner),
docketed as Civil Case No. 97-82716. Respondent alleged that petitioner was
indebted to the former in the concept of a personal loan amounting to P405,430.00
representing the principal amount and interest; that on October 5, 1996, by virtue of
a "Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as buyer, a
parcel of land, as well as the improvements thereon, with an area of 42 square
meters, covered by Transfer Certificate of Title No. 382532, 4 and located at a
subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in order
to satisfy her personal loan with respondent; that this property was mortgaged to
National Home Mortgage Finance Corporation (NHMFC) to secure petitioner’s loan in
the sum of P337,050.00 with that entity; that as a condition for the foregoing sale,
respondent shall assume the undue balance of the mortgage and pay the monthly
amortization of P4,748.11 for the remainder of the 25 years which began on
September 3, 1994; that the property was at that time being occupied by a tenant
paying a monthly rent of P3,000.00; that upon verification with the NHMFC,
respondent learned that petitioner had incurred arrearages amounting
to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner
of her arrears, petitioner denied that she incurred them and refused to pay the same;
that despite repeated demand, petitioner refused to cooperate with respondent to
execute the necessary documents and other formalities required by the NHMFC to
effect the transfer of the title over the property; that petitioner collected rent over
the property for the month of January 1997 and refused to remit the proceeds to
respondent; and that respondent suffered damages as a result and was forced to
litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied
that she borrowed money from respondent, and averred that from June to
September 1995, she referred her friends to respondent whom she knew to be
engaged in the business of lending money in exchange for personal checks through
her capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo,
Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed
money from respondent and issued personal checks in payment of the loan; that the
checks bounced for insufficiency of funds; that despite her efforts to assist
respondent to collect from the borrowers, she could no longer locate them; that,
because of this, respondent became furious and threatened petitioner that if the
accounts were not settled, a criminal case will be filed against her; that she was
forced to issue eight checks amounting to P350,000 to answer for the bounced
checks of the borrowers she referred; that prior to the issuance of the checks she
informed respondent that they were not sufficiently funded but the latter
nonetheless deposited the checks and for which reason they were subsequently
dishonored; that respondent then threatened to initiate a criminal case against her
for violation of Batas Pambansa Blg. 22; that she was forced by respondent to
execute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid
criminal prosecution; that the said deed had no valid consideration; that she did not
appear before a notary public; that the Community Tax Certificate number on the
deed was not hers and for which respondent may be prosecuted for falsification and
perjury; and that she suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is
valid; second; if valid, whether petitioner is obliged to sign and execute the necessary
documents to effect the transfer of her rights over the property to the respondent;
and third, whether petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the
complaint for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration: 5
Plaintiff Angeles’ admission that the borrowers are the friends of defendant Doles
and further admission that the checks issued by these borrowers in payment of the
loan obligation negates [sic] the cause or consideration of the contract of sale
executed by and between plaintiff and defendant. Moreover, the property is not
solely owned by defendant as appearing in Entry No. 9055 of Transfer Certificate of
Title No. 382532 (Annex A, Complaint), thus:
CASES: Agency
Page 11 of 104
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the
share of Teodorico Doles on the parcel of land described in this certificate of title by
virtue of the special power of attorney to mortgage, executed before the notary
public, etc."
The rule under the Civil Code is that contracts without a cause or consideration
produce no effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole
assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic]
THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR
INSUFFICIENCY OF EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which
reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The
Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new
one is entered ordering defendant-appellee to execute all necessary documents to
effect transfer of subject property to plaintiff-appellant with the arrearages of the
former’s loan with the NHMFC, at the latter’s expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the
amount borrowed from the respondent to her friends. Hence, the Deed of Absolute
Sale was supported by a valid consideration, which is the sum of money petitioner
owed respondent amounting to P405,430.00, representing both principal and
interest.
The CA took into account the following circumstances in their entirety: the supposed
friends of petitioner never presented themselves to respondent and that all
transactions were made by and between petitioner and respondent;7 that the money
borrowed was deposited with the bank account of the petitioner, while payments
made for the loan were deposited by the latter to respondent’s bank account; 8 that
petitioner herself admitted in open court that she was "re-lending" the money loaned
from respondent to other individuals for profit; 9 and that the documentary evidence
shows that the actual borrowers, the friends of petitioner, consider her as their
creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did
not vitiate consent, since the same is considered just or legal if made to enforce one’s
claim through competent authority under Article 1335 11 of the Civil Code;12 that with
respect to the arrearages of petitioner on her monthly amortization with the NHMFC
in the sum of P26,744.09, the same shall be deemed part of the balance of
petitioner’s loan with the NHMFC which respondent agreed to assume; and that the
amount of P3,000.00 representing the rental for January 1997 supposedly collected
by petitioner, as well as the claim for damages and attorney’s fees, is denied for
insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA,
arguing that respondent categorically admitted in open court that she acted only as
agent or representative of Arsenio Pua, the principal financier and, hence, she had no
legal capacity to sue petitioner; and that the CA failed to consider the fact that
petitioner’s father, who co-owned the subject property, was not impleaded as a
defendant nor was he indebted to the respondent and, hence, she cannot be made
to sign the documents to effect the transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground
that the foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28,
2001, petitioner filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR
OF THE RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE
PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT
PAYMENT FROM THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A
CAUSE.14
Although, as a rule, it is not the business of this Court to review the findings of fact
made by the lower courts, jurisprudence has recognized several exceptions, at least
three of which are present in the instant case, namely: when the judgment is based
on a misapprehension of facts; when the findings of facts of the courts a quo are
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY
 Page 12 of 104

conflicting; and when the CA manifestly overlooked certain relevant facts not q. Your friends and the plaintiff did not meet personally?
disputed by the parties, which, if properly considered, could justify a different
conclusion.15 To arrive at a proper judgment, therefore, the Court finds it necessary to
re-examine the evidence presented by the contending parties during the trial of the witness:
case.
a. Yes, sir.
The Petition is meritorious.
Atty. Diza:
The principal issue is whether the Deed of Absolute Sale is supported by a valid
consideration. q. You are intermediaries?

1. Petitioner argues that since she is merely the agent or representative of the alleged witness:
debtors, then she is not a party to the loan; and that the Deed of Sale executed
between her and the respondent in their own names, which was predicated on that
pre-existing debt, is void for lack of consideration. a. We are both intermediaries. As evidenced by the checks of the
debtors they were deposited to the name of Arsenio Pua because the
money came from Arsenio Pua.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the
form of a price certain in money16 and that this sum indisputably pertains to the debt
in issue. This Court has consistently held that a contract of sale is null and void and xxxx
produces no effect whatsoever where the same is without cause or
consideration.17 The question that has to be resolved for the moment is whether this
Atty. Diza:
debt can be considered as a valid cause or consideration for the sale.

q. Did the plaintiff knew [sic] that you will lend the money to your
To restate, the CA cited four instances in the record to support its holding that
friends specifically the one you mentioned [a] while ago?
petitioner "re-lends" the amount borrowed from respondent to her friends: first, the
friends of petitioner never presented themselves to respondent and that all
transactions were made by and between petitioner and respondent;18 second; the witness:
money passed through the bank accounts of petitioner and respondent; 19 third,
petitioner herself admitted that she was "re-lending" the money loaned to other
individuals for profit;20 and fourth, the documentary evidence shows that the actual a. Yes, she knows the money will go to those persons.
borrowers, the friends of petitioner, consider her as their creditor and not the
respondent.21
Atty. Diza:

On the first, third, and fourth points, the CA cites the testimony of the petitioner,
q. You are re-lending the money?
then defendant, during her cross-examination:22

witness:
Atty. Diza:

a. Yes, sir.
q. You also mentioned that you were not the one indebted to the
plaintiff?
Atty. Diza:
witness:
q. What profit do you have, do you have commission?
a. Yes, sir.
witness:
Atty. Diza:
a. Yes, sir.
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa
Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your Atty. Diza:
friends?

q. How much?
witness:

witness:
a. Inocencio and Moraquin are my friends while [as to] Jacob and
Tomelden[,] they were just referred.
a. Two percent to Tomelden, one percent to Jacob and then Inocencio
and my friends none, sir.
Atty. Diza:

Based on the foregoing, the CA concluded that petitioner is the real

q. And you have transact[ed] with the plaintiff? borrower, while the respondent, the real lender.

witness: But as correctly noted by the RTC, respondent, then plaintiff, made the
following admission during her cross examination:23
a. Yes, sir.
Atty. Villacorta:
Atty. Diza:
q. Who is this Arsenio Pua?
q. What is that transaction?
witness:
witness:
a. Principal financier, sir.
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
Atty. Villacorta:
Atty. Diza:
q. So the money came from Arsenio Pua?
q. Did the plaintiff personally see the transactions with your friends?
witness:
witness:
a. Yes, because I am only representing him, sir.
a. No, sir.
Other portions of the testimony of respondent must likewise be
considered:24
Atty. Diza:

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 Page 13 of 104

Atty. Villacorta: q. So that occasion lasted for more than a year?

q. So it is not actually your money but the money of Arsenio Pua? witness:

witness: a. Yes, sir.

a. Yes, sir. Atty. Villacorta:

Court: q. And some of the checks that were issued by the friends of the
defendant bounced, am I correct?

q. It is not your money?

witness:

witness:
a. Yes, sir.

a. Yes, Your Honor.

Atty. Villacorta:

Atty. Villacorta:
q. And because of that Arsenio Pua got mad with you?

q. Is it not a fact Ms. Witness that the defendant borrowed from you to
accommodate somebody, are you aware of that? witness:

witness: a. Yes, sir.

a. I am aware of that. Respondent is estopped to deny that she herself acted as agent of a certain Arsenio
Pua, her disclosed principal. She is also estopped to deny that petitioner acted as
agent for the alleged debtors, the friends whom she (petitioner) referred.
Atty. Villacorta:

This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency
q. More or less she [accommodated] several friends of the defendant? is representation.25 The question of whether an agency has been created is ordinarily
a question which may be established in the same way as any other fact, either by
witness: direct or circumstantial evidence. The question is ultimately one of
intention.26 Agency may even be implied from the words and conduct of the parties
and the circumstances of the particular case.27Though the fact or extent of authority
a. Yes, sir, I am aware of that. of the agents may not, as a general rule, be established from the declarations of the
agents alone, if one professes to act as agent for another, she may be estopped to
deny her agency both as against the asserted principal and the third persons
xxxx
interested in the transaction in which he or she is engaged.28

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

Atty. Villacorta: With respect to the admission of petitioner that she is "re-lending" the money loaned
from respondent to other individuals for profit, it must be stressed that the manner
in which the parties designate the relationship is not controlling. If an act done by one
q. By the friends of the defendant, am I correct? person in behalf of another is in its essential nature one of agency, the former is the
agent of the latter notwithstanding he or she is not so called. 30 The question is to be
determined by the fact that one represents and is acting for another, and if relations
witness: exist which will constitute an agency, it will be an agency whether the parties
understood the exact nature of the relation or not.31
a. Yes, sir.
That both parties acted as mere agents is shown by the undisputed fact that the
Atty. Villacorta: friends of petitioner issued checks in payment of the loan in the name of Pua. If it is
true that petitioner was "re-lending", then the checks should have been drawn in her
name and not directly paid to Pua.
q. And because of your assistance, the friends of the defendant who are
in need of money were able to obtain loan to [sic] Arsenio Pua through
your assistance? With respect to the second point, particularly, the finding of the CA that the
disbursements and payments for the loan were made through the bank accounts of
petitioner and respondent,
witness:

suffice it to say that in the normal course of commercial dealings and for reasons of
a. Yes, sir. convenience and practical utility it can be reasonably expected that the facilities of
the agent, such as a bank account, may be employed, and that a sub-agent be
appointed, such as the bank itself, to carry out the task, especially where there is no
Atty. Villacorta:
stipulation to the contrary.32

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 Page 14 of 104

In view of the two agency relationships, petitioner and respondent are not privy to
the contract of loan between their principals. Since the sale is predicated on that
loan, then the sale is void for lack of consideration.

2. A further scrutiny of the record shows, however, that the sale might have been
backed up by another consideration that is separate and distinct from the debt:
respondent averred in her complaint and testified that the parties had agreed that as
a condition for the conveyance of the property the respondent shall assume the
balance of the mortgage loan which petitioner allegedly owed to the NHMFC. 33 This
Court in the recent past has declared that an assumption of a mortgage debt may
constitute a valid consideration for a sale.34

Although the record shows that petitioner admitted at the time of trial that she
owned the property described in the TCT, 35 the Court must stress that the Transfer
Certificate of Title No. 38253236 on its face shows that the owner of the property
which admittedly forms the subject matter of the Deed of Absolute Sale refers
neither to the petitioner nor to her father, Teodorico Doles, the alleged co-owner.
Rather, it states that the property is registered in the name of "Household
Development Corporation." Although there is an entry to the effect that the
petitioner had been granted a special power of attorney "covering the shares of
Teodorico Doles on the parcel of land described in this certificate," 37 it cannot be
inferred from this bare notation, nor from any other evidence on the record, that the
petitioner or her father held any direct interest on the property in question so as to
validly constitute a mortgage thereon38 and, with more reason, to effect the delivery
of the object of the sale at the consummation stage.39 What is worse, there is a
notation that the TCT itself has been "cancelled."40

In view of these anomalies, the Court cannot entertain the

possibility that respondent agreed to assume the balance of the mortgage loan which
petitioner allegedly owed to the NHMFC, especially since the record is bereft of any
factual finding that petitioner was, in the first place, endowed with any ownership
rights to validly mortgage and convey the property. As the complainant who initiated
the case, respondent bears the burden of proving the basis of her complaint. Having
failed to discharge such burden, the Court has no choice but to declare the sale void
for lack of cause. And since the sale is void, the Court finds it unnecessary to dwell on
the issue of whether duress or intimidation had been foisted upon petitioner upon
the execution of the sale.

Moreover, even assuming the mortgage validly exists, the Court notes respondent’s
allegation that the mortgage with the NHMFC was for 25 years which began
September 3, 1994. Respondent filed her Complaint for Specific Performance in 1997.
Since the 25 years had not lapsed, the prayer of respondent to compel petitioner to
execute necessary documents to effect the transfer of title is premature.

WHEREFORE, the petition is granted. The Decision and Resolution of the Court of
Appeals are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No.
97-82716 is DISMISSED.

SO ORDERED.

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G.R. No. 141485 June 30, 2005
PABLITO MURAO and NELIO HUERTAZUELA, petitioners,.
vs.
PEOPLE OF THE PHILIPPINES, respondent.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court,
petitioners pray for the reversal of the Decision of the Court of Appeals in CA-G.R. CR
No. 21134, dated 31 May 1999,1 affirming with modification the Judgment of the
Regional Trial Court (RTC) of Puerto Princesa City, Palawan, in Criminal Case No.
11943, dated 05 May 1997, 2 finding petitioners guilty beyond reasonable doubt of
the crime of estafa under Article 315(1)(b) of the Revised Penal Code.
Petitioner Pablito Murao is the sole owner of Lorna Murao Industrial Commercial
Enterprises (LMICE), a company engaged in the business of selling and refilling fire
extinguishers, with branches in Palawan, Naga, Legaspi, Mindoro, Aurora, Quezon,
Isabela, and Laguna. Petitioner Nelio Huertazuela is the Branch Manager of LMICE in
Puerto Princesa City, Palawan.3
On 01 September 1994, petitioner Murao and private complainant Chito Federico
entered into a Dealership Agreement for the marketing, distribution, and refilling of
fire extinguishers within Puerto Princesa City.4 According to the Dealership
Agreement, private complainant Federico, as a dealer for LMICE, could obtain fire
extinguishers from LMICE at a 50% discount, provided that he sets up his own sales
force, acquires and issues his own sales invoice, and posts a bond with LMICE as
security for the credit line extended to him by LMICE. Failing to comply with the
conditions under the said Dealership Agreement, private complainant Federico,
nonetheless, was still allowed to act as a part-time sales agent for LMICE entitled to a
percentage commission from the sales of fire extinguishers. 5
The amount of private complainant Federico’s commission as sales agent for LMICE
was under contention. Private complainant Federico claimed that he was entitled to a
commission equivalent to 50% of the gross sales he had made on behalf of
LMICE,6 while petitioners maintained that he should receive only 30% of the net
sales. Petitioners even contended that as company policy, part-time sales agents
were entitled to a commission of only 25% of the net sales, but since private
complainant Federico helped in establishing the LMICE branch office in Puerto
Princesa City, he was to receive the same commission as the full-time sales agents of
LMICE, which was 30% of the net sales.7
Private complainant Federico’s first successful transaction as sales agent of LMICE
involved two fire extinguishers sold to Landbank of the Philippines (Landbank),
Puerto Princesa City Branch, for the price of ₱7,200.00. Landbank issued a check,
dated 08 November 1993, pay to the order of "L.M. Industrial Comm’l. Enterprises
c/o Chito Federico," for the amount of ₱5,936.40,8 after deducting from the original
sales price the 15% discount granted by private complainant Federico to Landbank
and the 3% withholding tax. Private complainant Federico encashed the check at
Landbank and remitted only ₱2,436.40 to LMICE, while he kept ₱3,500.00 for himself
as his commission from the sale.9
Petitioners alleged that it was contrary to the standard operating procedure of LMICE
that private complainant Federico was named payee of the Landbank check on behalf
of LMICE, and that private complainant Federico was not authorized to encash the
said check. Despite the supposed irregularities committed by private complainant
Federico in the collection of the payment from Landbank and in the premature
withholding of his commission from the said payment, petitioners forgave private
complainant Federico because the latter promised to make-up for his misdeeds in the
next transaction.10
Private complainant Federico, on behalf of LMICE, subsequently facilitated a
transaction with the City Government of Puerto Princesa for the refill of 202 fire
extinguishers. Because of the considerable cost, the City Government of Puerto
Princesa requested that the transaction be split into two purchase orders, and the
City Government of Puerto Princesa shall pay for each of the purchase orders
separately.11 Pursuant to the two purchase orders, LMICE refilled and delivered all
202 fire extinguishers to the City Government of Puerto Princesa: 154 units on 06
January 1994, 43 more units on 12 January 1994, and the last five units on 13 January
1994.12
The subject of this Petition is limited to the first purchase order, Purchase Order No.
GSO-856, dated 03 January 1994, for the refill of 99 fire extinguishers, with a total
cost of ₱309,000.00.13 On 16 June 1994, the City Government of Puerto Princesa
issued Check No. 611437 to LMICE to pay for Purchase Order No. GSO-856, in the
amount of ₱300,572.73, net of the 3% withholding tax.14 Within the same day,
petitioner Huertazuela claimed Check No. 611437 from the City Government of
Puerto Princesa and deposited it under the current account of LMICE with PCIBank. 15
On 17 June 1994, private complainant Federico went to see petitioner Huertazuela at
the LMICE branch office in Puerto Princesa City to demand for the amount of
₱154,500.00 as his commission from the payment of Purchase Order No. GSO-856 by
the City Government of Puerto Princesa. Petitioner Huertazuela, however, refused to
pay private complainant Federico his commission since the two of them could not
agree on the proper amount thereof. 16
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Page 15 of 104
Also on 17 June 1994, private complainant Federico went to the police station to file
an Affidavit-Complaint for estafa against petitioners. 17 Petitioners submitted their
Joint Counter-Affidavit on 12 July 1994. 18 The City Prosecution Office of Puerto
Princesa City issued a Resolution, dated 15 August 1994, finding that a prima
faciecase for estafa existed against the petitioners and recommending the filing of an
information for estafa against both of them.19
The Information, docketed as Criminal Case No. 11943 and raffled to the RTC of
Puerto Princesa City, Palawan, Branch 52, reads as follows –
INFORMATION
The undersigned accuses PABLITO MURAO and NELIO C. HUERTAZUELA of the crime
of ESTAFA, committed as follows:
That on or about the 16th day of June, 1994, at Puerto Princesa City, Philippines, and
within the jurisdiction of this Honorable Court, the said accused, conspiring and
confederating together and mutually helping one another, after having received the
amount of ₱309,000.00 as payment of the 99 tanks of refilled fire extinguisher (sic)
from the City Government of Puerto Princesa, through deceit, fraud and
misrepresentation, did then and there willfully, unlawfully and feloniously defraud
one Chito Federico in the following manner, to wit: said accused, well knowing that
Chito Federico agent of LM Industrial Commercial Enterprises is entitled to 50%
commission of the gross sales as per their Dealership Contract or the amount of
₱154,500.00 as his commission for his sale of 99 refilled fire extinguishers worth
₱309,000.00, and accused once in possession of said amount of ₱309,000.00
misappropriate, misapply and convert the amount of ₱154,500.00 for their own
personal use and benefit and despite repeated demands made upon them by
complainant to deliver the amount of ₱154,500.00, accused failed and refused and
still fails and refuses to do so, to the damage and prejudice of said Chito Federico in
the amount of ₱154,500.00, Philippine Currency.20
After holding trial, the RTC rendered its Judgment on 05 May 1997 finding petitioners
guilty beyond reasonable doubt as co-principals of the crime of estafa defined and
penalized in Article 315(1)(b) of the Revised Penal Code. Estafa, under the said
provision, is committed by –
ART. 315. Swindling (estafa). – Any person who shall defraud another by any of the
means mentioned hereinbelow . . .
1. With unfaithfulness or abuse of confidence, namely:
(a) …
(b) By misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the offender
in trust or on commission, or for administration, or under any other
obligation involving the duty to make delivery of or to return the same,
even though such obligation be totally or partially guaranteed by a bond;
or by denying having received such money, goods, or other property; . . .
In the same Judgment, the RTC expounded on its finding of guilt, thus –
For the afore-quoted provision of the Revised Penal Code to be committed, the
following requisites must concur:
1. That money, goods or other personal property be received by the
offender in trust, or on commission, or for administration, or under any
other obligation involving the duty to make delivery of, or to return, the
same;
2. That there be misappropriation or conversion of such money or
property by the offender, or denial on his part of such receipt;
3. That such misappropriation or conversion or denial is to the prejudice
of another; and
4. That there is demand made by the offended party to the offender.
(Reyes, Revised Penal Code of the Philippines, p. 716; Manuel Manahan,
Jr. vs. Court of Appeals, Et Al., G.R. No. 111656, March 20, 1996)
All the foregoing elements are present in this case. The aborted testimony of Mrs.
Norma Dacuan, Cashier III of the Treasurer’s Office of the City of Puerto Princesa
established the fact that indeed, on June 16, 1994, co-accused Nelio Huertazuela
took delivery of Check No. 611437 with face value of ₱300,572.73, representing
payment for the refill of 99 cylinders of fire extinguishers. Although the relationship
between complaining witness Chito Federico and LMIC is not fiduciary in nature, still
the clause "any other obligation involving the duty to make delivery of or to return"
personal property is broad enough to include a "civil obligation" (Manahan vs. C.A.,
Et. Al., Mar. 20, 1996).
The second element cannot be gainsaid. Both Pablito Murao and Nelio Huertazuela
categorically admitted that they did not give to Chito Federico his commission.
Instead, they deposited the full amount of the consideration, with the PCIBank in the
Current Account of LMIC.
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The refusal by the accused to give Chito Federico what ever percentage his
commission necessarily caused him prejudice which constitute the third element of
estafa. Demand for payment, although not an essential element of estafa was
nonetheless made by the complainant but was rebuffed by the accused. The
fraudulent intent by the accused is indubitably indicated by their refusal to pay Chito
Federico any percentage of the gross sales as commission. If it were true that what
the dealer/sales Agent is entitled to by way of commission is only 30% of the gross
sales, then by all means the accused should have paid Chito Federico 30%. If he
refused, they could have it deposited in his name. In that way they may not be said to
have misappropriated for themselves what pertained to their Agent by way of
commission.
… empty fire extinguishers, filling them up, and delivering the refilled tanks to the
WHEREFORE, premises considered judgment is hereby rendered finding the accused
PABLITO MURAO and NELIO HUERTAZUELA guilty beyond reasonable doubt as co-
principals, of the crime of estafa defined and penalized in Article 315 par. 1(b) of the
Revised Penal Code, and applying the provisions of the Indeterminate Sentence Law,
both accused are hereby sentenced to an indeterminate penalty ranging from a
minimum of TWO (2) YEARS, FOUR (4) MONTHS and ONE (1) DAY of prision
correccional in its medium period, to a maximum of TWENTY (20) YEARS of reclusion
temporal in its maximum period; to pay Chito Federico, jointly and severally:
a. Sales Commission equivalent to
50% of ₱309,000.00 or ------------------- ₱154,500.00
with legal interest thereon from
June 17, 1994 until fully paid;
b. Attorney’s fees ---------------------------- ₱ 30,0000.00. 21
Resolving the appeal filed by the petitioners before it, the Court of Appeals, in its
Decision, dated 31 May 1999, affirmed the aforementioned RTC Judgment, finding
petitioners guilty of estafa, but modifying the sentence imposed on the petitioners.
The dispositive portion of the Decision of the Court of Appeals reads –
WHEREFORE, the appealed decision is hereby AFFIRMED with the MODIFICATION
that appellants PABLITO MURAO and NELIO HUERTAZUELA are hereby each
sentenced to an indeterminate penalty of eight (8) years and One (1) day of prision
mayor, as minimum, to Twenty (20) years of reclusion temporal, as maximum. The
award for attorney’s fee of ₱30,000.00 is deleted because the prosecution of criminal
action is the task of the State prosecutors. All other aspects of the appealed decision
are maintained.22
When the Court of Appeals, in its Resolution, dated 19 January 2000, 23 denied their
Motion for Reconsideration, petitioners filed the present Petition for Review 24 before
this Court, raising the following errors allegedly committed by the Court of Appeals in
its Decision, dated 31 May 1999 –
I In contrast, the current Petition concerns an agency contract whereby the principal
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT
RULED THAT PETITIONERS ARE LIABLE FOR ESTAFA UNDER ARTICLE 315 1(B) OF THE
REVISED PENAL CODE UNDER THE FOREGOING SET OF FACTS, WHEN IT IS CLEAR
FROM THE SAID UNDISPUTED FACTS THAT THE LIABILITY IS CIVIL IN NATURE.
II
WITH DUE RESPECT, THE HONORABLE COURT ERRED WHEN IT UPHOLD (sic) PRIVATE
COMPLAINANT’S CLAIM THAT HE IS ENTITLED TO A FIFTY (50%) PERCENT
COMMISSION WITHOUT EVIDENCE TO SUPPORT SUCH CLAIM.
This Court finds the instant Petition impressed with merit. Absent herein are two
essential elements of the crime of estafa by misappropriation or conversion under
Article 315(1)(b) of the Revised Penal Code, namely: (1) That money, goods or other
personal property be received by the offender in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of,
or to return, the same; and (2) That there be a misappropriation or conversion of
such money or property by the offender.
The findings of the RTC and the Court of Appeals that petitioners committed estafa
rest on the erroneous belief that private complainant Federico, due to his right to
commission, already owned 50% of the amount paid by the City Government of
Puerto Princesa to LMICE by virtue of Check No. 611437, so that the collection and
deposit of the said check by petitioners under the account of LMICE constituted
misappropriation or conversion of private complainant Federico’s commission.
However, his right to a commission does not make private complainant Federico a
joint owner of the moneypaid to LMICE by the City Government of Puerto Princesa,
but merely establishes the relation of agent and principal.25 It is unequivocal that an
agency existed between LMICE and private complainant Federico. Article 1868 of the
Civil Code defines agency as a special contract whereby "a person binds himself to
render some service or to do something in representation or on behalf of another,
with the consent or authority of the latter." Although private complainant Federico
never had the opportunity to operate as a dealer for LMICE under the terms of the
CASES: Agency
Page 16 of 104
Dealership Agreement, he was allowed to act as a sales agent for LMICE. He can
negotiate for and on behalf of LMICE for the refill and delivery of fire extinguishers,
which he, in fact, did on two occasions – with Landbank and with the City
Government of Puerto Princesa. Unlike the Dealership Agreement, however, the
agreement that private complainant Federico may act as sales agent of LMICE was
based on an oral agreement. 26
As a sales agent, private complainant Federico entered into negotiations with
prospective clients for and on behalf of his principal, LMICE. When negotiations for
the sale or refill of fire extinguishers were successful, private complainant Federico
prepared the necessary documentation. Purchase orders, invoices, and receipts were
all in the name of LMICE. It was LMICE who had the primary duty of picking up the
clients, even though private complainant Federico personally helped in hauling and
carrying the fire extinguishers during pick-up from and delivery to clients.
All profits made and any advantage gained by an agent in the execution of his agency
should belong to the principal.27 In the instant case, whether the transactions
negotiated by the sales agent were for the sale of brand new fire extinguishers or for
the refill of empty tanks, evidently, the business belonged to LMICE. Consequently,
payments made by clients for the fire extinguishers pertained to LMICE. When
petitioner Huertazuela, as the Branch Manager of LMICE in Puerto Princesa City, with
the permission of petitioner Murao, the sole proprietor of LMICE, personally picked
up Check No. 611437 from the City Government of Puerto Princesa, and deposited
the same under the Current Account of LMICE with PCIBank, he was merely collecting
what rightfully belonged to LMICE. Indeed, Check No. 611437 named LMICE as the
lone payee. Private complainant Federico may claim commission, allegedly equivalent
to 50% of the payment received by LMICE from the City Government of Puerto
Princesa, based on his right to just compensation under his agency contract with
LMICE,28 but not as the automatic owner of the 50% portion of the said payment.
Since LMICE is the lawful owner of the entire proceeds of the check payment from
the City Government of Puerto Princesa, then the petitioners who collected the
payment on behalf of LMICE did not receive the same or any part thereof in trust, or
on commission, or for administration, or under any other obligation involving the
duty to make delivery of, or to return, the same to private complainant Federico,
thus, the RTC correctly found that no fiduciary relationship existed between
petitioners and private complainant Federico. A fiduciary relationship between the
complainant and the accused is an essential element of estafa by misappropriation or
conversion, without which the accused could not have committed estafa. 29
The RTC used the case of Manahan, Jr. v. Court of Appeals30 to support its position
that even in the absence of a fiduciary relationship, the petitioners still had the civil
obligation to return and deliver to private complainant Federico his commission. The
RTC failed to discern the substantial differences in the factual background of
the Manahan case from the present Petition. The Manahan case involved the lease
of a dump truck. Although a contract of lease may not be fiduciary in character, the
lessee clearly had the civil obligation to return the truck to the lessor at the end of
the lease period; and failure of the lessee to return the truck as provided for in the
contract may constitute estafa. The phrase "or any other obligation involving the duty
to make delivery of, or to return the same" refers to contracts of bailment, such as,
contract of lease of personal property, contract of deposit, and commodatum,
wherein juridical possession of the thing was transferred to the lessee, depositary or
borrower, and wherein the latter is obligated to return the same thing. 31
already received payment from the client but refused to give the sales agent, who
negotiated the sale, his commission. As has been established by this Court in the
foregoing paragraphs, LMICE had a right to the full amount paid by the City
Government of Puerto Princesa. Since LMICE, through petitioners, directly collected
the payment, then it was already in possession of the amount, and no transfer of
juridical possession thereof was involved herein. Given that private complainant
Federico could not claim ownership over the said payment or any portion thereof,
LMICE had nothing at all to deliver and return to him. The obligation of LMICE to pay
private complainant Federico his commission does not arise from any duty to deliver
or return the money to its supposed owner, but rather from the duty of a principal to
give just compensation to its agent for the services rendered by the latter.
Furthermore, the Court of Appeals, in its Decision, dated 31 May 1999, defined the
words "convert" and "misappropriate" in the following manner –
The High Court in Saddul v. Court of Appeals [192 SCRA 277] enunciated that the
words "convert" and "misappropriate" in the crime of estafa punished under Art.
315, par. 1(b) connote an act of using or disposing of another’s property as if it were
one’s own, or if devoting it to a purpose or use different from that agreed upon. To
misappropriate to one’s use includes, not only conversion to one’s personal
advantage, but also every attempt to dispose of the property of another without
right.32
Based on the very same definition, this Court finds that petitioners did not convert
nor misappropriate the proceeds from Check No. 611437 because the same belonged
to LMICE, and was not "another’s property." Petitioners collected the said check from
the City Government of Puerto Princesa and deposited the same under the Current
Account of LMICE with PCIBank. Since the money was already with its owner, LMICE,
it could not be said that the same had been converted or misappropriated for one
could not very well fraudulently appropriate to himself money that is his own. 33
Although petitioners’ refusal to pay private complainant Federico his commission
caused prejudice or damage to the latter, said act does not constitute a crime,
particularly estafa by conversion or misappropriation punishable under Article 315(1)
(b) of the Revised Penal Code. Without the essential elements for the commission
thereof, petitioners cannot be deemed to have committed the crime.
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 Page 17 of 104

While petitioners may have no criminal liability, petitioners themselves admit their
civil liability to the private complainant Federico for the latter’s commission from the
sale, whether it be 30% of the net sales or 50% of the gross sales. However, this Court
is precluded from making a determination and an award of the civil liability for the
reason that the said civil liability of petitioners to pay private complainant Federico
his commission arises from a violation of the agency contract and not from a criminal
act.34 It would be improper and unwarranted for this Court to impose in a criminal
action the civil liability arising from a civil contract, which should have been the
subject of a separate and independent civil action.35

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CR No. 21134,
dated 31 May 1999, affirming with modification the Judgment of the RTC of Puerto
Princesa City, Palawan, in Criminal Case No. 11943, dated 05 May 1997, finding
petitioners guilty beyond reasonable doubt of estafa by conversion or
misappropriation under Article 315(1)(b) of the Revised Penal Code, and awarding
the amount of ₱154,500.00 as sales commission to private complainant Federico, is
hereby REVERSED and SET ASIDE. A new Judgment is hereby entered ACQUITTING
petitioners based on the foregoing findings of this Court that their actions did not
constitute the crime of estafa by conversion or misappropriation under Article 315(1)
(b) of the Revised Penal Code. The cash bonds posted by the petitioners for their
provisional liberty are hereby ordered RELEASED and the amounts thereof RETURNED
to the petitioners, subject to the usual accounting and auditing procedures.

SO ORDERED.

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G.R. No. 148775 January 13, 2004
SHOPPER’S PARADISE REALTY & DEVELOPMENT CORPORATION, petitioner,
vs.
EFREN P. ROQUE, respondent.
DECISION
VITUG, J.:
On 23 December 1993, petitioner Shopper’s Paradise Realty & Development
Corporation, represented by its president, Veredigno Atienza, entered into a twenty-
five year lease with Dr. Felipe C. Roque, now deceased, over a parcel of land, with an
area of two thousand and thirty six (2,036) square meters, situated at Plaza
Novaliches, Quezon City, covered by Transfer of Certificate of Title (TCT) No. 30591 of
the Register of Deeds of Quezon City in the name of Dr. Roque. Petitioner issued to
Dr. Roque a check for P250,000.00 by way of "reservation payment." Simultaneously,
petitioner and Dr. Roque likewise entered into a memorandum of agreement for the
construction, development and operation of a commercial building complex on the
property. Conformably with the agreement, petitioner issued a check for another
P250,000.00 "downpayment" to Dr. Roque.
The contract of lease and the memorandum of agreement, both notarized, were to
be annotated on TCT No. 30591 within sixty (60) days from 23 December 1993 or
until 23 February 1994. The annotations, however, were never made because of the
untimely demise of Dr. Felipe C. Roque. The death of Dr. Roque on 10 February 1994
constrained petitioner to deal with respondent Efren P. Roque, one of the surviving
children of the late Dr. Roque, but the negotiations broke down due to some
disagreements. In a letter, dated 3 November 1994, respondent advised petitioner
"to desist from any attempt to enforce the aforementioned contract of lease and
memorandum of agreement". On 15 February 1995, respondent filed a case for
annulment of the contract of lease and the memorandum of agreement, with a
prayer for the issuance of a preliminary injunction, before Branch 222 of the Regional
Trial Court of Quezon City. Efren P. Roque alleged that he had long been the absolute
owner of the subject property by virtue of a deed of donation inter vivos executed in
his favor by his parents, Dr. Felipe Roque and Elisa Roque, on 26 December 1978, and
that the late Dr. Felipe Roque had no authority to enter into the assailed agreements
with petitioner. The donation was made in a public instrument duly acknowledged by
the donor-spouses before a notary public and duly accepted on the same day by
respondent before the notary public in the same instrument of donation. The title to
the property, however, remained in the name of Dr. Felipe C. Roque, and it was only
transferred to and in the name of respondent sixteen years later, or on 11 May 1994,
under TCT No. 109754 of the Register of Deeds of Quezon City. Respondent, while he
resided in the United States of America, delegated to his father the mere
administration of the property. Respondent came to know of the assailed contracts
with petitioner only after retiring to the Philippines upon the death of his father.
On 9 August 1996, the trial court dismissed the complaint of respondent; it
explained:
"Ordinarily, a deed of donation need not be registered in order to be
valid between the parties. Registration, however, is important in binding
third persons. Thus, when Felipe Roque entered into a leased contract
with defendant corporation, plaintiff Efren Roque (could) no longer
assert the unregistered deed of donation and say that his father, Felipe,
was no longer the owner of the subject property at the time the lease on
the subject property was agreed upon.
"The registration of the Deed of Donation after the execution of the
lease contract did not affect the latter unless he had knowledge thereof
at the time of the registration which plaintiff had not been able to
establish. Plaintiff knew very well of the existence of the lease. He, in
fact, met with the officers of the defendant corporation at least once
before he caused the registration of the deed of donation in his favor
and although the lease itself was not registered, it remains valid
considering that no third person is involved. Plaintiff cannot be the third
person because he is the successor-in-interest of his father, Felipe
Roque, the lessor, and it is a rule that contracts take effect not only
between the parties themselves but also between their assigns and heirs
(Article 1311, Civil Code) and therefore, the lease contract together with
the memorandum of agreement would be conclusive on plaintiff Efren
Roque. He is bound by the contract even if he did not participate
therein. Moreover, the agreements have been perfected and partially
executed by the receipt of his father of the downpayment and deposit
totaling to P500,000.00."1
The Trial court ordered respondent to surrender TCT No. 109754 to the Register of
Deeds of Quezon City for the annotation of the questioned Contract of Lease and
Memorandum of Agreement.
On appeal, the Court of Appeals reversed the decision of the trial court and held to
be invalid the Contract of Lease and Memorandum of Agreement. While it shared the
view expressed by the trial court that a deed of donation would have to be registered
in order to bind third persons, the appellate court, however, concluded that
petitioner was not a lessee in good faith having had prior knowledge of the donation
in favor of respondent, and that such actual knowledge had the effect of registration
insofar as petitioner was concerned. The appellate court based its findings largely on
the testimony of Veredigno Atienza during cross-examination, viz;
CASES: Agency
Page 18 of 104
"Q. Aside from these two lots, the first in the name of Ruben Roque and
the second, the subject of the construction involved in this case, you said
there is another lot which was part of development project?
"A. Yes, this was the main concept of Dr. Roque so that the adjoining
properties of his two sons, Ruben and Cesar, will comprise one whole.
The other whole property belongs to Cesar.
"Q. You were informed by Dr. Roque that this property was given to his
three (3) sons; one to Ruben Roque, the other to Efren, and the other to
Cesar Roque?
"A. Yes.
"Q. You did the inquiry from him, how was this property given to them?
"A. By inheritance.
"Q. Inheritance in the form of donation?
"A. I mean inheritance.
"Q. What I am only asking you is, were you told by Dr. Felipe C. Roque at
the time of your transaction with him that all these three properties
were given to his children by way of donation?
"A. What Architect Biglang-awa told us in his exact word: "Yang mga yan
pupunta sa mga anak. Yong kay Ruben pupunta kay Ruben. Yong kay
Efren palibhasa nasa America sya, nasa pangalan pa ni Dr. Felipe C.
Roque."
"x x x xxx xxx
"Q. When was the information supplied to you by Biglang-awa? Before
the execution of the Contract of Lease and Memorandum of Agreement?
"A. Yes.
"Q. That being the case, at the time of the execution of the agreement
or soon before, did you have such information confirmed by Dr. Felipe C.
Roque himself?
"A. Biglang-awa did it for us.
"Q. But you yourself did not?
"A. No, because I was doing certain things. We were a team and so
Biglang-awa did it for us.
"Q. So in effect, any information gathered by Biglang-awa was of the
same effect as if received by you because you were members of the
same team?
"A. Yes."2
In the instant petition for review, petitioner seeks a reversal of the decision of the
Court of Appeals and the reinstatement of the ruling of the Regional Trial Court; it
argues that the presumption of good faith it so enjoys as a party dealing in registered
land has not been overturned by the aforequoted testimonial evidence, and that, in
any event, respondent is barred by laches and estoppel from denying the contracts.
The existence, albeit unregistered, of the donation in favor of respondent is
undisputed. The trial court and the appellate court have not erred in holding that the
non-registration of a deed of donation does not affect its validity. As being itself a
mode of acquiring ownership, donation results in an effective transfer of title over
the property from the donor to the donee.3 In donations of immovable property, the
law requires for its validity that it should be contained in a public document,
specifying therein the property donated and the value of the charges which the
donee must satisfy.4 The Civil Code provides, however, that "titles of ownership, or
other rights over immovable property, which are not duly inscribed or annotated in
the Registry of Property (now Registry of Land Titles and Deeds) shall not prejudice
third persons." 5 It is enough, between the parties to a donation of an immovable
property, that the donation be made in a public document but, in order to bind third
persons, the donation must be registered in the registry of Property (Registry of Land
Titles and Deeds).6 Consistently, Section 50 of Act No. 496 (Land Registration Act), as
so amended by Section 51 of P.D. No. 1529 (Property Registration Decree), states:
"SECTION 51. Conveyance and other dealings by registered owner.- An
owner of registered land may convey, mortgage, lease, charge or
otherwise deal with the same in accordance with existing laws. He may
use such forms of deeds, mortgages, leases or other voluntary
instruments as are sufficient in law. But no deed, mortgage, lease, or
other voluntary instrument, except a will purporting to convey or affect
registered land shall take effect as a conveyance or bind the land, but
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 Page 19 of 104

shall operate only as a contract between the parties and as evidence of

authority to the Register of Deeds to make registration.

"The act of registration shall be the operative act to convey or affect the
land insofar as third persons are concerned, and in all cases under this
Decree, the registration shall be made in the office of the Register of
Deeds for the province or city where the land lies." (emphasis supplied)

A person dealing with registered land may thus safely rely on the correctness of the
certificate of title issued therefore, and he is not required to go beyond the certificate
to determine the condition of the property 7 but, where such party has knowledge of
a prior existing interest which is unregistered at the time he acquired a right thereto,
his knowledge of that prior unregistered interest would have the effect of registration
as regards to him.8

The appellate court was not without substantial basis when it found petitioner to
have had knowledge of the donation at the time it entered into the two agreements
with Dr. Roque. During their negotiation, petitioner, through its representatives, was
apprised of the fact that the subject property actually belonged to respondent.

It was not shown that Dr. Felipe C. Roque had been an authorized agent of
respondent.

In a contract of agency, the agent acts in representation or in behalf of another with

the consent of the latter. 9 Article 1878 of the Civil Code expresses that a special
power of attorney is necessary to lease any real property to another person for more
than one year. The lease of real property for more than one year is considered not
merely an act of administration but an act of strict dominion or of ownership. A
special power of attorney is thus necessary for its execution through an
agent.1awphil.ne+

The Court cannot accept petitioner’s argument that respondent is guilty of laches.
Laches, in its real sense, is the failure or neglect, for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence, could or
should have been done earlier; it is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either
has abandoned or declined to assert it.10

Respondent learned of the contracts only in February 1994 after the death of his
father, and in the same year, during November, he assailed the validity of the
agreements. Hardly, could respondent then be said to have neglected to assert his
case for unreasonable length of time.

Neither is respondent estopped from repudiating the contracts. The essential

elements of estoppel in pais, in relation to the party sought to be estopped, are: 1) a
clear conduct amounting to false representation or concealment of material facts or,
at least, calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; 2) an intent
or, at least, an expectation, that this conduct shall influence, or be acted upon by, the
other party; and 3) the knowledge, actual or constructive, by him of the real
facts.11 With respect to the party claiming the estoppel, the conditions he must
satisfy are: 1) lack of knowledge or of the means of knowledge of the truth as to the
facts in question; 2) reliance, in good faith, upon the conduct or statements of the
party to be estopped; and 3) action or inaction based thereon of such character as to
change his position or status calculated to cause him injury or prejudice. 12 It has not
been shown that respondent intended to conceal the actual facts concerning the
property; more importantly, petitioner has been shown not to be totally unaware of
the real ownership of the subject property.

Altogether, there is no cogent reason to reverse the Court of Appeals in its assailed
decision.

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

SO ORDERED.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 151963 September 9, 2004
AIR PHILIPPINES CORPORATION, petitioner,
vs.
INTERNATIONAL BUSINESS AVIATION SERVICES PHILS., INC., respondent.
DECISION
PANGANIBAN, J.:
Simple negligence of counsel binds the client. This is especially true in this case in
which the client was as negligent as its lawyer. Hence, petitioner must bear the
consequences and accept its defeat. After all, the winning party did not take
advantage of petitioner’s fault, but merely complied with the law in prosecuting its
valid and proven claims.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the
September 28, 2001 Decision2and the January 25, 2002 Resolution 3 of the Court of
Appeals (CA) in CA-GR CV No. 64283. The dispositive part of the assailed Decision
reads:
"IN THE LIGHT OF ALL THE FOREGOING, the appeal of the [petitioner] is
partially GRANTED in that the Decision appealed from is AFFIRMED with
the modification that the award for a broker’s fee in favor of the
[respondent] is deleted."4
The assailed Resolution denied reconsideration of the Decision.
The Facts
The facts are narrated by the CA as follows:
"The Air Philippines, Inc., API for brevity, was in need of the services of a
business establishment to ferry its B-737 airplane, with Registry Number
RP C1938, from the United States of America to the Philippines, via Subic
Bay International Airport, at Olongapo City. API, through Captain Alex
Villacampa, its Vice-President for Operations, engaged the services
of International Business Aviation Services Phils., Inc., IBASPI for
brevity, as its agent to look for and engage, for API, a business enterprise
to ferry the airplane. IBASPI did engage the services of Universal
Weather [&] Aviation, Inc., UWAI for brevity, to ferry the airplane x x x
to the Philippines, via the International Airport at Subic Bay, Olongapo
City, where API took delivery of the plane.
"UWAI sent its ‘Billings’ to API, through IBASPI, in the total amount of
US$65,131.55 for its services for the ferry of the airplane. API failed to
pay its account. On December 2, 1996, the [respondent] wrote a letter to
the [petitioner] urging the payment of the bills of UWAI. The [petitioner]
refused. Exasperated, UWAI blamed IBASPI for the intransigence of API.
IBASPI was impelled to write a letter to UWAI ‘to clarify’ critical points of
API’s account. Unable to bear the pressure of UWAI and to avoid
corporate embarrassment for API’s intransigence, IBASPI was impelled to
advance and pay to UWAI the said amount of US$65,131.55 for the
account of API. The latter was informed by UWAI of the payment of said
account by IBASPI via its letter dated May 12, 1997.
"IBASPI forthwith wrote a letter to API demanding refund to IBASPI the
amount it advanced to UWAI for the account of API. IBASPI received, via
an informant, a copy of a ‘Memorandum’ of Rodolfo Estrellado, the
President and Chief Executive Officer of API, dated July 29, 1997, to the
President of API, recommending that the latter pay only the amount of
US$27,730.60, with a recommendation that IBASPI be required to
submit documentations/billings in support of the difference of
US$37,400.00. However, no payment was effected by API.
"On November 6, 1997, IBASPI, through counsel, sent another letter to
API demanding the payment of the said amount of US$65,131.55 and
10% commission. API ignored the letter. Another letter of demand was
sent to API by IBASPI, on December 1, 1997, to no avail. On January 6,
1998, IBASPI wrote another letter of demand to API enclosing therein a
‘Summary Statement of Account of Air Philippines, Inc.’ on the
disputed amount of US $37,400.00, appending thereto the
documentations/billings in support of said claim and 10% commission.
On February 26, 1998, API drew Check No. 0521300 against its account,
with the Bank of Philippine Islands, in the amount of ₱200,000.00,
payable to the order of IBASPI, and offered the same in partial first
payment of its account with IBASPI for the amount of US$65,131.55 as
stated in the letter of the [petitioner]. The [respondent] accepted the
said check with a simultaneous ‘Receipt/Agreement’ executed by IBASPI
and API, the latter, through Atty. Manolito A. Manalo, the Officer-in-
Charge of the Legal Department of the API, obliging itself to pay the
balance of its account. API in the said Agreement waived demand by
IBASPI. Despite demands of IBASPI, via its letter, dated April 22, 1998,
API refused to pay the balance of its account with IBASPI.
CASES: Agency
Page 20 of 104
"On June 24, 1998, IBASPI filed a complaint against API, with the
Regional Trial Court of Pasay City, for the collection of its account,
including a 10% broker’s fee, praying that, after due proceedings,
judgment be rendered in its favor as follows:
‘WHEREFORE, [respondent] respectfully prays of this
Honorable Court to render judgment:
1) Ordering the [petitioner] to pay the
[respondent] the sum of US$59,798.22 x x x or
its equivalent in legal tender with interest at
the legal rate from May 1997 until full
payment;
2) Ordering the [petitioner] to pay the
[respondent] further sum of US$6,513.00 or its
equivalent in legal tender as intermediary’s
commission;
3) Ordering the [petitioner] to pay the
[respondent] another sum of US$13,026.00 or
its equivalent in legal tender as actual damages
in the form of attorney’s fees;
4) Ordering the [petitioner] to pay the
[respondent] expenses of litigation as can be
proved;
5) Ordering the [petitioner] to pay the costs of
the suit; and,
6) [Respondent] prays for such further or other
relief as may be deemed just or equitable.’
"The [respondent] appended to its complaint the ‘Receipt/Agreement’
executed by the [petitioner], on March 20, 1998. In its ‘Unverified
Answer’, API alleged, inter alia, by way of ‘Affirmative Allegations’, that:
‘8. In support of the foregoing denials and by way of
affirmative allegations, [petitioner] states:
‘9. On 6 November 1997, we received a letter from
[respondent] demanding payment of $65,131.00 allegedly
for the ferry flight services rendered by Universal and
brokered by [respondent].
‘10. On 1 December 1997 and 12 January 1998, we sent
letters to [respondent] acknowledging receipt of their
demand letter[.] However, we mentioned in the letters that
we needed time to process the documents submitted by
[respondent] to support their claim.
‘11. APC made it very clear that if an obligation on the part
of [petitioner] is proven to exist, [petitioner] would be more
than willing to settle the obligation.
‘12. In fact, as mentioned in the complaint, [petitioner]
made a payment of ₱200,000.00 to cover claims which
[petitioner] did not contest; [petitioner] opted not to settle
the balance of the claim pending verification of the
submitted supporting documents.
‘13. [Petitioner] verbally requested [respondent] to further
substantiate its claim by sending their accountants to the
offices of APC[.]
‘14. [Respondent] did not heed this request; thus, APC
could not release any other amounts to cover the claim of
[respondent.]
‘15. The documents sent by [respondent] were not
accompanied by any explanation and were merely a loose
collection of statements from various companies[.]
‘16. Thus, [petitioner] was surprised when [respondent]
filed the instant complaint[,] for[,] as far as the former [was]
concerned[,] the accounting of the claim was nowhere near
definite nor clear[.]’
"On November 17, 1998, the Court issued a ‘Pre-Trial Notice’ setting the
pre-trial conference on December 7, 1998, at 8:30 x x x in the morning,
requiring the parties to file their respective ‘Pre-Trial Brief’ at least two
(2) days before the scheduled pre-trial. The [respondent] did file its ‘Pre-
Trial Brief’[,] but the [petitioner] did not. During the pre-trial, on
December 7, 1998, Atty. Manolito Manalo, counsel of the [petitioner],
appeared[,] but without any ‘Special Power of Attorney’ from the
[petitioner]. The Court granted the [petitioner] a period of ten (10) days,
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from said date, within which to file its ‘Pre-Trial Brief’ and ‘Special
Power of Attorney’ executed by the [petitioner] in favor of its counsel. In
the meantime, the pre-trial was reset to January 11, 1999 at the same
time. However, the [petitioner] failed to file its ‘Pre-Trial Brief’. On
January 11, 1999, at 9:20 x x x in the morning, the [petitioner] filed an
‘Urgent Ex-Parte Motion for Extension of Time to File Pre-Trial Brief and
For Resetting of Pre-Trial Conference’, with a plea to the Branch Clerk of
Court to submit the said motion for consideration of the Court
immediately upon receipt thereof. When the case was called for pre-
trial, there was no appearance for the [petitioner] and its counsel. The
Court issued an Order denying the motion of the [petitioner] and
allowing the [respondent] to adduce its evidence, ex parte, before the
Branch Clerk of Court, who was designated, as Commissioner, to receive
the evidence of the [respondent], ex parte. On January 13, 1999, the
[petitioner] filed with the Court another ‘Urgent Ex-Parte Motion for
Extension of Time to File Pre-Trial Brief and for Resetting of Pre-Trial
Conference’. On January 15, 1999, the [petitioner] filed a ‘Motion for
Reconsideration’ of the Order of the Court, dated January 11, 1999. The
[petitioner] appended to its motion the ‘Affidavit’ of Atty. Manolito
Manalo, its counsel, stating the reason for his failure to appear at the
pre-trial conference on January 11, 1999. On January 22, 1999, the Court
issued an Order denying the ‘Motion for Reconsideration’ of the
[petitioner]. On January 25, 1999, the [respondent] did adduce
testimonial and documentary evidence in support of its complaint.
"Among the documentary evidence adduced by the [respondent] were
the xerox copy of the ‘Certification’ of Captain Alex Villacampa, and the
‘Memorandum’ of Rodolfo Estrellado.
"On April 7, 1999, the Court rendered judgment in favor of the
[respondent] and against the [petitioner], the decretal portion of which
reads as follows:
‘WHEREFORE, IN VIEW OF THE FOREGOING uncontroverted
and substantiated evidences of the [respondent], judgment
is hereby rendered in favor of the [respondent] and against
the [petitioner] ordering the latter to pay the former the
following:
1. the amount of US59,798.22 dollars or its
equivalent in legal tender plus interest at the
legal rate from May, 1997 until fully paid;
2. the amount of US6,513.00 or its equivalent
as intermediary’s commission;
3. [₱]50,000.00 as and for attorney’s fees; and,
Costs of suit.
‘SO ORDERED.’
"The [petitioner] filed a ‘Motion for New Trial’ on the grounds that: (a) it
was deprived of its day in court due to the gross negligence of its former
counsel, Atty. Manolito A. Manalo; (b) the ‘Receipt/Agreement’ executed
by Atty. Manolito A. Manalo, in behalf of the [petitioner], was
unauthorized as there was no ‘Resolution’ of the Board of Directors
authorizing him to execute said ‘Receipt/Agreement’ and, hence, said
counsel acted beyond the scope of his authority; (c) the claim of IBASPI
was excessive and unjustified; [and] (d) the [petitioner] never agreed to
pay the [respondent] a commission of 10% of the billings of UWAI.
"On July 26, 1999, the Court issued a ‘Resolution’ denying the ‘Motion
for New Trial’ of the [petitioner]. The latter forthwith interposed its
appeal, from said Decision and Resolution of the Court a quo."5
Ruling of the Court of Appeals
Affirming the Decision of the lower court with some modification, the CA ruled that
under the Rules of Civil Procedure, petitioner could not avail itself of a new trial,
because its former counsel was guilty of only simple -- not gross -- negligence. In
addition, petitioner, being equally negligent as its counsel, could notbe relieved from
the effects of its negligence. Thus, it was held liable for US$59,798.22 and attorney’s
fees, but not for the 10 percent commission or broker’s fee, for which the requisite
quantum of evidence in its favor had not been mustered by respondent.
Hence this Petition.6
The Issues
Petitioner submits the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals ruled in accordance
with prevailing laws and jurisprudence when it upheld the ruling of the
Honorable Trial Court denying the Motion for New Trial dated April 27,
1999 despite the fact that the gross negligence, incompetence and
dishonesty of Petitioner APC’s former counsel, Atty. Manolito A. Manalo,
have effectively denied Petitioner APC of its day in court.
CASES: Agency
Page 21 of 104
"2. Whether or not the Honorable Court of Appeals ruled in accordance
with prevailing laws and jurisprudence when it took cognizance of
and/or gave credence to the ‘Memorandum’ of Rodolfo Estrellado, and
the ‘Billings’ of Universal Weather as well as the documents/receipts in
support thereof despite the fact that they are clearly hearsay and have
no probative value considering that Luisito Nazareno, the lone witness of
Respondent IBAS, had no personal knowledge of the contents and/or
factual bases thereof and failed to properly authenticate and/or identify
the same.
"3. Whether or not the Honorable Court of Appeals ruled in accordance
with prevailing laws and jurisprudence when it took cognizance of
and/or gave credence to the Receipt/Agreement dated March 20, 1998
despite the fact that Atty. Manolito A. Manalo was not authorized to
execute [the] same for and [in] behalf of Petitioner APC.
"4. Whether or not the Honorable Court of Appeals ruled in accordance
with prevailing laws and jurisprudence when it upheld the ruling of the
Honorable Trial Court that Petitioner APC is liable to pay and/or
reimburse Respondent IBAS for the payments allegedly made by the
latter to Universal Weather despite the fact that the claims submitted by
Universal Weather and/or Respondent IBAS were patently baseless
and/or unsubstantiated.
"5. Whether or not the Honorable Court of Appeals ruled in accordance
with prevailing laws and jurisprudence when it upheld the ruling of the
Honorable Trial Court that Respondent IBAS is entitled to legal interest
and attorney’s fees despite the fact that it has failed to establish its
claims against Petitioner APC."7
These issues all boil down into two: first, whether the Motion for New Trial should be
denied; and second, in the event of such denial, whether the monetary awards were
duly proven.
The Court’s Ruling
The Petition has no merit.
First Issue:
New Trial Not Warranted by Simple Negligence of Counsel
Axiomatic is the rule that "negligence of counsel binds the client."8 The basis is the
tenet that an act performed by counsel within the scope of a "general or implied
authority"9 is regarded as an act of the client.10 "Consequently, the mistake or
negligence of counsel may result in the rendition of an unfavorable judgment against
the client."11
While the application of this general rule certainly depends upon the surrounding
circumstances of a given case,12there are exceptions recognized by this Court: "(1)
where reckless or gross negligence of counsel deprives the client of due process of
law;13 (2) when its application will result in outright deprivation of the client’s liberty
or property;14or (3) where the interests of justice15 so require."16 Woefully none of
these exceptions apply herein. Thus, the Court cannot "step in and accord relief" 17 to
petitioner, even if it may have suffered18 by reason of its own arrant fatuity.
First, as aptly determined by the appellate court, petitioner’s counsel is guilty of
simple, not gross, negligence. We cannot consider as gross negligence his resort to
dilatory schemes, such as (1) the filing of at least three motions to extend the filing of
petitioner’s Answer; (2) his nonappearance during the scheduled pretrials; and (3)
the failure to file petitioner’s pretrial Brief, even after the filing of several Motions to
extend the date for filing.19 There was only a plain "disregard of some duty imposed
by law," 20 a slight want of care that "circumstances reasonably impose,"21and a mere
failure to exercise that degree of care 22 that an ordinarily prudent person would take
under the circumstances. There was neither a total abandonment or disregard of
petitioner’s case nor a showing of conscious indifference to or utter disregard of
consequences.23
Because "pre-trial is essential in the simplification and the speedy disposition of
disputes,"24 nonobservance of its rules "may result in prejudice to a party’s
substantive rights."25 Such rules are "not technicalities which the parties may ignore
or trifle with."26 The Rules of Court cannot be "ignored at will and at random to the
prejudice of the orderly presentation and assessment of the issues and their just
resolution."27
Counsel’s patent carelessness in citing conflicting reasons in his Motions for
Reconsideration verily displays his lack of competence,28 diligence29 and candor,30 but
not his recklessness or total want of care.
Indeed, the lawyer’s failure to live up to the dictates of the canons of the legal
profession makes him answerable to both his profession and his employer. 31
Second, the negligence of petitioner and that of its counsel are concurrent. 32 As an
artificial being whose juridical personality is created by fiction of law, 33 petitioner "can
only exercise its powers and transact its business through the instrumentalities of its
board of directors, and through its officers and agents, when authorized by resolution
or its by-laws."34 Atty. Manalo is an employee, not an outsider hired by petitioner on
a retainer basis. In fact, he is the officer-in-charge of its Legal Department.
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

There is no showing that he was not authorized to exercise the powers of the
corporation or to transact its business, particularly the handling of its legal affairs.
Besides, it is presumed that the ordinary course of business has been
followed.35 Therefore, counsel’s corporate acts are supposed to be known and
assented to by petitioner.
For petitioner to feign and repeatedly insist upon a lack of awareness of the progress
of an important litigation is to unmask a penchant for the ludicrous. Although it
expects counsel to amply protect its interest, it cannot just sit back, relax and await
the outcome of its case.36 In keeping with the normal course of events, it should have
taken the initiative "of making the proper inquiries from its counsel and the trial
court as to the status of its case"37 and of extending to him the "necessary
assistance."38 For its failure to do so, it has only itself to blame. Indeed, from lethargy
is misfortune born.
It is of no consequence that its Human Resources and Personnel Departments were
not aware of the progress of its case. Of judicial notice is the fact that a corporation
has much leeway in determining which of its units, singly or in consonance with
others, is responsible for specific functions. Yet, it is unusual that these departments
were tasked with monitoring the progress of legal matters involving petitioner.
Nonetheless, having assigned these matters to them, it should have undertaken
prompt and proper monitoring and reporting thereof. Again, for its failure to do so, it
has only itself to blame. These departments do get involved in finance and
accounting, especially in budget preparation and payroll computation, but billing and
collection are hardly tangential to their concerns.
Third, there was no denial of due process39 to petitioner. Under the Rules of Court, an
aggrieved party may ask for a new trial on the ground of excusable negligence, 40 but
this was not proved in this case.41 "Negligence, to be ‘excusable,’ must be one which
ordinary diligence and prudence could not have guarded against" 42 and by reason of
which the rights of an aggrieved party have probably been impaired. 43
The test of excusable negligence is whether a party has acted "with ordinary
prudence while x x x transacting important business." 44 The reasons raised by
petitioner in urging for a new trial do not meet this test; they are flimsy. As we
mentioned nearly thirty years ago, "[p]arties and counsel would be well advised to
avoid such attempts to befuddle the issues as invariably they will be exposed for what
they are, certainly unethical and degrading to the dignity of the law profession." 45
"The essence of due process is to be found in the reasonable opportunity to be heard
and submit any evidence one may have in support of one’s defense." 46 Where the
opportunity to be heard, either through verbal arguments or pleadings, is accorded,
and the party can "present its side"47 or defend its "interest in due course," 48 "there is
no denial of procedural due process." 49 Petitioner has been given its chance, and after
being declared in default, judgment has not been automatically "rendered in favor of
the non-defaulting party."50
Rather, judgment was made only after carefully weighing the evidence presented.
Substantive and adjective laws do complement each other51 "in the just and speedy
resolution of the dispute between the parties."52
Petitioner was not deprived of its day in court. Actually, it never even complained
against the manner in which its counsel had handled the case, 53 until late in the day.
It must therefore "bear the consequences"54 of its faulty choice of counsel whom it
hired itself and whom it had "full authority to fire at any time and replace with
another." 55Moreover, in all the pertinent cases cited by petitioner, the denial of due
process was attributable to the gross negligence of retained counsels, who had either
been single practitioners or law firms; none had referred to counsels who, like Atty.
Manalo, were employees of the aggrieved party.
Fourth, the negligence of petitioner’s counsel did not result in the outright
deprivation of its property. In fact, it intractably refused to comply with its obligation
to reimburse respondent, after having already generated profits from operating the
ferried unit. When sued, it simply relied upon its own dillydallying counsel without
even monitoring the progress of his work. Now it tries to pass the buck entirely to
him, after he has been relieved and replaced by another. Throughout the course of
litigation, none of its assets was reduced; on the contrary, its fleet of aircraft even
increased. While it has incurred legal expenses, it has also earned interest on money
that should have been reimbursed to respondent.
Fifth, the interests of justice require that positive law be equally observed. Petitioner
has not sufficiently proved the injustice of holding it liable for the negligence of its
counsel. On the contrary, there is a preponderance of evidence56to demonstrate that
both law and justice demand otherwise. Much leniency has already been shown by
the lower court to petitioner, but "aequetas nunquam contravenit legis."57 Equity
never contravenes the law.58
For these reasons, the rendition of an unfavorable judgment against petitioner by
reason of its counsel’s simple negligence is therefore apropos. To hold otherwise and
grant a new trial will never put an end to any litigation,59 "as there is a new counsel to
be hired every time it is shown that the prior one had not been sufficiently diligent,
experienced or learned."60
Second Issue:
Monetary Awards Sufficiently Established by a Preponderance of Evidence
As correctly put by the appellate court, the Receipt/Agreement executed by the
parties validated the inter-office Memorandum that petitioner issued on July 29,
1997, and the set of Billings it had received from respondent in 1996.
CASES: Agency
Page 22 of 104
Liability per Receipt/Agreement and Interest Thereon
First, the Receipt/Agreement was entered into by respondent and petitioner, which
was represented by its agent Atty. Manalo. As an agent, he rendered service to, and
did something in representation61 or on behalf of, his principal62 and with its
consent63 and authority. It cannot be denied that, on its part, there was an actual
intent to appoint its counsel;64 and, on the latter’s part,65 to accept the appointment
and "act on it."66
A corporation, as "a juridical person separate and distinct from its
stockholders,"67 may act "through its officers or agents in the normal course of
business."68 Thus, the general principles of agency govern its relationship with its
officers or agents, subject to the articles of incorporation, bylaws and other relevant
provisions of law.69
Second, even assuming that Atty. Manalo exceeded his authority, petitioner is
solidarily liable with him if it allowed him "to act as though he had full
powers."70 Moreover, as for any obligation wherein the agent has exceeded his
power, the principal is not bound except when there is ratification, 71 express or
tacit.72
Estoppel likewise applies. For one, respondent lacked "knowledge and x x x the
means of knowledge of the truth as to the facts in question"; 73 namely, whether
petitioner’s counsel had any authority to bind his principal. Moreover, respondent
relied "in good faith"74 upon petitioner’s conduct and statements; and its action
"based thereon [was] of such character as to change the position or status of the
party claiming the estoppel, to his injury, detriment or prejudice."75 If it was also true
that petitioner’s counsel exceeded his authority in entering into the
Receipt/Agreement, the negligence or omission of petitioner to assert its right within
a reasonable time only warranted a presumption that it either abandoned or
declined to assert it.76
Third, while it is true that a special power of attorney (SPA) is necessary to a
compromise, it is equally true that the herein Receipt/Agreement was not a
compromise.77 The payment was made in the ordinary course of business. Whether
total or partial, the payment of an ordinary obligation78 is neither included among nor
of a character similar to the instances enumerated in Article 1878 of the Civil
Code.79 All that the law requires is a general power, 80 not an SPA.
Moreover, the Receipt/Agreement is not a promise to pay that "amounts to an offer
to compromise and requires a special power of attorney or the express consent of
petitioner."81 A compromise agreement is "a contract whereby the parties, by making
reciprocal concessions, avoid a litigation or put an end to one already
commenced."82 No such reciprocal concessions83 were made in this case. Thus, the
Receipt/Agreement is but an outright admission of petitioner of its obligation, after
making partial payment, to pay the balance of its account. And even if we were to
consider the same as a compromise, from its nature as a contract, the absence of an
SPA does not render it void, but merely unenforceable. 84
Fourth, in its Answer,85 petitioner failed to deny under oath the genuineness and due
execution of the Receipt/Agreement, which is thus deemed admitted. 86 Indeed,
before a private document offered as authentic is received in evidence, its due
execution and authenticity must be proved. However, after it has been offered, failure
to deny it under oath87 amounts to its admissibility.88 The "party whose signature it
bears admits that he signed it or that it was signed by another for him with his
authority;89 that at the time it was signed it was in words and figures exactly as set
out in the pleading of the party relying upon it; that the document was delivered; and
that any formal requisites required by law, x x x which it lacks, are waived by
him."90 The Receipt/Agreement is thus an instrument that is admittedly not
"spurious, counterfeit or of different import on its face from the one executed." 91
Fifth, what respondent has paid, it may demand from petitioner; and even if the
payment was made without the knowledge or against the will of the latter,
respondent can still recover insofar as such payment was beneficial to
petitioner.92 Such payment cannot be considered as one that is neither due under the
provisions of solutio indebiti93nor recoverable from the creditor by respondent;94 the
latter’s right is against petitioner whose obligation it has paid in advance. 95
Sixth, the Memorandum and the Billings have probative value. While it is true that
Nazareno96 did not have any personal knowledge of the contents thereof,
nevertheless, these two documents were validated by the Receipt/Agreement.
Petitioner’s Memorandum contained a recommendation to pay respondent the
amount of US$27,730.60 and to require additional documentation in support of the
balance. In compliance, a Summary of Statement of Account dated January 6,
199897 was sent to and received by petitioner, substantiating it to the extent of
US$37,400.95. Not only did these amounts sum up to a total of US$65,131.55, the
unsettled account indicated in the Billings, but these are also unrefuted by petitioner.
In fact, the Receipt/Agreement executed two months later did not contest this
balance, although unvalued therein. When a party fails to object to hearsay
evidence,98 such party is deemed to have waived its right to do so; thus, "the
evidence offered may be admitted," 99 though its weight must still be measured by the
court.
Seventh, the accounting required by petitioner was not a legal impediment to the
obligation. There was in fact no indication that the obligation was subject to such a
condition. A pure obligation is demandable at once,100 and there is nothing to exempt
petitioner from compliance therewith.101 In addition, it would be preposterous for it
to issue a corporate check102 -- without any condition or reservation -- and even waive
a demand for payment of the balance, if it did not recognize its obligation in the first
place.
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 Page 23 of 104

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

Commission or Broker’s Fee

Indeed, "only questions of law105 may be raised in a petition for review on certiorari
under Rule 45 of the Rules of Court."106 Questions of fact cannot be the subject of
this mode of appeal,107 for this Court -- we have repeatedly emphasized -- is "not a
trier of facts."108 One of the exceptions to this rule, however, is when the factual
findings of the CA and the trial court are contradictory. 109

The lower court held petitioner liable for the 10 percent broker’s fee, but the
appellate court found otherwise. It is true that respondent -- on commission basis --
engaged itself as a broker to negotiate "contracts relative to property," 110 the custody
of which it had no concern over; to never act "in its own name but in the name of
those who employed"111 it; and "to bring parties together x x x in matters of trade,
commerce or navigation."112 However, we agree with the CA that respondent’s
entitlement to a broker’s fee should have been adequately proven.

The March 19, 1997 Certification issued by Captain Villacampa is inadmissible in

evidence. It was a mere reproduction of an original that had never been produced or
offered in evidence.113 Under the best evidence rule114as applied to documentary
evidence, no evidence shall be admissible other than the original itself when the
subject of inquiry is its contents.115 Since none of the exceptions to this rule has been
proven,116 "secondary or substitutionary evidence"117 is not permitted.118

It is of no moment that Nazareno testified as to the intermediary’s commission in

open court. Whether the Certification has actually been executed cannot be proved
by his mere testimony, because he was not a signatory to the document. His
assertion was bare and untested. Without substantiation, "such testimony is
considered hearsay."119 Witnesses can testify only to those facts that they know of
their personal knowledge or are derived from their own perception. 120 Unlike the
unvalued balance in the Receipt/Agreement, the broker’s fee herein has not been
supported by any admissible evidence other than the demand letters sent by
respondent’s counsel.

Attorney’s Fees

Attorney’s fees may be recovered, since petitioner has compelled respondent to incur
expenses to protect the latter’s interest 121 in reimbursement. Besides, it is clear from
the Receipt/Agreement that petitioner is obliged to pay 10 percent of the principal,
as attorney’s fees.

In sum, petitioner is liable for the unpaid balance of respondent’s claim amounting to
US$59,798.22 or its equivalent in legal tender under the Receipt/Agreement,
including legal interest from May 12, 1997 until fully paid; and for attorney’s fees of
10 percent of this unpaid balance, excluding interest. No broker’s fee can be charged,
as it has not been proven by respondent. Since the counsel of petitioner is guilty of
simple negligence only, and since it was equally negligent as he, no new trial can be
allowed.

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and
Resolution AFFIRMED. Costs against petitioner.

SO ORDERED.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 140667 August 12, 2004
WOODCHILD HOLDINGS, INC., petitioner,
vs.
ROXAS ELECTRIC AND CONSTRUCTION COMPANY, INC., respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals in
CA-G.R. CV No. 56125 reversing the Decision 2 of the Regional Trial Court of Makati,
Branch 57, which ruled in favor of the petitioner.
The Antecedents
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the
Roxas Electric and Construction Company, was the
owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer
Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No.
78086. A portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was a dirt
road accessing to the Sumulong Highway, Antipolo, Rizal.
At a special meeting on May 17, 1991, the respondent's Board of Directors approved
a resolution authorizing the corporation, through its president, Roberto B. Roxas, to
sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of 7,213 square
meters, at a price and under such terms and conditions which he deemed most
reasonable and advantageous to the corporation; and to execute, sign and deliver the
pertinent sales documents and receive the proceeds of the sale for and on behalf of
the company.3
Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-B-2 covered
by TCT No. 78086 on which it planned to construct its warehouse building, and a
portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot container van
would be able to readily enter or leave the property. In a Letter to Roxas dated June
21, 1991, WHI President Jonathan Y. Dy offered to buy Lot No. 491-A-3-B-2 under
stated terms and conditions for P1,000 per square meter or at the price of
P7,213,000. 4 One of the terms incorporated in Dy's offer was the following provision:
5. This Offer to Purchase is made on the representation and warranty of
the OWNER/SELLER, that he holds a good and registrable title to the
property, which shall be conveyed CLEAR and FREE of all liens and
encumbrances, and that the area of 7,213 square meters of the subject
property already includes the area on which the right of way traverses
from the main lot (area) towards the exit to the Sumulong Highway as
shown in the location plan furnished by the Owner/Seller to the buyer.
Furthermore, in the event that the right of way is insufficient for the
buyer's purposes (example: entry of a 45-foot container), the seller
agrees to sell additional square meter from his current adjacent property
to allow the buyer to full access and full use of the property. 5
Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a month
later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as President
of WHI, as vendee, executed a contract to sell in which RECCI bound and obliged itself
to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086 for P7,213,000. 6On
September 5, 1991, a Deed of Absolute Sale7 in favor of WHI was issued, under which
Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold for P5,000,000, receipt of
which was acknowledged by Roxas under the following terms and conditions:
The Vendor agree (sic), as it hereby agrees and binds itself to give
Vendee the beneficial use of and a right of way from Sumulong Highway
to the property herein conveyed consists of 25 square meters wide to be
used as the latter's egress from and ingress to and an additional 25
square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or
maneuvering area for Vendee's vehicles.
The Vendor agrees that in the event that the right of way is insufficient
for the Vendee's use (ex entry of a 45-foot container) the Vendor agrees
to sell additional square meters from its current adjacent property to
allow the Vendee full access and full use of the property.
… materials and labor.
The Vendor hereby undertakes and agrees, at its account, to defend the
title of the Vendee to the parcel of land and improvements herein
conveyed, against all claims of any and all persons or entities, and that
the Vendor hereby warrants the right of the Vendee to possess and own
the said parcel of land and improvements thereon and will defend the
Vendee against all present and future claims and/or action in relation
thereto, judicial and/or administrative. In particular, the Vendor shall
eject all existing squatters and occupants of the premises within two (2)
CASES: Agency
Page 24 of 104
weeks from the signing hereof. In case of failure on the part of the
Vendor to eject all occupants and squatters within the two-week period
or breach of any of the stipulations, covenants and terms and conditions
herein provided and that of contract to sell dated 1 July 1991, the
Vendee shall have the right to cancel the sale and demand
reimbursement for all payments made to the Vendor with interest
thereon at 36% per annum.8
On September 10, 1991, the Wimbeco Builder's, Inc. (WBI) submitted its quotation
for P8,649,000 to WHI for the construction of the warehouse building on a portion of
the property with an area of 5,088 square meters. 9 WBI proposed to start the project
on October 1, 1991 and to turn over the building to WHI on February 29, 1992. 10
In a Letter dated September 16, 1991, Ponderosa Leather Goods Company, Inc.
confirmed its lease agreement with WHI of a 5,000-square-meter portion of the
warehouse yet to be constructed at the rental rate of P65 per square meter.
Ponderosa emphasized the need for the warehouse to be ready for occupancy before
April 1, 1992.11 WHI accepted the offer. However, WBI failed to commence the
construction of the warehouse in October 1, 1991 as planned because of the
presence of squatters in the property and suggested a renegotiation of the contract
after the squatters shall have been evicted.12 Subsequently, the squatters were
evicted from the property.
On March 31, 1992, WHI and WBI executed a Letter-Contract for the construction of
the warehouse building for P11,804,160. 13 The contractor started construction in April
1992 even before the building officials of Antipolo City issued a building permit on
May 28, 1992. After the warehouse was finished, WHI issued on March 21, 1993 a
certificate of occupancy by the building official. Earlier, or on March 18, 1993, WHI, as
lessor, and Ponderosa, as lessee, executed a contract of lease over a portion of the
property for a monthly rental of P300,000 for a period of three years from March 1,
1993 up to February 28, 1996. 14
In the meantime, WHI complained to Roberto Roxas that the vehicles of RECCI were
parked on a portion of the property over which WHI had been granted a right of way.
Roxas promised to look into the matter. Dy and Roxas discussed the need of the WHI
to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085
as provided for in the deed of absolute sale. However, Roxas died soon thereafter. On
April 15, 1992, the WHI wrote the RECCI, reiterating its verbal requests to purchase a
portion of the said lot as provided for in the deed of absolute sale, and complained
about the latter's failure to eject the squatters within the three-month period agreed
upon in the said deed.
The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1 covered by
TCT No. 78085 for its beneficial use within 72 hours from notice thereof, otherwise
the appropriate action would be filed against it. RECCI rejected the demand of WHI.
WHI reiterated its demand in a Letter dated May 29, 1992. There was no response
from RECCI.
On June 17, 1992, the WHI filed a complaint against the RECCI with the Regional Trial
Court of Makati, for specific performance and damages, and alleged, inter alia, the
following in its complaint:
5. The "current adjacent property" referred to in the aforequoted
paragraph of the Deed of Absolute Sale pertains to the property covered
by Transfer Certificate of Title No. N-78085 of the Registry of Deeds of
Antipolo, Rizal, registered in the name of herein defendant Roxas
Electric.
6. Defendant Roxas Electric in patent violation of the express and valid
terms of the Deed of Absolute Sale unjustifiably refused to deliver to
Woodchild Holdings the stipulated beneficial use and right of way
consisting of 25 square meters and 55 square meters to the prejudice of
the plaintiff.
7. Similarly, in as much as the 25 square meters and 55 square meters
alloted to Woodchild Holdings for its beneficial use is inadequate as
turning and/or maneuvering area of its 45-foot container van, Woodchild
Holdings manifested its intention pursuant to para. 5 of the Deed of Sale
to purchase additional square meters from Roxas Electric to allow it full
access and use of the purchased property, however, Roxas Electric
refused and failed to merit Woodchild Holdings' request contrary to
defendant Roxas Electric's obligation under the Deed of Absolute Sale
(Annex "A").
8. Moreover, defendant, likewise, failed to eject all existing squatters and
occupants of the premises within the stipulated time frame and as a
consequence thereof, plaintiff's planned construction has been
considerably delayed for seven (7) months due to the squatters who
continue to trespass and obstruct the subject property, thereby
Woodchild Holdings incurred substantial losses amounting to
P3,560,000.00 occasioned by the increased cost of construction
9. Owing further to Roxas Electric's deliberate refusal to comply with its
obligation under Annex "A," Woodchild Holdings suffered unrealized
income of P300,000.00 a month or P2,100,000.00 supposed income
from rentals of the subject property for seven (7) months.
10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas
Electric to comply with its obligations and warranties under the Deed of
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

Absolute Sale but notwithstanding such demand, defendant Roxas
Electric refused and failed and continue to refuse and fail to heed
plaintiff's demand for compliance.
Copy of the demand letter dated April 15, 1992 is hereto attached as
Annex "B" and made an integral part hereof.
11. Finally, on 29 May 1991, Woodchild Holdings made a letter request
addressed to Roxas Electric to particularly annotate on Transfer
Certificate of Title No. N-78085 the agreement under Annex "A" with
respect to the beneficial use and right of way, however, Roxas Electric
unjustifiably ignored and disregarded the same.
Copy of the letter request dated 29 May 1992 is hereto attached as
Annex "C" and made an integral part hereof.
12. By reason of Roxas Electric's continuous refusal and failure to comply
with Woodchild Holdings' valid demand for compliance under Annex
"A," the latter was constrained to litigate, thereby incurring damages as
and by way of attorney's fees in the amount of P100,000.00 plus costs of
suit and expenses of litigation.15
The WHI prayed that, after due proceedings, judgment be rendered in its favor, thus:
WHEREFORE, it is respectfully prayed that judgment be rendered in favor
of Woodchild Holdings and ordering Roxas Electric the following:
a) to deliver to Woodchild Holdings the beneficial use of the stipulated
25 square meters and 55 square meters;
b) to sell to Woodchild Holdings additional 25 and 100 square meters to
allow it full access and use of the purchased property pursuant to para. 5
of the Deed of Absolute Sale;
c) to cause annotation on Transfer Certificate of Title No. N-78085 the
beneficial use and right of way granted to Woodchild Holdings under the
Deed of Absolute Sale;
d) to pay Woodchild Holdings the amount of P5,660,000.00,
representing actual damages and unrealized income;
e) to pay attorney's fees in the amount of P100,000.00; and
f) to pay the costs of suit.
Other reliefs just and equitable are prayed for. 16
In its answer to the complaint, the RECCI alleged that it never authorized its former
president, Roberto Roxas, to grant the beneficial use of any portion of Lot No. 491-A-
3-B-1, nor agreed to sell any portion thereof or create a lien or burden thereon. It
alleged that, under the Resolution approved on May 17, 1991, it merely authorized
Roxas to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086. As such, the grant of a
right of way and the agreement to sell a portion of Lot No. 491-A-3-B-1 covered by
TCT No. 78085 in the said deed are ultra vires. The RECCI further alleged that the
provision therein that it would sell a portion of Lot No. 491-A-3-B-1 to the WHI lacked
the essential elements of a binding contract.17
In its amended answer to the complaint, the RECCI alleged that the delay in the
construction of its warehouse building was due to the failure of the WHI's contractor
to secure a building permit thereon.18
During the trial, Dy testified that he told Roxas that the petitioner was buying a
portion of Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the
price of P1,000 per square meter.
On November 11, 1996, the trial court rendered judgment in favor of the WHI, the
decretal portion of which reads:
WHEREFORE, judgment is hereby rendered directing defendant:
(1) To allow plaintiff the beneficial use of the existing right of way plus
the stipulated 25 sq. m. and 55 sq. m.;
(2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000
per sq. m. to allow said plaintiff full access and use of the purchased
property pursuant to Par. 5 of their Deed of Absolute Sale;
(3) To cause annotation on TCT No. N-78085 the beneficial use and right
of way granted by their Deed of Absolute Sale;
(4) To pay plaintiff the amount of P5,568,000 representing actual
damages and plaintiff's unrealized income;
CASES: Agency
Page 25 of 104
(5) To pay plaintiff P100,000 representing attorney's fees; and
To pay the costs of suit.
SO ORDERED.19
The trial court ruled that the RECCI was estopped from disowning the apparent
authority of Roxas under the May 17, 1991 Resolution of its Board of Directors. The
court reasoned that to do so would prejudice the WHI which transacted with Roxas in
good faith, believing that he had the authority to bind the WHI relating to the
easement of right of way, as well as the right to purchase a portion of Lot No. 491-A-
3-B-1 covered by TCT No. 78085.
The RECCI appealed the decision to the CA, which rendered a decision on November
9, 1999 reversing that of the trial court, and ordering the dismissal of the complaint.
The CA ruled that, under the resolution of the Board of Directors of the RECCI, Roxas
was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, but not
to grant right of way in favor of the WHI over a portion of Lot No. 491-A-3-B-1, or to
grant an option to the petitioner to buy a portion thereof. The appellate court also
ruled that the grant of a right of way and an option to the respondent were so
lopsided in favor of the respondent because the latter was authorized to fix the
location as well as the price of the portion of its property to be sold to the
respondent. Hence, such provisions contained in the deed of absolute sale were not
binding on the RECCI. The appellate court ruled that the delay in the construction of
WHI's warehouse was due to its fault.
The Present Petition
The petitioner now comes to this Court asserting that:
I.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF
ABSOLUTE SALE (EXH. "C") IS ULTRA VIRES.
II.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF
THE COURT A QUO ALLOWING THE PLAINTIFF-APPELLEE THE BENEFICIAL
USE OF THE EXISTING RIGHT OF WAY PLUS THE STIPULATED 25 SQUARE
METERS AND 55 SQUARE METERS BECAUSE THESE ARE VALID
STIPULATIONS AGREED BY BOTH PARTIES TO THE DEED OF ABSOLUTE
SALE (EXH. "C").
III.
THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF
APPEALS TO RULE THAT THE STIPULATIONS OF THE DEED OF ABSOLUTE
SALE (EXH. "C") WERE DISADVANTAGEOUS TO THE APPELLEE, NOR WAS
APPELLEE DEPRIVED OF ITS PROPERTY WITHOUT DUE PROCESS.
IV.
IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY
WITHOUT DUE PROCESS BY THE ASSAILED DECISION.
V.
THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF THE
APPELLANT TO EVICT THE SQUATTERS ON THE LAND AS AGREED IN THE
DEED OF ABSOLUTE SALE (EXH. "C").
VI.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE RULING OF
THE COURT A QUO DIRECTING THE DEFENDANT TO PAY THE PLAINTIFF
THE AMOUNT OF P5,568,000.00 REPRESENTING ACTUAL DAMAGES AND
PLAINTIFF'S UNREALIZED INCOME AS WELL AS ATTORNEY'S FEES.20
The threshold issues for resolution are the following: (a) whether the respondent is
bound by the provisions in the deed of absolute sale granting to the petitioner
beneficial use and a right of way over a portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to the
petitioner to buy a portion thereof, and, if so, whether such agreement is enforceable
against the respondent; (b) whether the respondent failed to eject the squatters on
its property within two weeks from the execution of the deed of absolute sale; and,
(c) whether the respondent is liable to the petitioner for damages.
On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the
respondent authorized Roxas, then its president, to grant a right of way over a
portion of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the
respondent to buy a portion of the said property. The petitioner contends that when
the respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it (respondent)
was well aware of its obligation to provide the petitioner with a means of ingress to
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

or egress from the property to the Sumulong Highway, since the latter had no
adequate outlet to the public highway. The petitioner asserts that it agreed to buy
the property covered by TCT No. 78085 because of the grant by the respondent of a
right of way and an option in its favor to buy a portion of the property covered by TCT
No. 78085. It contends that the respondent never objected to Roxas' acceptance of
its offer to purchase the property and the terms and conditions therein; the
respondent even allowed Roxas to execute the deed of absolute sale in its behalf. The
petitioner asserts that the respondent even received the purchase price of the
property without any objection to the terms and conditions of the said deed of sale.
The petitioner claims that it acted in good faith, and contends that after having been
benefited by the said sale, the respondent is estopped from assailing its terms and
conditions. The petitioner notes that the respondent's Board of Directors never
approved any resolution rejecting the deed of absolute sale executed by Roxas for
and in its behalf. As such, the respondent is obliged to sell a portion of Lot No. 491-A-
3-B-1 covered by TCT No. 78085 with an area of 500 square meters at the price of
P1,000 per square meter, based on its evidence and Articles 649 and 651 of the New
Civil Code.
For its part, the respondent posits that Roxas was not so authorized under the May
17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right of
way in favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion
thereof to the petitioner. Hence, the respondent was not bound by such provisions
contained in the deed of absolute sale. Besides, the respondent contends, the
petitioner cannot enforce its right to buy a portion of the said property since there
was no agreement in the deed of absolute sale on the price thereof as well as the
specific portion and area to be purchased by the petitioner.
We agree with the respondent.
In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,21 we held that:
A corporation is a juridical person separate and distinct from its
stockholders or members. Accordingly, the property of the corporation is
not the property of its stockholders or members and may not be sold by
the stockholders or members without express authorization from the
corporation's board of directors. Section 23 of BP 68, otherwise known
as the Corporation Code of the Philippines, provides:
"SEC. 23. The Board of Directors or Trustees. – Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations
controlled and held by the board of directors or trustees to
be elected from among the holders of stocks, or where
there is no stock, from among the members of the
corporation, who shall hold office for one (1) year and until
their successors are elected and qualified."
Indubitably, a corporation may act only through its board of directors or,
when authorized either by its by-laws or by its board resolution, through
its officers or agents in the normal course of business. The general
principles of agency govern the relation between the corporation and its
officers or agents, subject to the articles of incorporation, by-laws, or
relevant provisions of law. …22
Generally, the acts of the corporate officers within the scope of their authority are
binding on the corporation. However, under Article 1910 of the New Civil Code, acts
done by such officers beyond the scope of their authority cannot bind the
corporation unless it has ratified such acts expressly or tacitly, or is estopped from
denying them:
Art. 1910. The principal must comply with all the obligations which the
agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly.
Thus, contracts entered into by corporate officers beyond the scope of
authority are unenforceable against the corporation unless ratified by
the corporation.23
In BA Finance Corporation v. Court of Appeals,24 we also ruled that persons dealing
with an assumed agency, whether the assumed agency be a general or special one,
are bound at their peril, if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.
In this case, the respondent denied authorizing its then president Roberto B. Roxas to
sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create a lien
or burden thereon. The petitioner was thus burdened to prove that the respondent
so authorized Roxas to sell the same and to create a lien thereon.
Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors
of the respondent, which is worded as follows:
RESOLVED, as it is hereby resolved, that the corporation, thru the
President, sell to any interested buyer, its 7,213-sq.-meter property at
the Sumulong Highway, Antipolo, Rizal, covered by Transfer Certificate of
CASES: Agency
Page 26 of 104
Title No. N-78086, at a price and on terms and conditions which he
deems most reasonable and advantageous to the corporation;
FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the
corporation, be, as he is hereby authorized to execute, sign and deliver
the pertinent sales documents and receive the proceeds of sale for and
on behalf of the company.25
Evidently, Roxas was not specifically authorized under the said resolution to grant a
right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree
to sell to the petitioner a portion thereof. The authority of Roxas, under the
resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the
authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create or
convey real rights thereon. Neither may such authority be implied from the authority
granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner "on such terms and
conditions which he deems most reasonable and advantageous." Under paragraph
12, Article 1878 of the New Civil Code, a special power of attorney is required to
convey real rights over immovable property. 26 Article 1358 of the New Civil Code
requires that contracts which have for their object the creation of real rights over
immovable property must appear in a public document.27 The petitioner cannot feign
ignorance of the need for Roxas to have been specifically authorized in writing by the
Board of Directors to be able to validly grant a right of way and agree to sell a portion
of Lot No. 491-A-3-B-1. The rule is that if the act of the agent is one which requires
authority in writing, those dealing with him are charged with notice of that fact. 28
Powers of attorney are generally construed strictly and courts will not infer or
presume broad powers from deeds which do not sufficiently include property or
subject under which the agent is to deal.29 The general rule is that the power of
attorney must be pursued within legal strictures, and the agent can neither go
beyond it; nor beside it. The act done must be legally identical with that authorized
to be done.30 In sum, then, the consent of the respondent to the assailed provisions in
the deed of absolute sale was not obtained; hence, the assailed provisions are not
binding on it.
We reject the petitioner's submission that, in allowing Roxas to execute the contract
to sell and the deed of absolute sale and failing to reject or disapprove the same, the
respondent thereby gave him apparent authority to grant a right of way over Lot No.
491-A-3-B-1 and to grant an option for the respondent to sell a portion thereof to the
petitioner. Absent estoppel or ratification, apparent authority cannot remedy the lack
of the written power required under the statement of frauds. 31 In addition, the
petitioner's fallacy is its wrong assumption of the unproved premise that the
respondent had full knowledge of all the terms and conditions contained in the deed
of absolute sale when Roxas executed it.
It bears stressing that apparent authority is based on estoppel and can arise from two
instances: first, the principal may knowingly permit the agent to so hold himself out
as having such authority, and in this way, the principal becomes estopped to claim
that the agent does not have such authority; second, the principal may so clothe the
agent with the indicia of authority as to lead a reasonably prudent person to believe
that he actually has such authority.32 There can be no apparent authority of an agent
without acts or conduct on the part of the principal and such acts or conduct of the
principal must have been known and relied upon in good faith and as a result of the
exercise of reasonable prudence by a third person as claimant and such must have
produced a change of position to its detriment. The apparent power of an agent is to
be determined by the acts of the principal and not by the acts of the agent. 33
For the principle of apparent authority to apply, the petitioner was burdened to
prove the following: (a) the acts of the respondent justifying belief in the agency by
the petitioner; (b) knowledge thereof by the respondent which is sought to be held;
and, (c) reliance thereon by the petitioner consistent with ordinary care and
prudence.34 In this case, there is no evidence on record of specific acts made by the
respondent35 showing or indicating that it had full knowledge of any representations
made by Roxas to the petitioner that the respondent had authorized him to grant to
the respondent an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No.
78085, or to create a burden or lien thereon, or that the respondent allowed him to
do so.
The petitioner's contention that by receiving and retaining the P5,000,000 purchase
price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly ratified the
grant of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to grant to the
petitioner an option to sell a portion thereof, is barren of merit. It bears stressing that
the respondent sold Lot No. 491-A-3-B-2 to the petitioner, and the latter had taken
possession of the property. As such, the respondent had the right to retain the
P5,000,000, the purchase price of the property it had sold to the petitioner. For an
act of the principal to be considered as an implied ratification of an unauthorized act
of an agent, such act must be inconsistent with any other hypothesis than that he
approved and intended to adopt what had been done in his name. 36 Ratification is
based on waiver – the intentional relinquishment of a known right. Ratification
cannot be inferred from acts that a principal has a right to do independently of the
unauthorized act of the agent. Moreover, if a writing is required to grant an authority
to do a particular act, ratification of that act must also be in writing. 37 Since the
respondent had not ratified the unauthorized acts of Roxas, the same are
unenforceable.38 Hence, by the respondent's retention of the amount, it cannot
thereby be implied that it had ratified the unauthorized acts of its agent, Roberto
Roxas.
On the last issue, the petitioner contends that the CA erred in dismissing its
complaint for damages against the respondent on its finding that the delay in the
construction of its warehouse was due to its (petitioner's) fault. The petitioner
asserts that the CA should have affirmed the ruling of the trial court that the
respondent failed to cause the eviction of the squatters from the property on or
before September 29, 1991; hence, was liable for P5,660,000. The respondent, for its
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY
 Page 27 of 104

part, asserts that the delay in the construction of the petitioner's warehouse was due
to its late filing of an application for a building permit, only on May 28, 1992.

The petitioner's contention is meritorious. The respondent does not deny that it
failed to cause the eviction of the squatters on or before September 29, 1991.
Indeed, the respondent does not deny the fact that when the petitioner wrote the
respondent demanding that the latter cause the eviction of the squatters on April 15,
1992, the latter were still in the premises. It was only after receiving the said letter in
April 1992 that the respondent caused the eviction of the squatters, which thus
cleared the way for the petitioner's contractor to commence the construction of its
warehouse and secure the appropriate building permit therefor.

The petitioner could not be expected to file its application for a building permit
before April 1992 because the squatters were still occupying the property. Because of
the respondent's failure to cause their eviction as agreed upon, the petitioner's
contractor failed to commence the construction of the warehouse in October 1991
for the agreed price of P8,649,000. In the meantime, costs of construction materials
spiraled. Under the construction contract entered into between the petitioner and
the contractor, the petitioner was obliged to pay P11,804,160, 39including the
additional work costing P1,441,500, or a net increase of P1,712,980. 40 The respondent
is liable for the difference between the original cost of construction and the increase
thereon, conformably to Article 1170 of the New Civil Code, which reads:

Art. 1170. Those who in the performance of their obligations are guilty
of fraud, negligence, or delay and those who in any manner contravene
the tenor thereof, are liable for damages.

The petitioner, likewise, lost the amount of P3,900,000 by way of unearned income
from the lease of the property to the Ponderosa Leather Goods Company. The
respondent is, thus, liable to the petitioner for the said amount, under Articles 2200
and 2201 of the New Civil Code:

Art. 2200. Indemnification for damages shall comprehend not only the
value of the loss suffered, but also that of the profits which the obligee
failed to obtain.

Art. 2201. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the
natural and probable consequences of the breach of the obligation, and
which the parties have foreseen or could have reasonably foreseen at
the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the
non-performance of the obligation.

In sum, we affirm the trial court's award of damages and attorney's fees to the
petitioner.

IN LIGHT OF ALL THE FOREGOING, judgment is hereby rendered AFFIRMING the

assailed Decision of the Court of Appeals WITH MODIFICATION. The respondent is
ordered to pay to the petitioner the amount of P5,612,980 by way of actual damages
and P100,000 by way of attorney's fees. No costs.

SO ORDERED.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 129919 February 6, 2002
DOMINION INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari1 from the decision of the Court of Appeals2 affirming
the decision3 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which
ordered petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S.
Guevarra (Guevarra) the sum of P156,473.90 representing the total amount
advanced by Guevarra in the payment of the claims of Dominion’s clients.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for
sum of money against defendant Dominion Insurance Corporation. Plaintiff sought to
recover thereunder the sum of P156,473.90 which he claimed to have advanced in
his capacity as manager of defendant to satisfy certain claims filed by defendant’s
clients.
"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim
for P249,672.53, representing premiums that plaintiff allegedly failed to remit.
"On August 8, 1991, defendant filed a third-party complaint against Fernando Austria,
who, at the time relevant to the case, was its Regional Manager for Central Luzon
area.
"In due time, third-party defendant Austria filed his answer.
"Thereafter the pre-trial conference was set on the following dates: October 18,
1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992,
January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of
which dates no pre-trial conference was held. The record shows that except for the
settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were
cancelled at the instance of defendant, third-party defendant and plaintiff,
respectively, the rest were postponed upon joint request of the parties.
"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff
and counsel were present. Despite due notice, defendant and counsel did not appear,
although a messenger, Roy Gamboa, submitted to the trial court a handwritten note
sent to him by defendant’s counsel which instructed him to request for
postponement. Plaintiff’s counsel objected to the desired postponement and moved
to have defendant declared as in default. This was granted by the trial court in the
following order:
"ORDER
"When this case was called for pre-trial this afternoon only plaintiff and his counsel
Atty. Romeo Maglalang appeared. When shown a note dated May 21, 1992
addressed to a certain Roy who was requested to ask for postponement, Atty.
Maglalang vigorously objected to any postponement on the ground that the note is
but a mere scrap of paper and moved that the defendant corporation be declared as
in default for its failure to appear in court despite due notice.
"Finding the verbal motion of plaintiff’s counsel to be meritorious and considering
that the pre-trial conference has been repeatedly postponed on motion of the
defendant Corporation, the defendant Dominion Insurance Corporation is hereby
declared (as) in default and plaintiff is allowed to present his evidence on June 16,
1992 at 9:00 o’clock in the morning.
"The plaintiff and his counsel are notified of this order in open court.
"SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992. This was followed by a written
offer of documentary exhibits on July 8 and a supplemental offer of additional
exhibits on July 13, 1992. The exhibits were admitted in evidence in an order dated
July 17, 1992.
"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF
DEFAULT.’ It alleged therein that the failure of counsel to attend the pre-trial
conference was ‘due to an unavoidable circumstance’ and that counsel had sent his
representative on that date to inform the trial court of his inability to appear. The
Motion was vehemently opposed by plaintiff.
CASES: Agency
Page 28 of 104
"On August 25, 1992 the trial court denied defendant’s motion for reasons, among
others, that it was neither verified nor supported by an affidavit of merit and that it
further failed to allege or specify the facts constituting his meritorious defense.
"On September 28, 1992 defendant moved for reconsideration of the aforesaid order.
For the first time counsel revealed to the trial court that the reason for his
nonappearance at the pre-trial conference was his illness. An Affidavit of Merit
executed by its Executive Vice-President purporting to explain its meritorious defense
was attached to the said Motion. Just the same, in an Order dated November 13,
1992, the trial court denied said Motion.
"On November 18, 1992, the court a quo rendered judgment as follows:
"WHEREFORE, premises considered, judgment is hereby rendered ordering:
"1. The defendant Dominion Insurance Corporation to pay plaintiff the
sum of P156,473.90 representing the total amount advanced by plaintiff
in the payment of the claims of defendant’s clients;
"2. The defendant to pay plaintiff P10,000.00 as and by way of attorney’s
fees;
"3. The dismissal of the counter-claim of the defendant and the third-
party complaint;
"4. The defendant to pay the costs of suit." 4
On December 14, 1992, Dominion appealed the decision to the Court of Appeals. 5
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the
trial court.6 On September 3, 1996, Dominion filed with the Court of Appeals a
motion for reconsideration.7 On July 16, 1997, the Court of Appeals denied the
motion.8
Hence, this appeal.9
The Issues
The issues raised are: (1) whether respondent Guevarra acted within his authority as
agent for petitioner, and (2) whether respondent Guevarra is entitled to
reimbursement of amounts he paid out of his personal money in settling the claims
of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of
the latter.10 The basis for agency is representation.11 On the part of the principal, there
must be an actual intention to appoint12 or an intention naturally inferrable from his
words or actions;13 and on the part of the agent, there must be an intention to accept
the appointment and act on it,14 and in the absence of such intent, there is generally
no agency.15
A perusal of the Special Power of Attorney16 would show that petitioner (represented
by third-party defendant Austria) and respondent Guevarra intended to enter into a
principal-agent relationship. Despite the word "special" in the title of the document,
the contents reveal that what was constituted was actually a general agency. The
terms of the agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a corporation duly
organized and existing under and by virtue of the laws of the Republic of the
Philippines, xxx represented by the undersigned as Regional Manager, xxx do hereby
appoint RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to
be our Agency Manager in San Fdo., for our place and stead, to do and perform the
following acts and things:
"1. To conduct, sign, manager (sic), carry on and transact Bonding and
Insurance business as usually pertain to a Agency Office, or FIRE,
MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the
right, upon our prior written consent, to appoint agents and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or Policies of
Insurance and Bonds for and on our behalf.
"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver
and transfer for and receive and give effectual receipts and discharge for
all money to which the FIRST CONTINENTAL ASSURANCE COMPANY,
INC.,18 may hereafter become due, owing payable or transferable to said
Corporation by reason of or in connection with the above-mentioned
appointment.
"4. To receive notices, summons, and legal processes for and in behalf of
the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY
 Page 29 of 104

actions and all legal proceedings against the said Article 1236, second paragraph, Civil Code, provides:
Corporation."19 [Emphasis supplied]

"Whoever pays for another may demand from the debtor what he has paid, except
The agency comprises all the business of the principal,20 but, couched in general that if he paid without the knowledge or against the will of the debtor, he can recover
terms, it is limited only to acts of administration.21 only insofar as the payment has been beneficial to the debtor."

A general power permits the agent to do all acts for which the law does not require a In this case, when the risk insured against occurred, petitioner’s liability as insurer
special power.22 Thus, the acts enumerated in or similar to those enumerated in the arose.1âwphi1 This obligation was extinguished when respondent Guevarra paid the
Special Power of Attorney do not require a special power of attorney. claims and obtained Release of Claim Loss and Subrogation Receipts from the insured
who were paid.

Article 1878, Civil Code, enumerates the instances when a special power of attorney
is required. The pertinent portion that applies to this case provides that:
"Article 1878. Special powers of attorney are necessary in the following cases:
Thus, to the extent that the obligation of the petitioner has been extinguished,
respondent Guevarra may demand for reimbursement from his principal. To rule
otherwise would result in unjust enrichment of petitioner.

The extent to which petitioner was benefited by the settlement of the insurance
"(1) To make such payments as are not usually considered as acts of administration; claims could best be proven by the Release of Claim Loss and Subrogation
Receipts27 which were attached to the original complaint as Annexes C-2, D-1, E-1, F-
"x x x xxx xxx 1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95.

"(15) Any other act of strict dominion."
The payment of claims is not an act of administration. The settlement of claims is not
included among the acts enumerated in the Special Power of Attorney, neither is it of
a character similar to the acts enumerated therein. A special power of attorney is
required before respondent Guevarra could settle the insurance claims of the
insured.
However, the amount of the revolving fund/collection that was then in the
possession of respondent Guevarra as reflected in the statement of account dated
July 11, 1990 would be deducted from the above amount.
The outstanding balance and the production/remittance for the period corresponding
to the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11.
This is the amount that may be reimbursed to respondent Guevarra.

Respondent Guevarra’s authority to settle claims is embodied in the Memorandum of The Fallo
Management Agreement23dated February 18, 1987 which enumerates the scope of
respondent Guevarra’s duties and responsibilities as agency manager for San IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the
Fernando, Pampanga, as follows: Court of Appeals28 and that of the Regional Trial Court, Branch 44, San Fernando,
Pampanga,29 in that petitioner is ordered to pay respondent Guevarra the amount of
"x x x xxx xxx P112,672.11 representing the total amount advanced by the latter in the payment of
the claims of petitioner’s clients.

"1. You are hereby given authority to settle and dispose of all motor car
claims in the amount of P5,000.00 with prior approval of the Regional No costs in this instance.
Office.
SO ORDERED.
"2. Full authority is given you on TPPI claims settlement.

"xxx xxx x x x "24

In settling the claims mentioned above, respondent Guevarra’s authority is further

limited by the written standard authority to pay,25 which states that the payment shall
come from respondent Guevarra’s revolving fund or collection. The authority to pay is
worded as follows:

"This is to authorize you to withdraw from your revolving fund/collection the amount
of PESOS __________________ (P ) representing the payment on the
_________________ claim of assured _______________ under Policy No. ______ in
that accident of ___________ at ____________.

"It is further expected, release papers will be signed and authorized by the concerned
and attached to the corresponding claim folder after effecting payment of the claim.

"(sgd.) FERNANDO C. AUSTRIA

Regional Manager"26

[Emphasis supplied]

The instruction of petitioner as the principal could not be any

clearer.1âwphi1 Respondent Guevarra was authorized to pay the claim of the
insured, but the payment shall come from the revolving fund or collection in his
possession.

Having deviated from the instructions of the principal, the expenses that respondent
Guevarra incurred in the settlement of the claims of the insured may not be
reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918,
Civil Code, which states that:

"The principal is not liable for the expenses incurred by the agent in the following
cases:

"(1) If the agent acted in contravention of the principal’s

instructions, unless the latter should wish to avail himself of the benefits
derived from the contract;

"xxx xxx xxx"

However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on
obligations and contracts.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 171460 July 24, 2007
LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR.,
represented by their Attorney-In-Fact, ALFREDO M. PEREZ, Petitioners,
vs.
ALLIED BANKING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris and Julian
Mercado, Jr., represented by their Attorney-In-Fact, Alfredo M. Perez, seeking to
reverse and set aside the Decision1 of the Court of Appeals dated 12 October 2005,
and its Resolution2 dated 15 February 2006 in CA-G.R. CV No. 82636. The Court of
Appeals, in its assailed Decision and Resolution, reversed the Decision 3 of the
Regional Trial Court (RTC) of Quezon City, Branch 220 dated 23 September 2003,
declaring the deeds of real estate mortgage constituted on TCT No. RT-18206
(106338) null and void. The dispositive portion of the assailed Court of Appeals
Decision thus reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new judgment
is hereby entered dismissing the [petitioners] complaint.4
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned
several pieces of real property situated in different provinces of the Philippines.
Respondent, on the other hand, is a banking institution duly authorized as such
under the Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her
husband, Julian D. Mercado (Julian) over several pieces of real property registered
under her name, authorizing the latter to perform the following acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal
otherwise over the different parcels of land described hereinafter, to wit:
a) Calapan, Oriental Mindoro Properties covered by Transfer
Certificates of Title Nos. T-53618 - 3,522 Square Meters, T-
46810 – 3,953 Square Meters, T-53140 – 177 Square
Meters, T-21403 – 263 square Meters, T- 46807 – 39 Square
Meters of the Registry of Deeds of Oriental Mindoro;
b) Susana Heights, Muntinlupa covered by Transfer
Certificates of Title Nos. T-108954 – 600 Square Meters and
RT-106338 – 805 Square Meters of the Registry of Deeds of
Pasig (now Makati);
c) Personal property – 1983 Car with Vehicle Registration
No. R-16381; Model 1983; Make – Toyota; Engine No. T-
2464
2. To sign for and in my behalf any act of strict dominion or ownership
any sale, disposition, mortgage, lease or any other transactions including
quit-claims, waiver and relinquishment of rights in and over the parcels
of land situated in General Trias, Cavite, covered by Transfer Certificates
of Title Nos. T-112254 and T-112255 of the Registry of Deeds of Cavite, in
conjunction with his co-owner and in the person ATTY. AUGUSTO F. DEL
ROSARIO;
3. To exercise any or all acts of strict dominion or ownership over the
above-mentioned properties, rights and interest therein. (Emphasis
supplied.)
On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan
from the respondent in the amount of ₱3,000,000.00, secured by real estate
mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel of land
with an area of 805 square meters, registered with the Registry of Deeds of Quezon
City (subject property).5
Still using the subject property as security, Julian obtained an additional loan from
the respondent in the sum of ₱5,000,000.00, evidenced by a Promissory Note 6 he
executed on 5 February 1997 as another real estate mortgage (REM).
It appears, however, that there was no property identified in the SPA as TCT No. RT –
18206 (106338) and registered with the Registry of Deeds of Quezon City. What was
identified in the SPA instead was the property covered by TCT No. RT-106338
registered with the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus,
respondent initiated extra-judicial foreclosure proceedings over the subject property
which was subsequently sold at public auction wherein the respondent was declared
CASES: Agency
Page 30 of 104
as the highest bidder as shown in the Sheriff’s Certificate of Sale dated 15 January
1998.7
On 23 March 1999, petitioners initiated with the RTC an action for the annulment of
REM constituted over the subject property on the ground that the same was not
covered by the SPA and that the said SPA, at the time the loan obligations were
contracted, no longer had force and effect since it was previously revoked by Perla on
10 March 1993, as evidenced by the Revocation of SPA signed by the latter. 8
Petitioners likewise alleged that together with the copy of the Revocation of SPA,
Perla, in a Letter dated 23 January 1996, notified the Registry of Deeds of Quezon City
that any attempt to mortgage or sell the subject property must be with her full
consent documented in the form of an SPA duly authenticated before the Philippine
Consulate General in New York. 9
In the absence of authority to do so, the REM constituted by Julian over the subject
property was null and void; thus, petitioners likewise prayed that the subsequent
extra-judicial foreclosure proceedings and the auction sale of the subject property be
also nullified.
In its Answer with Compulsory Counterclaim,10 respondent averred that, contrary to
petitioner’s allegations, the SPA in favor of Julian included the subject property,
covered by one of the titles specified in paragraph 1(b) thereof, TCT No. RT- 106338
registered with the Registry of Deeds of Pasig (now Makati). The subject property was
purportedly registered previously under TCT No. T-106338, and was only
subsequently reconstituted as TCT RT-18206 (106338). Moreover, TCT No. T-106338
was actually registered with the Registry of Deeds of Quezon City and not before the
Registry of Deeds of Pasig (now Makati). Respondent explained that the discrepancy
in the designation of the Registry of Deeds in the SPA was merely an error that must
not prevail over the clear intention of Perla to include the subject property in the said
SPA. In sum, the property referred to in the SPA Perla executed in favor of Julian as
covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the
subject property in the case at bar, covered by RT – 18206 (106338) of the Registry of
Deeds of Quezon City, are one and the same.
On 23 September 2003, the RTC rendered a Decision declaring the REM constituted
over the subject property null and void, for Julian was not authorized by the terms of
the SPA to mortgage the same. The court a quo likewise ordered that the foreclosure
proceedings and the auction sale conducted pursuant to the void REM, be nullified.
The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
[herein petitioners] and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted and registered under
Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No.
RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and
VOID;
2. Declaring the Sheriff’s Sale and Certificate of Sale under FRE No. 2217
dated January 15, 1998 over the property covered by TCT No. RT-18206
(106338) of the Registry of Deeds of Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel the
annotation of Real Estate Mortgages appearing on Entry Nos. PE-
4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City;
4. Ordering the [respondent] Bank to deliver/return to the [petitioners]
represented by their attorney-in-fact Alfredo M. Perez, the original
Owner’s Duplicate Copy of TCT No. RT-18206 (106338) free from the
encumbrances referred to above; and
5. Ordering the [respondent] Bank to pay the [petitioners] the amount of
₱100,000.00 as for attorney’s fees plus cost of the suit.
The other claim for damages and counterclaim are hereby DENIED for lack of merit. 11
Aggrieved, respondent appealed the adverse Decision before the Court of Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision
and upheld the validity of the REM constituted over the subject property on the
strength of the SPA. The appellate court declared that Perla intended the subject
property to be included in the SPA she executed in favor of Julian, and that her
subsequent revocation of the said SPA, not being contained in a public instrument,
cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by the
Court of Appeals in its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution rendered by the
Court of Appeals raising several issues, which are summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED
OVER SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
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III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD
FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following
essential requisites:
Art. 2085. The following requisites are essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property.
In the case at bar, it was Julian who obtained the loan obligations from respondent
which he secured with the mortgage of the subject property. The property
mortgaged was owned by his wife, Perla, considered a third party to the loan
obligations between Julian and respondent. It was, thus, a situation recognized by the
last paragraph of Article 2085 of the Civil Code afore-quoted. However, since it was
not Perla who personally mortgaged her own property to secure Julian’s loan
obligations with respondent, we proceed to determining if she duly authorized Julian
to do so on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases
where real rights over immovable property are created or conveyed. 12 In the SPA
executed by Perla in favor of Julian on 28 May 1992, the latter was conferred with the
authority to "sell, alienate, mortgage, lease and deal otherwise" the different pieces
of real and personal property registered in Perla’s name. The SPA likewise authorized
Julian "[t]o exercise any or all acts of strict dominion or ownership" over the
identified properties, and rights and interest therein. The existence and due
execution of this SPA by Perla was not denied or challenged by petitioners.
There is no question therefore that Julian was vested with the power to mortgage the
pieces of property identified in the SPA. However, as to whether the subject property
was among those identified in the SPA, so as to render Julian’s mortgage of the same
valid, is a question we still must resolve.
Petitioners insist that the subject property was not included in the SPA, considering
that it contained an exclusive enumeration of the pieces of property over which
Julian had authority, and these include only: (1) TCT No. T-53618, with an area of
3,522 square meters, located at Calapan, Oriental Mindoro, and registered with the
Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953
square meters, located at Calapan, Oriental Mindoro, and registered with the Registry
of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an area of 177 square
meters, located at Calapan, Oriental Mindoro, and registered with the Registry of
Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square meters,
located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of
Oriental Mindoro; (5) TCT No. T- 46807, with an area of 39 square meters, located at
Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental
Mindoro; (6) TCT No. T-108954, with an area of 690 square meters and located at
Susana Heights, Muntinlupa; (7) RT-106338 – 805 Square Meters registered with the
Registry of Deeds of Pasig (now Makati); and (8) Personal Property consisting of a
1983 Car with Vehicle Registration No. R-16381, Model – 1983, Make – Toyota, and
Engine No. T- 2464. Nowhere is it stated in the SPA that Julian’s authority extends to
the subject property covered by TCT No. RT – 18206 (106338) registered with the
Registry of Deeds of Quezon City. Consequently, the act of Julian of constituting a
mortgage over the subject property is unenforceable for having been done without
authority.
Respondent, on the other hand, mainly hinges its argument on the declarations made
by the Court of Appeals that there was no property covered by TCT No. 106338
registered with the Registry of Deeds of Pasig (now Makati); but there exists a
property, the subject property herein, covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City. Further verification would
reveal that TCT No. RT-18206 is merely a reconstitution of TCT No. 106338, and the
property covered by both certificates of title is actually situated in Quezon City and
not Pasig. From the foregoing circumstances, respondent argues that Perla intended
to include the subject property in the SPA, and the failure of the instrument to reflect
the recent TCT Number or the exact designation of the Registry of Deeds, should not
defeat Perla’s clear intention.
After an examination of the literal terms of the SPA, we find that the subject property
was not among those enumerated therein. There is no obvious reference to the
subject property covered by TCT No. RT-18206 (106338) registered with the Registry
of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could deduce the
intention of Perla to include the subject property therein. We cannot attribute such
alleged intention to Perla who executed the SPA when the language of the instrument
is bare of any indication suggestive of such intention. Contrariwise, to adopt the
intent theory advanced by the respondent, in the absence of clear and convincing
CASES: Agency
Page 31 of 104
evidence to that effect, would run afoul of the express tenor of the SPA and thus
defeat Perla’s true intention.
In cases where the terms of the contract are clear as to leave no room for
interpretation, resort to circumstantial evidence to ascertain the true intent of the
parties, is not countenanced. As aptly stated in the case of JMA House, Incorporated
v. Sta. Monica Industrial and Development Corporation,13 thus:
[T]he law is that if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulation shall control.
When the language of the contract is explicit, leaving no doubt as to the intention of
the drafters, the courts may not read into it [in] any other intention that would
contradict its main import. The clear terms of the contract should never be the
subject matter of interpretation. Neither abstract justice nor the rule on liberal
interpretation justifies the creation of a contract for the parties which they did not
make themselves or the imposition upon one party to a contract or obligation not
assumed simply or merely to avoid seeming hardships. The true meaning must be
enforced, as it is to be presumed that the contracting parties know their scope and
effects.14
Equally relevant is the rule that a power of attorney must be strictly construed and
pursued. The instrument will be held to grant only those powers which are specified
therein, and the agent may neither go beyond nor deviate from the power of
attorney.15 Where powers and duties are specified and defined in an instrument, all
such powers and duties are limited and are confined to those which are specified and
defined, and all other powers and duties are excluded.16 This is but in accord with the
disinclination of courts to enlarge the authority granted beyond the powers expressly
given and those which incidentally flow or derive therefrom as being usual and
reasonably necessary and proper for the performance of such express powers. 17
Even the commentaries of renowned Civilist Manresa18 supports a strict and limited
construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man to express
himself in a vague and general way with reference to the right he confers upon
another for the purpose of alienation or hypothecation, whereby he might be
despoiled of all he possessed and be brought to ruin, such excessive authority must
be set down in the most formal and explicit terms, and when this is not done, the law
reasonably presumes that the principal did not mean to confer it.
In this case, we are not convinced that the property covered by TCT No. 106338
registered with the Registry of Deeds of Pasig (now Makati) is the same as the subject
property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds
of Quezon City. The records of the case are stripped of supporting proofs to verify the
respondent’s claim that the two titles cover the same property. It failed to present
any certification from the Registries of Deeds concerned to support its assertion.
Neither did respondent take the effort of submitting and making part of the records
of this case copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now
Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon City, and closely
comparing the technical descriptions of the properties covered by the said TCTs. The
bare and sweeping statement of respondent that the properties covered by the two
certificates of title are one and the same contains nothing but empty imputation of a
fact that could hardly be given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with the
authority to mortgage the subject property under the terms of the SPA, the real
estate mortgages Julian executed over the said property are therefore unenforceable.
Assuming arguendo that the subject property was indeed included in the SPA
executed by Perla in favor of Julian, the said SPA was revoked by virtue of a public
instrument executed by Perla on 10 March 1993. To address respondent’s assertion
that the said revocation was unenforceable against it as a third party to the SPA and
as one who relied on the same in good faith, we quote with approval the following
ruling of the RTC on this matter:
Moreover, an agency is extinguished, among others, by its revocation (Article 1999,
New Civil Code of the Philippines). The principal may revoke the agency at will, and
compel the agent to return the document evidencing the agency. Such revocation
may be express or implied (Article 1920, supra).
In this case, the revocation of the agency or Special Power of Attorney is expressed
and by a public document executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified that any attempt to mortgage
or sell the property covered by TCT No. [RT-18206] 106338 located at No. 21 Hillside
Drive, Blue Ridge, Quezon City must have the full consent documented in the form of
a special power of attorney duly authenticated at the Philippine Consulate General,
New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special Power of Attorney on TCT No. RT-
18206 is of no consequence as far as the revocation’s existence and legal effect is
concerned since actual notice is always superior to constructive notice. The actual
notice of the revocation relayed to defendant Registry of Deeds of Quezon City is not
denied by either the Registry of Deeds of Quezon City or the defendant Bank. In
which case, there appears no reason why Section 52 of the Property Registration
Decree (P.D. No. 1529) should not apply to the situation. Said Section 52 of P.D. No.
1529 provides:
"Section 52. Constructive notice upon registration. – Every conveyance, mortgage,
lease, lien, attachment, order, judgment, instrument or entry affecting registered land
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 Page 32 of 104

shall, if registered, filed or entered in the Office of the Register of Deeds for the
province or city where the land to which it relates lies, be constructive notice to all
persons from the time of such registering, filing or entering. (Pres. Decree No. 1529,
Section 53) (emphasis ours)
It thus developed that at the time the first loan transaction with defendant Bank was
effected on December 12, 1996, there was on record at the Office of the Register of
Deeds of Quezon City that the special power of attorney granted Julian, Sr. by Perla
had been revoked. That notice, works as constructive notice to third parties of its
being filed, effectively rendering Julian, Sr. without authority to act for and in behalf
of Perla as of the date the revocation letter was received by the Register of Deeds of
Quezon City on February 7, 1996. 19
Given that Perla revoked the SPA as early as 10 March 1993, and that she informed
the Registry of Deeds of Quezon City of such revocation in a letter dated 23 January
1996 and received by the latter on 7 February 1996, then third parties to the SPA are
constructively notified that the same had been revoked and Julian no longer had any
authority to mortgage the subject property. Although the revocation may not be
annotated on TCT No. RT-18206 (106338), as the RTC pointed out, neither the
Registry of Deeds of Quezon City nor respondent denied that Perla’s 23 January 1996
letter was received by and filed with the Registry of Deeds of Quezon City.
Respondent would have undoubtedly come across said letter if it indeed diligently
investigated the subject property and the circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a
mortgagee-in-good faith. Respondent fervently asserts that it exercised reasonable
diligence required of a prudent man in dealing with the subject property.
Elaborating, respondent claims to have carefully verified Julian’s authority over the
subject property which was validly contained in the SPA. It stresses that the SPA was
annotated at the back of the TCT of the subject property. Finally, after conducting an
investigation, it found that the property covered by TCT No. 106338, registered with
the Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the subject
property, covered by TCT No. 18206 (106338) registered with the Registry of Deeds of
Quezon City, are one and the same property. From the foregoing, respondent
concluded that Julian was indeed authorized to constitute a mortgage over the
subject property.
We are unconvinced. The property listed in the real estate mortgages Julian executed
in favor of PNB is the one covered by "TCT#RT-18206(106338)." On the other hand,
the Special Power of Attorney referred to TCT No. "RT-106338 – 805 Square Meters of
the Registry of Deeds of Pasig now Makati." The palpable difference between the TCT
numbers referred to in the real estate mortgages and Julian’s SPA, coupled with the
fact that the said TCTs are registered in the Registries of Deeds of different cities,
should have put respondent on guard. Respondent’s claim of prudence is debunked
by the fact that it had conveniently or otherwise overlooked the inconsistent details
appearing on the face of the documents, which it was relying on for its rights as
mortgagee, and which significantly affected the identification of the property being
mortgaged. In Arrofo v. Quiño,20 we have elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not required] to
inquire further than what the Torrens title on its face indicates. This rule, however, is
not absolute but admits of exceptions. Thus, while its is true, x x x that a person
dealing with registered lands need not go beyond the certificate of title, it is
likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to
facts which should put a reasonable man on his guard, and then claim that he acted
in good faith under the belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to face up the fact that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in the vendor’s or
mortgagor’s title, will not make him an innocent purchaser for value, if it afterwards
develops that the title was in fact defective, and it appears that he had such notice of
the defect as would have led to its discovery had he acted with the measure of
precaution which may be required of a prudent man in a like situation.
Hence, considering that the property being mortgaged by Julian was not his, and
there are additional doubts or suspicions as to the real identity of the same, the
respondent bank should have proceeded with its transactions with Julian only with
utmost caution. As a bank, respondent must subject all its transactions to the most
rigid scrutiny, since its business is impressed with public interest and its fiduciary
character requires high standards of integrity and performance. 25 Where respondent
acted in undue haste in granting the mortgage loans in favor of Julian and
disregarding the apparent defects in the latter’s authority as agent, it failed to
discharge the degree of diligence required of it as a banking corporation.1awphil
Thus, even granting for the sake of argument that the subject property and the one
identified in the SPA are one and the same, it would not elevate respondent’s status
to that of an innocent mortgagee. As a banking institution, jurisprudence stringently
requires that respondent should take more precautions than an ordinary prudent
man should, to ascertain the status and condition of the properties offered as
collateral and to verify the scope of the authority of the agents dealing with these.
Had respondent acted with the required degree of diligence, it could have acquired
knowledge of the letter dated 23 January 1996 sent by Perla to the Registry of Deeds
of Quezon City which recorded the same. The failure of the respondent to investigate
into the circumstances surrounding the mortgage of the subject property belies its
contention of good faith.
On a last note, we find that the real estate mortgages constituted over the subject
property are unenforceable and not null and void, as ruled by the RTC. It is best to
reiterate that the said mortgage was entered into by Julian on behalf of Perla without
the latter’s authority and consequently, unenforceable under Article 1403(1) of the
Civil Code. Unenforceable contracts are those which cannot be enforced by a proper
action in court, unless they are ratified, because either they are entered into without
or in excess of authority or they do not comply with the statute of frauds or both of
the contracting parties do not possess the required legal capacity.26 An unenforceable
contract may be ratified, expressly or impliedly, by the person in whose behalf it has
been executed, before it is revoked by the other contracting party. 27 Without Perla’s
ratification of the same, the real estate mortgages constituted by Julian over the
subject property cannot be enforced by any action in court against Perla and/or her
successors in interest.
In sum, we rule that the contracts of real estate mortgage constituted over the
subject property covered by TCT No. RT – 18206 (106338) registered with the
Registry of Deeds of Quezon City are unenforceable. Consequently, the foreclosure
proceedings and the auction sale of the subject property conducted in pursuance of
these unenforceable contracts are null and void. This, however, is without prejudice
to the right of the respondent to proceed against Julian, in his personal capacity, for
the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The
Decision dated 12 October 2005 and its Resolution dated 15 February 2006 rendered
by the Court of Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision
dated 23 September 2003 of the Regional Trial Court of Quezon City, Branch 220, in
Civil Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED with modification
that the real estate mortgages constituted over TCT No. RT – 18206 (106338) are not
null and void but UNENFORCEABLE. No costs.
SO ORDERED.

By putting blinders on its eyes, and by refusing to see the patent defect in the scope
of Julian’s authority, easily discernable from the plain terms of the SPA, respondent
cannot now claim to be an innocent mortgagee.

Further, in the case of Abad v. Guimba,21 we laid down the principle that where the
mortgagee does not directly deal with the registered owner of real property, the law
requires that a higher degree of prudence be exercised by the mortgagee, thus:

While [the] one who buys from the registered owner does not need to look behind
the certificate of title, one who buys from [the] one who is not [the] registered owner
is expected to examine not only the certificate of title but all factual circumstances
necessary for [one] to determine if there are any flaws in the title of the transferor, or
in [the] capacity to transfer the land. Although the instant case does not involve a
sale but only a mortgage, the same rule applies inasmuch as the law itself includes a
mortgagee in the term "purchaser."22

This principle is applied more strenuously when the mortgagee is a bank or a banking
institution. Thus, in the case of Cruz v. Bancom Finance Corporation,23 we ruled:

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such,

unlike private individuals, it is expected to exercise greater care and prudence in its
dealings, including those involving registered lands. A banking institution is expected
to exercise due diligence before entering into a mortgage contract. The
ascertainment of the status or condition of a property offered to it as security for a
loan must be a standard and indispensable part of its operations. 24

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 82040 August 27, 1991
BA FINANCE CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS, Hon. Presiding Judge of Regional Trial Court of Manila,
Branch 43, MANUEL CUADY and LILIA CUADY, respondents.
Valera, Urmeneta & Associates for petitioner.
Pompeyo L. Bautista for private respondents.
PARAS, J.:
This is a petition for review on certiorari which seeks to reverse and set aside (1) the
decision of the Court of Appeals dated July 21, 1987 in CA-G.R. No. CV-06522 entitled
"B.A. Finance Corporation, Plaintiff-Appellant, vs. Manuel Cuady and Lilia Cuady,
Defendants-Appellees," affirming the decision of the Regional Trial Court of Manila,
Branch 43, which dismissed the complaint in Civil Case No. 82-10478, and (2) the
resolution dated February 9, 1988 denying petitioner's motion for reconsideration.
As gathered from the records, the facts are as follows:
On July 15, 1977, private respondents Manuel Cuady and Lilia Cuady obtained from
Supercars, Inc. a credit of P39,574.80, which amount covered the cost of one unit of
Ford Escort 1300, four-door sedan. Said obligation was evidenced by a promissory
note executed by private respondents in favor of Supercars, Inc., obligating
themselves to pay the latter or order the sum of P39,574.80, inclusive of interest at
14% per annum, payable on monthly installments of P1,098.00 starting August 16,
1977, and on the 16th day of the next 35 months from September 16, 1977 until full
payment thereof. There was also stipulated a penalty of P10.00 for every month of
late installment payment. To secure the faithful and prompt compliance of the
obligation under the said promissory note, the Cuady spouses constituted a chattel
mortage on the aforementioned motor vehicle. On July 25, 1977, Supercars, Inc.
assigned the promissory note, together with the chattel mortgage, to B.A. Finance
Corporation. The Cuadys paid a total of P36,730.15 to the B.A. Finance Corporation,
thus leaving an unpaid balance of P2,344.65 as of July 18, 1980. In addition thereto,
the Cuadys owe B.A. Finance Corporation P460.00 representing penalties or
surcharges for tardy monthly installments (Rollo, pp. 27-29).
Parenthetically, the B.A. Finance Corporation, as the assignee of the mortgage lien
obtained the renewal of the insurance coverage over the aforementioned motor
vehicle for the year 1980 with Zenith Insurance Corporation, when the Cuadys failed
to renew said insurance coverage themselves. Under the terms and conditions of the
said insurance coverage, any loss under the policy shall be payable to the B.A.
Finance Corporation (Memorandum for Private Respondents, pp. 3-4).
On April 18, 1980, the aforementioned motor vehicle figured in an accident and was
badly damaged. The unfortunate happening was reported to the B.A. Finance
Corporation and to the insurer, Zenith Insurance Corporation. The Cuadys asked the
B.A. Finance Corporation to consider the same as a total loss, and to claim from the
insurer the face value of the car insurance policy and apply the same to the payment
of their remaining account and give them the surplus thereof, if any. But instead of
heeding the request of the Cuadys, B.A. Finance Corporation prevailed upon the
former to just have the car repaired. Not long thereafter, however, the car bogged
down. The Cuadys wrote B.A. Finance Corporation requesting the latter to pursue
their prior instruction of enforcing the total loss provision in the insurance coverage.
When B.A. Finance Corporation did not respond favorably to their request, the
Cuadys stopped paying their monthly installments on the promissory note (Ibid., pp.
45).
On June 29, 1982, in view of the failure of the Cuadys to pay the remaining
installments on the note, B.A. Finance Corporation sued them in the Regional Trial
Court of Manila, Branch 43, for the recovery of the said remaining installments
(Memorandum for the Petitioner, p. 1).
After the termination of the pre-trial conference, the case was set for trial on the
merits on April 25, 1984. B.A. Finance Corporation's evidence was presented on even
date and the presentation of Cuady's evidence was set on August 15, 1984. On
August 7,1984, Atty. Noel Ebarle, counsel for the petitioner, filed a motion for
postponement, the reason being that the "handling" counsel, Atty. Ferdinand
Macibay was temporarily assigned in Cebu City and would not be back until after
August 15, 1984. Said motion was, however, denied by the trial court on August 10,
1984. On August 15, 1984, the date of hearing, the trial court allowed private
respondents to adduce evidence ex-parte in the form of an affidavit to be sworn to
before any authorized officer. B.A. Finance Corporation filed a motion for
reconsideration of the order of the trial court denying its motion for postponement.
Said motion was granted in an order dated September 26, 1984, thus:
The Court grants plaintiff's motion for reconsideration dated August 22,
1984, in the sense that plaintiff is allowed to adduce evidence in the
form of counter-affidavits of its witnesses, to be sworn to before any
person authorized to administer oaths, within ten days from notice
hereof. (Ibid., pp. 1-2).
B.A. Finance Corporation, however, never complied with the above-mentioned order,
paving the way for the trial court to render its decision on January 18, 1985, the
dispositive portion of which reads as follows:
CASES: Agency
Page 33 of 104
IN VIEW WHEREOF, the Court DISMISSES the complaint without costs.
SO ORDERED. (Rollo, p. 143)
On appeal, the respondent appellate court * affirmed the decision of the trial court.
The decretal portion of the said decision reads as follows:
WHEREFORE, after consultation among the undersigned members of this
Division, in compliance with the provision of Section 13, Article VIII of
the Constitution; and finding no reversible error in the judgment
appealed from, the same is hereby AFFIRMED, without any
pronouncement as to costs. (Ibid., p. 33)
B.A. Finance Corporation moved for the reconsideration of the above decision, but
the motion was denied by the respondent appellate court in a resolution dated
February 9, 1988 (Ibid., p. 38).
Hence, this present recourse.
On July 11, 1990, this Court gave due course to the petition and required the parties
to submit their respective memoranda. The parties having complied with the
submission of their memoranda, the case was submitted for decision.
The real issue to be resolved in the case at bar is whether or not B.A. Finance
Corporation has waived its right to collect the unpaid balance of the Cuady spouses
on the promissory note for failure of the former to enforce the total loss provision in
the insurance coverage of the motor vehicle subject of the chattel mortgage.
It is the contention of B.A. Finance Corporation that even if it failed to enforce the
total loss provision in the insurance policy of the motor vehicle subject of the chattel
mortgage, said failure does not operate to extinguish the unpaid balance on the
promissory note, considering that the circumstances obtaining in the case at bar do
not fall under Article 1231 of the Civil Code relative to the modes of extinguishment
of obligations (Memorandum for the Petitioner, p. 11).
On the other hand, the Cuadys insist that owing to its failure to enforce the total loss
provision in the insurance policy, B.A. Finance Corporation lost not only its
opportunity to collect the insurance proceeds on the mortgaged motor vehicle in its
capacity as the assignee of the said insurance proceeds pursuant to the
memorandum in the insurance policy which states that the "LOSS: IF ANY, under this
policy shall be payable to BA FINANCE CORP., as their respective rights and interest
may appear" (Rollo, p. 91) but also the remaining balance on the promissory note
(Memorandum for the Respondents, pp. 16-17).
The petition is devoid of merit.
B.A. Finance Corporation was deemed subrogated to the rights and obligations of
Supercars, Inc. when the latter assigned the promissory note, together with the
chattel mortgage constituted on the motor vehicle in question in favor of the former.
Consequently, B.A. Finance Corporation is bound by the terms and conditions of the
chattel mortgage executed between the Cuadys and Supercars, Inc. Under the deed
of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact with
full power and authority to file, follow-up, prosecute, compromise or settle insurance
claims; to sign execute and deliver the corresponding papers, receipts and
documents to the Insurance Company as may be necessary to prove the claim, and to
collect from the latter the proceeds of insurance to the extent of its interests, in the
event that the mortgaged car suffers any loss or damage (Rollo, p. 89). In granting
B.A. Finance Corporation the aforementioned powers and prerogatives, the Cuady
spouses created in the former's favor an agency. Thus, under Article 1884 of the Civil
Code of the Philippines, B.A. Finance Corporation is bound by its acceptance to carry
out the agency, and is liable for damages which, through its non-performance, the
Cuadys, the principal in the case at bar, may suffer.
Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value of
the motor vehicle in question, not to mention the amount equivalent to the unpaid
balance on the promissory note, when B.A. Finance Corporation steadfastly refused
and refrained from proceeding against the insurer for the payment of a clearly valid
insurance claim, and continued to ignore the yearning of the Cuadys to enforce the
total loss provision in the insurance policy, despite the undeniable fact that Rea Auto
Center, the auto repair shop chosen by the insurer itself to repair the aforementioned
motor vehicle, misrepaired and rendered it completely useless and unserviceable
(Ibid., p. 31).
Accordingly, there is no reason to depart from the ruling set down by the respondent
appellate court. In this connection, the Court of Appeals said:
... Under the established facts and circumstances, it is unjust, unfair and
inequitable to require the chattel mortgagors, appellees herein, to still
pay the unpaid balance of their mortgage debt on the said car, the non-
payment of which account was due to the stubborn refusal and failure of
appellant mortgagee to avail of the insurance money which became due
and demandable after the insured motor vehicle was badly damaged in a
vehicular accident covered by the insurance risk. ... (Ibid.)
On the allegation that the respondent court's findings that B.A. Finance Corporation
failed to claim for the damage to the car was not supported by evidence, the records
show that instead of acting on the instruction of the Cuadys to enforce the total loss
provision in the insurance policy, the petitioner insisted on just having the motor
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 Page 34 of 104

vehicle repaired, to which private respondents reluctantly acceded. As heretofore

mentioned, the repair shop chosen was not able to restore the aforementioned
motor vehicle to its condition prior to the accident. Thus, the said vehicle bogged
down shortly thereafter. The subsequent request of the Cuadys for the B.A. Finance
Corporation to file a claim for total loss with the insurer fell on deaf ears, prompting
the Cuadys to stop paying the remaining balance on the promissory note
(Memorandum for the Respondents, pp. 4-5).

Moreover, B.A. Finance Corporation would have this Court review and reverse the
factual findings of the respondent appellate court. This, of course, the Court cannot
and will not generally do. It is axiomatic that the judgment of the Court of Appeals is
conclusive as to the facts and may not ordinarily be reviewed by the Supreme Court.
The doctrine is, to be sure, subject to certain specific exceptions none of which,
however, obtains in the instant case (Luzon Brokerage Corporation v. Court of
Appeals, 176 SCRA 483 [1989]).

Finally, B.A. Finance Corporation contends that respondent trial court committed
grave abuses of discretion in two instances: First, when it denied the petitioner's
motion for reconsideration praying that the counsel be allowed to cross-examine the
affiant, and; second, when it seriously considered the evidence adduced ex-parte by
the Cuadys, and heavily relied thereon, when in truth and in fact, the same was not
formally admitted as part of the evidence for the private respondents (Memorandum
for the Petitioner, p. 10). This Court does not have to unduly dwell on this issue which
was only raised by B.A. Finance Corporation for the first time on appeal. A review of
the records of the case shows that B.A. Finance Corporation failed to directly raise or
ventilate in the trial court nor in the respondent appellate court the validity of the
evidence adduced ex-parte by private respondents. It was only when the petitioner
filed the instant petition with this Court that it later raised the aforementioned issue.
As ruled by this Court in a long line of cases, issues not raised and/or ventilated in the
trial court, let alone in the Court of Appeals, cannot be raised for the first time on
appeal as it would be offensive to the basic rules of fair play, justice and due process
(Galicia v. Polo, 179 SCRA 375 [1989]; Ramos v. Intermediate Appellate Court, 175
SCRA 70 [1989]; Dulos Realty & Development Corporation v. Court of Appeals, 157
SCRA 425 [1988]; Dihiansan, et al. v. Court of Appeals, et al., 153 SCRA 712 [1987]; De
la Santa v. Court of Appeals, et al., 140 SCRA 44 [1985]).

PREMISES CONSIDERED, the instant petition is DENIED, and the decision appealed
from is AFFIRMED.

SO ORDERED.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 151319 November 22, 2004
MANILA MEMORIAL PARK CEMETERY, INC., petitioner,
vs.
PEDRO L. LINSANGAN, respondent.
DECISION
TINGA, J.:
For resolution in this case is a classic and interesting texbook question in the law on
agency.
This is a petition for review assailing the Decision 1 of the Court of Appeals dated 22
June 2001, and its 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
CASES: Agency
Page 35 of 104
(12) postdated checks of P1,800.00 each in favor of MMPCI. The next year, or on 29
April 1986, Atty. Linsangan again issued twelve (12) postdated checks in favor of
MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660
was cancelled for reasons the latter could not explain, and presented to him another
proposal for the purchase of an equivalent property. He refused the new proposal
and insisted that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty.
Linsangan filed a Complaint7 for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No.
28660 was cancelled conformably with the terms of the contract 8 because of non-
payment of arrearages.9 MMPCI stated that Baluyot was not an agent but an
independent contractor, and as such was not authorized to represent MMPCI or to
use its name except as to the extent expressly stated in the Agency Manager
Agreement.10 Moreover, MMPCI was not aware of the arrangements entered into by
Atty. Linsangan and Baluyot, as it in fact received a down payment and monthly
installments as indicated in the contract. 11 Official receipts showing the application of
payment were turned over to Baluyot whom Atty. Linsangan had from the beginning
allowed to receive the same in his behalf. Furthermore, whatever misimpression that
Atty. Linsangan may have had must have been rectified by the Account Updating
Arrangement signed by Atty. Linsangan which states that he "expressly admits that
Contract No. 28660 'on account of serious 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
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

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,
CASES: Agency
Page 36 of 104
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
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 Page 37 of 104

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
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.

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.
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.

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.
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.

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.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 126751 March 28, 2001
SAFIC ALCAN & CIE, petitioner,
vs.
IMPERIAL VEGETABLE OIL CO., INC., respondent.
YNARES-SANTIAGO, J.:
Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French corporation engaged in
the international purchase, sale and trading of coconut oil. It filed with the Regional
Trial Court of Manila, Branch XXV, a complaint dated February 26, 1987 against
private respondent Imperial Vegetable Oil Co., Inc. (hereinafter, "IVO"), docketed as
Civil Case No. 87- 39597. Petitioner Safic alleged that on July 1, 1986 and September
25, 1986, it placed purchase orders with IVO for 2,000 long tons of crude coconut oil,
valued at US$222.50 per ton, covered by Purchase Contract Nos. A601446 and
A601655, respectively, to be delivered within the month of January 1987. Private
respondent, however, failed to deliver the said coconut oil and, instead, offered a
"wash out" settlement, whereby the coconut oil subject of the purchase contracts
were to be "sold back" to IVO at the prevailing price in the international market at the
time of wash out. Thus, IVO bound itself to pay to Safic the difference between the
said prevailing price and the contract price of the 2,000 long tons of crude coconut
oil, which amounted to US$293,500.00. IVO failed to pay this amount despite
repeated oral and written demands.
Under its second cause of action, Safic alleged that on eight occasions between April
24, 1986 and October 31, 1986, it placed purchase orders with IVO for a total of
4,750 tons of crude coconut oil, covered by Purchase Contract Nos. A601297A/B,
A601384, A601385, A601391, A601415, A601681, A601683 and A601770A/B/C/.
When IVO failed to honor its obligation under the wash out settlement narrated
above, Safic demanded that IVO make marginal deposits within forty-eight hours on
the eight purchase contracts in amounts equivalent to the difference between the
contract price and the market price of the coconut oil, to compensate it for the
damages it suffered when it was forced to acquire coconut oil at a higher price. IVO
failed to make the prescribed marginal deposits on the eight contracts, in the
aggregate amount of US$391,593.62, despite written demand therefor.
The demand for marginal deposits was based on the customs of the trade, as
governed by the provisions of the standard N.I.O.P. Contract arid the FOSFA Contract,
to wit:
N.I.O.P. Contract, Rule 54 - If the financial condition of either party to a
contract subject to these rules becomes so impaired as to create a
reasonable doubt as to the ability of such party to perform its
obligations under the contract, the other party may from time to time
demand marginal deposits to be made within forty-eight (48) hours after
receipt of such demand, such deposits not to exceed the difference
between the contract price and the market price of the goods covered
by the contract on the day upon which such demand is made, such
deposit to bear interest at the prime rate plus one percent (1%) per
annum. Failure to make such deposit within the time specified shall
constitute a breach of contract by the party upon whom demand for
deposit is made, and all losses and expenses resulting from such breach
shall be for the account of the party upon whom such demand is made.
(Underscoring ours.)1
FOSFA Contract, Rule 54 - BANKRUPTCY/INSOLVENCY: If before the
fulfillment of this contract either party shall suspend payment, commit
an act of bankruptcy, notify any of his creditors that he is unable to meet
his debts or that he has suspended payment or that he is about to
suspend payment of his debts, convene, call or hold a meeting either of
his creditors or to pass a resolution to go into liquidation (except for a
voluntary winding up of a solvent company for the purpose of
reconstruction or amalgamation) or shall apply for an official
moratorium, have a petition presented for winding up or shal1i have a
Receiver appointed, the contract shall forthwith be closed either at the
market price then current for similar goods or, at the option of the other
party at a price to be ascertained by repurchase or resale and the
difference between the contract price and such closing-out price shall be
the amount which the other party shall be entitled to claim shall be
liable to account for under this contract (sic). Should either party be
dissatisfied with the price, the matter shall be referred to arbitration.
Where no such resale or repurchase takes place, the closing-out price
shall be fixed by a Price Settlement Committee appointed by the
Federation. (Underscoring ours.) 2
Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and
US$391,593.62, plus attorney's fees and litigation expenses. The complaint also
included an application for a writ of preliminary attachment against the properties of
IVO.
Upon Safic's posting of the requisite bond, the trial court issued a writ of preliminary
attachment. Subsequently, the trial court ordered that the assets of IVO be placed
under receivership, in order to ensure the preservation of the same.
In its answer, IVO raised the following special affirmative defenses: Safic had no legal
capacity to sue because it was doing business in the Philippines without the requisite
license or authority; the subject contracts were speculative contracts entered into by
IVO's then President, Dominador Monteverde, in contravention of the prohibition by
the Board of Directors against engaging in speculative paper trading, and despite
CASES: Agency
Page 38 of 104
IVO's lack of the necessary license from Central Bank to engage in such kind of
trading activity; and that under Article 2018 of the Civil Code, if a contract which
purports to be for the delivery of goods, securities or shares of stock is entered into
with the intention that the difference between the price stipulated and the exchange
or market price at the time of the pretended delivery shall be paid by the loser to the
winner, the transaction is null and void.1âwphi1.nêt
IVO set up counterclaims anchored on harassment, paralyzation of business, financial
losses, rumor-mongering and oppressive action. Later, IVO filed a supplemental
counterclaim alleging that it was unable to operate its business normally because of
the arrest of most of its physical assets; that its suppliers were driven away; and that
its major creditors have inundated it with claims for immediate payment of its debts,
and China Banking Corporation had foreclosed its chattel and real estate mortgages.
During the trial, the lower court found that in 1985, prior to the date of the contracts
sued upon, the parties had entered into and consummated a number of contracts for
the sale of crude coconut oil. In those transactions, Safic placed several orders and
IVO faithfully filled up those orders by shipping out the required crude coconut oil to
Safic, totaling 3,500 metric tons. Anent the 1986 contracts being sued upon, the trial
court refused to declare the same as gambling transactions, as defined in Article 2018
of the Civil Code, although they involved some degree of speculation. After all, the
court noted, every business enterprise carries with it a certain measure of
speculation or risk. However, the contracts performed in 1985, on one hand, and the
1986 contracts subject of this case, on the other hand, differed in that under the
1985 contracts, deliveries were to be made within two months. This, as alleged by
Safic, was the time needed for milling and building up oil inventory. Meanwhile, the
1986 contracts stipulated that the coconut oil were to be delivered within period
ranging from eight months to eleven to twelve months after the placing of orders.
The coconuts that were supposed to be milled were in all likelihood not yet growing
when Dominador Monteverde sold the crude coconut oil. As such, the 1986 contracts
constituted trading in futures or in mere expectations.
The lower court further held that the subject contracts were ultra vires and were
entered into by Dominador Monteverde without authority from the Board of
Directors. It distinguished between the 1985 contracts, where Safic likewise dealt
with Dominador Monteverde, who was presumably authorized to bind IVO, and the
1986 contracts, which were highly speculative in character. Moreover, the 1985
contracts were covered by letters of credit, while the 1986 contracts were payable by
telegraphic transfers, which were nothing more than mere promises to pay once the
shipments became ready. For these reasons, the lower court held that Safic cannot
invoke the 1985 contracts as an implied corporate sanction for the high-risk 1986
contracts, which were evidently entered into by Monteverde for his personal benefit.
The trial court ruled that Safic failed to substantiate its claim for actual damages.
Likewise, it rejected IVO's counterclaim and supplemental counterclaim.
Thus, on August 28, 1992, the trial court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered dismissing the complaint of
plaintiff Safic Alcan & Cie, without prejudice to any action it might
subsequently institute against Dominador Monteverde, the former
President of Imperial Vegetable Oil Co., Inc., arising from the subject
matter of this case. The counterclaim and supplemental counterclaim of
the latter defendant are likewise hereby dismissed for lack of merit. No
pronouncement as to costs.
The writ of preliminary attachment issued in this case as well as the
order placing Imperial Vegetable Oil Co., Inc. under receivership are
hereby dissolved and set aside.3
Both IVO and Safic appealed to the Court of Appeals, jointly docketed as CA-G.R. CV
No.40820.
IVO raised only one assignment of error, viz:
THE TRIAL COURT ERRED IN HOLDING 'I'HAT THE ISSUANCE OF THE WRIT
OF PRELIMINARY ATTACHMENT WAS NOT THE MAIN CAUSE OF THE
DAMAGES SUFFERED BY DEFENDANT AND IN NOT AWARDING
DEFENDANT-APPELLANT SUCH DAMAGES.
For its part, Safic argued that:
THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT,
DOMINADOR MONTEVERDE, ENTERED INTO CONTRACTS WHICH
WERE ULTRA VIRES AND WHICH DID NOT BIND OR MAKE IVO LIABLE.
THE TRIAL COURT ERRED IN HOLDING THA SAFIC WAS UNABLE TO
PROVE THE DAMAGES SUFFERED BY IT AND IN NOT AWARDING SUCH
DAMAGES.
THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER
THE WASH OUT CONTRACTS.
On September 12, 1996, the Court of Appeals rendered the assailed Decision
dismissing the, appeals and affirming the judgment appealed from in toto. 4
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

Hence, Safic filed the instant petition for review with this Court, substantially
reiterating the errors it raised before the Court of Appeals and maintaining that the
Court of Appeals grievously erred when:
a. it declared that the 1986 forward contracts (i.e., Contracts Nos.
A601446 and A60155 (sic) involving 2,000 long tons of crude coconut oil,
and Contracts Nos. A60l297A/B, A601385, A60l39l, A60l4l5, A601681.
A601683 and A60l770A/B/C involving 4,500 tons of crude coconut oil)
were unauthorized acts of Dominador Monteverde which do not bind
IVO in whose name they were entered into. In this connection, the Court
of Appeals erred when (i) it ignored its own finding that (a) Dominador
Monteverde, as IVO's President, had "an implied authority to make any
contract necessary or appropriate to the contract of the ordinary
business of the company"; and (b) Dominador Monteverde had validly
entered into similar forward contracts for and on behalf of IVO in 1985;
(ii) it distinguished between the 1986 forward contracts despite the fact
that the Manila RTC has struck down IVO's objection to the 1986 forward
contracts (i.e. that they were highly speculative paper trading which the
IVO Board of Directors had prohibited Dominador Monteverde from
engaging in because it is a form of gambling where the parties do not
intend actual delivery of the coconut oil sold) and instead found that the
1986 forward contracts were not gambling; (iii) it relied on the testimony
of Mr. Rodrigo Monteverde in concluding that the IVO Board of Directors
did not authorize its President, Dominador Monteverde, to enter into
the 1986 forward contracts; and (iv) it did not find IVO, in any case,
estopped from denying responsibility for, and liability under, the 1986
forward contracts because IVO had recognized itself bound to similar
forward contracts which Dominador Monteverde entered into (for and
on behalf of IVO) with Safic in 1985 notwithstanding that Dominador
Monteverde was (like in the 1986 forward contracts) not expressly
authorized by the IVO Board of Directors to enter into such forward
contracts;
b. it declared that Safic was not able, to prove damages suffered by it,
despite the fact that Safic had presented not only testimonial, but also
documentary, evidence which proved the higher amount it had to pay
for crude coconut oil (vis-à-vis the contract price it was to pay to IVO)
when IVO refused to deliver the crude coconut oil bought by Safic under
the 1986 forward contracts; and
c. it failed to resolve the issue of whether or not IVO is liable to Safic
under the wash out contracts involving Contracts Nos. A601446 and
A60155 (sic), despite the fact that Safic had properly raised the issue on
its appeal, and the evidence and the law support Safic's position that IVO
is so liable to Safic.
In fine, Safic insists that the appellate court grievously erred when it did not declare
that IVO's President, Dominador Monteverde, validly entered into the 1986 contracts
for and on behalf of IVO.
We disagree.
Article III, Section 3 [g] of the By-Laws5 of IVO provides, among others, that –
Section 3. Powers and Duties of the President. - The President shall be
elected by the Board of Directors from their own number .
He shall have the following duties:
xxxxxxxxx
[g] Have direct and active management of the business and operation of
the corporation, conducting the same according to, the orders,
resolutions and instruction of the Board of Directors and according to his
own discretion whenever and wherever the same is not expressly limited
by such orders, resolutions and instructions.
It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde
had no blanket authority to bind IVO to any contract. He must act according to the
instructions of the Board of Directors. Even in instances when he was authorized to
act according to his discretion, that discretion must not conflict with prior Board
orders, resolutions and instructions. The evidence shows that the IVO Board knew
nothing of the 1986 contracts 6 and that it did not authorize Monteverde to enter into
speculative contracts.7 In fact, Monteverde had earlier proposed that the company
engage in such transactions but the IVO Board rejected his proposal.8 Since the 1986
contracts marked a sharp departure from past IVO transactions, Safic should have
obtained from Monteverde the prior authorization of the IVO Board. Safic can not
rely on the doctrine of implied agency because before the controversial 1986
contracts, IVO did not enter into identical contracts with Safic. The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent.9 In the case of Bacaltos Coal Mines
v. Court of Appeals,10 we elucidated the rule on dealing with an agent thus:
Every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not make
such inquiry, he is chargeable with knowledge of the agent's authority,
and his ignorance of that authority will not be any excuse. Persons
dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the agency but also the nature
CASES: Agency
Page 39 of 104
and extent of the authority, and in case either is controverted, the
burden of proof is upon them to establish it.11
The most prudent thing petitioner should have done was to ascertain the extent of
the authority of Dominador Monteverde. Being remiss in this regard, petitioner can
not seek relief on the basis of a supposed agency.
Under Article 189812 of the Civil Code, the acts of an agent beyond the scope of his
authority do not bind the principal unless the latter ratifies the same expressly or
impliedly. It also bears emphasizing that when the third person knows that the agent
was acting beyond his power or authority, the principal can not be held liable for the
acts of the agent. If the said third person is aware of such limits of authority, he is to
blame, and is not entitled to recover damages from the agent, unless the latter
undertook to secure the principal's ratification.13
There was no such ratification in this case. When Monteverde entered into the
speculative contracts with Safic, he did not secure the Board's approval. 14 He also did
not submit the contracts to the Board after their consummation so there was, in fact,
no occasion at all for ratification. The contracts were not reported in IVO's export
sales book and turn-out book.15 Neither were they reflected in other books and
records of the corporation.16 It must be pointed out that the Board of Directors, not
Monteverde, exercises corporate power. 17 Clearly, Monteverde's speculative contracts
with Safic never bound IVO and Safic can not therefore enforce those contracts
against IVO.
To bolster its cause, Safic raises the novel point that the IVO Board of Directors did
not set limitations on the extent of Monteverde's authority to sell coconut oil. It must
be borne in mind in this regard that a question that was never raised in the courts
below can not be allowed to be raised for the first time on appeal without offending
basic rules of fair play, justice and due process. 18 Such an issue was not brought to the
fore either in the trial court or the appellate court, and would have been disregarded
by the latter tribunal for the reasons previously stated. With more reason, the same
does not deserve consideration by this Court.
Be that as it may, Safic's belated contention that the IVO Board of Directors did not
set limitations on Monteverde's authority to sell coconut oil is belied by what appears
on the record. Rodrigo Monteverde, who succeeded Dominador Monteverde as IVO
President, testified that the IVO Board had set down the policy of engaging in purely
physical trading thus:
Q. Now you said that IVO is engaged in trading. With whom does, it
usually trade its oil?
A. I am not too familiar with trading because as of March 1987, I was not
yet an officer of the corporation, although I was at the time already a
stockholder, I think IVO is engaged in trading oil.
Q. As far as you know, what kind of trading was IVO engaged with?
A. It was purely on physical trading.
Q. How did you know this?
A. As a stockholder, rather as member of [the] Board of Directors, I
frequently visited the plant and from my observation, as I have to
supervise and monitor purchases of copras and also the sale of the
same, I observed that the policy of the corporation is for the company to
engaged (sic) or to purely engaged (sic) in physical trading.
Q. What do you mean by physical trading?
A. Physical Trading means - we buy and sell copras that are only available
to us. We only have to sell the available stocks in our inventory.
Q. And what is the other form of trading?
Atty. Fernando
No basis, your Honor.
Atty. Abad
Well, the witness said they are engaged in physical trading
and what I am saying [is] if there are any other kind or form
of trading.
Court
Witness may answer if he knows.
Witness
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

A. Trading future[s] contracts wherein the trader commits a
price and to deliver coconut oil in the future in which he is
yet to acquire the stocks in the future.
Atty. Abad
Q. Who established the so-called physical trading in IVO?
A. The Board of Directors, sir.
Atty. Abad.
Q. How did you know that?
A. There was a meeting held in the office at the factory and it was
brought out and suggested by our former president, Dominador
Monteverde, that the company should engaged (sic) in future[s]
contract[s] but it was rejected by the Board of Directors. It was only Ador
Monteverde who then wanted to engaged (sic) in this future[s]
contract[s].
Q. Do you know where this meeting took place?
A. As far as I know it was sometime in 1985.
Q. Do you know why the Board of Directors rejected the proposal of
Dominador Monteverde that the company should engaged (sic) in
future[s] contracts?
Atty. Fernando
Objection, your Honor, no basis.
Court
Why don't you lay the basis?
Atty. Abad
Q. Were you a member of the board at the time?
A. In 1975, I am already a stockholder and a member.
Q. Then would [you] now answer my question?
Atty. Fernando
No basis, your Honor. What we are talking is about 1985.
Atty. Abad
Q. When you mentioned about the meeting in 1985 wherein the Board
of Directors rejected the future[s] contract[s], were you already a
member of the Board of Directors at that time?
A. Yes, sir.
Q. Do you know the reason why the said proposal of Mr. Dominador
Monteverde to engage in future[s] contract[s] was rejected by the Board
of Directors?
A. Because this future[s] contract is too risky and it partakes of gambling.
Q. Do you keep records of the Board meetings of the company?
A. Yes, sir.
Q. Do you have a copy of the minutes of your meeting in 1985?
A. Incidentally our Secretary of the Board of Directors, Mr. Elfren Sarte,
died in 1987 or 1988, and despite [the] request of our office for us to be
furnished a copy he was not able to furnish us a copy.19
xxxxxxxxx
Atty. Abad
CASES: Agency
Page 40 of 104
Q. You said the Board of Directors were against the company engaging in
future[s] contracts. As far as you know, has this policy of the Board of
Directors been observed or followed?
Witness
A. Yes, sir.
Q. How far has this Dominador Monteverde been using the name of
I.V.0. in selling future contracts without the proper authority and consent
of the company's Board of Directors?
A. Dominador Monteverde never records those transactions he entered
into in connection with these future[s] contracts in the company's books
of accounts.
Atty. Abad
Q. What do you mean by that the future[s] contracts were not entered
into the books of accounts of the company?
Witness
A. Those were not recorded at all in the books of accounts of the
company, sir.20
xxxxxxxxx
Q. What did you do when you discovered these transactions?
A. There was again a meeting by the Board of Directors of the
corporation and that we agreed to remove the president and then I was
made to replace him as president.
Q. What else?
A. And a resolution was passed disowning the illegal activities of the
former president.21
Petitioner next argues that there was actually no difference between the 1985
physical contracts and the 1986 futures contracts.
The contention is unpersuasive for, as aptly pointed out by the trial court and
sustained by the appellate court –
Rejecting IVO's position, SAFIC claims that there is no distinction
between the 1985 and 1986 contracts, both of which groups of contracts
were signed or authorized by IVO's President, Dominador Monteverde.
The 1986 contracts, SAFIC would bewail, were similarly with their 1985
predecessors, forward sales contracts in which IVO had undertaken to
deliver the crude coconut oil months after such contracts were entered
into. The lead time between the closing of the deal and the delivery of
the oil supposedly allowed the seller to accumulate enough copra to mill
and to build up its inventory and so meet its delivery commitment to its
foreign buyers. SAFIC concludes that the 1986 contracts were equally
binding, as the 1985 contracts were, on IVO.
Subjecting the evidence on both sides to close scrutiny, the Court has
found some remarkable distinctions between the 1985 and 1986
contracts. x x x
1. The 1985 contracts were performed within an average of two months
from the date of the sale. On the other hand, the 1986 contracts were to
be performed within an average of eight and a half months from the
dates of the sale. All the supposed performances fell in 1987. Indeed,
the contract covered by Exhibit J was to be performed 11 to 12 months
from the execution of the contract. These pattern (sic) belies plaintiffs
contention that the lead time merely allowed for milling and building up
of oil inventory. It is evident that the 1986 contracts constituted trading
in futures or in mere expectations. In all likelihood, the coconuts that
were supposed to be milled for oil were not yet on their trees when
Dominador Monteverde sold the crude oil to SAFIC.
2. The mode of payment agreed on by the parties in their 1985 contracts
was uniformly thru the opening of a letter of credit LC by SAFIC in favor
of IVO. Since the buyer's letter of credit guarantees payment to the seller
as soon as the latter is able to present the shipping documents covering
the cargo, its opening usually mark[s] the fact that the transaction would
be consummated. On the other hand, seven out of the ten 1986
contracts were to be paid by telegraphic transfer upon presentation of
the shipping documents. Unlike the letter of credit, a mere promise to
pay by telegraphic transfer gives no assurance of [the] buyer's
compliance with its contracts. This fact lends an uncertain element in
the 1986 contracts.1âwphi1.nêt
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY
 Page 41 of 104

3. Apart from the above, it is not disputed that with respect to the 1985
contracts, IVO faithfully complied with Central Bank Circular No. 151
dated April 1, 1963, requiring a coconut oil exporter to submit a Report
of Foreign Sales within twenty-four (24) hours "after the closing of the
relative sales contract" with a foreign buyer of coconut oil. But with
respect to the disputed 1986 contracts, the parties stipulated during the
hearing that none of these contracts were ever reported to the Central
Bank, in violation of its above requirement. (See Stipulation of Facts
dated June 13, 1990). The 1986 sales were, therefore suspect.
4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts
were never recorded either in the 1986 accounting books of IVO or in its
annual financial statement for 1986, a document that was prepared
prior to the controversy. (Exhibits 6 to 6-0 and 7 to 7-1). Emelita Ortega,
formerly an assistant of Dominador Monteverde, testified that they were
strange goings-on about the 1986 contract. They were neither recorded
in the books nor reported to the Central Bank. What is more, in those
unreported cases where profits were made, such profits were ordered
remitted to unknown accounts in California, U.S.A., by Dominador
Monteverde.
xxxxxxxxx
Evidently, Dominador Monteverde made business or himself, using the
name of IVO but concealing from it his speculative transactions.
The interest of justice will be served best, if there would be a full
disclosure by the parties on both sides of all documents related to the
transactions in litigation.
Notwithstanding the foregoing ruling of the trial court, Safic did not produce the
required documents, prompting the court a quo to assume that if produced, the
documents would have been adverse to Safic's cause. In its efforts to bolster its claim
for damages it purportedly sustained, Safic suggests a substitute mode of computing
its damages by getting the average price it paid for certain quantities of coconut oil
that it allegedly bought in 1987 and deducting this from the average price of the 1986
contracts. But this mode of computation if flawed .because: 1.] it is conjectural since
it rests on average prices not on actual prices multiplied by the actual volume of
coconut oil per contract; and 2.] it is based on the unproven assumption that the
1987 contracts of purchase provided the coconut oil needed to make up for the failed
1986 contracts. There is also no evidence that Safic had contracted to supply third
parties with coconut oil from the 1986 contracts and that Safic had to buy such oil
from others to meet the requirement.
Along the same vein, it is worthy to note that the quantities of oil covered by its 1987
contracts with third parties do not match the quantities of oil provided under the
1986 contracts. Had Safic produced the documents that the trial court required, a
substantially correct determination of its actual damages would have been possible.
This, unfortunately, was not the case. Suffice it to state in this regard that "[T]he
power of the courts to grant damages and attorney's fees demands factual, legal and
equitable justification; its basis cannot be left to speculation and conjecture."25

WHEREFORE, in view of all the foregoing, the petition is DENIED for lack of merit.
Petitioner further contends that both the trial and appellate courts erred in
concluding that Safic was not able to prove its claim for damages. Petitioner first
points out that its wash out agreements with Monteverde where IVO allegedly SO ORDERED.
agreed to pay US$293,500.00 for some of the failed contracts was proof enough and,
second, that it presented purchases of coconut oil it made from others during the
period of IVO's default.

We remain unconvinced. The so-called "wash out" agreements are clearly ultra
vires and not binding on IVO. Furthermore, such agreements did not prove Safic's
actual losses in the transactions in question. The fact is that Safic did not pay for the
coconut oil that it supposedly ordered from IVO through Monteverede. Safic only
claims that, since it was ready to pay when IVO was not ready to deliver, Safic
suffered damages to the extent that they had to buy the same commodity from
others at higher prices.

The foregoing claim of petitioner is not, however, substantiated by the evidence and
only raises several questions, to wit: 1.] Did Safic commit to deliver the quantity of oil
covered by the 1986 contracts to its own buyers? Who were these buyers? What
were the terms of those contracts with respect to quantity, price and date of
delivery? 2.] Did Safic pay damages to its buyers? Where were the receipts? Did Safic
have to procure the equivalent oil from other sources? If so, who were these
sources? Where were their contracts and what were the terms of these contracts as
to quantity, price and date of delivery?

The records disclose that during the course of the proceedings in the trial court, IVO
filed an amended motion22 for production and inspection of the following
documents: a.] contracts of resale of coconut oil that Safic bought from IVO; b.] the
records of the pooling and sales contracts covering the oil from such pooling, if the
coconut oil has been pooled and sold as general oil; c.] the contracts of the purchase
of oil that, according to Safic, it had to resort to in order to fill up alleged undelivered
commitments of IVO; d.] all other contracts, confirmations, invoices, wash out
agreements and other documents of sale related to (a), (b) and (c). This amended
motion was opposed by Safic.23The trial court, however, in its September 16, 1988
Order ,24 ruled that:

From the analysis of the parties' respective positions, conclusion can

easily be drawn therefrom that there is materiality in the defendant's
move: firstly, plaintiff seeks to recover damages from the defendant and
these are intimately related to plaintiffs alleged losses which it attributes
to the default of the defendant in its contractual commitments;
secondly, the documents are specified in the amended motion. As such,
plaintiff would entertain no confusion as to what, which documents to
locate and produce considering plaintiff to be (without doubt) a
reputable going concern in the management of the affairs which is
serviced by competent, industrious, hardworking and diligent personnel;
thirdly, the desired production and inspection of the documents was
precipitated by the testimony of plaintiffs witness (Donald O'Meara) who
admitted, in open court, that they are available. If the said witness
represented that the documents, as generally described, are available,
reason there would be none for the same witness to say later that they
could not be produced, even after they have been clearly described.

Besides, if the Court may additionally dwell on the issue of damages, the
production and inspection of the desired documents would be of
tremendous help in the ultimate resolution thereof. Plaintiff claims for
the award of liquidated or actual damages to the tune of US$391,593.62
which, certainly, is a huge amount in terms of pesos, and which
defendant disputes. As the defendant cannot be precluded in taking
exceptions to the correctness and validity of such claim which plaintiffs
witness (Donald O'Meara) testified to, and as, by this nature of the
plaintiffs claim for damages, proof thereof is a must which can be better
served, if not amply ascertained by examining the records of the related
sales admitted to be in plaintiffs possession, the amended motion for
production and inspection of the defendant is in order.

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 Page 42 of 104

On the other hand, respondents contend that Filipinas Life authorized Valle to solicit
investments from them. In fact, Filipinas Life’s official documents and facilities were
G.R. No. 159489 February 4, 2008 used in consummating the transactions. These transactions, according to
respondents, were confirmed by its officers Apetrior and Alcantara. Respondents
assert they exercised all the diligence required of them in ascertaining the authority
FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, of petitioner’s agents; and it is Filipinas Life that failed in its duty to ensure that its
INC.), petitioner, agents act within the scope of their authority.
vs.
CLEMENTE N. PEDROSO, TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her
Attorney-in-Fact PONCIANO C. MARQUEZ, respondents. Considering the issue raised in the light of the submissions of the parties, we find
that the petition lacks merit. The Court of Appeals committed no reversible error nor
abused gravely its discretion in rendering the assailed decision and resolution.
DECISION

QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision1 and
Resolution,2 dated November 29, 2002 and August 5, 2003, respectively, of the Court
of Appeals in CA-G.R. CV No. 33568. The appellate court had affirmed the
Decision3 dated October 10, 1989 of the Regional Trial Court (RTC) of Manila, Branch
3, finding petitioner as defendant and the co-defendants below jointly and severally
liable to the plaintiffs, now herein respondents.
It appears indisputable that respondents Pedroso and Palacio had invested P47,000
and P49,550, respectively. These were received by Valle and remitted to Filipinas Life,
using Filipinas Life’s official receipts, whose authenticity were not disputed. Valle’s
authority to solicit and receive investments was also established by the parties. When
respondents sought confirmation, Alcantara, holding a supervisory position, and
Apetrior, the branch manager, confirmed that Valle had authority. While it is true that
a person dealing with an agent is put upon inquiry and must discover at his own peril
the agent’s authority, in this case, respondents did exercise due diligence in removing
all doubts and in confirming the validity of the representations made by Valle.

The antecedent facts are as follows:
Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life
insurance issued by petitioner Filipinas Life Assurance Company (Filipinas Life).
Pedroso claims Renato Valle was her insurance agent since 1972 and Valle collected
her monthly premiums. In the first week of January 1977, Valle told her that the
Filipinas Life Escolta Office was holding a promotional investment program for
policyholders. It was offering 8% prepaid interest a month for certain amounts
deposited on a monthly basis. Enticed, she initially invested and issued a post-dated
check dated January 7, 1977 for P10,000.4 In return, Valle issued Pedroso his personal
check for P800 for the 8%5prepaid interest and a Filipinas Life "Agent’s Receipt" No.
807838.6
Subsequently, she called the Escolta office and talked to Francisco Alcantara, the
administrative assistant, who referred her to the branch manager, Angel Apetrior.
Pedroso inquired about the promotional investment and Apetrior confirmed that
there was such a promotion. She was even told she could "push through with the
check" she issued. From the records, the check, with the endorsement of Alcantara at
the back, was deposited in the account of Filipinas Life with the Commercial Bank and
Trust Company (CBTC), Escolta Branch.
Relying on the representations made by the petitioner’s duly authorized
representatives Apetrior and Alcantara, as well as having known agent Valle for quite
some time, Pedroso waited for the maturity of her initial investment. A month after,
her investment of P10,000 was returned to her after she made a written request for
its refund. The formal written request, dated February 3, 1977, was written on an
inter-office memorandum form of Filipinas Life prepared by Alcantara. 7 To collect the
amount, Pedroso personally went to the Escolta branch where Alcantara gave her
the P10,000 in cash. After a second investment, she made 7 to 8 more investments in
varying amounts, totaling P37,000 but at a lower rate of 5%8 prepaid interest a
month. Upon maturity of Pedroso’s subsequent investments, Valle would take back
from Pedroso the corresponding yellow-colored agent’s receipt he issued to the
latter.
Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. By
the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of
the latter.12 The general rule is that the principal is responsible for the acts of its agent
done within the scope of its authority, and should bear the damage caused to third
persons.13 When the agent exceeds his authority, the agent becomes personally liable
for the damage.14 But even when the agent exceeds his authority, the principal is still
solidarily liable together with the agent if the principal allowed the agent to act as
though the agent had full powers. 15 In other words, the acts of an agent beyond the
scope of his authority do not bind the principal, unless the principal ratifies them,
expressly or impliedly.16 Ratification in agency is the adoption or confirmation by one
person of an act performed on his behalf by another without authority. 17
Filipinas Life cannot profess ignorance of Valle’s acts. Even if Valle’s representations
were beyond his authority as a debit/insurance agent, Filipinas Life thru Alcantara
and Apetrior expressly and knowingly ratified Valle’s acts. It cannot even be denied
that Filipinas Life benefited from the investments deposited by Valle in the account of
Filipinas Life. In our considered view, Filipinas Life had clothed Valle with apparent
authority; hence, it is now estopped to deny said authority. Innocent third persons
should not be prejudiced if the principal failed to adopt the needed measures to
prevent misrepresentation, much more so if the principal ratified his agent’s acts
beyond the latter’s authority. The act of the agent is considered that of the principal
itself. Qui per alium facit per seipsum facere videtur. "He who does a thing by an
agent is considered as doing it himself."18
WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution,
dated November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals
in CA-G.R. CV No. 33568 are AFFIRMED.
Costs against the petitioner. SO ORDERED.

Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance

policyholder, about the investment plan. Palacio made a total investment
of P49,5509 but at only 5% prepaid interest. However, when Pedroso tried to
withdraw her investment, Valle did not want to return some P17,000 worth of it.
Palacio also tried to withdraw hers, but Filipinas Life, despite demands, refused to
return her money. With the assistance of their lawyer, they went to Filipinas Life
Escolta Office to collect their respective investments, and to inquire why they had not
seen Valle for quite some time. But their attempts were futile. Hence, respondents
filed an action for the recovery of a sum of money.

After trial, the RTC, Branch 3, Manila, held Filipinas Life and its co-defendants Valle,
Apetrior and Alcantara jointly and solidarily liable to the respondents.

On appeal, the Court of Appeals affirmed the trial court’s ruling and subsequently
denied the motion for reconsideration.

Petitioner now comes before us raising a single issue:

WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE

ERROR AND GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE
DECISION OF THE LOWER COURT HOLDING FLAC [FILIPINAS LIFE] TO BE
JOINTLY AND SEVERALLY LIABLE WITH ITS CO-DEFENDANTS ON THE
CLAIM OF RESPONDENTS INSTEAD OF HOLDING ITS AGENT, RENATO
VALLE, SOLELY LIABLE TO THE RESPONDENTS. 10

Simply put, did the Court of Appeals err in holding petitioner and its co-defendants
jointly and severally liable to the herein respondents?

Filipinas Life does not dispute that Valle was its agent, but claims that it was only a
life insurance company and was not engaged in the business of collecting investment
money. It contends that the investment scheme offered to respondents by Valle,
Apetrior and Alcantara was outside the scope of their authority as agents of Filipinas
Life such that, it cannot be held liable to the respondents. 11

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G.R. No. 137162 January 24, 2007
CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E. RUBIO,
THE HEIRS OF LUZ R. BALOLOY, namely, ALEJANDRINO R. BALOLOY and BAYANI R.
BALOLOY, Petitioners,
vs.
RUFINA LIM, Respondent.
DECISION
AZCUNA, J.:
This is an appeal by certiorari 1 to annul and set aside the Decision and Resolution of
the Court of Appeals (CA) dated October 26, 1998 and January 11, 1999, respectively,
in CA-G.R. CV No. 48282, entitled "Rufina Lim v. Corazon L. Escueta, etc., et. al."
The facts2 appear as follows:
Respondent Rufina Lim filed an action to remove cloud on, or quiet title to, real
property, with preliminary injunction and issuance of [a hold-departure order] from
the Philippines against Ignacio E. Rubio. Respondent amended her complaint to
include specific performance and damages.
In her amended complaint, respondent averred inter alia that she bought the
hereditary shares (consisting of 10 lots) of Ignacio Rubio [and] the heirs of Luz
Baloloy, namely: Alejandrino, Bayani, and other co-heirs; that said vendors executed a
contract of sale dated April 10, 1990 in her favor; that Ignacio Rubio and the heirs of
Luz Baloloy received [a down payment] or earnest money in the amount
of P102,169.86 and P450,000, respectively; that it was agreed in the contract of sale
that the vendors would secure certificates of title covering their respective hereditary
shares; that the balance of the purchase price would be paid to each heir upon
presentation of their individual certificate[s] of [title]; that Ignacio Rubio refused to
receive the other half of the down payment which is P[100,000]; that Ignacio Rubio
refused and still refuses to deliver to [respondent] the certificates of title covering his
share on the two lots; that with respect to the heirs of Luz Baloloy, they also refused
and still refuse to perform the delivery of the two certificates of title covering their
share in the disputed lots; that respondent was and is ready and willing to pay
Ignacio Rubio and the heirs of Luz Baloloy upon presentation of their individual
certificates of title, free from whatever lien and encumbrance;
As to petitioner Corazon Escueta, in spite of her knowledge that the disputed lots
have already been sold by Ignacio Rubio to respondent, it is alleged that a simulated
deed of sale involving said lots was effected by Ignacio Rubio in her favor; and that
the simulated deed of sale by Rubio to Escueta has raised doubts and clouds over
respondent’s title.
In their separate amended answers, petitioners denied the material allegations of the
complaint and alleged inter alia the following:
For the heirs of Luz Baloloy (Baloloys for brevity):
Respondent has no cause of action, because the subject contract of sale has no more
force and effect as far as the Baloloys are concerned, since they have withdrawn their
offer to sell for the reason that respondent failed to pay the balance of the purchase
price as orally promised on or before May 1, 1990.
For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta (Escueta for
brevity):
Respondent has no cause of action, because Rubio has not entered into a contract of
sale with her; that he has appointed his daughter Patricia Llamas to be his attorney-
in-fact and not in favor of Virginia Rubio Laygo Lim (Lim for brevity) who was the one
who represented him in the sale of the disputed lots in favor of respondent; that
the P100,000 respondent claimed he received as down payment for the lots is a
simple transaction by way of a loan with Lim.
The Baloloys failed to appear at the pre-trial. Upon motion of respondent, the trial
court declared the Baloloys in default. They then filed a motion to lift the order
declaring them in default, which was denied by the trial court in an order dated
November 27, 1991. Consequently, respondent was allowed to adduce evidence ex
parte. Thereafter, the trial court rendered a partial decision dated July 23, 1993
against the Baloloys, the dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent]
and against [petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy and
Bayani Baloloy. The [petitioners] Alejandrino Baloloy and Bayani Baloloy are ordered
to immediately execute an [Absolute] Deed of Sale over their hereditary share in the
properties covered by TCT No. 74392 and TCT No. 74394, after payment to them by
[respondent] the amount of P[1,050,000] or consignation of said amount in Court.
[For] failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to execute the
Absolute Deed of Sale over their hereditary share in the property covered by TCT No.
T-74392 and TCT No. T-74394 in favor of [respondent], the Clerk of Court is ordered
to execute the necessary Absolute Deed of Sale in behalf of the Baloloys in favor of
[respondent,] with a consideration of P[1,500,000]. Further[,] [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to jointly and severally pay
[respondent] moral damages in the amount of P[50,000] and P[20,000] for attorney’s
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fees. The adverse claim annotated at the back of TCT No. T-74392 and TCT No. T-
74394[,] insofar as the shares of Alejandrino Baloloy and Bayani Baloloy are
concerned[,] [is] ordered cancelled.
With costs against [petitioners] Alejandrino Baloloy and Bayani Baloloy.
SO ORDERED.3
The Baloloys filed a petition for relief from judgment and order dated July 4, 1994
and supplemental petition dated July 7, 1994. This was denied by the trial court in an
order dated September 16, 1994. Hence, appeal to the Court of Appeals was taken
challenging the order denying the petition for relief.
Trial on the merits ensued between respondent and Rubio and Escueta. After trial,
the trial court rendered its assailed Decision, as follows:
IN VIEW OF THE FOREGOING, the complaint [and] amended complaint are dismissed
against [petitioners] Corazon L. Escueta, Ignacio E. Rubio[,] and the Register of Deeds.
The counterclaim of [petitioners] [is] also dismissed. However, [petitioner] Ignacio E.
Rubio is ordered to return to the [respondent], Rufina Lim[,] the amount
of P102,169.80[,] with interest at the rate of six percent (6%) per annum from April
10, [1990] until the same is fully paid. Without pronouncement as to costs.
SO ORDERED.4
On appeal, the CA affirmed the trial court’s order and partial decision, but reversed
the later decision. The dispositive portion of its assailed Decision reads:
WHEREFORE, upon all the foregoing premises considered, this Court rules:
1. the appeal of the Baloloys from the Order denying the Petition for
Relief from Judgment and Orders dated July 4, 1994 and Supplemental
Petition dated July 7, 1994 is DISMISSED. The Order appealed from is
AFFIRMED.
2. the Decision dismissing [respondent’s] complaint is REVERSED and SET
ASIDE and a new one is entered. Accordingly,
a. the validity of the subject contract of sale in favor of
[respondent] is upheld.
b. Rubio is directed to execute a Deed of Absolute Sale
conditioned upon the payment of the balance of the
purchase price by [respondent] within 30 days from the
receipt of the entry of judgment of this Decision.
c. the contracts of sale between Rubio and Escueta
involving Rubio’s share in the disputed properties is
declared NULL and VOID.
d. Rubio and Escueta are ordered to pay jointly and
severally the [respondent] the amount of P[20,000] as
moral damages and P[20,000] as attorney’s fees.
3. the appeal of Rubio and Escueta on the denial of their counterclaim is
DISMISSED.
SO ORDERED.5
Petitioners’ Motion for Reconsideration of the CA Decision was denied. Hence, this
petition.
The issues are:
I
THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION FOR RELIEF
FROM JUDGMENT FILED BY THE BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE COMPLAINT AND
IN AWARDING MORAL DAMAGES AND ATTORNEY’S FEES IN FAVOR OF RESPONDENT
RUFINA L. LIM CONSIDERING THAT:
A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE
BETWEEN VIRGINIA LAYGO-LIM AND RUFINA LIM.
B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA
LAYGO-LIM IS A CONTRACT TO SELL AND NOT A CONTRACT OF SALE.
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C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS
UNDER THE CONTRACT TO SELL THEREBY WARRANTING THE
CANCELLATION THEREOF.
D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING
INTO THE CONTRACT OF SALE WITH IGNACIO E. RUBIO.
III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND
CORAZON L. ESCUETA IS VALID.
IV
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING
PETITIONERS’ COUNTERCLAIMS.
Briefly, the issue is whether the contract of sale between petitioners and respondent
is valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances surrounding petitioners’ failure to
appear at the pre-trial and to file the petition for relief on time.
As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable
neglect, because petitioner Bayani was in the United States. There was no service of
the notice of pre-trial or order. Neither did the former counsel of record inform him.
Consequently, the order declaring him in default is void, and all subsequent
proceedings, orders, or decision are void.
Furthermore, petitioner Alejandrino was not clothed with a power of attorney to
appear on behalf of Bayani at the pre-trial conference.
Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not
authorize Virginia to transact business in his behalf pertaining to the property. The
Special Power of Attorney was constituted in favor of Llamas, and the latter was not
empowered to designate a substitute attorney-in-fact. Llamas even disowned her
signature appearing on the "Joint Special Power of Attorney," which constituted
Virginia as her true and lawful attorney-in-fact in selling Rubio’s properties.
Dealing with an assumed agent, respondent should ascertain not only the fact of
agency, but also the nature and extent of the former’s authority. Besides, Virginia
exceeded the authority for failing to comply with her obligations under the "Joint
Special Power of Attorney."
The amount encashed by Rubio represented not the down payment, but the payment
of respondent’s debt. His acceptance and encashment of the check was not a
ratification of the contract of sale.
Third, the contract between respondent and Virginia is a contract to sell, not a
contract of sale. The real character of the contract is not the title given, but the
intention of the parties. They intended to reserve ownership of the property to
petitioners pending full payment of the purchase price. Together with taxes and other
fees due on the properties, these are conditions precedent for the perfection of the
sale. Even assuming that the contract is ambiguous, the same must be resolved
against respondent, the party who caused the same.
Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio
had the right to sell his properties to Escueta who exercised due diligence in
ascertaining ownership of the properties sold to her. Besides, a purchaser need not
inquire beyond what appears in a Torrens title.
The petition lacks merit. The contract of sale between petitioners and respondent is
valid.lawphil.net
Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the
Baloloys’ answer to the original complaint and amended complaint, the allegations
relating to the personal circumstances of the Baloloys are clearly admitted.
"An admission, verbal or written, made by a party in the course of the proceedings in
the same case, does not require proof." 6 The "factual admission in the pleadings on
record [dispenses] with the need x x x to present evidence to prove the admitted
fact."7 It cannot, therefore, "be controverted by the party making such admission,
and [is] conclusive"8 as to them. All proofs submitted by them "contrary thereto or
inconsistent therewith should be ignored whether objection is interposed by a party
or not."9 Besides, there is no showing that a palpable mistake has been committed in
their admission or that no admission has been made by them.
Pre-trial is mandatory.10 The notices of pre-trial had been sent to both the Baloloys
and their former counsel of record. Being served with notice, he is "charged with the
duty of notifying the party represented by him."11 He must "see to it that his client
receives such notice and attends the pre-trial." 12 What the Baloloys and their former
counsel have alleged instead in their Motion to Lift Order of As In Default dated
December 11, 1991 is the belated receipt of Bayani Baloloy’s special power of
attorney in favor of their former counsel, not that they have not received the notice
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or been informed of the scheduled pre-trial. Not having raised the ground of lack of a
special power of attorney in their motion, they are now deemed to have waived it.
Certainly, they cannot raise it at this late stage of the proceedings. For lack of
representation, Bayani Baloloy was properly declared in default.
Section 3 of Rule 38 of the Rules of Court states:
SEC. 3. Time for filing petition; contents and verification. – A petition provided for in
either of the preceding sections of this Rule must be verified, filed within sixty (60)
days after the petitioner learns of the judgment, final order, or other proceeding to
be set aside, and not more than six (6) months after such judgment or final order was
entered, or such proceeding was taken; and must be accompanied with affidavits
showing the fraud, accident, mistake, or excusable negligence relied upon, and the
facts constituting the petitioner’s good and substantial cause of action or defense, as
the case may be.
There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The
60-day period is reckoned from the time the party acquired knowledge of the order,
judgment or proceedings and not from the date he actually read the same." 13 As aptly
put by the appellate court:
The evidence on record as far as this issue is concerned shows that Atty. Arsenio
Villalon, Jr., the former counsel of record of the Baloloys received a copy of the partial
decision dated June 23, 1993 on April 5, 1994. At that time, said former counsel is still
their counsel of record. The reckoning of the 60 day period therefore is the date
when the said counsel of record received a copy of the partial decision which was on
April 5, 1994. The petition for relief was filed by the new counsel on July 4, 1994
which means that 90 days have already lapsed or 30 days beyond the 60 day period.
Moreover, the records further show that the Baloloys received the partial decision on
September 13, 1993 as evidenced by Registry return cards which bear the numbers
02597 and 02598 signed by Mr. Alejandrino Baloloy.
The Baloloys[,] apparently in an attempt to cure the lapse of the aforesaid
reglementary period to file a petition for relief from judgment[,] included in its
petition the two Orders dated May 6, 1994 and June 29, 1994. The first Order denied
Baloloys’ motion to fix the period within which plaintiffs-appellants pay the balance
of the purchase price. The second Order refers to the grant of partial execution, i.e.
on the aspect of damages. These Orders are only consequences of the partial
decision subject of the petition for relief, and thus, cannot be considered in the
determination of the reglementary period within which to file the said petition for
relief.
Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that
the petition for relief may be granted.14 There is no proof of extrinsic fraud that
"prevents a party from having a trial x x x or from presenting all of his case to the
court"15 or an "accident x x x which ordinary prudence could not have guarded
against, and by reason of which the party applying has probably been impaired in his
rights."16 There is also no proof of either a "mistake x x x of law"17 or an excusable
negligence "caused by failure to receive notice of x x x the trial x x x that it would not
be necessary for him to take an active part in the case x x x by relying on another
person to attend to the case for him, when such other person x x x was chargeable
with that duty x x x, or by other circumstances not involving fault of the moving
party."18
Article 1892 of the Civil Code provides:
Art. 1892. The agent may appoint a substitute if the principal has not prohibited him
from doing so; but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one x x x.
Applying the above-quoted provision to the special power of attorney executed by
Ignacio Rubio in favor of his daughter Patricia Llamas, it is clear that she is not
prohibited from appointing a substitute. By authorizing Virginia Lim to sell the subject
properties, Patricia merely acted within the limits of the authority given by her father,
but she will have to be "responsible for the acts of the sub-agent," 19 among which is
precisely the sale of the subject properties in favor of respondent.
Even assuming that Virginia Lim has no authority to sell the subject properties, the
contract she executed in favor of respondent is not void, but simply unenforceable,
under the second paragraph of Article 1317 of the Civil Code which reads:
Art. 1317. x x x
A contract entered into in the name of another by one who has no authority or legal
representation, or who has acted beyond his powers, shall be unenforceable, unless
it is ratified, expressly or impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other contracting party.
Ignacio Rubio merely denies the contract of sale. He claims, without substantiation,
that what he received was a loan, not the down payment for the sale of the subject
properties. His acceptance and encashment of the check, however, constitute
ratification of the contract of sale and "produce the effects of an express power of
agency."20 "[H]is action necessarily implies that he waived his right of action to avoid
the contract, and, consequently, it also implies the tacit, if not express, confirmation
of the said sale effected" by Virginia Lim in favor of respondent.
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 Page 45 of 104

Similarly, the Baloloys have ratified the contract of sale when they accepted and
enjoyed its benefits. "The doctrine of estoppel applicable to petitioners here is not
only that which prohibits a party from assuming inconsistent positions, based on the
principle of election, but that which precludes him from repudiating an obligation
voluntarily assumed after having accepted benefits therefrom. To countenance such
repudiation would be contrary to equity, and would put a premium on fraud or
misrepresentation."21

Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only
has the title to the subject properties passed to the latter upon delivery of the thing
sold, but there is also no stipulation in the contract that states the ownership is to be
reserved in or "retained by the vendor until full payment of the price."22

Applying Article 1544 of the Civil Code, a second buyer of the property who may have
had actual or constructive knowledge of such defect in the seller’s title, or at least
was charged with the obligation to discover such defect, cannot be a registrant in
good faith. Such second buyer cannot defeat the first buyer’s title. In case a title is
issued to the second buyer, the first buyer may seek reconveyance of the property
subject of the sale.23 Even the argument that a purchaser need not inquire beyond
what appears in a Torrens title does not hold water. A perusal of the certificates of
title alone will reveal that the subject properties are registered in common, not in the
individual names of the heirs.

Nothing in the contract "prevents the obligation of the vendor to convey title from
becoming effective"24 or gives "the vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed period."25Petitioners
themselves have failed to deliver their individual certificates of title, for which reason
it is obvious that respondent cannot be expected to pay the stipulated taxes, fees,
and expenses.

"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are
present, such as: (1) consent or meeting of the minds; (2) determinate subject
matter; and (3) price certain in money or its equivalent." 26 Ignacio Rubio, the
Baloloys, and their co-heirs sold their hereditary shares for a price certain to which
respondent agreed to buy and pay for the subject properties. "The offer and the
acceptance are concurrent, since the minds of the contracting parties meet in the
terms of the agreement."27

In fact, earnest money has been given by respondent. "[I]t shall be considered as part
of the price and as proof of the perfection of the contract. 28 It constitutes an advance
payment to "be deducted from the total price." 29

Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall
be transferred to the vendee upon actual or constructive delivery thereof." 30 In the
present case, there is actual delivery as manifested by acts simultaneous with and
subsequent to the contract of sale when respondent not only took possession of the
subject properties but also allowed their use as parking terminal for jeepneys and
buses. Moreover, the execution itself of the contract of sale is constructive delivery.

Consequently, Ignacio Rubio could no longer sell the subject properties to Corazon
Escueta, after having sold them to respondent. "[I]n a contract of sale, the vendor
loses ownership over the property and cannot recover it until and unless the contract
is resolved or rescinded x x x."31 The records do not show that Ignacio Rubio asked for
a rescission of the contract. What he adduced was a belated revocation of the special
power of attorney he executed in favor of Patricia Llamas. "In the sale of immovable
property, even though it may have been stipulated that upon failure to pay the price
at the time agreed upon the rescission of the contract shall of right take place, the
vendee may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by a notarial
act."32

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 48282, dated

October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs
against petitioners.

SO ORDERED.

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G.R. No. 130423 November 18, 2002
VIRGIE SERONA, petitioner,
vs.
HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.
DECISION
YNARES-SANTIAGO, J.:
During the period from July 1992 to September 1992, Leonida Quilatan delivered
pieces of jewelry to petitioner Virgie Serona to be sold on commission basis. By oral
agreement of the parties, petitioner shall remit payment or return the pieces of
jewelry if not sold to Quilatan, both within 30 days from receipt of the items.
Upon petitioner’s failure to pay on September 24, 1992, Quilatan required her to
execute an acknowledgment receipt (Exhibit B) indicating their agreement and the
total amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga
alahas kay Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para
ipagbili para ako magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa
kanya ang mga nasabing alahas kung hindi mabibili sa loob ng 30 araw.
Las Pinas, September 24, 1992. 1
The receipt was signed by petitioner and a witness, Rufina G. Navarette.
Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu
Labrador for the latter to sell on commission basis. Petitioner was not able to collect
payment from Labrador, which caused her to likewise fail to pay her obligation to
Quilatan.
Subsequently, Quilatan, through counsel, sent a formal letter of demand 2 to
petitioner for failure to settle her obligation. Quilatan executed a complaint
affidavit3 against petitioner before the Office of the Assistant Provincial Prosecutor.
Thereafter, an information for estafa under Article 315, paragraph 1(b) 4 of the
Revised Penal Code was filed against petitioner, which was raffled to Branch 255 of
the Regional Trial Court of Las Pinas. The information alleged:
That on or about and sometime during the period from July 1992 up to September
1992, in the Municipality of Las Pinas, Metro Manila, Philippines, and within the
jurisdiction of this Honorable Court, the said accused received in trust from the
complainant Leonida E. Quilatan various pieces of jewelry in the total value of
P567,750.00 to be sold on commission basis under the express duty and obligation of
remitting the proceeds thereof to the said complainant if sold or returning the same
to the latter if unsold but the said accused once in possession of said various pieces
of jewelry, with unfaithfulness and abuse of confidence and with intent to defraud,
did then and there willfully, unlawfully and feloniously misappropriate and convert
the same for her own personal use and benefit and despite oral and written
demands, she failed and refused to account for said jewelry or the proceeds of sale
thereof, to the damage and prejudice of complainant Leonida E. Quilatan in the
aforestated total amount of P567,750.00.
CONTRARY TO LAW.5
Petitioner pleaded not guilty to the charge upon arraignment. 6 Trial on the merits
thereafter ensued.
Quilatan testified that petitioner was able to remit P100,000.00 and returned
P43,000.00 worth of jewelriy;7 that at the start, petitioner was prompt in settling her
obligation; however, subsequently the payments were remitted late;8that petitioner
still owed her in the amount of P424,750.00. 9
On the other hand, petitioner admitted that she received several pieces of jewelry
from Quilatan and that she indeed failed to pay for the same. She claimed that she
entrusted the pieces of jewelry to Marichu Labrador who failed to pay for the same,
thereby causing her to default in paying Quilatan.10 She presented handwritten
receipts (Exhibits 1 & 2)11 evidencing payments made to Quilatan prior to the filing of
the criminal case.
Marichu Labrador confirmed that she received pieces of jewelry from petitioner
worth P441,035.00. She identified an acknowledgment receipt (Exhibit 3)12 signed by
her dated July 5, 1992 and testified that she sold the jewelry to a person who
absconded without paying her. Labrador also explained that in the past, she too had
directly transacted with Quilatan for the sale of jewelry on commission basis;
however, due to her outstanding account with the latter, she got jewelry from
petitioner instead.13
On November 17, 1994, the trial court rendered a decision finding petitioner guilty of
estafa, the dispositive portion of which reads:
WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona
guilty beyond reasonable doubt, and as the amount misappropriated is P424,750.00
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the penalty provided under the first paragraph of Article 315 of the Revised Penal
Code has to be imposed which shall be in the maximum period plus one (1) year for
every additional P10,000.00.
Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to
suffer the penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of
prision correccional as minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor
as maximum; to pay the sum of P424,750.00 as cost for the unreturned jewelries; to
suffer the accessory penalties provided by law; and to pay the costs.
SO ORDERED.14
Petitioner appealed to the Court of Appeals, which affirmed the judgment of
conviction but modified the penalty as follows:
WHEREFORE, the appealed decision finding the accused-appellant guilty beyond
reasonable doubt of the crime of estafa is hereby AFFIRMED with the following
MODIFICATION:
Considering that the amount involved is P424,750.00, the penalty should be imposed
in its maximum period adding one (1) year for each additional P10,000.00 albeit the
total penalty should not exceed Twenty (20) Years (Art. 315). Hence, accused-
appellant is hereby SENTENCED to suffer the penalty of imprisonment ranging from
Four (4) Years and One (1) Day of Prision Correccional as minimum to Twenty (20)
Years of Reclusion Temporal.
SO ORDERED.15
Upon denial of her motion for reconsideration,16 petitioner filed the instant petition
under Rule 45, alleging that:
I
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE
WAS AN ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE
SUBJECT JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO
PROSPECTIVE BUYERS.
II
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE
WAS MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE
FAILED TO RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT. 17
Petitioner argues that the prosecution failed to establish the elements of estafa as
penalized under Article 315, par. 1(b) of the Revised Penal Code. In particular, she
submits that she neither abused the confidence reposed upon her by Quilatan nor
converted or misappropriated the subject jewelry; that her giving the pieces of
jewelry to a sub-agent for sale on commission basis did not violate her undertaking
with Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the
same terms upon which it was originally entrusted to her. It was established that
petitioner had not derived any personal benefit from the loss of the jewelry.
Consequently, it cannot be said that she misappropriated or converted the same.
We find merit in the petition.
The elements of estafa through misappropriation or conversion as defined in Article
315, par. 1(b) of the Revised Penal Code are: (1) that the money, good or other
personal property is received by the offender in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of,
or to return, the same; (2) that there be misappropriation or conversion of such
money or property by the offender or denial on his part of such receipt; (3) that such
misappropriation or conversion or denial is to the prejudice of another; and (4) that
there is a demand made by the offended party on the offender. 18 While the first, third
and fourth elements are concededly present, we find the second element of
misappropriation or conversion to be lacking in the case at bar.
Petitioner did not ipso facto commit the crime of estafa through conversion or
misappropriation by delivering the jewelry to a sub-agent for sale on commission
basis. We are unable to agree with the lower courts’ conclusion that this fact alone is
sufficient ground for holding that petitioner disposed of the jewelry "as if it were
hers, thereby committing conversion and a clear breach of trust." 19
It must be pointed out that the law on agency in our jurisdiction allows the
appointment by an agent of a substitute or sub-agent in the absence of an express
agreement to the contrary between the agent and the principal. 20 In the case at bar,
the appointment of Labrador as petitioner’s sub-agent was not expressly prohibited
by Quilatan, as the acknowledgment receipt, Exhibit B, does not contain any such
limitation. Neither does it appear that petitioner was verbally forbidden by Quilatan
from passing on the jewelry to another person before the acknowledgment receipt
was executed or at any other time. Thus, it cannot be said that petitioner’s act of
entrusting the jewelry to Labrador is characterized by abuse of confidence because
such an act was not proscribed and is, in fact, legally sanctioned.
The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion
of money or property received to the prejudice of the owner. The words "convert"
and "misappropriated" connote an act of using or disposing of another’s property as
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 Page 47 of 104

if it were one’s own, or of devoting it to a purpose or use different from that agreed
upon. To misappropriate for one’s own use includes not only conversion to one’s
personal advantage, but also every attempt to dispose of the property of another
without right.21

In the case at bar, it was established that the inability of petitioner as agent to comply
with her duty to return either the pieces of jewelry or the proceeds of its sale to her
principal Quilatan was due, in turn, to the failure of Labrador to abide by her
agreement with petitioner. Notably, Labrador testified that she obligated herself to
sell the jewelry in behalf of petitioner also on commission basis or to return the same
if not sold. In other words, the pieces of jewelry were given by petitioner to Labrador
to achieve the very same end for which they were delivered to her in the first place.
Consequently, there is no conversion since the pieces of jewelry were not devoted to
a purpose or use different from that agreed upon.

Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered

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

In People v. Nepomuceno,22 the accused-appellant was acquitted of estafa on facts

similar to the instant case. Accused-appellant therein undertook to sell two diamond
rings in behalf of the complainant on commission basis, with the obligation to return
the same in a few days if not sold. However, by reason of the fact that the rings were
delivered also for sale on commission to sub-agents who failed to account for the
rings or the proceeds of its sale, accused-appellant likewise failed to make good his
obligation to the complainant thereby giving rise to the charge of estafa. In absolving
the accused-appellant of the crime charged, we held:

Where, as in the present case, the agents to whom personal property was entrusted
for sale, conclusively proves the inability to return the same is solely due to
malfeasance of a subagent to whom the first agent had actually entrusted the
property in good faith, and for the same purpose for which it was received; there
being no prohibition to do so and the chattel being delivered to the subagent before
the owner demands its return or before such return becomes due, we hold that the
first agent can not be held guilty of estafa by either misappropriation or conversion.
The abuse of confidence that is characteristic of this offense is missing under the
circumstances.23

Accordingly, petitioner herein must be acquitted. The lower courts’ reliance on

People v. Flores24 and U.S. v. Panes25 to justify petitioner’s conviction is misplaced,
considering that the factual background of the cited cases differ from those which
obtain in the case at bar. In Flores, the accused received a ring to sell under the
condition that she would return it the following day if not sold and without authority
to retain the ring or to give it to a sub-agent. The accused in Panes, meanwhile, was
obliged to return the jewelry he received upon demand, but passed on the same to a
sub-agent even after demand for its return had already been made. In the foregoing
cases, it was held that there was conversion or misappropriation.

Furthermore, in Lim v. Court of Appeals,26 the Court, citing Nepomuceno and the case
of People v. Trinidad,27 held that:

In cases of estafa the profit or gain must be obtained by the accused personally,
through his own acts, and his mere negligence in permitting another to take
advantage or benefit from the entrusted chattel cannot constitute estafa under
Article 315, paragraph 1-b, of the Revised Penal Code; unless of course the evidence
should disclose that the agent acted in conspiracy or connivance with the one who
carried out the actual misappropriation, then the accused would be answerable for
the acts of his co-conspirators. If there is no such evidence, direct or circumstantial,
and if the proof is clear that the accused herself was the innocent victim of her sub-
agent’s faithlessness, her acquittal is in order. 28 (Italics copied)

Labrador admitted that she received the jewelry from petitioner and sold the same to
a third person. She further acknowledged that she owed petitioner P441,035.00,
thereby negating any criminal intent on the part of petitioner. There is no showing
that petitioner derived personal benefit from or conspired with Labrador to deprive
Quilatan of the jewelry or its value. Consequently, there is no estafa within
contemplation of the law.

Notwithstanding the above, however, petitioner is not entirely free from any liability
towards Quilatan. The rule is that an accused acquitted of estafa may nevertheless be
held civilly liable where the facts established by the evidence so warrant. Then too,
an agent who is not prohibited from appointing a sub-agent but does so without
express authority is responsible for the acts of the sub-agent.29 Considering that the
civil action for the recovery of civil liability arising from the offense is deemed
instituted with the criminal action,30 petitioner is liable to pay complainant Quilatan
the value of the unpaid pieces of jewelry.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-
G.R. CR No. 17222 dated April 30,1997 and its resolution dated August 28, 1997 are
REVERSED and SET ASIDE. Petitioner Virgie Serona is ACQUITTED of the crime
charged, but is held civilly liable in the amount of P424,750.00 as actual damages,
plus legal interest, without subsidiary imprisonment in case of insolvency.

SO ORDERED.

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 Page 48 of 104

G.R. No. L-55630 March 6, 1990
IMPERIAL INSURANCE, INC. represented by the IMPERIAL INSURANCE, INC.,
Cagayan de Oro Branch Office Manager BERNARDITO R. PULVERA, petitioner,
vs.
THE HONORABLE EULALIO D. ROSETE, Judge of the Court of First Instance of
Misamis Oriental, Branch V, and CHIU ENG HUA respondents.
such to execute a special power of attorney in favor of another person to act in his
place and to represent the petitioner in the litigation.
Indeed, in another case docketed as Civil Case No. 2899 entitled Gil Ecleo vs. Lydia
Sacal and Imperial Insurance, Inc., in the Court of First Instance of Surigao del Norte,
Surigao City a similar special power of attorney for purposes of pre-trial was executed
by regional branch manager Pulvera in favor of Atty. Magallanes dated December 9,
1980. 5 A compromise agreement was entered into by Magallanes in behalf of
petitioner which was duly approved by the trial court on January 13, 1981. 6

Ariston M. Magallanes and Jesus Ma. Jajalla for petitioner.
Quimpo, Willkom , Dadole & Mutia for private respondent.
There can be no doubt therefore that regional branch manager Pulvera, as regional
manager for Visayas and Mindanao of petitioner, was authorized to represent
petitioner in any litigation and in the process to enter into a compromise agreement
or settlement thereof. As such agent of petitioner he may appoint a substitute as he
was not prohibited from doing so by his principal. 7

GANCAYCO, J.: Moreover, even assuming for the sake of argument that the observations of the
respondent judge is correct in that a board resolution of the petitioner is required for
the purposes of authorizing Pulvera and/or Magallanes to bind the petitioner, the
Section 2, Rule 1 of the Rules of Court provides for the basic rule of thumb that said
counsel for the private respondent manifested to the respondent judge his
"rules shall be liberally construed in order to promote its objective and to assist the
willingness to give the petitioner an opportunity to comply with the requirement of
parties in obtaining just, speedy, and inexpensive determination of every action and
the court. Just the same, the respondent judge declared petitioner to be in default.
proceeding." Its application is put into test in the present case.
No doubt, the respondent judge was unnecessarily harsh when the Rules call for
liberality in such cases.
The antecedent facts are undisputed. Private respondent filed a complaint for specific
performance and damages against petitioner dated April 11, 1980 in the Court of
This is a case where petitioner filed an answer with counterclaim and advanced
First Instance of Misamis Oriental, docketed as Civil Case No. 7072. After receipt of
apparently a meritorious and valid defense. It should be given its day in court and the
service of summons petitioner filed an answer with counterclaim within the
opportunity to prove its assertions. This is the situation contemplated by the Rules.
reglementary period.
The courts must lean in favor of affording substantial justice as against a technical
requirement.
The case was set for pre-trial conference on August 5, 1980 of which the parties and
their counsel were duly notified. At said pre-trial conference petitioner was
WHEREFORE, the questioned orders of the respondent judge dated August 6, 1980,
represented by Atty. Arturo A. Magallanes who presented a special power of attorney
August 27, 1980 and October 17, 1980 are hereby REVERSED AND SET ASIDE and the
executed by Bernardito R. Pulvera, regional branch manager of petitioner for
record of this case is remanded to the trial court for further proceedings. No costs in
Mindanao and Visayas, authorizing said counsel to represent petitioner at the pre-
this instance.
trial conference, to enter into any amicable settlement and to do such other acts as
may be necessary to implement the authority. The presiding judge refused to honor
the same and observed that it is only the Board of Directors of the petitioner who SO ORDERED.
may authorize the appearance of the regional manager in behalf of petitioner and
that he cannot delegate his functions. Counsel for private respondent stated he was
willing to give petitioner a chance to produce the appropriate authority.
Nevertheless, the respondent judge declared the petitioner in default in an order
dated August 5, 1980 and set the reception of the evidence for the private
respondent on August 12, 1980. 1

A motion to set aside the said order of default was filed by petitioner, stating therein
that the rules of court should be liberally construed, that the special power of
attorney was submitted in good faith and that there are meritorious and good
defenses as shown in the attached affidavit showing that as early as June 1980
Pulvera had asked for such a special power of attorney from the main office in Manila
but the same had not yet arrived and will be submitted upon receipt. The motion was
denied in an order dated August 27, 1980.

A motion for reconsideration of the denial was filed by the petitioner alleging that it
is within the implied powers and duties of the regional branch manager of petitioner
to represent the petitioner and in the process to settle claims against petitioner as
this has been done in a similar case that was amicably settled before the same court
docketed as Civil Case No. 6316; and that the special power of attorney of Atty.
Arturo Magallanes to represent the petitioner was executed in good faith. The
motion for reconsideration was likewise denied for lack of merit on October 17, 1982.

Hence, the herein petition for certiorari and/or mandamus wherein petitioner alleges
that the respondent judge acted without or in excess of jurisdiction and in grave
abuse of discretion in declaring petitioner in default and in denying the motion for
reconsideration of the order of default.

The petition is impressed with merit.

In Civil Case No. 6316 entitled "Heirs of Ruiz Dosdos, et al. vs. Andres Tan; and Andres
Tan as third party plaintiff vs. Imperial Insurance, third party defendant", filed in the
Court of First Instance of Misamis Oriental, Cagayan de Oro City, presided by the
respondent Judge, a special power of attorney was presented dated June 20, 1979
executed by the same regional manager of petitioner in favor of Carmelito Gaburno,
production manager of sales of petitioner, to appear in behalf of petitioner in all
stages of the case and to enter into any stipulation of facts. 2 A compromise
agreement was entered into by the parties assisted by their respective counsel and
the same was submitted for approval of the court wherein Carmelito Gaburno signed
for and in behalf of petitioner. In an order dated November 27, 1979 the respondent
judge approved the compromise agreement by rendering judgment in accordance
therewith. 3

Thus, when at the pre-trial conference of Civil Case No. 7072 before the same
respondent judge a special power of attorney executed by Pulvera on July 31, 1980 in
favor of Atty. Magallanes to appear in behalf of petitioner and to enter into any
amicable settlement 4 was presented, the court finds no cogent reason why the
respondent judge refused to honor the said special power of attorney for purposes of
the pre-trial and instead declared the petitioner to be in default.

Obviously in the earlier case, Civil Case No. 6316, the respondent judge accepted
and/or acknowledged the authority of Pulvera as regional branch manager of the
petitioner to represent the petitioner, to enter into a compromise agreement and as

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[G.R. No. 82978. November 22, 1990.]
THE MANILA REMNANT CO., INC., Petitioner, v. THE HONORABLE COURT OF
APPEALS and OSCAR VENTANILLA, JR. and CARMEN GLORIA DIAZ, Respondents.
Bede S. Talingcos, for Petitioners.
Augusto Gatmaytan for Private Respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; FAILURE OF THE PRINCIPAL TO CORRECT AN IRREGULARITY
DESPITE KOWLEDGE THEREOF, DEEMED A RATIFICATION OF THE ACT OF THE AGENT.
— In the case at bar, the Valencia realty firm had clearly overstepped the bounds of
its authority as agent — and for that matter, even the law — when it undertook the
double sale of the disputed lots. Such being the case, the principal, Manila Remnant,
would have been in the clear pursuant to Article 1897 of the Civil Code which states
that" (t)he agent who acts as such is not personally liable to that party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers." However, the unique
relationship existing between the principal and the agent at the time of the dual sale
must be underscored. Bear in mind that the president then of both firms was
Artemio U. Valencia, the individual directly responsible for the sale scam. Hence,
despite the fact that the double sale was beyond the power of the agent, Manila
Remnant as principal was chargeable with the knowledge or constructive notice of
that fact and not having done anything to correct such an irregularity was deemed to
have ratified the same. (See Art. 1910, Civil Code.)
2. ID.; ID.; PRINCIPLE OF ESTOPPEL; REASON AND EFFECT THEREOF; CASE AT BAR. —
More in point, we find that by the principle of estoppel, Manila Remnant is deemed
to have allowed its agent to act as though it had plenary powers. Article 1911 of the
Civil Code provides: "Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he
had full powers." The above-quoted article is new. It is intended to protect the rights
of innocent persons. In such a situation, both the principal and the agent may be
considered as joint feasors whose liability is joint and solidary (Verzosa v. Lim, 45 Phil.
416). Authority by estoppel has arisen in the instant case because by its negligence,
the principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to
exercise powers not granted to it. That the principal might not have had actual
knowledge of the agent’s misdeed is of no moment.
DECISION
FERNAN, J.:
Like any other couple, Oscar Ventanilla and his wife Carmen, both faculty members of
the University of the Philippines and renting a faculty unit, dreamed of someday
owning a house and lot. Instead of attaining this dream, they became innocent
victims of deceit and found themselves in the midst of an ensuing squabble between
a subdivision owner and its real estate agent.
The facts as found by the trial court and adopted by the Appellate Court are as
follows:chanrob1es virtual 1aw library
Petitioner Manila Remnant Co., Inc. is the owner of the parcels of land situated in
Quezon City covered by Transfer Certificates of Title Nos. 26400, 26401, 30783 and
31986 and constituting the subdivision known as Capital Homes Subdivision Nos. I
and II. On July 25, 1972, Manila Remnant and A.U. Valencia & Co. Inc. entered into a
written agreement entitled "Confirmation of Land Development and Sales Contract"
to formalize an earlier verbal agreement whereby for a consideration of 17 and 1/2%
fee, including sales commission and management fee, A.U. Valencia and Co., Inc. was
to develop the aforesaid subdivision with authority to manage the sales thereof,
execute contracts to sell to lot buyers and issue official receipts. 1
At that time the President of both A.U. Valencia and Co. Inc. and Manila Remnant Co.,
Inc. was Artemio U. Valencia.cralawnad
On March 3, 1970, Manila Remnant thru A.U. Valencia and Co. executed two
"contracts to sell" covering Lots 1 and 2 of Block 17 in favor of Oscar C. Ventanilla and
Carmen Gloria Diaz for the combined contract price of P66,571.00 payable monthly
for ten years. 2 As thus agreed in the contracts to sell, the Ventanillas paid the down
payments on the two lots even before the formal contract was signed on March 3,
1970.
Ten (10) days after the signing of the contracts with the Ventanillas or on March 13,
1970, Artemio U. Valencia, as President of Manila Remnant, and without the
knowledge of the Ventanilla couple, sold Lots 1 and 2 of Block 17 again, this time in
favor of Carlos Crisostomo, one of his sales agents without any consideration. 3
Artemio Valencia then transmitted the fictitious Crisostomo contracts to Manila
Remnant while he kept in his files the contracts to sell in favor of the Ventanillas. All
the amounts paid by the Ventanillas were deposited in Valencia’s bank account.
Beginning March 13, 1970, upon orders of Artemio Valencia, the monthly payments
of the Ventanillas were remitted to Manila Remnant as payments of Crisostomo for
which the former issued receipts in favor of Crisostomo. Since Valencia kept the
receipts in his files and never transmitted the same to Crisostomo, the latter and the
Ventanillas remained ignorant of Valencia’s scheme. Thus, the Ventanillas continued
paying their monthly installments.chanrobles virtual lawlibrary
Subsequently, the harmonious business relationship between Artemio Valencia and
Manila Remnant ended. On May 30, 1973, Manila Remnant, through its General
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Page 49 of 104
Manager Karl Landahl, wrote Artemio Valencia informing him that Manila Remnant
was terminating its existing collection agreement with his firm on account of the
considerable amount of discrepancies and irregularities discovered in its collections
and remittances by virtue of confirmations received from lot buyers. 4 As a
consequence, on June 6, 1973, Artemio Valencia was removed as President by the
Board of Directors of Manila Remnant. Therefore, from May of 1973, Valencia
stopped transmitting Ventanilla’s monthly installments which at that time had already
amounted to P17,925.40 for Lot 1 and P18,141.95 for Lot 2, (which appeared in
Manila Remnant’s record as credited in the name of Crisostomo). 5
On June 8, 1973, A.U. Valencia and Co. sued Manila Remnant before Branch 19 of the
then Court of First Instance of Manila 6 to impugn the abrogation of their agency
agreement. On June 10 and July 10, 1973, said court ordered all lot buyers to deposit
their monthly amortizations with the court. 7 But on July 17, 1973, A.U. Valencia and
Co. wrote the Ventanillas that it was still authorized by the court to collect the
monthly amortizations and requested them to continue remitting their amortizations
with the assurance that said payments would be deposited later in court. 8 On May
22, 1974, the trial court issued an order prohibiting A.U. Valencia and Co. from
collecting the monthly installments. 9 On July 22, 1974 and February 6, 1976 the
same court ordered the Valencia firm to furnish the court with a complete list of all
lot buyers who had already made down payments to Manila Remnant before
December 1972. 10 Valencia complied with the court’s order on August 6, 1974 by
submitting a list which excluded the name of the Ventanillas. 11
Since A.U. Valencia and Co. failed to forward its collections after May 1973, Manila
Remnant caused on August 20, 1976 the publication in the Times Journal of a notice
cancelling the contracts to sell of some lot buyers including that of Carlos Crisostomo
in whose name the payments of the Ventanillas had been credited. 12
To prevent the effective cancellation of their contracts, Artemio Valencia instigated on
September 22, 1976 the filing by Carlos Crisostomo and seventeen (17) other lot
vendees of a complaint for specific performance with damages against Manila
Remnant before the Court of First Instance of Quezon City. The complaint alleged that
Crisostomo had already paid a total of P17,922.40 and P18,136.85 on Lots 1 and 2,
respectively. 13
It was not until March 1978 when the Ventanillas, after learning of the termination of
the agency agreement between Manila Remnant and A.U. Valencia & Co., decided to
stop paying their amortizations to the latter. The Ventanillas, believing that they had
already remitted P37,007.00 for Lot 1 and P36,911.00 for Lot 2 or a grand total,
inclusive of interest, of P73,122.35 for the two lots, thereby leaving a balance of
P13,531.58 for Lot 1 and P13,540.22 for Lot 2, went directly to Manila Remnant and
offered to pay the entire outstanding balance of the purchase price. 14 To their shock
and utter consternation, they discovered from Gloria Caballes, an accountant of
Manila Remnant, that their names did not appear in the records of A.U. Valencia and
Co. as lot buyers. Caballes showed the Ventanillas copies of the contracts to sell in
favor of Carlos Crisostomo, duly signed by Artemio U. Valencia as President of Manila
Remnant. 15 Whereupon, Manila Remnant refused the offer of the Ventanillas to pay
for the remainder of the contract price because they did not have the personality to
do so. Furthermore, they were shown the published Notice of Cancellation in the
January 29, 1978 issue of the Times Journal rescinding the contracts of delinquent
buyers including Crisostomo.
Thus, on November 21, 1978, the Ventanillas commenced an action for specific
performance, annulment of deeds and damages against Manila Remnant, A.U.
Valencia and Co. and Carlos Crisostomo before the Court of First Instance of Quezon
City, Branch 17-B. 16 Crisostomo was declared in default for failure to file an
answer.chanrobles.com:cralaw:red
On November 17, 1980, the trial court rendered a decision 1) declaring the contracts
to sell issued in favor of the Ventanillas valid and subsisting and annulling the
contracts to sell in Crisostomo’s favor; 2) ordering Manila Remnant to execute in favor
of the Ventanillas an Absolute Deed of Sale free from all liens and encumbrances; and
3) condemning defendants A.U. Valencia and Co. Inc., Manila Remnant and Carlos
Crisostomo jointly and severally to pay the Ventanillas the amount of P100,000.00 as
moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney’s
fees. The lower court also added that if, for any legal reason, the transfer of the lots
could no longer be effected, the defendants should reimburse jointly and severally to
the Ventanillas the total amount of P73,122.35 representing the total amount paid
for the two lots plus legal interest thereon from March 1970 plus damages as
aforestated. With regard to the cross claim of Manila Remnant against Valencia, the
court found that Manila Remnant could have not been dragged into this suit without
the fraudulent manipulations of Valencia. Hence, it adjudged A.U. Valencia and Co. to
pay the Manila Remnant P5,000.00 as moral damages and exemplary damages and
P5,000.00 as attorney’s fees. 17
Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the lower court’s
decision to the Court of Appeals through separate appeals. On October 13, 1987, the
Appellate Court affirmed in toto the decision of the lower court. Reconsideration
sought by petitioner Manila Remnant was denied, hence the instant petition.
There is no question that the contracts to sell in favor of the Ventanilla spouses are
valid and subsisting. The only issue remaining is whether or not petitioner Manila
Remnant should be held solidarily liable together with A.U. Valencia and Co. and
Carlos Crisostomo for the payment of moral, exemplary damages and attorney’s fees
in favor of the Ventanillas. 18
While petitioner Manila Remnant has not refuted the legality of the award of
damages per se, it believes that it cannot be made jointly and severally liable with its
agent A.U. Valencia and Co. since it was not aware of the illegal acts perpetrated nor
did it consent or ratify said acts of its agent.
The argument is devoid of merit.
In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its
authority as agent — and for that matter, even the law — when it undertook the
double sale of the disputed lots. Such being the case, the principal, Manila Remnant,
would have been in the clear pursuant to Article 1897 of the Civil Code which states
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 Page 50 of 104

that" (t)he agent who acts as such is not personally liable to that party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers." chanrobles.com.ph : virtual
law library

However, the unique relationship existing between the principal and the agent at the
time of the dual sale must be underscored. Bear in mind that the president then of
both firms was Artemio U. Valencia, the individual directly responsible for the sale
scam. Hence, despite the fact that the double sale was beyond the power of the
agent, Manila Remnant as principal was chargeable with the knowledge or
constructive notice of that fact and not having done anything to correct such an
irregularity was deemed to have ratified the same. 19

More in point, we find that by the principle of estoppel, Manila Remnant is deemed
to have allowed its agent to act as though it had plenary powers. Article 1911 of the
Civil Code provides:jgc:chanrobles.com.ph

"Even when the agent has exceeded his authority, the principal is solidarily liable with
the agent if the former allowed the latter to act as though he had full powers."
(Emphasis supplied)

The above-quoted article is new. It is intended to protect the rights of innocent

persons. In such a situation, both the principal and the agent may be considered as
joint feasors whose liability is joint and solidary. 20

Authority by estoppel has arisen in the instant case because by its negligence, the
principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise
powers not granted to it. That the principal might not have had actual knowledge of
the agent’s misdeed is of no moment. Consider the following
circumstances:chanrob1es virtual 1aw library

Firstly, Manila Remnant literally gave carte blanche to its agent A.U. Valencia and Co.
in the sale and disposition of the subdivision lots. As a disclosed principal in the
contracts to sell in favor of the Ventanilla couple, there was no doubt that they were
in fact contracting with the principal. Section 7 of the Ventanillas’ contracts to sell
states:jgc:chanrobles.com.ph

"7. That all payments whether deposits, down payment and monthly installment
agreed to be made by the vendee shall be payable to A.U. Valencia and Co., Inc. It is
hereby expressly understood that unauthorized payments made to real estate
brokers or agents shall be the sole and exclusive responsibility and at the risk of the
vendee and any and all such payments shall not be recognized by the vendors unless
the official receipts therefor shall have been duly signed by the vendors’ duly
authorized agent, A.U. Valencia and Co., Inc." (Emphasis supplied)

Indeed, once Manila Remnant had been furnished with the usual copies of the
contracts to sell, its only participation then was to accept the collections and pay the
commissions to the agent. The latter had complete control of the business
arrangement. 21

Secondly, it is evident from the records that Manila Remnant was less than prudent in
the conduct of its business as a subdivision owner. For instance, Manila Remnant
failed to take immediate steps to avert any damage that might be incurred by the lot
buyers as a result of its unilateral abrogation of the agency contract. The publication
of the cancelled contracts to sell in the Times Journal came three years after Manila
Remnant had revoked its agreement with A.U. Valencia and Co.chanrobles virtual
lawlibrary

Moreover, Manila Remnant also failed to check the records of its agent immediately
after the revocation of the agency contract despite the fact that such revocation was
due to reported anomalies in Valencia’s collections. Altogether, as pointed out by the
counsel for the Ventanillas, Manila Remnant could and should have devised a system
whereby it could monitor and require a regular accounting from A.U. Valencia and
Co., its agent. Not having done so, Manila Remnant has made itself liable to those
who have relied on its agent and the representation that such agent was clothed with
sufficient powers to act on behalf of the principal.

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

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

A final word. The Court cannot help but be alarmed over the reported practice of
supposedly reputable real estate brokers of manipulating prices by allowing their
own agents to "buy" lots in their names in the hope of reselling the same at a higher
price to the prejudice of bona fide lot buyers, as precisely what the agent had
intended to happen in the present case. This is a serious matter that must be looked
into by the appropriate government housing authority.chanrobles.com.ph : virtual
law library

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

SO ORDERED.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 125138 March 2, 1999
NICHOLAS Y. CERVANTES, petitioner,
vs.
COURT OF APPEALS AND THE PHILIPPINE AIR LINES, INC., respondent.
PURISMA, J.:
This Petition for Review on certiorari assails the 25 July 1995 decision of the Court of
Appeals 1 in CA GR CV No. 41407, entitled "Nicholas Y. Cervantes vs. Philippine Air
Lines Inc.", affirming in toto the judgment of the trial court dismissing petitioner's
complaint for damages.
On March 27, 1989, the private respondent, Philippines Air Lines, Inc. (PAL), issued to
the herein petitioner, Nicholas Cervantes (Cervantes), a round trip plane ticket for
Manila-Honolulu-Los Angeles-Honolulu-Manila, which ticket expressly provided an
expiry of date of one year from issuance, i.e., until March 27, 1990. The issuance of
the said plane ticket was in compliance with a Compromise Agreement entered into
between the contending parties in two previous suits, docketed as Civil Case Nos.
3392 and 3451 before the Regional Trial Court in Surigao City. 2
On March 23, 1990, four days before the expiry date of subject ticket, the petitioner
used it. Upon his arrival in Los Angeles on the same day, he immediately booked his
Los Angeles-Manila return ticket with the PAL office, and it was confirmed for the
April 2, 1990 flight.
Upon learning that the same PAL plane would make a stop-over in San Francisco, and
considering that he would be there on April 2, 1990, petitioner made arrangements
with PAL for him to board the flight In San Francisco instead of boarding in Las
Angeles.
On April 2, 1990, when the petitioner checked in at the PAL counter in San Francisco,
he was not allowed to board. The PAL personnel concerned marked the following
notation on his ticket: "TICKET NOT ACCEPTED DUE EXPIRATION OF VALIDITY."
Aggrieved, petitioner Cervantes filed a Complaint for Damages, for breach of contract
of carriage docketed as Civil Case No. 3807 before Branch 32 of the Regional Trial
Court of Surigao del Norte in Surigao City. But the said complaint was dismissed for
lack of merit. 3
On September 20, 1993, petitioner interposed an appeal to the Court of Appeals,
which came out with a Decision, on July 25, 1995, upholding the dismissal of the
case.
On May 22, 1996, petitioner came to this Court via the Petition for Review under
consideration.
The issues raised for resolution are: (1) Whether or not the act of the PAL agents in
confirming subject ticket extended the period of validity of petitioner's ticket; (2)
Whether or not the defense of lack of authority was correctly ruled upon; and (3)
Whether or not the denial of the award for damages was proper.
To rule on the first issue, there is a need to quote the findings below. As a rule,
conclusions and findings of fact arrived at by the trial court are entitled to great
weight on appeal and should not be disturbed unless for strong and cogent reasons. 4
The facts of the case as found by the lower court 5 are, as follows:
The plane ticket itself (Exhibit A for plaintiff; Exhibit 1 for defendant)
provides that it is not valid after March 27, 1990. (Exhibit 1-F). It is also
stipulated in paragraph 8 of the Conditions of Contract (Exhibit 1, page 2)
as follows:
8. This ticket is good for carriage for one year from date of
issue, except as otherwise provided in this ticket, in carrier's tariffs,
conditions of carriage, or related regulations. The fare for carriage
hereunder is subject to change prior to commencement of carriage.
Carrier may refuse transportation if the applicable fare has not been
paid. 6
The question on the validity of subject ticket can be resolved in light of the ruling in
the case of Lufthansa vs. Court of Appeals. 7 In the said case, the Tolentinos were
issued first class tickets on April 3, 1982, which will be valid until April 10, 1983. On
June 10, 1982, they changed their accommodations to economy class but the
replacement tickets still contained the same restriction. On May 7, 1983, Tolentino
requested that subject tickets be extended, which request was refused by the
petitioner on the ground that the said tickets had already expired. The non-extension
of their tickets prompted the Tolentinos to bring a complaint for breach of contract of
carriage against the petitioner. In ruling against the award of damages, the Court held
that the "ticket constitute the contract between the parties. It is axiomatic that when
the terms are clear and leave no doubt as to the intention of the contracting parties,
contracts are to be interpreted according to their literal meaning."
CASES: Agency
Page 51 of 104
In his effort to evade this inevitable conclusion, petitioner theorized that the
confirmation by the PAL's agents in Los Angeles and San Francisco changed the
compromise agreement between the parties.
As aptly by the appellate court:
. . . on March 23, 1990, he was aware of the risk that his ticket could
expire, as it did, before he returned to the Philippines.' (pp. 320-321,
Original Records) 8
The question is: "Did these two (2) employees, in effect, extend the
validity or lifetime of the ticket in question? The answer is in the
negative. Both had no authority to do so. Appellant knew this from
the very start when he called up the Legal Department of appellee in
the Philippines before he left for the United States of America. He had
first hand knowledge that the ticket in question would expire on
March 27, 1990 and that to secure an extension, he would have to file
a written request for extension at the PAL's office in the Philippines
(TSN, Testimony of Nicholas Cervantes, August 2, 1991, pp. 20-23).
Despite this knowledge, appellant persisted to use the ticket in
question." 9
From the aforestated facts, it can be gleaned that the petitioner was fully aware that
there was a need to send a letter to the legal counsel of PAL for the extension of the
period of validity of his ticket.
Since the PAL agents are not privy to the said Agreement and petitioner knew that a
written request to the legal counsel of PAL was necessary, he cannot use what the
PAL agents did to his advantage. The said agents, according to the Court of
Appeals, 10 acted without authority when they confirmed the flights of the petitioner.
Under Article 1989 11 of the New Civil Code, the acts an agent beyond the scope of his
authority do not bind the principal, unless the latter ratifies the same expressly or
impliedly. Furthermore, when the third person (herein petitioner) knows that the
agent was acting beyond his power or authority, the principal cannot be held liable
for the acts of the agent. If the said third person is aware of such limits of authority,
he is to blame, and is not entitled to recover damages from the agent, unless the
latter undertook to secure the principal's ratification. 12
Anent the second issue, petitioner's stance that the defense of lack of authority on
the part of the PAL employees was deemed waived under Rule 9, Section 2 of the
Revised Rules of Court, is unsustainable. Thereunder, failure of a party to put up
defenses in their answer or in a motion to dismiss is a waiver thereof.
Petitioner stresses that the alleged lack of authority of the PAL employees was
neither raised in the answer nor in the motion to dismiss. But records show that the
question of whether there was authority on the part of the PAL employees was acted
upon by the trial court when Nicholas Cervantes was presented as a witness and the
depositions of the PAL employees, Georgina M. Reyes and Ruth Villanueva, were
presented.
The admission by Cervantes that he was told by PAL's legal counsel that he had to
submit a letter requesting for an extension of the validity of subject tickets was
tantamount to knowledge on his part that the PAL employees had no authority to
extend the validity of subject tickets and only PAL's legal counsel was authorized to
do so.
However, notwithstanding PAL's failure to raise the defense of lack of authority of the
said PAL agents in its answer or in a motion to dismiss, the omission was cured since
the said issue was litigated upon, as shown by the testimony of the petitioner in the
course of trial. Rule 10, Section 5 of the 1997 Rules of Civil Procedure provides:
Sec. 5. Amendment to conform, or authorize presentation
of evidence. — When issues not raised by the pleadings are
tried with express or implied consent of the parties, as if
they had been raised in the pleadings. Such amendment of
the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be
made upon motion of any party at any time, even after
judgment; but failure to amend does not affect the result of
the trial of these issues. . . .
Thus, "when evidence is presented by one party, with the express or implied consent
of the adverse party, as to issues not alleged in the pleadings, judgment may be
rendered validly as regards the said issue, which shall be treated as if they have been
raised in the pleadings. There is implied consent to the evidence thus presented
when the adverse party fails to object thereto." 13
Re: the third issue, an award of damages is improper because petitioner failed to
show that PAL acted in bad faith in refusing to allow him to board its plane in San
Francisco.
In awarding moral damages for breach of contract of carriage, the breach must be
wanton and deliberately injurious or the one responsible acted fraudulently or with
malice or bad faith. 14 Petitioner knew there was a strong possibility that he could not
use the subject ticket, so much so that he bought a back-up ticket to ensure his
departure. Should there be a finding of bad faith, we are of the opinion that it should
be on the petitioner. What the employees of PAL did was one of simple negligence.
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 Page 52 of 104

No injury resulted on the part of petitioner because he had a back-up ticket should
PAL refuse to accommodate him with the use of subject ticket.

Neither can the claim for exemplary damages be upheld. Such kind of damages is
imposed by way of example or correction for the public good, and the existence of
bad faith is established. The wrongful act must be accompanied by bad faith, and an
award of damages would be allowed only if the guilty party acted in a wanton,
fraudulent, reckless or malevolent manner. 15 Here, there is no showing that PAL
acted in such a manner. An award for attorney's fees is also improper.

WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals dated
July 25, 1995 AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


[G.R. No. 129039. September 17, 2002]
SIREDY ENTERPRISES, INC. petitioner, vs. HON. COURT OF APPEALS and CONRADO
DE GUZMAN, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review seeking to annul the decision[1] dated April
26, 1996 of the Court of Appeals in CA-G.R. CV No. 30374, reversing the decision of
the Regional Trial Court of Malolos, Bulacan, and the resolution[2] dated April 22,
1997, denying petitioners motion for reconsideration.
The following are the facts as found by the Court of Appeals, [3] undisputed by
the parties and adopted by petitioner:[4]
Private respondent Conrado De Guzman is an architect-contractor doing
business under the name and style of Jigscon Construction. Herein petitioner Siredy
Enterprises, Inc. (hereafter Siredy) is the owner and developer of Ysmael Village, a
subdivision in Sta. Cruz, Marilao, Bulacan.[5] The president of Siredy is Ismael E. Yanga.
[6]
As stated in its Articles of Incorporation,[7] the primary corporate purpose of
Siredy is to acquire lands, subdivide and develop them, erect buildings and houses
thereon, and sell, lease or otherwise dispose of said properties to interested buyers. [8]
Sometime before October 1978, Yanga executed an undated Letter of
Authority,[9] hereunder reproduced verbatim:
KNOW ALL MEN BY THESE PRESENTS:
That I, DR. ISMAEL E. YANGA, SR., of legal age, Filipino, married, resident of and with
Postal address at Poblacion, Bocaue, Bulacan and duly authorized to execute this
LETTER OF AUTHORITY, do hereby authorize MR. HERMOGENES B. SANTOS of legal
age, Filipino, married, resident of and with Postal Address at 955 Banawe St., Quezon
City to do and execute all or any of the following acts:
1. To negotiate and enter into contract or contracts to build Housing Units on our
subdivision lots in Ysmael Village, Sta. Rosa, Marilao, Bulacan. However, all proceeds
from said contract or contracts shall be deposited in my name, payments of all
obligation in connection with the said contract or contracts should be made and the
remainder will be paid to MR. HERMOGENES B. SANTOS.
2. To sell lots on our subdivisions and;
3. To represent us, intercede and agree for or make agreements for all payments in
our favor, provided that actual receipts thereof shall be made by the undersigned.
( myself and as president of the Siredy Enterprises, Inc. For the evidentiary fact
SGD) DR. ISMAEL E. YANGA, SR.
F the fulfillment of the terms and conditions stipulated in the Deed of Agreement,
or myself and in my capacity as President
o
f SIREDY ENTERPRISE, INCORPORATED
P In the light of the foregoing circumstances, Siredy Enterprises and Dr. Yanga cannot
RINCIPAL
On October 15, 1978, Santos entered into a Deed of Agreement[10] with De
Guzman. The deed expressly stated that Santos was representing Siredy Enterprises,
Inc. Private respondent was referred to as contractor while petitioner Siredy was
cited as principal.
In said Deed of Agreement we find the following stipulations:
1.) That, the PRINCIPAL has contracts with different SSS members
employed with different domestic entities to build for them 2-
bedroom single housing units and 4-bedroom duplex housing
units;
2.) That, the site of the said housing project is at YSMAEL VILLAGE, Bo.
Sta. Rosa, Marilao, Bulacan owned and developed by SIREDY
ENTERPRISES and Mr. Ismael E. Yanga, Sr.;
3.) That, the PRINCIPAL has contracted to build the said units at the
amount of FORTY FIVE THOUSAND (P45,000.00) PESOS for the 2-
bedroom single and SIXTY NINE THOUSAND (P69,000.00) PESOS,
Philippine Currency for the duplex residences;
4.) That, the CONTRACTOR intends to build for the PRINCIPAL eighty
(80) units singles and eighteen (18) units duplex residences at
the cost above mentioned or a lump sum total of FOUR MILLION,
EIGHT HUNDRED FORTY TWO THOUSAND (P4,842,000.00)
PESOS, Philippine Currency;
5.) That, the CONTRACTOR agrees to supply all Construction Materials,
labor, tools and equipments necessary for the completion of the
said housing units;
CASES: Agency
Page 53 of 104
6.) That, the PRINCIPAL agrees to pay all necessary permits and papers
in accordance with Government rules and regulations;
7.) That, the PRINCIPAL agrees to supply water and electrical facilities
needed during the time of construction;
8.) That, the manner of payment shall be in accordance with SSS
releases. Should the SSS fail to pay the PRINCIPAL, the PRINCIPAL
is still in obligation to pay the CONTRACTOR for whatever
accomplishments the CONTRACTOR have finished provided, that
the failure of the SSS to pay is not due to defective work of the
CONTRACTOR;
9.) That, the CONTRACTOR promises to finish the project at the rate of
TEN (10) units in THIRTY (30) days or a total of THREE HUNDRED
(300) working days;
10.) That, the integral part of this CONTRACT are:
a. Plans and Specifications
b. Subdivision Plan indicating the Lot location of each
unit
c. Authority of the National Housing Authority;
11.) That, the CONTRACTOR agree[s] to start work on the housing
units thirty (30) days after signing of this CONTRACT.
NOW THEREFORE, for and in consideration of the amount of FOUR MILLION, EIGHT
HUNDRED FORTY TWO THOUSAND (P4,842,000.00) PESOS, Philippine Currency, the
PARTIES agree and herein set their hands on the date and place above-mentioned.
xxx
From October 1978 to April 1990, De Guzman constructed 26 residential units
at Ysmael Village. Thirteen (13) of these were fully paid but the other 13 remained
unpaid. The total contractual price of these 13 unpaid houses is P412,154.93 which
was verified and confirmed to be correct by Santos, per an Accomplishment
Billing[11] that the latter signed.
De Guzman tried but failed to collect the unpaid account from
petitioner. Thus, he instituted the action below for specific performance against
Siredy, Yanga, and Santos who all denied liability.
During the trial, Santos disappeared and his whereabouts remain unknown.
In its defense, petitioner presented testimonial evidence to the effect that
Siredy had no contract with De Guzman and had not authorized Santos to enter into a
contract with anyone for the construction of housing units at Ysmael Village.
The trial court agreed with petitioner based on the doctrine of privity of
contract and gave the following rationale:[12]
The Deed of Agreement (Exh. A and A-1) clearly reflects that the said contract was
entered into by and between plaintiff De Guzman, on one hand, and defendant
Hermogenes B. Santos as purported authorized representative of defendant Siredy
Enterprises, on the other. Plainly and clearly enough, defendants Siredy Enterprises
and Ismael Yanga, Sr. were neither parties nor signatories to the same. It does not
bear any legal significance that Dr. Yanga appears to have signed the Letter of
Authority (Exh. B) designating defendant Santos as the authorized representative for
remains that Siredy Enterprises and Dr. Yanga had absolutely had nothing to do with
much less had they benefited in any perceptible degree therefrom.
be held liable in favor of the plaintiff in any manner whatsoever respecting the
unpaid residential units constructed by the plaintiff. This is as it should be, because
contracts take effect only between the parties, their assigns and heirs, except only in
the cases provided for by law. (Art. 1311, Civil Code of the Philippines). Not one of
the exceptions obtains in this case.[13]
Thus, the trial court disposed of the case as follows:
WHEREFORE, premises considered, judgment is hereby rendered:
a) directing defendant Hermogenes B. Santos to pay unto plaintiff
Conrado de Guzman the amount of P412,154.93 as actual
damages with legal interest thereon from the filing of the
complaint on July 29, 1982 until the same shall have been fully
paid, and P25,000.00 as attorneys fees, plus costs;
b) dismissing the above-entitled case as against defendants Siredy
Enterprises, Inc. and Dr. Ismael Yanga, Sr.
SO ORDERED.[14]
On appeal, De Guzman obtained a favorable judgment from the Court of
Appeals. The appellate court held that the Letter of Authority duly signed by Yanga
clearly constituted Santos as Siredys agent,[15] whose authority included entering into
a contract for the building of housing units at Ysmael Village. Consequently, Siredy
cannot deny liability for the Deed of Agreement with private respondent De Guzman,
since the same contract was entered into by Siredys duly designated agent,
Santos. There was no need for Yanga himself to be a signatory to the contract, for him
and Siredy to be bound by the terms thereof.
Hence, the Court of Appeals held:
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 Page 54 of 104

WHEREFORE, We find merit in the appeal and We hereby REVERSE the appealed
Decision. In its stead, we render the following verdict: Appellee Siredy Enterprises.
Inc. is ordered to pay appellant Conrado de Guzman cost (sic) and P412,154.93 as
actual damage plus legal interest thereon from the filing of the Complaint on July 29,
1982 until full payment thereof. All other claims and counterclaims are dismissed.
We find that a valid agency was created between Siredy and Santos, and the
authority conferred upon the latter includes the power to enter into a construction
contract to build houses such as the Deed of Agreement between Santos and De
Guzmans Jigscon Construction. Hence, the inescapable conclusion is that Siredy is
bound by the contract through the representation of its agent Santos.

SO ORDERED.[16]
Petitioner Siredy Enterprises, Inc. now comes to us via a petition for review
on certiorari[17] under Rule 45 of the Rules of Court, on the following grounds:
The basis of agency is representation, that is, the agent acts for and in behalf of the
principal on matters within the scope of his authority (Art, 1881) and said acts have
the same legal effect as if they were personally done by the principal. By this legal
fiction of representation, the actual or legal absence of the principal is converted into
his legal or juridical presence.[26]

I. RESPONDENT COURT ERRED IN HOLDING THAT A VALID AGENCY
WAS CONSTITUTED DESPITE THE FACT THAT PETITIONER WAS
NOT INVOLVED IN THE CONSTRUCTION BUSINESS;
II. RESPONDENT COURT ERRED IN FAILING TO CONSIDER A VITAL
PROVISION IN THE DEED OF AGREEMENT (PAR. 8), WHEN IT
RENDERED ITS DECISION; and
III. RESPONDENT COURT ERRED IN FAILING TO CONSIDER THAT
PRIVATE RESPONDENT WAS NOT ENTITLED TO HIS CLAIM AS HE
WAS THE PARTY WHO VIOLATED THE CONTRACT. [18]
We find two main issues presented for resolution: First, whether or not
Hermogenes B. Santos was a duly constituted agent of Siredy, with authority to enter
into contracts for the construction of residential units in Ysmael Village and thus the
capacity to bind Siredy to the Deed of Agreement; and Second,
assuming arguendo that Siredy was bound by the acts of Santos, whether or not
under the terms of the Deed of Agreement, Siredy can be held liable for the amount
sought to be collected by private respondent De Guzman.
By the relationship of agency, one party called the principal authorizes
another called the agent to act for and in his behalf in transactions with third
persons. The authority of the agent to act emanates from the powers granted to him
by his principal; his act is the act of the principal if done within the scope of the
authority. He who acts through another acts himself. [19]
Was Santos then an agent of Siredy? Was he acting within the scope of his
authority?
Resolution of the first issue necessitates a review of the Letter of Authority
executed by Ismael E. Yanga as president of Siredy in favor of Santos. Within its terms
can be found the nature and extent of the authority granted to Santos which, in turn,
determines the extent of Siredys participation in the Deed of Agreement.
On its face, the instrument executed by Yanga clearly and unequivocally
constituted Santos to do and execute, among other things, the act of negotiating and
entering into contract or contracts to build Housing Units on our subdivision lots in
Ysmael Village, Sta. Rosa, Marilao, Bulacan.[20] Nothing could be more express than
the written stipulations contained therein.
It was upon the authority of this document that De Guzman transacted
business with Santos that resulted in the construction contract denominated as the
Deed of Agreement.
However, petitioner denies any liability by stating that: (1) the nature of
Siredys business did not involve the construction of housing units since it was merely
engaged in the selling of empty lots; (2) the Letter of Authority is defective, and
hence needed reformation; (3) Santos entering into the Deed of Agreement was
invalid because the same was in excess of his authority; and (4) there is now implied
revocation of such Letter of Authority.
Testifying on the nature of the business and the business practices of Siredy,
its owner Yanga testified[21] that Siredy was interested only in the sale of lots. It was
up to the buyers, as owners, to construct their houses in the particular style they
prefer. It was allegedly never the practice of the company to sell lots with houses
already erected thereon. On the basis of the foregoing testimony, petitioner states
that despite the letter of authority, it is quite certain that such provision would go
against the nature of the business of Siredy as the same has absolutely no capability
of undertaking such a task as constructing houses.
However, the self-serving contention of petitioner cannot stand against the
documentary evidence clearly showing the companys liability to De Guzman. As we
stated in the case of Cuizon vs. Court of Appeals:[22]
As it is, the mere denial of petitioner cannot outweigh the strength of the
documentary evidence presented by and the positive testimony of private
respondents. As a jurist once said, I would sooner trust the smallest slip of paper for
truth than the strongest and most retentive memory ever bestowed on moral man. [23]
Moreover, even if arguendo Santos mandate was only to sell subdivision lots
as Siredy asserts, the latter is still bound to pay De Guzman. De Guzman is considered
a third party to the agency agreement who had no knowledge of the specific
instructions or agreements between Siredy and its agent. What De Guzman only saw
was the written Letter of Authority where Santos appears to be duly
authorized. Article 1900 of the Civil Code provides:
Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agents authority, if such act is within the terms of
the power of attorney, as written, even if the agent has in fact exceeded the limits of
his authority according to an understanding between the principal and the agent.
The scope of the agents authority is what appears in the written terms of the
power of attorney. While third persons are bound to inquire into the extent or scope
of the agents authority, they are not required to go beyond the terms of the written
power of attorney. Third persons cannot be adversely affected by an understanding
between the principal and his agent as to the limits of the latters authority. In the
same way, third persons need not concern themselves with instructions given by the
principal to his agent outside of the written power of attorney.
The essence of agency being the representation of another, it is evident that
the obligations contracted are for and on behalf of the principal. This is what gives
rise to the juridical relation. A consequence of this representation is the liability of
the principal for the acts of his agent performed within the limits of his authority that
is equivalent to the performance by the principal himself who should answer
therefor. [27]
Petitioner belatedly asserts, however, that the Letter of Authority was
defective as it allegedly failed to reduce into writing the real intentions of the parties,
and insists on its reformation.
Such an argument deserves scant consideration. As found by the Court of
Appeals, being a doctor of medicine and a businessman, Yanga knew the meaning
and import of this document and had in fact admitted having signed it. As aptly
observed by the Court of Appeals, there is no evidence that ante litem, he abrogated
the Letter of Authority and withdrew the power conferred on Santos.
Siredys contention that the present case is in effect a revocation of the Letter
of Authority also deserves scant consideration. This is a patently erroneous claim
considering that it was, in fact, private respondent De Guzman who instituted the
civil case before the RTC.
With regard to the second issue put forth by petitioner, this Court notes that
this issue is being raised for the first time on appeal. From the trial in the RTC to the
appeal before the Court of Appeals, the alleged violation of the Deed of Agreement
by Conrado de Guzman was never put in issue. Heretofore, the substance of
petitioners defense before the courts a quoconsisted of its denial of any liability
under the Deed of Agreement.
As we held in the case of Safic Alcan & Cie vs. Imperial Vegetable Oil Co., Inc.:
[28]
It must be borne in mind that a question that was never raised in the courts below
cannot be allowed to be raised for the first time on appeal without offending basic
rules of fair play, justice and due process. Such an issue was not brought to the fore
either in the trial court or the appellate court, and would have been disregarded by
the latter tribunal for the reasons previously stated. With more reason, the same
does not deserve consideration by this Court.[29]
WHEREFORE, this petition is DENIED for lack of merit. The Decision of the
Court of Appeals dated April 26, 1996, in CA-G.R. CV No. 30374, is hereby AFFIRMED.
Petitioner Siredy Enterprises, Inc. is ordered to pay Conrado de Guzman actual
damages in the amount of P412,154.93, with legal interest thereon from the time the
case was filed until its full payment.Costs against petitioner.
SO ORDERED.

Aside from the Letter of Authority, Siredys Articles of Incorporation, duly

approved by the Securities and Exchange Commission, shows that Siredy may also
undertake to erect buildings and houses on the lots and sell, lease, or otherwise
dispose of said properties to interested buyers. [24] Such Articles, coupled with the
Letter of Authority, is sufficient to have given De Guzman reason to believe that
Santos was duly authorized to represent Siredy for the purpose stated in the Deed of
Agreement. Petitioners theory that it merely sold lots is effectively debunked.

Thus, it was error for the trial court to have ignored the Letter of Authority. As
correctly held by the Court of Appeals:

There is absolutely no question that the Letter of Authority (Exhibit B) executed by

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

x x x [25]

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 85685 September 11, 1991
LAURO CRUZ, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and PURE FOODS CORP., respondents.
Alfonso G. Salvador for petitioner.
Hilario, Go & De la Cruz for private respondent.
DAVIDE, JR., J.:
In C.A.-G.R. CV No. 07859 (entitled Pure Foods Corporation versus Lauro Cruz, doing
business under the name and style Mang Uro Store), a decision was promulgated on
9 August 1988 by respondent Court of Appeals1affirming in toto the decision
promulgated on 28 February 1985 of the Regional Trial Court of Pasig (Branch 151) of
the National Capital Judicial Region in Civil Case No. 49672 2 which, by reason of its
unusual brevity, is fully reproduced as follows:
DECISION
This is an action for sum of money. From the record, the following facts
are gathered: The plaintiff is a domestic corporation engaged in the
manufacture, processing and selling of various meat products while the
defendant is the owner/manager of Mang Uro Store in Dela Paz Street,
Marikina, Metro Manila. Sometime in November 1977, the defendant
was granted by the plaintiff a credit line on which the defendant, on
several occasions, bought on credit several Purefoods products. The
defendant had an unpaid balance with the plaintiff in the amount of
P57,897.63, from which the former was credited the amount of
P2,651.42 representing the amount of returned goods, thereby leaving
the balance of P 55,246.21. Demands were made upon the defendant
for him to settle his account with the plaintiff. A demand letter dated
January 17, 1983 was sent to and was received by the defendant who
failed to heed the same. The plaintiff, to protect its interest, was
constrained to hire the services of counsel.
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay the former the
following:
1. The sum of P 55,246.21, representing his outstanding unpaid account
plus interest of 12% percent per annum to be counted from the date of
the filing of this case on April 15, 1983 until fully paid; and
2. The sum equivalent to 15% of the total amount due as and for
attorney's fees and litigation expenses.
Costs against the defendant.
SO ORDERED.
His motion for reconsideration having been denied in the resolution of respondent
Court on 27 October 1988,3petitioner filed the instant appeal by certiorari under Rule
45 of the Rules of Court urging Us to annul and set aside the aforesaid decision and
resolution because respondent Court committed the following errors — which are
the very errors he ascribed to the trial court: (a) in not holding that petitioner is not a
signatory to the credit application card attached as Annex "A" of private respondent's
complaint as clearly evidenced by the fact that only the signatures of Me
Cruz and Marilou Cruz, who are not impleaded as party defendants, appear therein;
(b) in not holding that his signature does not appear in the invoices submitted by
private respondent; (c) in not holding that he did not receive the letters of demand;
(d) in not finding and concluding that private respondent failed to comply with the
Order of the trial court to amend the complaint; and (e) in denying his motion for
reconsideration.
The antecedent facts are not disputed.
On 15 April 1983, private respondent Pure Foods Corporation filed with the trial court
a complaint4 for sum of money against petitioner alleging therein that sometime in
November 1977, petitioner applied for a credit line with the plaintiff which was
consequently approved by the latter subject to the conditions therein stated;
pursuant to said approved credit arrangement, defendant (petitioner herein) made
various purchases from plaintiff until the early part of 1982, when he accumulated a
total unpaid account of P57,897.63 as evidenced by short payment notices and
invoices; against this obligation, defendant was credited with the amount of
P2,651.42 representing the value of returned goods, thereby leaving a balance of
P55,246.21, which remained unpaid despite numerous demands made upon him.
The parties who signed the Credit Application card as applicants are Me Cruz, who
signed over the printed words name of signatory, and Marilou L. Cruz, who signed
over the printed words Authorized Signature. The opening paragraph thereof reads:
CASES: Agency
Page 55 of 104
I/We hereby apply for a charge account in the amount stated above, and
herewith are the information for your consideration as a basis for the
extension of credit to us:
TRADE NAME: MANG URO STORE
Owner/Manager: Lauro Cruz
xxx xxx xxx
Petitioner did not sign any of the invoices attached to the complaint.
For failure to file an answer within the reglementary period, and upon motion of
private respondent, the trial court issued an Order on 29 September 1983 declaring
the petitioner in default and authorizing the private respondent to present its
evidence ex parte on 4 October 1983.5
On 19 October 1983, petitioner filed a motion to set aside the order of
default6 alleging therein that he did not file an answer anymore because upon
examination of the records of the case, he discovered that it was his son Rodolfo who
received the summons and copy of the complaint; he never entered into any
transaction with private respondent and that although the store referred to is still
licensed in his name, it has, since 1977, been owned and operated by his son Rodolfo
Cruz for the reason that he "is getting old already and moreover, because of
deteriorating physical condition;" and according to his son Rodolfo, he had already
settled the matter with the private respondent under an agreement whereby Rodolfo
would make partial payments and the private respondent would dismiss the case.
In its Order of 9 November 1983, 7 the trial court granted the aforesaid motion,
required petitioner to file his responsive pleading within five (5) days, and to present
his evidence on 6 January 1984.
Petitioner filed an Answer With Counterclaim on 28 March 1983. 8 He reiterates
therein his allegations in the motion to lift the default order and further avers that his
signature does not even appear on the credit application card. On the counter-claim,
he prays for judgment awarding him moral damages in an amount to be proved at
the trial, and attorney's fees in the amount of P15,000.00.
Pre-trial was set on 2 January 1984. It was reset by the trial court for 19 January
1984, and further reset for 21 February 1984 at 1:00 P.M. upon motion of private
respondent. On the last mentioned date, however, petitioner arrived late and by
then, the court had already issued an order declaring him in default for failure to
appear at the pre-trial. Forthwith, he filed a motion for reconsideration which the
trial court granted in its order of 22 February 1984. Pre-trial was reset to 27 March
1984.9
Pre-trial was held as above scheduled and was concluded with the issuance of the
following order:
As prayed for, the plaintiff is given ten (10) days from today to file
amended complaint.
By agreement, the presentation of defendant's evidence is set for May
16, 1984, at 8:30 a.m., without prejudice to the filing of a compromise
agreement.10
As stated by petitioner,11 which is not denied by private respondent, the purpose of
the amendment was to implead Me Cruz and Marilou Cruz as parties defendants
since they are the applicants in the credit application card.
Both parties did not appear on 16 May 1984. Thereupon, the trial court issued an
order declaring the case as submitted for decision on the basis of the evidence on
record.12
As adverted to earlier, on 28 February 1985, the trial court rendered its decision
against petitioner who, on 21 March 1985, filed a motion to reconsider 13 the decision,
which the trial court denied for lack of merit in its order of 16 May 1985. 14
Petitioner appealed from the decision to the then Intermediate Appellate Court, now
Court of Appeals.
The appeal was docketed as C.A.-G.R. CV No. 07859.
In his Brief in said case, petitioner attributes to the trial court the errors 15 which, as
earlier mentioned, are the very same errors submitted before Us as having been
committed by the respondent court.
According to the respondent Court, these errors bring into focus one crucial issue:
the liability of petitioner for the amounts adjudged by the trial court in favor of
private respondent. It held that petitioner is liable because in his motion to set aside
the order of default, he admitted that the Mang Uro Store is still licensed under his
name and the credit application card indicates that he is the owner/manager thereof.
Hence, even on the assumption that there had been a transfer of ownership and
management of the store to Rodolfo Cruz, previous to the transactions made with
appellee, petitioner permitted the business to be carried on in his name as its
ostensible owner. Private respondent should not be expected to be aware of such a
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

transfer and whatever agreement or understanding appellant had with petitioner's
son Rodolfo regarding the store cannot bind or affect private respondent, for matters
accomplished between two parties ought not to operate to the prejudice of a third
person.16 Accordingly, it also finds as superfluous the amendment of the complaint
for the purpose of impleading Rodolfo Cruz, Marilou Cruz and Me Cruz; moreover, it
contends that failure to amend the complaint is no cause for reversal because these
persons were known to private respondent as petitioner's "progeny"; besides, the
transfer of business, if indeed there was such, is a matter of defense which need not
be "negatived" in the complaint. A complaint should not, by the averments,
anticipate a defense thereto.
In respect to the failure of private respondent to comply with the order of 27 March
1984 directing it to amend the complaint, respondent Court held that the non-
compliance was "muted by the subsequent order of 16 May 1984 which considered
the case submitted for decision." By such order, the trial court gave its assent to
resolving the case on the basis of the unamended complaint. Section 11 of Rule 3
(erroneously stated as Section 3 of Rule 11) of the Rules of Court provides that
parties may be dropped or added by order of the court on motion of any party or on
its own initiative at any stage of the action and on such terms as are just; in the
instant case, it may be inferred that the trial court opted to resolve the case without
the proposed change in parties defendants.
Finally, it ruled that both oral and documentary evidence presented at the hearing on
3 October 1983 proved petitioner's unsatisfied obligation to the private respondent.
To bring this petition within Our authority, petitioner asserts, in effect, that at the
bottom of the assigned errors is the issue of whether the respondent Court has made
conclusions of fact which are not substantiated by the evidence on record. Petitioner
asserts that it did.
We have held in a long line of cases that findings of facts of the Court of Appeals are
conclusive upon this Court.17There are, however, recognized exceptions to this
rule,18 as where the findings are totally devoid of support in the record, or are
glaringly erroneous as to constitute serious abuse of discretion, 19 or when the
findings are grounded entirely on speculation, surmise or conjecture. 20
Deliberating on this case, We hold that the findings and conclusions of both the trial
court and the respondent Court are not supported by the evidence and that such
conclusions are glaringly erroneous. This petition is impressed with merit.
In its very brief decision, the trial court, without even laying the factual premises,
made a sweeping conclusion that it was the petitioner who applied for a credit line
with private respondent and which the latter approved for him; on the basis of such
approval, he subsequently bought Purefoods products on credit from private
respondent. Evidently, the trial court may have in mind the Credit Application
Card21 and the several invoices for the delivery of the goods. 22 But as correctly
pointed out by the petitioner, and as the documents themselves show, he did not
sign any of them.
It is the respondent Court which endeavored to supply the arguments in support of
the foregoing conclusion. According to the respondent court:
In his Motion to Set Aside Order of Default filed on October 19, 1983
appellant23 admitted that subject store is still licensed under his name ...
Also, the credit application card accomplished in behalf of the store
clearly indicates appellant as owner/manager thereof ... Hence, even on
the assumption that there really had been a transfer of ownership and
management of the "Mang Uro Store" to Rodolfo Cruz previous to the
transactions made with appellee24 the fact is that appellant permitted
the carrying of the business of Id store with him as ostensible owner.
Appellee should not be expected to be aware of such transfer. Whatever
private agreement or understanding appellant made with his son
Rodolfo regarding the store cannot bind or affect appellee. Insofar as the
latter is concerned, the store is business property of appellant. The
maxim res inter alios acta alteri nocere non debet is square. Matters
accomplished between two parties ought not to operate to the prejudice
of a third person (Blanza vs. Arcangel, 21 SCRA 4; Perez vs. Mendoza, 65
SCRA 493; Tinitigan vs. Tinitigan 100 SCRA 636). 25
Unfortunately, however, this conclusion is bereft of substantial factual basis and
disregards fundamental principles concerning the primary duty of persons dealing
with parties who act for others, and of estoppel. Indisputably, the credit application
card is a form prepared and supplied by private respondent. There is no evidence,
much less an allegation by private respondent, that it was petitioner who filled up the
entries in said form. It is logical to presume then that the parties who signed it (Me
Cruz and Marilou L. Cruz), or anyone of them, made or accomplished the entries.
Needless to state, since on the face of the document, the "owner/manager" of the
"Mang Uro Store", which is written on the column Trade Name, is Lauro Cruz, and not
the parties signing the same, it was incumbent upon the private respondent to
inquire into the relationship of the signatories to the petitioner or to satisfy itself as
to their authority to act for or represent the petitioner. Under the circumstances, it is
apparent that petitioner had no direct participation and that the two applicants could
have acted without authority from him or as his duly authorized representatives. In
either case, for the protection of its interest, private respondent should have made
the necessary inquiry verification as to the authority of the applicants and to find out
from them whether Lauro Cruz is both the owner and manager or merely
the owner or the manager, for that is what "owner/manager" in its form could
signify.
A person dealing with an agent is put upon inquiry and must discover upon his peril
the authority of the agent.26 It is for this reason that under Article No. 1902 of the
Civil Code, a third person with whom the agent wishes to contract on behalf of the
CASES: Agency
Page 56 of 104
principal may require the presentation of the power of attorney, or the instructions
as regards the agency, and that private or secret orders and instructions of the
principal do not prejudice third persons who have relied upon the power of attorney
or instructions shown them.
In short, petitioner is not under estoppel, as against the claim of private respondent,
which seems to be at the bottom of the respondent Court's rationalization.
In Kalalo vs. Luz,27 We held that the essential elements of estoppel in respect to the
party claiming it are: (a) lack of knowledge and of the means of knowledge of the
truth as the facts in question; (b) reliance, in good faith, upon the conduct or
statements of the party to be estopped; and (c) action or inaction based thereon of
such character as to change the position or status of the party claiming the estoppel,
to his injury, detriment, or prejudice.
The above disquisitions ineluctably show the absence of said elements in this case.
In the instant case, there is no showing at all that private respondent tried to
ascertain the ownership of Mang Uro Store and the extent of the authority of the
applicants to represent Lauro Cruz at any time before it approved the credit
application card.
There is as well no evidence, much less any claim by private respondent, that before
Me Cruz and Marilou Cruz signed the credit application card, it had been dealing with
petitioner or the Mang Uro Store, or that for sometime prior thereto, petitioner ever
represented to it as the owner of the store that he has authorized the above
signatories to represent him in any transaction. Clearly, it was error for the
respondent Court to conclude that petitioner should be held liable to private
respondent on account of the credit application card on the theory that he permitted
the carrying of the business of the store. This theory further erroneously assumes
that the business of the store before the filing of the credit application card included
the sale of products of private respondent. There is evidence on this appoint.
Moreover, it is apparent that the purpose of the request of private respondent to file
an amended complaint within ten (10) days from 27 March 1984, the date when the
pre-trial was held, which the trial court granted,28 was precisely to implead the
signatories to the credit application card. This was precisely prompted by the
insistence of petitioner that he is not liable for the claims in the complaint because
he did not sign the credit card application and the invoices. In short, he is erroneously
impleaded as defendant. Since among the matters to be considered at pre-trial is the
necessity or desirability of amendments to pleadings,29 the request was seasonably
and properly made.
Private respondent did not amend the complaint within the period aforesaid. So,
when the case was caned for heating on 16 May 1984, pursuant to the Order of 27
March 1984, and the parties did not appear, the trial court should have dismissed the
case for failure on the part of private respondent to file the amended complaint. Such
dismissal is authorized under Section 3 of Rule 17 of the Rules of Court. The
respondent Court, however, brushed aside this point by holding that the non-
compliance by private respondent "was muted by the subsequent order dated May
16, 1984 which submitted the case for decision;" and that by said order "the trial
court appears to have given its assent to resolving the case on the basis of the
unamended complaint," which is authorized by Section 11 of Rule 3 of the Rules of
Court. Although this justification is flimsy and begs the question, the foregoing
resolution on the issue of petitioner's liability to the private respondent renders
unnecessary further discussion on the remaining assigned errors.
WHEREFORE, the instant petition is GRANTED, and the decision of the respondent
Court of Appeals of 9 August 1988 and its resolution of 27 October 1988 in C.A.-G.R.
CV No. 07859, as well as the decision of the trial court of 28 February 1985 in Civil
Case No. 49672, are hereby REVERSED and SET ASIDE. With costs against private
respondent.
SO ORDERED.
Gutierrez, Jr., J., concurs.
Bidin, Jr., J., concur in the result.
Fernan, C.J., took no part.
Separate Opinions
FELICIANO, J,: dissenting:
With much regret, I am unable to join the majority opinion. Although petitioner
Lauro Cruz did not personally sign the credit application nor the Pure Foods invoices
issued under that credit line, I believe that he is liable for the amounts due under
that credit line.
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 Page 57 of 104

While petitioner may have turned over active management of his single
proprietorship enterprise to his son, Rodolfo Cruz, petitioner remained legal or
registered owner of that enterprise and he was directly or indirectly benefitting from
the revenues generated by that store. Those revenues were earned over a period of
approximately five (5) years from the time the credit application was signed by Me
Cruz and Merle Cruz. During that five-year period, credit was drawn under the Pure
Foods credit line to finance the canned goods and other items purchased from Pure
Foods and sold in the Mang Uro Store and Pure Foods invoices were paid. Thus
petitioner Lauro Cruz must or should have known about the existence of the credit
line supporting at least the Pure Foods inventory of the Mang Uro Store. If there was
lack of formal authority on the part of Me Cruz and Merle Cruz to contract for the
credit line, that lack of authority must be held to have been cured by prolonged
inaction on the part of petitioner and, more importantly, by receipt of benefits by
petitioner from operation of the credit line and the purchase of Pure Foods goods on
credit.

If this is a case of an unauthorized agent, I believe there was at least implied

ratification on the part of the principal. It is too late for petitioner to disclaim
responsibility for the amount due to Pure Foods. It seems to me that it would be
grossly inequitable to permit petitioner to escape that liability on such a technical
basis.

I vote to DENY the Petition for Review for lack of merit.

Separate Opinions

FELICIANO, J,: dissenting:

With much regret, I am unable to join the majority opinion. Although petitioner
Lauro Cruz did not personally sign the credit application nor the Pure Foods invoices
issued under that credit line, I believe that he is liable for the amounts due under
that credit line.

While petitioner may have turned over active management of his single
proprietorship enterprise to his son, Rodolfo Cruz, petitioner remained legal or
registered owner of that enterprise and he was directly or indirectly benefitting from
the revenues generated by that store. Those revenues were earned over a period of
approximately five (5) years from the time the credit application was signed by Me
Cruz and Merle Cruz. During that five-year period, credit was drawn under the Pure
Foods credit line to finance the canned goods and other items purchased from Pure
Foods and sold in the Mang Uro Store and Pure Foods invoices were paid. Thus
petitioner Lauro Cruz must or should have known about the existence of the credit
line supporting at least the Pure Foods inventory of the Mang Uro Store. If there was
lack of formal authority on the part of Me Cruz and Merle Cruz to contract for the
credit line, that lack of authority must be held to have been cured by prolonged
inaction on the part of petitioner and, more importantly, by receipt of benefits by
petitioner from operation of the credit line and the purchase of Pure Foods goods on
credit.

If this is a case of an unauthorized agent, I believe there was at least implied

ratification on the part of the principal. It is too late for petitioner to disclaim
responsibility for the amount due to Pure Foods. It seems to me that it would be
grossly inequitable to permit petitioner to escape that liability on such a technical
basis.

I vote to DENY the Petition for Review for lack of merit.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 88866 February 18, 1991
METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA
CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Bengzon, Zarraga, Narciso, Cudala, Pecson & Bengson for Magno and Lucia Castillo.
Agapito S. Fajardo and Jaime M. Cabiles for respondent Golden Savings & Loan
Association, Inc.
CRUZ, J.:
This case, for all its seeming complexity, turns on a simple question of negligence.
The facts, pruned of all non-essentials, are easily told.
The Metropolitan Bank and Trust Co. is a commercial bank with branches throughout
the Philippines and even abroad. Golden Savings and Loan Association was, at the
time these events happened, operating in Calapan, Mindoro, with the other private
respondents as its principal officers.
In January 1979, a certain Eduardo Gomez opened an account with Golden Savings
and deposited over a period of two months 38 treasury warrants with a total value of
P1,755,228.37. They were all drawn by the Philippine Fish Marketing Authority and
purportedly signed by its General Manager and countersigned by its Auditor. Six of
these were directly payable to Gomez while the others appeared to have been
indorsed by their respective payees, followed by Gomez as second indorser. 1
On various dates between June 25 and July 16, 1979, all these warrants were
subsequently indorsed by Gloria Castillo as Cashier of Golden Savings and deposited
to its Savings Account No. 2498 in the Metrobank branch in Calapan, Mindoro. They
were then sent for clearing by the branch office to the principal office of Metrobank,
which forwarded them to the Bureau of Treasury for special clearing. 2
More than two weeks after the deposits, Gloria Castillo went to the Calapan branch
several times to ask whether the warrants had been cleared. She was told to wait.
Accordingly, Gomez was meanwhile not allowed to withdraw from his account. Later,
however, "exasperated" over Gloria's repeated inquiries and also as an
accommodation for a "valued client," the petitioner says it finally decided to allow
Golden Savings to withdraw from the proceeds of the
warrants.3
The first withdrawal was made on July 9, 1979, in the amount of P508,000.00, the
second on July 13, 1979, in the amount of P310,000.00, and the third on July 16,
1979, in the amount of P150,000.00. The total withdrawal was P968.000.00. 4
In turn, Golden Savings subsequently allowed Gomez to make withdrawals from his
own account, eventually collecting the total amount of P1,167,500.00 from the
proceeds of the apparently cleared warrants. The last withdrawal was made on July
16, 1979.
On July 21, 1979, Metrobank informed Golden Savings that 32 of the warrants had
been dishonored by the Bureau of Treasury on July 19, 1979, and demanded the
refund by Golden Savings of the amount it had previously withdrawn, to make up the
deficit in its account.
The demand was rejected. Metrobank then sued Golden Savings in the Regional Trial
Court of Mindoro.5 After trial, judgment was rendered in favor of Golden Savings,
which, however, filed a motion for reconsideration even as Metrobank filed its notice
of appeal. On November 4, 1986, the lower court modified its decision thus:
ACCORDINGLY, judgment is hereby rendered:
1. Dismissing the complaint with costs against the plaintiff;
2. Dissolving and lifting the writ of attachment of the properties of
defendant Golden Savings and Loan Association, Inc. and defendant
Spouses Magno Castillo and Lucia Castillo;
3. Directing the plaintiff to reverse its action of debiting Savings Account
No. 2498 of the sum of P1,754,089.00 and to reinstate and credit to such
account such amount existing before the debit was made including the
amount of P812,033.37 in favor of defendant Golden Savings and Loan
Association, Inc. and thereafter, to allow defendant Golden Savings and
Loan Association, Inc. to withdraw the amount outstanding thereon
before the debit;
4. Ordering the plaintiff to pay the defendant Golden Savings and Loan
Association, Inc. attorney's fees and expenses of litigation in the amount
of P200,000.00.
CASES: Agency
Page 58 of 104
5. Ordering the plaintiff to pay the defendant Spouses Magno Castillo
and Lucia Castillo attorney's fees and expenses of litigation in the
amount of P100,000.00.
SO ORDERED.
On appeal to the respondent court, 6 the decision was affirmed, prompting
Metrobank to file this petition for review on the following grounds:
1. Respondent Court of Appeals erred in disregarding and failing to apply
the clear contractual terms and conditions on the deposit slips allowing
Metrobank to charge back any amount erroneously credited.
(a) Metrobank's right to charge back is not limited to
instances where the checks or treasury warrants are forged
or unauthorized.
(b) Until such time as Metrobank is actually paid, its
obligation is that of a mere collecting agent which cannot
be held liable for its failure to collect on the warrants.
2. Under the lower court's decision, affirmed by respondent Court of
Appeals, Metrobank is made to pay for warrants already dishonored,
thereby perpetuating the fraud committed by Eduardo Gomez.
3. Respondent Court of Appeals erred in not finding that as between
Metrobank and Golden Savings, the latter should bear the loss.
4. Respondent Court of Appeals erred in holding that the treasury
warrants involved in this case are not negotiable instruments.
The petition has no merit.
From the above undisputed facts, it would appear to the Court that Metrobank was
indeed negligent in giving Golden Savings the impression that the treasury warrants
had been cleared and that, consequently, it was safe to allow Gomez to withdraw the
proceeds thereof from his account with it. Without such assurance, Golden Savings
would not have allowed the withdrawals; with such assurance, there was no reason
not to allow the withdrawal. Indeed, Golden Savings might even have incurred
liability for its refusal to return the money that to all appearances belonged to the
depositor, who could therefore withdraw it any time and for any reason he saw fit.
It was, in fact, to secure the clearance of the treasury warrants that Golden Savings
deposited them to its account with Metrobank. Golden Savings had no clearing
facilities of its own. It relied on Metrobank to determine the validity of the warrants
through its own services. The proceeds of the warrants were withheld from Gomez
until Metrobank allowed Golden Savings itself to withdraw them from its own
deposit.7 It was only when Metrobank gave the go-signal that Gomez was finally
allowed by Golden Savings to withdraw them from his own account.
The argument of Metrobank that Golden Savings should have exercised more care in
checking the personal circumstances of Gomez before accepting his deposit does not
hold water. It was Gomez who was entrusting the warrants, not Golden Savings that
was extending him a loan; and moreover, the treasury warrants were subject to
clearing, pending which the depositor could not withdraw its proceeds. There was no
question of Gomez's identity or of the genuineness of his signature as checked by
Golden Savings. In fact, the treasury warrants were dishonored allegedly because of
the forgery of the signatures of the drawers, not of Gomez as payee or indorser.
Under the circumstances, it is clear that Golden Savings acted with due care and
diligence and cannot be faulted for the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary carelessness. The amount involved
was not trifling — more than one and a half million pesos (and this was 1979). There
was no reason why it should not have waited until the treasury warrants had been
cleared; it would not have lost a single centavo by waiting. Yet, despite the lack of
such clearance — and notwithstanding that it had not received a single centavo from
the proceeds of the treasury warrants, as it now repeatedly stresses — it allowed
Golden Savings to withdraw — not once, not twice, but thrice — from
the uncleared treasury warrants in the total amount of P968,000.00
Its reason? It was "exasperated" over the persistent inquiries of Gloria Castillo about
the clearance and it also wanted to "accommodate" a valued client. It "presumed"
that the warrants had been cleared simply because of "the lapse of one week." 8 For a
bank with its long experience, this explanation is unbelievably naive.
And now, to gloss over its carelessness, Metrobank would invoke the conditions
printed on the dorsal side of the deposit slips through which the treasury warrants
were deposited by Golden Savings with its Calapan branch. The conditions read as
follows:
Kindly note that in receiving items on deposit, the bank obligates itself
only as the depositor's collecting agent, assuming no responsibility
beyond care in selecting correspondents, and until such time as actual
payment shall have come into possession of this bank, the right is
reserved to charge back to the depositor's account any amount
previously credited, whether or not such item is returned. This also
applies to checks drawn on local banks and bankers and their branches
as well as on this bank, which are unpaid due to insufficiency of funds,
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

forgery, unauthorized overdraft or any other reason. (Emphasis
supplied.)
According to Metrobank, the said conditions clearly show that it was acting only as a
collecting agent for Golden Savings and give it the right to "charge back to the
depositor's account any amount previously credited, whether or not such item is
returned. This also applies to checks ". . . which are unpaid due to insufficiency of
funds, forgery, unauthorized overdraft of any other reason." It is claimed that the said
conditions are in the nature of contractual stipulations and became binding on
Golden Savings when Gloria Castillo, as its Cashier, signed the deposit slips.
Doubt may be expressed about the binding force of the conditions, considering that
they have apparently been imposed by the bank unilaterally, without the consent of
the depositor. Indeed, it could be argued that the depositor, in signing the deposit
slip, does so only to identify himself and not to agree to the conditions set forth in
the given permit at the back of the deposit slip. We do not have to rule on this matter
at this time. At any rate, the Court feels that even if the deposit slip were considered
a contract, the petitioner could still not validly disclaim responsibility thereunder in
the light of the circumstances of this case.
In stressing that it was acting only as a collecting agent for Golden Savings,
Metrobank seems to be suggesting that as a mere agent it cannot be liable to the
principal. This is not exactly true. On the contrary, Article 1909 of the Civil Code
clearly provides that —
Art. 1909. — The agent is responsible not only for fraud, but also for
negligence, which shall be judged 'with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat for
emphasis, it was the clearance given by it that assured Golden Savings it was already
safe to allow Gomez to withdraw the proceeds of the treasury warrants he had
deposited Metrobank misled Golden Savings. There may have been no express
clearance, as Metrobank insists (although this is refuted by Golden Savings) but in
any case that clearance could be implied from its allowing Golden Savings to
withdraw from its account not only once or even twice but three times. The total
withdrawal was in excess of its original balance before the treasury warrants were
deposited, which only added to its belief that the treasury warrants had indeed been
cleared.
Metrobank's argument that it may recover the disputed amount if the warrants are
not paid for any reason is not acceptable. Any reason does not mean no reason at all.
Otherwise, there would have been no need at all for Golden Savings to deposit the
treasury warrants with it for clearance. There would have been no need for it to wait
until the warrants had been cleared before paying the proceeds thereof to Gomez.
Such a condition, if interpreted in the way the petitioner suggests, is not binding for
being arbitrary and unconscionable. And it becomes more so in the case at bar when
it is considered that the supposed dishonor of the warrants was not communicated
to Golden Savings before it made its own payment to Gomez.
The belated notification aggravated the petitioner's earlier negligence in giving
express or at least implied clearance to the treasury warrants and allowing payments
therefrom to Golden Savings. But that is not all. On top of this, the supposed reason
for the dishonor, to wit, the forgery of the signatures of the general manager and the
auditor of the drawer corporation, has not been established. 9 This was the finding of
the lower courts which we see no reason to disturb. And as we said in MWSS v. Court
of Appeals:10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139 SCRA 238). It
must be established by clear, positive and convincing evidence. This was
not done in the present case.
A no less important consideration is the circumstance that the treasury warrants in
question are not negotiable instruments. Clearly stamped on their face is the word
"non-negotiable." Moreover, and this is of equal significance, it is indicated that they
are payable from a particular fund, to wit, Fund 501.
The following sections of the Negotiable Instruments Law, especially the underscored
parts, are pertinent:
Sec. 1. — Form of negotiable instruments. — An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain
in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named
or otherwise indicated therein with reasonable certainty.
xxx xxx xxx
CASES: Agency
Page 59 of 104
Sec. 3. When promise is unconditional. — An unqualified order or
promise to pay is unconditional within the meaning of this Act though
coupled with —
(a) An indication of a particular fund out of which reimbursement is to
be made or a particular account to be debited with the amount; or
(b) A statement of the transaction which gives rise to the instrument
judgment.
But an order or promise to pay out of a particular fund is not
unconditional.
The indication of Fund 501 as the source of the payment to be made on the treasury
warrants makes the order or promise to pay "not unconditional" and the warrants
themselves non-negotiable. There should be no question that the exception on
Section 3 of the Negotiable Instruments Law is applicable in the case at bar. This
conclusion conforms to Abubakar vs. Auditor General11 where the Court held:
The petitioner argues that he is a holder in good faith and for value of a
negotiable instrument and is entitled to the rights and privileges of a
holder in due course, free from defenses. But this treasury warrant is not
within the scope of the negotiable instrument law. For one thing, the
document bearing on its face the words "payable from the appropriation
for food administration, is actually an Order for payment out of "a
particular fund," and is not unconditional and does not fulfill one of the
essential requirements of a negotiable instrument (Sec. 3 last sentence
and section [1(b)] of the Negotiable Instruments Law).
Metrobank cannot contend that by indorsing the warrants in general, Golden Savings
assumed that they were "genuine and in all respects what they purport to be," in
accordance with Section 66 of the Negotiable Instruments Law. The simple reason is
that this law is not applicable to the non-negotiable treasury warrants. The
indorsement was made by Gloria Castillo not for the purpose of guaranteeing the
genuineness of the warrants but merely to deposit them with Metrobank for
clearing. It was in fact Metrobank that made the guarantee when it stamped on the
back of the warrants: "All prior indorsement and/or lack of endorsements
guaranteed, Metropolitan Bank & Trust Co., Calapan Branch."
The petitioner lays heavy stress on Jai Alai Corporation v. Bank of the Philippine
Islands,12 but we feel this case is inapplicable to the present
controversy.1âwphi1 That case involved checks whereas this case involves treasury
warrants. Golden Savings never represented that the warrants were negotiable but
signed them only for the purpose of depositing them for clearance. Also, the fact of
forgery was proved in that case but not in the case before us. Finally, the Court found
the Jai Alai Corporation negligent in accepting the checks without question from one
Antonio Ramirez notwithstanding that the payee was the Inter-Island Gas Services,
Inc. and it did not appear that he was authorized to indorse it. No similar negligence
can be imputed to Golden Savings.
We find the challenged decision to be basically correct. However, we will have to
amend it insofar as it directs the petitioner to credit Golden Savings with the full
amount of the treasury checks deposited to its account.
The total value of the 32 treasury warrants dishonored was P1,754,089.00, from
which Gomez was allowed to withdraw P1,167,500.00 before Golden Savings was
notified of the dishonor. The amount he has withdrawn must be charged not to
Golden Savings but to Metrobank, which must bear the consequences of its own
negligence. But the balance of P586,589.00 should be debited to Golden Savings, as
obviously Gomez can no longer be permitted to withdraw this amount from his
deposit because of the dishonor of the warrants. Gomez has in fact disappeared. To
also credit the balance to Golden Savings would unduly enrich it at the expense of
Metrobank, let alone the fact that it has already been informed of the dishonor of
the treasury warrants.
WHEREFORE, the challenged decision is AFFIRMED, with the modification that
Paragraph 3 of the dispositive portion of the judgment of the lower court shall be
reworded as follows:
3. Debiting Savings Account No. 2498 in the sum of P586,589.00 only
and thereafter allowing defendant Golden Savings & Loan Association,
Inc. to withdraw the amount outstanding thereon, if any, after the debit.
SO ORDERED.
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY
 Page 60 of 104

Sustaining the trail court on this point, the respondent court 5

declared in its decision dated March 30, 1990:
G.R. No. 94050 November 21, 1991

The evidence, on the whole, shows that she definitely acted on her own.
SYLVIA H. BEDIA and HONTIVEROS & ASSOCIATED PRODUCERS PHILS. YIELDS, She represented herself as authorized by the State of Texas to solicit and
INC., petitioners, assign booths at the Texas fair; she assured the appellee that she could
vs. give her booth. Under Article 1883 of the New Civil Code, if the
EMILY A. WHITE and HOLMAN T. WHITE, respondents. agent acts in his own name, the principal has no right of action against
the persons with whom the agent had contracted.
Ramon A. Gonzales for petitioner of the Court.
We do not share these views.
Renato S. Corpuz for private respondents.
It is noteworthy that in her letter to the Minister of Trade dated December 23,1984,
Emily White began:

CRUZ, J.: I am a local exporter who was recruited by Hontiveros & Associated
Producers Phil. Yields, Inc. to participate in the State Fair of Dallas, Texas
The basic issue before us is the capacity in which petitioner Sylvia H. Bedia entered which was held last Oct. 3 to 19, 1980. Hontiveros & Associated charged
into the subject contract with private respondent Emily A. White. Both the trial court me US$150.00 per square meter for display booth of said fair. I have paid
and the respondent court held she was acting in her own personal behalf. She faults an advance of US$500.00 as partial payment for the total space of 15
this finding as reversible error and insists that she was merely acting as an agent. square meter of which is $2,250.00 (Two Thousand Two Hundred Fifty
Dollars). 6

The case arose when Bedia and White entered into a Participation Contract 1 reading
As the Participation Contract was signed by Bedia, the above statement was an acknowledgment by White that Bedia was only acting for Hontiveros
in full as follows:
when it recruited her as a participant in the Texas State Fair and charged her a partial payment of $500.00. This amount was to be fortified to

Hontiveros in case of cancellation by her of the agreement. The fact that the contract was typewritten on the letterhead stationery of Hontiveros

THE STATE FAIR OF TEXAS '80 bolsters this conclusion in the absence of any showing that said stationery had been illegally used by Bedia.

PARTICIPATION CONTRACT
Significantly, Hontiveros itself has not repudiated Bedia's agency as it would have if she had really not signed in its name. In the answer it filed with

PARTICIPANT (COMPANY NAME) EMILY WHITE Bedia, it did not deny the latter's allegation in Paragraph 4 thereof that she was only acting as its agent when she solicited White's participation. In

ENTERPRISES fact, by filing the answer jointly with Bedia through their common counsel, Hontiveros affirmed this allegation.

I/We, the abovementioned company hereby agrees to participate in the If the plaintiffs had any doubt about the capacity in which Bedia was acting, what they should have done was verify the matter with Hontiveros.

1980 Dallas State Fair to be held in Dallas, Texas on October 3, to They did not. Instead, they simply accepted Bedia's representation that she was an agent of Hontiveros and dealt with her as such. Under Article

October 19,1980. I/We request for a 15 square meter booth space worth 1910 of the Civil Code, "the principal must comply with all the obligations which the agent may have contracted within the scope of his authority."

$2,250.00 U.S. Dollars. Hence, the private respondents cannot now hold Bedia liable for the acts performed by her for, and imputable to, Hontiveros as her principal.

I/We further understand that this participation contract shall be deemed

non-cancellable after payment of the said down payment, and that any
intention on our part to cancel the same shall render whatever amount
we have paid forfeited in favor of HONTIVEROS & ASSOCIATED
PRODUCERS PHILIPPINE YIELDS, INC.
FOR THE ABOVE CONSIDERATION, I/We understand the HONTIVEROS &
ASSOCIATED PRODUCERS PHIL. YIELDS, INC. shall: Reserve said booth for
our exclusive perusal; We also understand that the above cost includes
overall exterior booth decoration and materials but does not include
interior designs which will be per our specifications and expenses.
PARTICIPANT'S PARTICIPATION
AUTHORIZED SIGNATURE: ACCEPTED BY:
(SGD.) EMILY WHITE (SGD.) SYLVIA H. BEDIA
DATE: 8/13/80 DATE: Aug. 1, 1980
On August 10, 1986, White and her husband filed a complaint in the Regional Trial
Court of Pasay City for damages against Bedia and Hontiveros & Associated Producers
Phil. Yields, Inc. for damages caused by their fraudulent violation of their agreement.
She averred that Bedia had approached her and persuaded her to participate in the
State of Texas Fair, and that she made a down payment of $500.00 to Bedia on the
agreed display space. In due time, she enplaned for Dallas with her merchandise but
was dismayed to learn later that the defendants had not paid for or registered any
display space in her name, nor were they authorized by the state fair director to
recruit participants. She said she incurred losses as a result for which the defendants
should be held solidarily liable. 2
The plaintiffs' position became all the more untenable when they moved on June 5, 1984, for the dismissal of the complaint against
Hontiveros, 7
leaving Bedia as the sole defendant. Hontiveros had admitted as early as
when it filed its answer that Bedia was acting as its agent. The effect of the motion
was to leave the plaintiffs without a cause of action against Bedia for the obligation, if
any, of Hontiveros.
Our conclusion is that since it has not been found that Bedia was acting beyond the
scope of her authority when she entered into the Participation Contract on behalf of
Hontiveros, it is the latter that should be held answerable for any obligation arising
from that agreement. By moving to dismiss the complaint against Hontiveros, the
plaintiffs virtually disarmed themselves and forfeited whatever claims they might
have proved against the latter under the contract signed for it by Bedia. It should be
obvious that having waived these claims against the principal, they cannot now assert
them against the agent.
WHEREFORE, the appealed decision dated March 30, 1990, of the respondent court
is REVERSED and a new judgment is rendered dismissing Civil Case No. 9246-P in the
Regional Trial Court of Pasay City.
SO ORDERED.

In their joint answer, the defendants denied the plaintiff's allegation that they had
deceived her and explained that no display space was registered in her name as she
was only supposed to share the space leased by Hontiveros in its name. She was not
allowed to display her goods in that space because she had not paid her balance of
$1,750.00, in violation of their contract. Bedia also made the particular averment that
she did not sign the Participation Contract on her own behalf but as an agent of
Hontiveros and that she had later returned the advance payment of $500.00 to the
plaintiff. The defendants filed their own counterclaim and complained of malice on
the part of the plaintiffs. 3

In the course of the trial, the complaint against Hontiveros was dismissed on motion of the plaintiffs. 4

In his decision dated May 29, 1986, Judge Fermin Martin, Jr. found Bedia liable for fraud and awarded the plaintiffs actual and moral damages plus

attorney's fees and the costs. The court said:

In claiming to be a mere agent of Hontiveros & Associated Producers Phil. Yields, Inc., defendant Sylvia H. Bedia evidently

attempted to escape liability for herself. Unfortunately for her, the "Participation Contract" is not actually in representation or

in the name of said corporation. It is a covenant entered into by her in her personal capacity, for no one may contract in the

name of another without being authorized by the latter, or unless she has by law a right to represent her. (Art. 1347, new Civil

Code)

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 95641 September 22, 1994
SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants,
vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
INC., respondents-appellees.
Gutierrez, Cortes & Gonzales for petitioners.
Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.
ROMERO, J.:
On June 29, 1985, seven months after the issuance of petitioner Santos Areola's
Personal Accident Insurance Policy No. PA-20015, respondent insurance company
unilaterally cancelled the same since company records revealed that petitioner-
insured failed to pay his premiums.
On August 3, 1985, respondent insurance company offered to reinstate same policy it
had previously cancelled and even proposed to extend its lifetime to December 17,
1985, upon a finding that the cancellation was erroneous and that the premiums
were paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit,
respondent insurance company's branch manager.
These, in brief, are the material facts that gave rise to the action for damages due to
breach of contract instituted by petitioner-insured before
Branch 40 RTC, Dagupan City against respondent insurance company.
There are two issues for resolution in this case:
(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-
insured to payment of damages?
(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by
respondent insurance company, in an effort to rectify such error, obliterate whatever
liability for damages it may have to bear, thus absolving it therefrom?
From the factual findings of the trial court, it appears that petitioner-insured, Santos
Areola, a lawyer from Dagupan City, bought, through
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter
referred to as Prudential), a personal accident insurance policy covering the one-year
period between noon of November 28, 1984 and noon of November 28,
1985. 1 Under the terms of the statement of account issued by respondent insurance
company, petitioner-insured was supposed to pay the total amount of P1,609.65
which included the premium of P1,470.00, documentary stamp of P110.25 and 2%
premium tax of P29.40. 2 At the lower left-hand corner of the statement of account,
the following is legibly printed:
This Statement of Account must not be considered a
receipt. Official Receipt will be issued to you upon payment
of this account.
If payment is made to our representative, demand for a
Provisional Receipt and if our Official Receipts is (sic) not
received by you within 7 days please notify us.
If payment is made to our office, demand for an OFFICIAL
RECEIPT.
On December 17, 1984, respondent insurance company issued collector's provisional
receipt No. 9300 to petitioner-insured for the amount of P1,609.65 3 On the lower
portion of the receipt the following is written in capital letters:
Note: This collector's provisional receipt will be confirmed
by our official receipt. If our official receipt is not received
by you within 7 days, please notify us. 4
On June 29, 1985, respondent insurance company, through its Baguio City manager,
Teofilo M. Malapit, sent petitioner-insured Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of
premium effective as of inception dated." 5 The same endorsement also credited "a
return premium of P1,609.65 plus documentary stamps and premium tax" to the
account of the insured.
Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang,
agent of respondent insurance company, and demanded the issuance of an official
receipt. Ang told petitioner-insured that the cancellation of the policy was a mistake
but he would personally see to its rectification. However, petitioner-insured failed to
receive any official receipt from Prudential.
Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a
letter demanding that he be insured under the same terms and conditions as those
contained in Policy No. PA-BG-20015 commencing upon its receipt of his letter, or
CASES: Agency
Page 61 of 104
that the current commercial rate of increase on the payment he had made under
provisional receipt No. 9300 be returned within five days. 6 Areola also warned that
should his demands be unsatisfied, he would sue for damages.
On July 17, 1985, he received a letter from production manager Malapit informing
him that the "partial payment" of P1,000.00 he had made on the policy had been
"exhausted pursuant to the provisions of the Short Period Rate Scale" printed at the
back of the policy. Malapit warned Areola that should be fail to pay the balance, the
company's liability would cease to operate. 7
In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance
company, through its Assistant Vice-President Mariano M. Ampil III, wrote Areola a
letter dated July 25, 1985 stating that the company was verifying whether the
payment had in fact been issued therefor. Ampil emphasized that the official receipt
should have been issued seven days from the issuance of the provisional receipt but
because no official receipt had been issued in Areola's name, there was reason to
believe that no payment had been made. Apologizing for the inconvenience, Ampil
expressed the company's concern by agreeing "to hold you cover (sic) under the
terms of the referenced policy until such time that this matter is cleared." 8
On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of
P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential
on December 17, 1984. Hence, Ampil informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to
December 17, 1985 or one year from the date when payment was received."
Apologizing again for the inconvenience caused Areola, Ampil exhorted him to
indicate his conformity to the proposal by signing on the space provided for in the
letter. 9
The letter was personally delivered by Carlito Ang to Areola on
August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6,
1985 had filed a complaint for breach of contract with damages before the lower
court.
In its Answer, respondent insurance company admitted that the cancellation of
petitioner-insured's policy was due to the failure of Malapit to turn over the
premiums collected, for which reason no official receipt was issued to him. However,
it argued that, by acknowledging the inconvenience caused on petitioner-insured and
after taking steps to rectify its omission by reinstating the cancelled policy prior to
the filing of the complaint, respondent insurance company had complied with its
obligation under the contract. Hence, it concluded that petitioner-insured no longer
has a cause of action against it. It insists that it cannot be held liable for damages
arising from breach of contract, having demonstrated fully well its fulfillment of its
obligation.
The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured,
ordering respondent insurance company to pay the former the following:
a) P1,703.65 as actual damages;
b) P200,000.00 as moral damages; and
c) P50,000.00 as exemplary damages;
2. To pay to the plaintiff, as and for attorney's fees the
amount of P10,000.00; and
3. To pay the costs.
In its decision, the court below declared that respondent insurance company acted in
bad faith in unilaterally cancelling subject insurance policy, having done so only after
seven months from the time that it had taken force and effect and despite the fact of
full payment of premiums and other charges on the issued insurance policy.
Cancellation from the date of the policy's inception, explained the lower court, meant
that the protection sought by petitioner-insured from the risks insured against was
never extended by respondent insurance company. Had the insured met an accident
at the time, the insurance company would certainly have disclaimed any liability
because technically, the petitioner could not have been considered insured.
Consequently, the trial court held that there was breach of contract on the part of
respondent insurance company, entitling petitioner-insured to an award of the
damages prayed for.
This ruling was challenged on appeal by respondent insurance company, denying bad
faith on its part in unilaterally cancelling subject insurance policy.
After consideration of the appeal, the appellate court issued a reversal of the decision
of the trial court, convinced that the latter had erred in finding respondent insurance
company in bad faith for the cancellation of petitioner-insured's policy. According to
the Court of Appeals, respondent insurance company was not motivated by
negligence, malice or bad faith in cancelling subject policy. Rather, the cancellation of
the insurance policy was based on what the existing records showed, i.e., absence of
an official receipt issued to petitioner-insured confirming payment of premiums. Bad
faith, said the Court of Appeals, is some motive of self-interest or ill-will; a furtive
design of ulterior purpose, proof of which must be established convincingly. On the
contrary, it further observed, the following acts indicate that respondent insurance
company did not act precipitately or willfully to inflict a wrong on petitioner-insured:
(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured
had indeed paid the premium; (b) the letter of August 3, 1985 confirming that the
premium had been paid on December 17, 1984; (c) the reinstatement of the policy
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

with a proposal to extend its effective period to December 17, 1985; and (d)
respondent insurance company's apologies for the "inconvenience" caused upon
petitioner-insured. The appellate court added that respondent insurance company
even relieved Malapit, its Baguio City manager, of his job by forcing him to resign.
Petitioner-insured moved for the reconsideration of the said decision which the Court
of Appeals denied. Hence, this petition for review on certiorari anchored on these
arguments:
I in McIntosh v. Dakota Trust Co.: 14
Respondent Court of Appeals is guilty of grave abuse of
discretion and committed a serious and reversible error in
not holding Respondent Prudential liable for the
cancellation of the insurance contract which was admittedly
caused by the fraudulent acts and bad faith of its own
officers.
II
Respondent Court of Appeals committed serious and
reversible error and abused its discretion in ruling that the
defenses of good faith and honest mistake can co-exist with
the admitted fraudulent acts and evident bad faith.
III
Respondent Court of Appeals committed a reversible error
in not finding that even without considering the fraudulent
acts of its own officer in misappropriating the premium
payment, the act itself in cancelling the insurance policy
was done with bad faith and/or gross negligence and
wanton attitude amounting to bad faith, because among
others, it was
Mr. Malapit — the person who committed the fraud — who
sent and signed the notice of cancellation.
IV
Respondent Court of Appeals has decided a question of
substance contrary to law and applicable decision of the
Supreme Court when it refused to award damages in favor
of herein Petitioner-Appellants.
It is petitioner-insured's submission that the fraudulent act of Malapit, manager of
respondent insurance company's branch office in Baguio, in misappropriating his
premium payments is the proximate cause of the cancellation of the insurance policy.
Petitioner-insured theorized that Malapit's act of signing and even sending the notice
of cancellation himself, notwithstanding his personal knowledge of petitioner-
insured's full payment of premiums, further reinforces the allegation of bad faith.
Such fraudulent act committed by Malapit, argued petitioner-insured, is attributable
to respondent insurance company, an artificial corporate being which can act only
through its officers or employees. Malapit's actuation, concludes petitioner-insured,
is therefore not separate and distinct from that of respondent-insurance company,
contrary to the view held by the Court of Appeals. It must, therefore, bear the
consequences of the erroneous cancellation of subject insurance policy caused by the
non-remittance by its own employee of the premiums paid. Subsequent
reinstatement, according to petitioner-insured, could not possibly absolve
respondent insurance company from liability, there being an obvious breach of
contract. After all, reasoned out petitioner-insured, damage had already been
inflicted on him and no amount of rectification could remedy the same.
Respondent insurance company, on the other hand, argues that where
reinstatement, the equitable relief sought by petitioner-insured was granted at an
opportune moment, i.e. prior to the filing of the complaint, petitioner-insured is left
without a cause of action on which to predicate his claim for damages.
Reinstatement, it further explained, effectively restored petitioner-insured to all his
rights under the policy. Hence, whatever cause of action there might have been
against it, no longer exists and the consequent award of damages ordered by the
lower court in unsustainable.
We uphold petitioner-insured's submission. Malapit's fraudulent act of
misappropriating the premiums paid by petitioner-insured is beyond doubt directly
imputable to respondent insurance company. A corporation, such as respondent
insurance company, acts solely thru its employees. The latters' acts are considered as
its own for which it can be held to account. 11 The facts are clear as to the relationship
between private respondent insurance company and Malapit. As admitted by private
respondent insurance company in its answer, 12 Malapit was the manager of its
Baguio branch. It is beyond doubt that he represented its interest and acted in its
behalf. His act of receiving the premiums collected is well within the province of his
authority. Thus, his receipt of said premiums is receipt by private respondent
insurance company who, by provision of law, particularly under Article 1910 of the
Civil Code, is bound by the acts of its agent.
Article 1910 thus reads:
Art. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of
his authority.
CASES: Agency
Page 62 of 104
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly.
Malapit's failure to remit the premiums he received cannot constitute a defense for
private respondent insurance company; no exoneration from liability could result
therefrom. The fact that private respondent insurance company was itself defrauded
due to the anomalies that took place in its Baguio branch office, such as the non-
accrual of said premiums to its account, does not free the same from its obligation to
petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling
A bank is liable for wrongful acts of its officers done in the
interests of the bank or in the course of dealings of the
officers in their representative capacity but not for acts
outside the scope of their authority. A bank holding out its
officers and agent as worthy of confidence will not be
permitted to profit by the frauds they may thus be enabled
to perpetrate in the apparent scope of their employment;
nor will it be permitted to shirk its responsibility for such
frauds, even though no benefit may accrue to the bank
therefrom. Accordingly, a banking corporation is liable to
innocent third persons where the representation is made in
the course of its business by an agent acting within the
general scope of his authority even though, in the particular
case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some
other person, for his own ultimate benefit.
Consequently, respondent insurance company is liable by way of damages for the
fraudulent acts committed by Malapit that gave occasion to the erroneous
cancellation of subject insurance policy. Its earlier act of reinstating the insurance
policy can not obliterate the injury inflicted on petitioner-insured. Respondent
company should be reminded that a contract of insurance creates reciprocal
obligations for both insurer and insured. Reciprocal obligations are those which arise
from the same cause and in which each party is both a debtor and a creditor of the
other, such that the obligation of one is dependent upon the obligation of the
other. 15
Under the circumstances of instant case, the relationship as creditor and debtor
between the parties arose from a common cause: i.e., by reason of their agreement
to enter into a contract of insurance under whose terms, respondent insurance
company promised to extend protection to petitioner-insured against the risk insured
for a consideration in the form of premiums to be paid by the latter. Under the law
governing reciprocal obligations, particularly the second paragraph of Article
1191, 16 the injured party, petitioner-insured in this case, is given a choice between
fulfillment or rescission of the obligation in case one of the obligors, such as
respondent insurance company, fails to comply with what is incumbent upon him.
However, said article entitles the injured party to payment of damages, regardless of
whether he demands fulfillment or rescission of the obligation. Untenable then is
reinstatement insurance company's argument, namely, that reinstatement being
equivalent to fulfillment of its obligation, divests petitioner-insured of a rightful claim
for payment of damages. Such a claim finds no support in our laws on obligations and
contracts.
The nature of damages to be awarded, however, would be in the form of nominal
damages 17 contrary to that granted by the court below. Although the erroneous
cancellation of the insurance policy constituted a breach of contract, private
respondent insurance company, within a reasonable time took steps to rectify the
wrong committed by reinstating the insurance policy of petitioner. Moreover, no
actual or substantial damage or injury was inflicted on petitioner Areola at the time
the insurance policy was cancelled. Nominal damages are "recoverable where a legal
right is technically violated and must be vindicated against an invasion that has
produced no actual present loss of any kind, or where there has been a breach of
contract and no substantial injury or actual damages whatsoever have been or can be
shown. 18
WHEREFORE, the petition for review on certiorari is hereby GRANTED and the
decision of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED.
The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered on
June 30, 1987 is hereby REINSTATED subject to the following modifications: (a) that
nominal damages amounting to P30,000.00 be awarded petitioner in lieu of the
damages adjudicated by court a quo; and (b) that in the satisfaction of the damages
awarded therein, respondent insurance company is ORDERED to pay the legal rate of
interest computed from date of filing of complaint until final payment thereof.
SO ORDERED.
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G.R. No. 156335 November 28, 2007
SPOUSES RAUL and AMALIA PANLILIO, Petitioners,
vs.
CITIBANK, N.A., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, seeking to reverse the Decision 1 of the Court of Appeals (CA) dated May 28,
2002 in CA-G.R. CV No. 66649 and its Resolution of December 11, 2002, which
reversed and set aside the Decision of the Regional Trial Court (RTC) of Makati City.
The case originated as a Complaint2 for a sum of money and damages, filed with the
RTC of Makati City on March 2, 1999, by the spouses Raul and Amalia Panlilio
(petitioners) against Citibank N.A. (respondent).
The factual antecedents are as follows:
On October 10, 1997, petitioner Amalia Panlilio (Amalia) visited respondent's Makati
City office and deposited one million pesos (PhP1 million) in the bank's "Citihi"
account, a fixed-term savings account with a higher-than-average interest. 3 On the
same day, Amalia also opened a current or checking account with respondent, to
which interest earnings of the Citihi account were to be credited. 4 Respondent
assigned one of its employees, Jinky Suzara Lee (Lee), to personally transact with
Amalia and to handle the accounts. 5
Amalia opened the accounts as ITF or "in trust for" accounts, as they were intended
to benefit her minor children, Alejandro King Aguilar and Fe Emanuelle C. Panlilio, in
case she would meet an untimely death.6 To open these accounts, Amalia signed two
documents: a Relationship Opening Form (ROF) 7 and an Investor Profiling and
Suitability Questionnaire (Questionnaire).8
Amalia's initial intention was to invest the money in a Citibank product called the
Peso Repriceable Promissory Note (PRPN), a product which had a higher interest.
However, as the PRPN was not available that day, Amalia put her money in the Citihi
savings account.9
More than a month later, or on November 28, 1997, Amalia phoned Citibank saying
she wanted to place an investment, this time in the amount of three million pesos
(PhP3 million). Again, she spoke with Lee, the bank employee, who introduced her to
Citibank's various investment offerings. After the phone conversation, apparently
decided on where to invest the money, Amalia went to Citibank bringing a PCIBank
check in the amount of three million pesos (PhP3 million). During the visit, Amalia
instructed Lee on what to do with the PhP3 million. Later, she learned that out of the
said amount, PhP2,134,635.87 was placed by Citibank in a Long-Term Commercial
Paper (LTCP), a debt instrument that paid a high interest, issued by the corporation
Camella and Palmera Homes (C&P Homes). 10 The rest of the money was placed in two
PRPN accounts, in trust for each of Amalia's two children.11
Allegations differ between petitioners and respondent as to whether Amalia
instructed Lee to place the money in the LTCP of C&P Homes.12
An LTCP is an evidence of indebtedness, with a maturity period of more than 365
days, issued by a corporation to any person or entity.13 It is in effect a loan obtained
by a corporation (as borrower) from the investing public (as lender) 14 and is one of
many instruments that investment banks can legally buy on behalf of their clients,
upon the latter's express instructions, for investment purposes. 15 LTCPs' attraction is
that they usually have higher yields than most investment instruments. In the case of
the LTCP issued by C&P Homes, the gross interest rate was 16.25% per annum at the
time Amalia made her investment. 16
On November 28, 1997, the day she made the PhP3million investment, Amalia signed
the following documents: a Directional Investment Management Agreement
(DIMA),17 Term Investment Application (TIA),18 and Directional Letter/Specific
Instructions.19 Key features of the DIMA and the Directional Letter are provisions that
essentially clear Citibank of any obligation to guarantee the principal and interest of
the investment, absent fraud or negligence on the latter's part. The provisions
likewise state that all risks are to be assumed by the investor (petitioner).
As to the amount invested, only PhP2,134,635.87 out of the PhP3 million brought by
Amalia was placed in the LTCP since, according to Lee, this was the only amount of
LTCP then available.20 According to Lee, the balance of the PhP3 million was placed in
two PRPN accounts, each one in trust for Amalia's two children, per her
instructions.21
Following this investment, respondent claims to have regularly sent confirmations of
investment (COIs) to petitioners. 22 A COI is a one-page, computer generated
document informing the customer of the investment earlier made with the bank. The
first of these COIs was received by petitioners on or about December 9, 1997, as
admitted by Amalia, which is around a week after the investment was
made.23 Respondent claims that other succeeding COIs were sent to and received by
petitioners.
CASES: Agency
Page 63 of 104
Amalia claims to have called Lee as soon as she received the first COI in December
1997, and demanded that the investment in LTCP be withdrawn and placed in a
PRPN.24 Respondent, however, denies this, claiming that Amalia merely called to
clarify provisions in the COI and did not demand a withdrawal.25
On August 6, 1998, petitioners met with respondent's other employee, Lizza Colet, to
preterminate the LTCP and their other investments. Petitioners were told that as to
the LTCP, liquidation could be made only if there is a willing buyer, a prospect which
could be difficult at that time because of the economic crisis. Still, petitioners signed
three sets of Sales Order Slip to sell the LTCP and left these with Colet. 26
On August 18, 1998, Amalia, through counsel, sent her first formal, written demand
to respondent "for a withdrawal of her investment as soon as possible."27 The same
was followed by another letter dated September 7, 1998, which reiterated the same
demands.28 In answer to the letters, respondent noted that the investment had a
2003 maturity, was not a deposit, and thus, its return to the investor was not
guaranteed by respondent; however, it added that the LTCP may be sold prior to
maturity and had in fact been put up for sale, but such sale was "subject to the
availability of buyers in the secondary market." 29 At that time, respondent was not
able to find a buyer for the LTCP. As this response did not satisfy petitioners, Amalia
again wrote respondent, this time a final demand letter dated September 21, 1998,
asking for a reconsideration and a return of the money she invested. 30 In reply,
respondent wrote a letter dated October 12, 1998 stating that despite efforts to sell
the LTCP, no willing buyers were found and that even if a buyer would come later, the
price would be lower than Amalia's original investment. 31
Thus, petitioners filed with the RTC their complaint against respondent for a sum of
money and damages.
The Complaint32 essentially demanded a return of the investment, alleging that
Amalia never instructed respondent's employee Lee to invest the money in an LTCP;
and that far from what Lee executed, Amalia's instructions were to invest the money
in a "trust account" with an "interest of around 16.25% with a term of 91 days."
Further, petitioners alleged that it was only later, or on December 8, 1997, when
Amalia received the first confirmation of investment (COI) from respondent, that she
and her husband learned of Lee's infidelity to her orders. The COI allegedly informed
petitioners that the money was placed in an LTCP of C&P Homes with a maturity in
2003, and that the investment was not guaranteed by respondent. Petitioners also
claimed that as soon as Amalia received the COI, she immediately called Lee;
however, the latter allegedly convinced her to ignore the COI, that C&P Homes was
an Ayala company, that the investment was secure, and that it could be easily
"withdrawn"; hence, Amalia decided not to immediately "withdraw" the investment.
Several months later, or on August 6, 1998, petitioners allegedly wanted to
"withdraw" the investment to buy a property; however, they failed to do so, since
respondent told them the LTCP had not yet matured, and that no buyers were willing
to buy it. Hence, they sent various demand letters to respondent, asking for a return
of their money; and when these went unheeded, they filed the complaint.
In its Answer,33 respondent admitted that, indeed, Amalia was its client and that she
invested the amounts stated in the complaint. However, respondent disputed the
claim that Amalia opened a "trust account" with a "request for an interest rate of
around 16.25% with a term of 91 days;" instead, respondent presented documents
stating that Amalia opened a "directional investment management account," with
investments to be made in C&P Homes' LTCP with a 2003 maturity. Respondent
disputed allegations that it violated petitioners' express instructions. Respondent
likewise denied that Amalia, upon her receipt of the COI, immediately called
respondent and protested the investment in LTCP, its 2003 maturity and Citibank's
lack of guarantee. According to respondent, no such protest was made and
petitioners actually decided to liquidate their investment only months later, after the
newspapers reported that Ayala Land, Inc. was cancelling plans to invest in C&P
Homes.
The rest of respondent's Answer denied (1) that it convinced Amalia not to liquidate
or "withdraw" her investment or to ignore the contents of the COI; (2) that it assured
Amalia that the investment could be easily or quickly "withdrawn" or sold; (3) that it
misrepresented that C&P was an Ayala company, implying that C&P had secure
finances; and (4) that respondent had been unfaithful to and in breach of its
contractual obligations.
After trial, the RTC rendered its Decision,34 dated February 16, 2000, the dispositive
portion of which states:
The foregoing considered, the court hereby rules in favor of plaintiffs and order
defendant to pay:
1. The sum of PhP2,134,635.87 representing the actual amount
deposited by plaintiffs with defendant plus interest corresponding to
time deposit during the time material to this action from date of filing of
this case until fully paid;
2. The sum of PhP300,000.00 representing moral damages;
3. The sum of PhP100,000.00 representing attorney's fees;
4. Costs.
SO ORDERED.35
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

The RTC upheld all the allegations of petitioners and concluded that Amalia never
instructed Citibank to invest the money in an LTCP. Thus, the RTC found Citibank in
violation of its contractual and fiduciary duties and held it liable to return the money
invested by petitioners plus damages.
Respondent appealed to the CA.
On appeal, in its Decision promulgated on May 28, 2002, the CA reversed the
Decision of the RTC, thus:
WHEREFORE, premises considered, the assailed decision dated 16 February 2000 is
REVERSED and SET ASIDE and a new one entered DISMISSING Civil Case No. 99-500. 36
The CA held that with respect to the amount of PhP2,134,635.87, the account
opened by Amalia was an investment management account; as a result, the money
invested was the sole and exclusive obligation of C&P Homes, the issuer of the LTCP,
and was not guaranteed or insured by herein respondent Citibank; 37 that Amalia
opened such an account as evidenced by the documents she executed with Citibank,
namely, the Directional Investment Management Agreement (DIMA), Term
Investment Application (TIA), and Directional Letter/Specific Instructions, which were
all dated November 28, 1997, the day Amalia brought the money to Citibank. Further,
the CA brushed aside petitioners' arguments that Amalia failed to understand the
true nature of the LTCP investment, and that she failed to read the documents as
they were written in fine print. The CA ruled that petitioners could not seek the
court's aid to extricate them from their contractual obligations. Citing jurisprudence,
the CA held that the courts protected only those who were innocent victims of fraud,
and not those who simply made bad bargains or exercised unwise judgment.
On petitioners' motion for reconsideration, the CA reiterated its ruling and denied the
motion in a Resolution38 dated December 11, 2002.
Thus, the instant petition which raises issues, summarized as follows: (1) whether
petitioners are bound by the terms and conditions of the Directional Investment
Management Agreement (DIMA), Term Investment Application (TIA), Directional
Letter/Specific Instructions, and Confirmations of Investment (COIs); (2) and whether
petitioners are entitled to take back the money they invested from respondent bank;
or stated differently, whether respondent is obliged to return the money to
petitioners upon their demand prior to maturity.
Petitioners contend that they are not bound by the terms and conditions of the
DIMA, Directional Letter and COIs because these were inconsistent with the TIA and
other documents they signed.39 Further, they claim that the DIMA and the Directional
letter were signed in blank or contained unauthorized intercalations by
Citibank.40 Petitioners argue that contrary to the contents of the documents, they did
not instruct Citibank to invest in an LTCP or to put their money in such high-risk, long-
term instruments.41
The Court notes the factual nature of the questions raised in the petition. Although
the general rule is that only questions of law are entertained by the Court in petitions
for review on certiorari,42 as the Court is not tasked to repeat the lower courts'
analysis or weighing of evidence,43 there are instances when the Court may resolve
factual issues, such as (1) when the trial court misconstrued facts and circumstances
of substance which if considered would alter the outcome of the case; 44 and (2) when
the findings of facts of the CA and the trial court differ. 45
In the instant case, the CA completely reversed the findings of facts of the trial court
on the ground that the RTC failed to appreciate certain facts and circumstances. Thus,
applying the standing jurisprudence on the matter, 46 the Court proceeded to examine
the evidence on record.
The Court's Ruling
The Court finds no merit in the petition. After a careful examination of the records,
the Court affirms the CA's ruling for being more in accord with the facts and evidence
on record.
On the first issue of whether petitioners are bound by the terms and conditions of
the DIMA, TIA, Directional Letter and COIs, the Court holds in the affirmative and
finds for respondent.
The DIMA, Directional Letter and COIs are evidence of the contract between the
parties and are binding on them, following Article 1159 of the Civil Code which states
that contracts have the force of law between the parties and must be complied with
in good faith.47 In particular, petitioner Amalia affixed her signatures on the DIMA,
Directional Letter and TIA, a clear evidence of her consent which, under Article 1330
of the same Code, she cannot deny absent any evidence of mistake, violence,
intimidation, undue influence or fraud.48
As the documents have the effect of law, an examination is in order to reveal what
underlies petitioners' zeal to exclude these from consideration.
Under the DIMA, the following provisions appear:
4. Nature of Agreement – THIS AGREEMENT IS AN AGENCY AND NOT A TRUST
AGREEMENT. AS SUCH, THE PRINCIPAL SHALL AT ALL TIMES RETAIN LEGAL TITLE TO
THE FUNDS AND PROPERTIES SUBJECT OF THE ARRANGEMENT.
CASES: Agency
Page 64 of 104
THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION OF ASSETS
OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD, RETURN OR
INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST PERFORMANCE OF THE
ACCOUNT IS NOT A GUARANTY OF FUTURE PERFORMANCE AND THE INCOME OF
INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON PREVAILING MARKET
CONDITIONS.
IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS NOT
COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND THAT
LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL. (Underscoring
supplied.)
xxxx
6. Exemption from Liability. - In the absence of fraud, bad faith, or gross or willful
negligence on the part of the INVESTMENT MANAGER or any person acting in its
behalf, the INVESTMENT MANAGER shall not be liable for any loss or damage to the
Portfolio arising out of or in connection with any act done or omitted or caused to be
done or omitted by the INVESTMENT MANAGER pursuant to the terms and
conditions herein agreed upon, and pursuant to and in accordance with the written
instructions of the PRINCIPAL to carry out the powers, duties and purposes for which
this Agreement is executed. The PRINCIPAL will hold the INVESTMENT MANAGER free
and harmless from any liability, claim, damage or fiduciary responsibility that may
arise from any investment made pursuant to this Agreement and to such letters or
instructions under Paragraph 3 hereof due to the default, bankruptcy or insolvency of
the Borrower/Issuer or the Broker/Dealer handling the transaction and or their
failure in any manner to comply with any of their obligations under the aforesaid
transactions, it being the PRINCIPAL'S understanding and intention that the
investments/reinvestments under this account shall be strictly for his/its account and
risk except as indicated above.
The INVESTMENT MANAGER shall manage the Portfolio with the skill, care, prudence,
and diligence necessary under the prevailing circumstances that a good father of the
family, acting in a like capacity and familiar with such matters, would exercise in the
conduct of an enterprise of like character and with similar aims. (Underscoring
supplied.)
xxxx
11. Withdrawal of Income/Principal – Subject to availability of funds and taking into
consideration the commitment of this account to third parties, the PRINCIPAL may
withdraw the income/principal of the Portfolio or portion thereof upon request or
application thereof from the Bank. The INVESTMENT MANAGER shall not be required
to inquire as to the income/principal so withdrawn from the Portfolio. Any income of
the Portfolio not withdrawn shall be accumulated and added to the principal of the
Portfolio for further investment and reinvestment. 49 (Underscoring supplied.)
Under the Directional Letter, which constituted petitioners' instructions to
respondent, the following provisions are found:
In the absence of fraud, bad faith or gross or willful negligence on your part or any
person acting in your behalf, you shall not be held liable for any loss or damage
arising out of or in connection with any act done or performed or caused to be done
or performed by you pursuant to the terms and conditions of our Agreement. I/We
shall hold you free and harmless from any liability, claim, damage, or fiduciary
responsibility that may arise from this investment made pursuant to the foregoing
due to the default, bankruptcy or insolvency of the Borrower/Issuer, or the
Broker/Dealer handling the aforesaid transactions/s, it being our intention and
understanding that the investment/reinvestment under these transaction/s shall be
strictly for my/our account and risk.
In case of default of the Borrower/Issuers, we hereby authorize you at your sole
option, to terminate the investment/s therein and deliver to us the securities/loan
documents then constituting the assets of my/our DIMA/trust account with you
for me/us to undertake the necessary legal action to collect and/or recover from the
borrower/issuers.50 (Underscoring supplied.)
The documents, characterized by the quoted provisions, generally extricate
respondent from liability in case the investment is lost. Accordingly, petitioners
assumed all risks and the task of collecting from the borrower/issuer C&P Homes.
In addition to the DIMA and Directional Letter, respondent also sent petitioners the
COIs on a regular basis, the first of which was received by petitioners on December 9,
1997. The COIs have the following provisions in common:
xxxx
NATURE OF TRANSACTION INVESTMENT IN LTCP
NAME OF BORROWER/ISSUER C&P HOMES
xxxx
TENOR 91 DAYS
xxxx
MATURITY DATE 11/05/03
xxxx
OTHERS REPRICEABLE EVERY 91 DAYS
PURSUANT TO THE BANGKO SENTRAL REGULATIONS, THE PRINCIPAL AND INTEREST
OF YOUR INVESTMENT ARE OBLIGATIONS OF THE BORROWER AND NOT OF THE
BANK. YOUR INVESTMENT IS NOT A DEPOSIT AND IS NOT GUARANTEED BY CITIBANK
N.A.
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

xxxx
Please examine this Confirmation and notify us in writing within seven (7) days from
receipt hereof of any deviation from your prior conformity to the investment. If no
notice is received by us within this period, this Confirmation shall be deemed correct
and approved by you, and we shall be released and discharged as to all items,
particulars, matters and things set forth in this Confirmation.51
Petitioners admit receiving only the first COI on December 8, 1997. 52 The evidence on
record, however, supports respondent's contentions that petitioners received the
three other COIs on February 12, 1998,53 May 14, 1998,54and August 14,
1998,55 before petitioners' first demand letter dated August 18, 1998. 56
The DIMA, Directional Letter, TIA and COIs, read together, establish the agreement
between the parties as an investment management agreement, which created a
principal-agent relationship between petitioners as principals and respondent as
agent for investment purposes. The agreement is not a trust or an ordinary bank
deposit; hence, no trustor-trustee-beneficiary or even borrower-lender relationship
existed between petitioners and respondent with respect to the DIMA account.
Respondent purchased the LTCPs only as agent of petitioners; thus, the latter
assumed all obligations or inherent risks entailed by the transaction under Article
1910 of the Civil Code, which provides:
Article 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
The transaction is perfectly legal, as investment management activities may be
exercised by a banking institution, pursuant to Republic Act No. 337 or the General
Banking Act of 1948, as amended, which was the law then in effect.1avvphi1 Section
72 of said Act provides:
Sec. 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the
following services:
(a) Receive in custody funds, documents, and valuable objects, and rent
safety deposit boxes for the safeguarding of such effects;
(b) Act as financial agent and buy and sell, by order of and for the
account of their customers, shares, evidences of indebtedness and all
types of securities;
(c) Make collections and payments for the account of others and
perform such other services for their customers as are not incompatible
with banking business.
(d) Upon prior approval of the Monetary Board, act as managing agent,
adviser, consultant or administrator of investment management/
advisory/consultancy accounts.
The banks shall perform the services permitted under subsections (a), (b) and (c) of
this section as depositories or as agents. Accordingly, they shall keep the funds,
securities and other effects which they thus receive duly separated and apart from
the bank's own assets and liabilities.
The Monetary Board may regulate the operations authorized by this section in order
to insure that said operations do not endanger the interests of the depositors and
other creditors of the banks. (Emphasis supplied.)
while Section 74 prohibits banks from guaranteeing obligations of any person, thus:
Sec. 74. No bank or banking institution shall enter, directly, or indirectly into any
contract of guaranty or suretyship, or shall guarantee the interest or principal of
any obligation of any person, copartnership, association, corporation or other
entity. The provisions of this section shall, however, not apply to the following: (a)
borrowing of money by banking institution through the rediscounting of receivables;
(b) acceptance of drafts or bills of exchange (c) certification of checks; (d)
transactions involving the release of documents attached to items received for
collection; (e) letters of credit transaction, including stand-by arrangements; (f)
repurchase agreements; (g) shipside bonds; (h) ordinary guarantees or indorsements
in favor of foreign creditors where the principal obligation involves loans and credits
extended directly by foreign investment purposes; and (i) other transactions which
the Monetary Board may, by regulation, define or specify as not covered by the
prohibition. (Emphasis supplied.)
Nothing also taints the legality of the LTCP bought in behalf of petitioners. C&P
Homes' LTCP was duly registered with the Securities and Exchange Commission while
the issuer was accredited by the Philippine Trust Committee.57
The evidence also sustains respondent's claim that its trust department handled the
account only because it was the department tasked to oversee the trust, and other
fiduciary and investment management services of the bank.58Contrary to petitioners'
claim, this did not mean that petitioners opened a "trust account." This is consistent
with Bangko Sentral ng Pilipinas (BSP) regulations, specifically the Manual of
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Page 65 of 104
Regulations for Banks (MORB), which groups a bank's trust, and other fiduciary and
investment management activities under the same set of regulations, to wit:
PART FOUR: TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT MANAGEMENT
ACTIVITIES
xxxx
Sec. X402 Scope of Regulations. These regulations shall govern the grant of authority
to and the management, administration and conduct of trust, other fiduciary
business and investment management activities (as these terms are defined in Sec.
X403) of banks. The regulations are divided into three (3)
Sub-Parts where:
A. Trust and Other Fiduciary Business shall apply to banks authorized to
engage in trust and other fiduciary business including investment
management activities;
B. Investment Management Activities shall apply to banks without
trust authority but with authority to engage in investment
management activities; and
C. General Provisions shall apply to both.
xxxx
Sec. X403 Definitions. For purposes of regulating the operations of trust and other
fiduciary business and investment management activities, unless the context clearly
connotes otherwise, the following shall have the meaning indicated.
a. Trust business shall refer to any activity resulting from a trustor-
trustee relationship (trusteeship) involving the appointment of a trustee
by a trustor for the administration, holding, management of funds
and/or properties of the trustor by the trustee for the use, benefit or
advantage of the trustor or of others called beneficiaries.
b. Other fiduciary business shall refer to any activity of a trust-licensed
bank resulting from a contract or agreement whereby the bank binds
itself to render services or to act in a representative capacity such as in
an agency, guardianship, administratorship of wills, properties and
estates, executorship, receivership, and other similar services which do
not create or result in a trusteeship. It shall exclude collecting or paying
agency arrangements and similar fiduciary services which are inherent
in the use of the facilities of the other operating departments of said
bank. Investment management activities, which are considered as
among other fiduciary business, shall be separately defined in the
succeeding item to highlight its being a major source of fiduciary
business.
c. Investment management activity shall refer to any activity resulting
from a contract or agreement primarily for financial return whereby
the bank (the investment manager) binds itself to handle or manage
investible funds or any investment portfolio in a representative
capacity as financial or managing agent, adviser, consultant or
administrator of financial or investment management, advisory,
consultancy or any similar arrangement which does not create or result
in a trusteeship. (Emphasis supplied.)
The Court finds no proof to sustain petitioners' contention that the DIMA and
Directional Letter contradict other papers on record, or were signed in blank, or had
unauthorized intercalations.59 Petitioners themselves admit that Amalia signed the
DIMA and the Directional Letter, which bars them from disowning the contract on the
belated claim that she signed it in blank or did not read it first because of the "fine
print."60 On the contrary, the evidence does not support these latter allegations, and
it is highly improbable that someone fairly educated and with investment experience
would sign a document in blank or without reading it first. 61 Petitioners owned
various businesses and were clients of other banks, which omits the possibility of
such carelessness.62 Even more damning for petitioners is that, on record, Amalia
admitted that it was not her habit to sign in blank and that the contents of the
documents were explained to her before she signed.63
Testimonial evidence and the complaint itself contained allegations that petitioners'
reason for transferring their money from local banks to respondent is because it is
safer to do so,64 a clear indicia of their intelligence and keen business sense which
they could not have easily surrendered upon meeting with respondent.
Nothing irregular or illegal attends the execution or construction of the DIMA and the
Directional Letter, as their provisions merely conform with BSP regulations governing
these types of transactions. Specifically, the MORB mandates that investment
managers act as agents, not as trustees, of the investor; 65 that the investment
manager is prohibited from guaranteeing returns on the funds or properties; 66 that a
written document should state that the account is not covered by the PDIC; and that
losses are to be borne by clients.67 That these legal requirements were communicated
to petitioners is evident in Amalia's signatures on the documents and in testimony to
this effect.68
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 Page 66 of 104

As to the allegation that the documents were in "fine print," the Court notes that
although the print may have looked smaller than average, they were nevertheless of
the same size throughout the documents, so that no part or provision is hidden from
the reader. The Court also takes judicial notice that the print is no smaller than those
found in similar contracts in common usage, such as insurance, mortgage, sales
contracts and even ordinary bank deposit contracts. In the documents in question,
the provisions hurtful to petitioners' cause were likewise in no smaller print than the
rest of the document, as indeed they were even highlighted either in bold or in all
caps. This disposes of the argument that they were designed to hide their damaging
nature to the signatory.69 The conclusion is that the print is readable and should not
have prevented petitioners from studying the papers before their signing.
Considering petitioners' social stature, the nature of the transaction and the amount
of money involved, the Court presumes that petitioners exercised adequate care and
diligence in studying the contract prior to its execution.70
In Sweet Lines, Inc. v. Teves, 71 the Court pronounced the general rule regarding
contracts of adhesion, thus:
to all our existing and future account/s and/or investment/s with Citibank. I/We
hereby further authorize Citibank to open additional account/s and/or investment/s
in the future with the same account title as contained in this relationship opening
form subject to the rules governing the aforementioned account/s and/or
investment/s and the terms and conditions therein or herein. I/We agree to notify
you in writing of any change in the information supplied in this relationship opening
form.82 (Emphasis supplied.)
while the Questionnaire had the following provisions:
I am aware that investment products are not bank deposits or other obligations of, or
guaranteed or insured by Citibank N.A., Citicorp or their affiliates. I am aware that
the principal and interest of my investments are obligations of the borrower/issuer.
They are subject to risk and possible loss of principal. Past performance is not
indicative of future performance. In addition, investments are not covered by the
Philippine Deposit Insurance Corporation (PDIC) or the Federal Deposit Insurance
Corporation (FDIC).83

x x x there are certain contracts almost all the provisions of which have been drafted
only by one party, usually a corporation. Such contracts are called contracts of which do not need further elaboration on the matter.
adhesion, because the only participation of the other party is the signing of his
signature or his ‘adhesion’ thereto. Insurance contracts, bills of lading, contracts of Petitioners contend that the Term Investment Application (TIA), viz:
sale of lots on the installment plan fall into this category.

x x x it is drafted only by one party, usually the corporation, and is sought to be TERM INVESTMENT APPLICATION
accepted or adhered to by the other party x x x who cannot change the same and MAKATI Date 1/28/97
who are thus made to adhere hereto on the ‘take it or leave it’ basis. Branch and Service Area

CIF Keys
x x x it is hardly just and proper to expect the passengers to examine their tickets TITLE OF ACCOUNT
_________________
received from crowded/congested counters, more often than not during rush hours, ________________________________________
_________________
for conditions that may be printed thereon, much less charge them with having PANLILIO, AMALIA ITF
_________________
consented to the conditions, so printed, especially if there are a number of such ALEJANDRO KING AGUILAR & FE
_________________
conditions in fine print, as in this case. EMMANUELLE PANLILIO

Address
However, Sweet Lines72 further expounded that the validity and/or enforceability of ______________________________________________________
contracts of adhesion will have to be determined by the peculiar circumstances For corporations, c/o _______________________ Tel. No.
obtaining in each case and the nature of the conditions or terms sought to be ____________
enforced.73 Thus, while any ambiguity, obscurity or doubt in a contract of adhesion is
construed or resolved strictly against the party who prepared it,74 it is also equally
obvious that in a case where no such ambiguity, obscurity or doubt exists, no such Dear Sir:
construction is warranted. This was the case in the DIMA and the Directional Letter
signed by Amalia in the instant controversy. THIS IS TO AUTHORIZE CITIBANK, N. A. TO: ( ) ( ) rollover
open ( ) rollover w/
added funds
The parties to this case only disagree on whether petitioners were properly informed ( ) rollover w/
of the contents of the documents. But as earlier stated, petitioners were free to read payout
and study the contents of the papers before signing them, without compulsion to Ref. No. ____
sign immediately or even days after, as indeed the parties were even free not to sign
the documents at all. Unlike in Sweet Lines, where the plaintiffs had no choice but to [ ] Peso Time [ ] Dollar TD [ ] Confirmation of Sale
take the services of monopolistic transport companies during rush hours, in the Depositories [ ] Multicurrency [ ] CITIHI-Yielder
instant case, petitioners were under no such pressure; petitioners were free to invest [ ] NNPN TD TRUST
anytime and through any of the dozens of local and foreign banks in the market.
NEW ADDED FUNDS WILL COME FROM:
( ) debit my/our account no. for P/$
In addition, it has been held that contracts of adhesion are not necessarily voidable.
________________ _______________
The Court has consistently held that contracts of adhesion, wherein one party
( ) Check No. for P/$
imposes a ready-made form of contract on the other, are contracts not entirely
____________________________ _______________
prohibited, since the one who adheres to the contract is in reality free to reject it
( ) Cash deposit for P/$
entirely; if he adheres, he gives his consent. 75 It is the rule that these contracts are
__________________________ _______________
upheld unless they are in the nature of a patently lopsided deal where blind
adherence is not justified by other factual circumstances.76 IN THE AMOUNT AND TERMS SPECIFIED AS FOLLOWS:

PRINCIPAL/Money In P/$ 3,000,000 Value 11/28/97

Petitioners insist that other documents Amalia signed -- that is, the
ROF,77 Questionnaire78 and TIA79 -- contradict the DIMA and Directional Letter.
MATURITY AMOUNT/Par Value P/
Specifically, they argue that under the ROF and the Questionnaire, they manifested Maturity Date _______
$____________
an intent to invest only in a time deposit in the medium term of over a year to three
years, with no risk on the capital, or with returns in line with a time INTEREST RATE around 16.25% Term 91 days 84

deposit.80 However, this contention is belied by the evidence and testimony on

record. Respondent explains that investors fill up the ROF and Questionnaire only (Emphasis supplied.)
when they first visit the bank and only for the account they first opened, 81 as
confirmed by the evidence on record and the fact that there were no subsequent clearly contradicts the DIMA, Directional Letter and COIs.
ROFs and Questionnaires presented by petitioners.

The ROF and Questionnaire were filled up when the PhP1 million "Citihi" savings
account was opened by Amalia on October 10, 1997, during her first visit to the bank.
When Amalia returned more than a month later on November 28, 1997, a change in
her investment attitude occurred in that she wanted to invest an even bigger amount
(PhP3 million) and her interest had shifted to high-yield but riskier long-term
instruments like PRPNs and LTCPs. When Amalia proceeded to sign new documents
like the DIMA and the Directional Letter for the LTCP investment, despite their
obviously different contents from those she was used to signing for ordinary deposits,
she essentially confirmed that she knew what she was agreeing to and that it was
different from all her previous transactions.
In addition, even the ROF and Questionnaire signed by Amalia during the first visit
contained provisions that clearly contradict petitioners' claims. The ROF contained
the following:
Petitioners insist that the amount PhP3 million in the TIA does not tally with the
actual value of the investment which appeared on the first COI, which was
PhP2,134,635.87. Petitioners add that the TIA's interest rate of "around 16.25%" with
the term "91 days" contradicts the COI's interest rate of 16.95% with a tenor of 75
days repriceable after 91 days.85 Further, petitioners claim that the word "TRUST"
inscribed on the TIA obviously meant that they opened a trust account, and not any
other account.86
The explanation of respondent is plausible. Only PhP2,134,635.87 out of the PhP3
million was placed in the LTCP since this was the only amount of LTCP then available,
while the balance was placed in two PRPN accounts, each one in trust for Amalia's
two children, upon her instructions. 87 The disparity in the interest rate is also
explained by the fact that the 16.95% rate placed in the COI is gross and not net
interest,88 and that it is subject to repricing every 91 days.

I/We declare the above information to be correct. I/We hereby acknowledge to have
received, read, understood and agree to be bound by the general terms and
conditions applicable and governing my/our account/s and/or investment/s which
appear in a separate brochure/manual as well as separate documents relative to
said account/s and/or investment/s. Said terms and conditions shall likewise apply
The Court gives credence to respondent's explanation that the word "TRUST"
appearing on the TIA simply means that the account is to be handled by the bank's
trust department, which handles not only the trust business but also the other
fiduciary business and investment management activities of the bank, while the "ITF"
or "in trust for" appearing on the other documents only signifies that the money was
invested by Amalia in trust for her two children, a device that she uses even in her

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 Page 67 of 104

ordinary deposit accounts with other banks.89 The ITF device allows the children to
obtain the money without need of paying estate taxes in case Amalia meets a
premature death.90 However, it creates a trustee-beneficiary relationship only
between Amalia and her children, and not between Amalia, her children, and
Citibank.
authority.100 Concomitant to this obligation is that the principal also assumes the risks
that may arise from the transaction.101 Indeed, as in the instant case, bank regulations
prohibit banks from guaranteeing profits or the principal in an investment
management account.102 Hence, the CA correctly dismissed petitioners’ complaint
against respondent.

All the documents signed by Amalia, including the DIMA and Directional Letter, show WHEREFORE, the Petition is DENIED. For lack of evidence, the Decision of the Court
that her agreement with respondent is one of agency, and not a trust. of Appeals dated dated May 28, 2002 and its Resolution of December 11, 2002,
are AFFIRMED.

The DIMA, TIA, Directional Letter and COIs, viewed altogether, establish without
doubt the transaction between the parties, that on November 28, 1997, with PhP3 Costs against the petitioners.
million in tow, Amalia opened an investment management account with respondent,
under which she instructed the latter as her agent to invest the bulk of the money in
LTCP. SO ORDERED.

Aside from their bare allegations, evidence that supports petitioners' contentions
that no such deal took place, or that the agreement was different, simply does not
exist in the records.

Petitioners were experienced and intelligent enough to be able to demand and sign a
different document to signify their real intention; but no such document exists. Thus,
petitioners' acts and omissions negate their allegations that they were essentially
defrauded by the bank.

Petitioners had other chances to protest respondent's alleged disregard of their

instructions. The COIs sent by respondent to petitioners encapsulate the spirit of the
DIMA and Directional Letter, with the proviso that should there be any deviations
from petitioners' instructions, they may inform respondent in writing within seven
days. Assuming arguendo that respondent violated the instructions, petitioners did
not file a single timely written protest, however, despite their admission that they
received the first COI on December 8, 1997. 91 It took eight months for petitioners to
formally demand the return of their investment through their counsel in a letter
dated August 18, 1998. 92 The letter, however, did not even contest the placement of
the money in an LTCP, but merely its maturity in the year 2003. Prior to the letter, it
has been shown that petitioners had received COIs on February 12, 1998, 93 May 14,
1998,94 and August 14, 1998,95 and in between, petitioners never demanded a return
of the money they invested.

Petitioners' acts and omissions strongly indicate that they in fact conformed to the
agreement in the months after the signing. In that period, they were receiving their
bank statements and earning interest from the investment, as in fact, C&P Homes
under the LTCP continuously paid interest even up to the time the instant case was
already on trial.96 When petitioners finally contested the contract months after its
signing, it was suspiciously during the time when newspaper reports came out that
C&P Homes' stock had plunged in value and that Ayala Land was withdrawing its offer
to invest in the company.97 The connection is too obvious to ignore. It is reasonable to
conclude that petitioners' repudiation of the agreement was nothing more than an
afterthought, a reaction to the negative events in the market and an effort to flee
from a losing investment.

Anent the second issue, whether petitioners are entitled to recover from respondent
the amount of PhP2,134,635.87 invested under the LTCP, the Court agrees with the
CA in dismissing the complaint filed by petitioners.

Petitioners may not seek a return of their investment directly from respondent at or
prior to maturity. As earlier explained, the investment is not a deposit and is not
guaranteed by respondent. Absent any fraud or bad faith, the recourse of petitioners
in the LTCP is solely against the issuer, C&P Homes, and only upon maturity. The
DIMA states, thus:

11. Withdrawal of Income/Principal – Subject to availability of funds and taking

into consideration the commitment of this account to third parties, the PRINCIPAL
may withdraw the income/principal of the Portfolio or portion thereof upon
request or application thereof from the Bank. The INVESTMENT MANAGER shall not
be required to inquire as to the income/principal so withdrawn from the Portfolio.
Any income of the Portfolio not withdrawn shall be accumulated and added to the
principal of the Portfolio for further investment and reinvestment. 98 (Emphasis
supplied.)

It is clear that since the money is committed to C&P Homes via LTCP for five years, or
until 2003, petitioners may not seek its recovery from respondent prior to the lapse
of this period. Petitioners must wait and meanwhile just be content with receiving
their interest regularly. If petitioners want the immediate return of their investment
before the maturity date, their only way is to find a willing buyer to purchase the
LTCP at an agreed price, or to go directly against the issuer C&P Homes, not against
the respondent.

The nature of the DIMA and the other documents signed by the parties calls for this
condition. The DIMA states that respondent is a mere agent of petitioners and that
losses from both the principal and interest of the investment are strictly on
petitioners' account. Meanwhile, the Directional Letter clearly states that the
investment is to be made in an LTCP which, by definition, has a term of more than
365 days.99 Prior to the expiry of the term, which in the case of the C&P Homes LTCP
is five years, petitioners may not claim back their investment, especially not from
respondent bank.

Having bound themselves under the contract as earlier discussed, petitioners are
governed by its provisions. Petitioners as principals in an agency relationship are
solely obliged to observe the solemnity of the transaction entered into by the agent
on their behalf, absent any proof that the latter acted beyond its

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G.R. No. 111924 January 27, 1997
ADORACION LUSTAN, petitioner,
vs.
COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE
NATIONAL BANK, respondents.
FRANCISCO, J.:
Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise
known as Lot 8069 of the Cadastral Survey of Calinog, Iloilo containing an area of
10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner
leased the above described property to private respondent Nicolas Parangan for a
term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During
the period of lease, Parangan was regularly extending loans in small amounts to
petitioner to defray her daily expenses and to finance her daughter's education. On
July 29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to
secure an agricultural loan from private respondent Philippine National Bank (PNB)
with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of
Attorney was executed by petitioner, by virtue of which, Parangan was able to secure
four (4) additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and
P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2,
1980, respectively. The last three loans were without the knowledge of herein
petitioner and all the proceeds therefrom were used by Parangan for his own
benefit. 1 These encumbrances were duly annotated on the certificate of title. On
April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale2 in favor of Parangan
which was superseded by the Deed of Definite Sale3dated May 4, 1979 which
petitioner signed upon Parangan's representation that the same merely evidences
the loans extended by him unto the former.
For fear that her property might be prejudiced by the continued borrowing of
Parangan, petitioner demanded the return of her certificate of title. Instead of
complying with the request, Parangan asserted his rights over the property which
allegedly had become his by virtue of the aforementioned Deed of Definite Sale.
Under said document, petitioner conveyed the subject property and all the
improvements thereon unto Parangan absolutely for and in consideration of the sum
of Seventy Five Thousand (P75,000.00) Pesos.
Aggrieved, petitioner filed an action for cancellation of liens, quieting of title,
recovery of possession and damages against Parangan and PNB in the Regional Trial
Court of Iloilo City. After trial, the lower court rendered judgment, disposing as
follows:
WHEREFORE and in view of the foregoing, a decision is
rendered as follows:
1. Ordering cancellation by the Register of Deeds of the
Province of Iloilo, of the unauthorized loans, the liens and
encumbrances appearing in the Transfer Certificate of Title
No. T-561, especially entries nos. 286231; 338638; and
352794;
2. Declaring the Deed of Pacto de Retro Sale dated April 25,
1978 and the Deed of Definite Sale dated May 6, 1979, both
documents executed by Adoracion Lustan in favor of Nicolas
Parangan over Lot 8069 in TCT No. T-561 of the Register of
Deeds of Iloilo, as null and void, declaring the same to be
Deeds of Equitable Mortgage;
3. Ordering defendant Nicolas Parangan to pay all the loans
he secured from defendant PNB using thereto as security
TCT No. T-561 of plaintiff and defendant PNB to return TCT
No. T-561 to plaintiff;
4. Ordering defendant Nicolas Parangan to return
possession of the land in question, Lot 8069 of the Calinog
Cadastre, described in TCT No. T-561 of the Register of
Deeds of Iloilo, to plaintiff upon payment of the sum of
P75,000.00 by plaintiff to defendant Parangan which
payment by plaintiff must be made within ninety (90) days
from receipt of this decision; otherwise, sale of the land will
be ordered by the court to satisfy payment of the amount;
5. Ordering defendant Nicolas Parangan to pay plaintiff
attorney's fees in the sum of P15,000.00 and to pay the
costs of the suit.
SO ORDERED.4
Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's
decision. Hence this petition contending that the CA committed the following errors:
IN ARRIVING AT THE CONCLUSION THAT NONE OF THE
CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL CODE
HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF
EVIDENCE;
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Page 68 of 104
IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF
SALE WITH KNOWLEDGE AS TO THE CONTENTS THEREOF;
IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF
WITNESS DELIA CABIAL DESERVES FULL FAITH AND CREDIT;
IN FINDING THAT THE SPECIAL POWER OF ATTORNEY
AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS
RELEVANT.
Two main issues confront us in this case, to wit: whether or not the Deed of Definite
Sale is in reality an equitable mortgage and whether or not petitioner's property is
liable to PNB for the loans contracted by Parangan by virtue of the special power of
attorney. The lower court and the CA arrived at different factual findings thus
necessitating a review of the evidence on record.5 After a thorough examination, we
note some errors, both in fact and in law, committed by public respondent CA.
The court a quo ruled that the Deed of Definite Sale is in reality an equitable
mortgage as it was shown beyond doubt that the intention of the parties was one of
a loan secured by petitioner's land.6 We agree.
A contract is perfected by mere consent.7 More particularly, a contract of sale is
perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.8 This meeting of the minds speaks of the
intent of the parties in entering into the contract respecting the subject matter and
the consideration thereof. If the words of the contract appear to be contrary to the
evident intention of the parties, the latter shall prevail over the former. 9 In the case at
bench, the evidence is sufficient to warrant a finding that petitioner and Parangan
merely intended to consolidate the former's indebtedness to the latter in a single
instrument and to secure the same with the subject property. Even when a document
appears on its face to be a sale, the owner of the property may prove that the
contract is really a loan with mortgage by raising as an issue the fact that the
document does not express the true intent of the parties. In this case, parol evidence
then becomes competent and admissible to prove that the instrument was in truth
and in fact given merely as a security for the repayment of a loan. And upon proof of
the truth of such allegations, the court will enforce the agreement or understanding
in consonance with the true intent of the parties at the time of the execution of the
contract. 10
Articles 1602 and 1604 of the Civil Code respectively provide:
The contract shall be presumed to be an equitable
mortgage in any of the following cases:
1) When the price of a sale with right to repurchase is
unusually inadequate;
2) When the vendor remains in possession as lessor or
otherwise;
3) When upon or after the expiration of the right to
repurchase, another instrument extending the period of
redemption or granting a new period is executed;
4) When the vendor binds himself to pay the taxes on the
thing sold;
5) When the purchaser retains for himself a part of the
purchase price;
6) In any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any
other obligation.
Art. 1604. The provisions of Article 1602 shall also apply to
a contract purporting to be an absolute sale.
From a reading of the above-quoted provisions, for a presumption of an equitable
mortgage to arise, we must first satisfy two requisites namely: that the parties
entered into a contract denominated as a contract of sale and that their intention
was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code,
a contract purporting to be an absolute sale shall be presumed to be an equitable
mortgage should any of the conditions in Art. 1602 be present. The existence of any
of the circumstances therein, not a concurrence nor an overwhelming number of
such circumstances, suffices to give rise to the presumption that the contract is an
equitable mortgage. 11
Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to
be an equitable mortgage in any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall secure the payment of a debt
or the performance of any other obligation. That the case clearly falls under this
category can be inferred from the circumstances surrounding the transaction as
herein set forth:
Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The
contents of the same were not read nor explained to her so that she may intelligibly
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

formulate in her mind the consequences of her conduct and the nature of the rights
she was ceding in favor of Parangan. Petitioner is illiterate and her condition
constrained her to merely rely on Parangan's assurance that the contract only
evidences her indebtedness to the latter. When one of the contracting parties is
unable to read, or if the contract is in a language not understood by him, and mistake
or fraud is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former. 13 Settled is the rule that where a
party to a contract is illiterate or cannot read or cannot understand the language in
which the contract is written, the burden is on the party interested in enforcing the
contract to prove that the terms thereof are fully explained to the former in a
language understood by him.14 To our mind, this burden has not been satisfactorily
discharged.
We do not find the testimony of Parangan and Delia Cabial that the contract was duly
read and explained to petitioner worthy of credit. The assessment by the trial court
of the credibility of witnesses is entitled to great respect and weight for having had
the opportunity of observing the conduct and demeanor of the witnesses while
testifying. 15 The lower court may not have categorically declared Cabial's testimony
as doubtful but this fact is readily apparent when it ruled on the basis of petitioner's
evidence in total disregard of the positive testimony on Parangan's side. We have
subjected the records to a thorough examination, and a reading of the transcript of
stenographic notes would bear out that the court a quo is correct in its assessment.
The CA committed a reversible error when it relied on the testimony of Cabial in
upholding the validity of the Deed of Definite Sale. For one, there are noted major
contradictions between the testimonies of Cabial and Judge Lebaquin, who notarized
the purported Deed of Definite Sale. While the former testified that receipts were
presented before Judge Lebaquin, who in turn made an accounting to determine the
price of the land 16, the latter categorically denied the allegation. 17 This contradiction
casts doubt on the credibility of Cabial as it is ostensible that her version of the story
is concocted.
On the other hand, petitioner's witness Celso Pamplona, testified that the contract
was not read nor explained to petitioner. We believe that this witness gave a more
accurate account of the circumstances surrounding the transaction. He has no motive
to prevaricate or concoct a story as he witnessed the execution of the document at
the behest of Parangan himself who, at the outset, informed him that he will witness
a document consolidating petitioner's debts. He thus testified:
Q: In (sic) May 4, 1979, you
remember having went (sic) to the
Municipality of Calinog?
A: Yes, sir.
Q: Who invited you to go there?
A: Parangan.
Q: You mean Nicolas Parangan?
A: Yes, sir.
Q: What did Nicolas tell you why
he invited you to go there?
A: He told me that I will witness on
the indebtedness of Adoracion to
Parangan.
Q: Before Adoracion Lustan signed
her name in this Exh. "4", was this
document read to her?
A: No, sir.
Q: Did Nicolas Parangan right in
that very room tell Adoracion
what she was signing?
A: No, sir.
xxx xxx xxx
Q: What did you have in mind
when you were signing this
document, Exh. "4"?
A: To show that Adoracion Lustan
has debts with Nicolas
Parangan. 18
Furthermore, we note the absence of any question propounded to Judge Lebaquin to
establish that the deed of sale was read and explained by him to petitioner. When
asked if witness has any knowledge whether petitioner knows how to read or write,
he answered in the negative. 19 This latter admission impresses upon us that the
contract was not at all read or explained to petitioner for had he known that
petitioner is illiterate, his assistance would not have been necessary.
CASES: Agency
Page 69 of 104
The foregoing squares with the sixth instance when a presumption of equitable
mortgage prevails. The contract of definite sale, where petitioner purportedly ceded
all her rights to the subject lot in favor of Parangan, did not embody the true
intention of the parties. The evidence speaks clearly of the nature of the agreement
— it was one executed to secure some loans.
Anent the issue of whether the outstanding mortgages on the subject property can
be enforced against petitioner, we rule in the affirmative.
Third persons who are not parties to a loan may secure the latter by pledging or
mortgaging their own property. 20So long as valid consent was given, the fact that the
loans were solely for the benefit of Parangan would not invalidate the mortgage with
respect to petitioner's property. In consenting thereto, even granting that petitioner
may not be assuming personal liability for the debt, her property shall nevertheless
secure and respond for the performance of the principal obligation. 21 It is admitted
that petitioner is the owner of the parcel of land mortgaged to PNB on five (5)
occasions by virtue of the Special Powers of Attorney executed by petitioner in favor
of Parangan. Petitioner argues that the last three mortgages were void for lack of
authority. She totally failed to consider that said Special Powers of Attorney are a
continuing one and absent a valid revocation duly furnished to the mortgagee, the
same continues to have force and effect as against third persons who had no
knowledge of such lack of authority. Article 1921 of the Civil Code provides:
Art. 1921. If the agency has been entrusted for the purpose
of contracting with specified persons, its revocation shall
not prejudice the latter if they were not given notice
thereof.
The Special Power of Attorney executed by petitioner in favor of Parangan duly
authorized the latter to represent and act on behalf of the former. Having done so,
petitioner clothed Parangan with authority to deal with PNB on her behalf and in the
absence of any proof that the bank had knowledge that the last three loans were
without the express authority of petitioner, it cannot be prejudiced thereby. As far as
third persons are concerned, an act is deemed to have been performed within the
scope of the agent's authority if such is within the terms of the power of attorney as
written even if the agent has in fact exceeded the limits of his authority according to
the understanding between the principal and the agent. 22 The Special Power of
Attorney particularly provides that the same is good not only for the principal loan
but also for subsequent commercial, industrial, agricultural loan or credit
accommodation that the attorney-in-fact may obtain and until the power of attorney
is revoked in a public instrument and a copy of which is furnished to PNB. 23 Even
when the agent has exceeded his authority, the principal is solidarily liable with the
agent if the former allowed the latter to act as though he had full powers (Article
1911, Civil Code). 24 The mortgage directly and immediately subjects the property
upon which it is imposed. 25 The property of third persons which has been expressly
mortgaged to guarantee an obligation to which the said persons are foreign, is
directly and jointly liable for the fulfillment thereof; it is therefore subject to
execution and sale for the purpose of paying the amount of the debt for which it is
liable. 26 However, petitioner has an unquestionable right to demand proportional
indemnification from Parangan with respect to the sum paid to PNB from the
proceeds of the sale of her property 27 in case the same is sold to satisfy the unpaid
debts.
WHEREFORE, premises considered, the judgment of the lower court is hereby
REINSTATED with the following MODIFICATIONS:
1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;
2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE
POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT
OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS
DECISION;
3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND
MAY THEREFORE BE SUBJECTED TO EXECUTION SALE.
4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT
OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT.
SO ORDERED.
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G.R. No. 115838 July 18, 2002
CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners,
vs.
COURT OF APPEALS and FRANCISCO ARTIGO, respondents.
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari 1 seeking to annul the Decision of the
Court of Appeals2 dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in
toto the decision3 of the Regional Trial Court of Quezon City, Branch 80, in Civil Case
No. Q-89-2631. The trial court disposed as follows:
"WHEREFORE, the Court finds defendants Constante and Corazon Amor
de Castro jointly and solidarily liable to plaintiff the sum of:
a) P303,606.24 representing unpaid commission;
b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorney's fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991."
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued
petitioners Constante A. De Castro ("Constante" for brevity) and Corazon A. De Castro
("Corazon" for brevity) to collect the unpaid balance of his broker's commission from
the De Castros.4 The Court of Appeals summarized the facts in this wise:
"x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner
New York and Denver Streets in Cubao, Quezon City. In a letter dated
January 24, 1984 (Exhibit "A-1, p. 144, Records), appellee6 was
authorized by appellants to act as real estate broker in the sale of these
properties for the amount of P23,000,000.00, five percent (5%) of which
will be given to the agent as commission. It was appellee who first found
Times Transit Corporation, represented by its president Mr. Rondaris, as
prospective buyer which desired to buy two (2) lots only, specifically lots
14 and 15. Eventually, sometime in May of 1985, the sale of lots 14 and
15 was consummated. Appellee received from appellants P48,893.76 as
commission.
It was then that the rift between the contending parties soon emerged.
Appellee apparently felt short changed because according to him, his
total commission should be P352,500.00 which is five percent (5%) of
the agreed price of P7,050,000.00 paid by Times Transit Corporation to
appellants for the two (2) lots, and that it was he who introduced the
buyer to appellants and unceasingly facilitated the negotiation which
ultimately led to the consummation of the sale. Hence, he sued below to
collect the balance of P303,606.24 after having received P48,893.76 in
advance.1âwphi1.nêt
On the other hand, appellants completely traverse appellee's claims and
essentially argue that appellee is selfishly asking for more than what he
truly deserved as commission to the prejudice of other agents who were
more instrumental in the consummation of the sale. Although appellants
readily concede that it was appellee who first introduced Times Transit
Corp. to them, appellee was not designated by them as their exclusive
real estate agent but that in fact there were more or less eighteen (18)
others whose collective efforts in the long run dwarfed those of
appellee's, considering that the first negotiation for the sale where
appellee took active participation failed and it was these other agents
who successfully brokered in the second negotiation. But despite this
and out of appellants' "pure liberality, beneficence and magnanimity",
appellee nevertheless was given the largest cut in the commission
(P48,893.76), although on the principle of quantum meruit he would
have certainly been entitled to less. So appellee should not have been
heard to complain of getting only a pittance when he actually got the
lion's share of the commission and worse, he should not have been
allowed to get the entire commission. Furthermore, the purchase price
for the two lots was only P3.6 million as appearing in the deed of sale
and not P7.05 million as alleged by appellee. Thus, even assuming that
appellee is entitled to the entire commission, he would only be getting
5% of the P3.6 million, or P180,000.00."
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the trial court.
CASES: Agency
Page 70 of 104
First. The Court of Appeals found that Constante authorized Artigo to act as agent in
the sale of two lots in Cubao, Quezon City. The handwritten authorization letter
signed by Constante clearly established a contract of agency between Constante and
Artigo. Thus, Artigo sought prospective buyers and found Times Transit Corporation
("Times Transit" for brevity). Artigo facilitated the negotiations which eventually led
to the sale of the two lots. Therefore, the Court of Appeals decided that Artigo is
entitled to the 5% commission on the purchase price as provided in the contract of
agency.
Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for
failure to implead as indispensable parties the other co-owners of the two lots. The
Court of Appeals explained that it is not necessary to implead the other co-owners
since the action is exclusively based on a contract of agency between Artigo and
Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in
admitting parol evidence to prove the true amount paid by Times Transit to the De
Castros for the two lots. The Court of Appeals ruled that evidence aliunde could be
presented to prove that the actual purchase price was P7.05 million and not P3.6
million as appearing in the deed of sale. Evidence aliunde is admissible considering
that Artigo is not a party, but a mere witness in the deed of sale between the De
Castros and Times Transit. The Court of Appeals explained that, "the rule that oral
evidence is inadmissible to vary the terms of written instruments is generally applied
only in suits between parties to the instrument and strangers to the contract are not
bound by it." Besides, Artigo was not suing under the deed of sale, but solely under
the contract of agency. Thus, the Court of Appeals upheld the trial court's finding that
the purchase price was P7.05 million and not P3.6 million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred in -
I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO
IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND
THAT ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT,
WAIVER, OR ABANDONMENT;
III. CONSIDERING INCOMPETENT EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S
FEES;
VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY
DAMAGES, AND ATTORNEY'S FEES.
The Court's Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits dismissal for failure to implead other co-
owners as indispensable parties
The De Castros argue that Artigo's complaint should have been dismissed for failure
to implead all the co-owners of the two lots. The De Castros claim that Artigo always
knew that the two lots were co-owned by Constante and Corazon with their other
siblings Jose and Carmela whom Constante merely represented. The De Castros
contend that failure to implead such indispensable parties is fatal to the complaint
since Artigo, as agent of all the four co-owners, would be paid with funds co-owned
by the four co-owners.
The De Castros' contentions are devoid of legal basis.
An indispensable party is one whose interest will be affected by the court's action in
the litigation, and without whom no final determination of the case can be had. 7 The
joinder of indispensable parties is mandatory and courts cannot proceed without
their presence.8 Whenever it appears to the court in the course of a proceeding that
an indispensable party has not been joined, it is the duty of the court to stop the trial
and order the inclusion of such party. 9
However, the rule on mandatory joinder of indispensable parties is not applicable to
the instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated
January 24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent
commission. The authority was on a first come, first serve basis. The authority reads
in full:
"24 Jan. 84
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To Whom It May Concern:
This is to state that Mr. Francisco Artigo is authorized as our real estate
broker in connection with the sale of our property located at Edsa
Corner New York & Denver, Cubao, Quezon City.
Asking price P 23,000,000.00 with 5% commission as agent's fee.
C.C. de Castro
owner & representing
co-owners
This authority is on a first-come
First serve basis –CAC"
Constante signed the note as owner and as representative of the other co-owners.
Under this note, a contract of agency was clearly constituted between Constante and
Artigo. Whether Constante appointed Artigo as agent, in Constante's individual or
representative capacity, or both, the De Castros cannot seek the dismissal of the case
for failure to implead the other co-owners as indispensable parties. The De Castros
admit that the other co-owners are solidarily liable under the contract of
agency,10 citing Article 1915 of the Civil Code, which reads:
Art. 1915. If two or more persons have appointed an agent for a
common transaction or undertaking, they shall be solidarily liable to the
agent for all the consequences of the agency.
The solidary liability of the four co-owners, however, militates against the De Castros'
theory that the other co-owners should be impleaded as indispensable parties. A
noted commentator explained Article 1915 thus –
"The rule in this article applies even when the appointments were made
by the principals in separate acts, provided that they are for the same
transaction. The solidarity arises from the common interest of the
principals, and not from the act of constituting the agency. By virtue of
this solidarity, the agent can recover from any principal the whole
compensation and indemnity owing to him by the others. The parties,
however, may, by express agreement, negate this solidary responsibility.
The solidarity does not disappear by the mere partition effected by the
principals after the accomplishment of the agency.
If the undertaking is one in which several are interested, but only some
create the agency, only the latter are solidarily liable, without prejudice
to the effects of negotiorum gestio with respect to the others. And if the
power granted includes various transactions some of which are common
and others are not, only those interested in each transaction shall be
liable for it."11
When the law expressly provides for solidarity of the obligation, as in the liability of
co-principals in a contract of agency, each obligor may be compelled to pay the entire
obligation.12 The agent may recover the whole compensation from any one of the co-
principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the
solidary debtors. This article reads:
Art. 1216. The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made
against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not
been fully collected.
Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co.,
Inc.13 that –
"x x x solidarity does not make a solidary obligor an indispensable
party in a suit filed by the creditor. Article 1216 of the Civil Code says
that the creditor `may proceed against anyone of the solidary debtors or
some or all of them simultaneously'." (Emphasis supplied)
Second Issue: whether Artigo's claim has been extinguished by full payment, waiver
or abandonment
The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was
given "his proportionate share and no longer entitled to any balance." According to
them, Artigo was just one of the agents involved in the sale and entitled to a
"proportionate share" in the commission. They assert that Artigo did absolutely
nothing during the second negotiation but to sign as a witness in the deed of sale. He
did not even prepare the documents for the transaction as an active real estate
broker usually does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to law, public order, public policy, morals
or good custom is a valid contract, and constitutes the law between the parties. 14 The
CASES: Agency
Page 71 of 104
contract of agency entered into by Constante with Artigo is the law between them
and both are bound to comply with its terms and conditions in good faith.
The mere fact that "other agents" intervened in the consummation of the sale and
were paid their respective commissions cannot vary the terms of the contract of
agency granting Artigo a 5 percent commission based on the selling price. These
"other agents" turned out to be employees of Times Transit, the buyer Artigo
introduced to the De Castros. This prompted the trial court to observe:
"The alleged `second group' of agents came into the picture only during
the so-called `second negotiation' and it is amusing to note that these
(sic) second group, prominent among whom are Atty. Del Castillo and
Ms. Prudencio, happened to be employees of Times Transit, the buyer of
the properties. And their efforts were limited to convincing Constante to
'part away' with the properties because the redemption period of the
foreclosed properties is around the corner, so to speak. (tsn. June 6,
1991).
xxx
To accept Constante's version of the story is to open the floodgates of
fraud and deceit. A seller could always pretend rejection of the offer and
wait for sometime for others to renew it who are much willing to accept
a commission far less than the original broker. The immorality in the
instant case easily presents itself if one has to consider that the alleged
`second group' are the employees of the buyer, Times Transit and they
have not bettered the offer secured by Mr. Artigo for P7 million.
It is to be noted also that while Constante was too particular about the
unrenewed real estate broker's license of Mr. Artigo, he did not bother at
all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11,
1991, pp. 39-40)."15 (Emphasis supplied)
In any event, we find that the 5 percent real estate broker's commission is reasonable
and within the standard practice in the real estate industry for transactions of this
nature.
The De Castros also contend that Artigo's inaction as well as failure to protest estops
him from recovering more than what was actually paid him. The De Castros cite
Article 1235 of the Civil Code which reads:
Art. 1235. When the obligee accepts the performance, knowing its
incompleteness and irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.
The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's
acceptance of partial payment of his commission neither amounts to a waiver of the
balance nor puts him in estoppel. This is the import of Article 1235 which was
explained in this wise:
"The word accept, as used in Article 1235 of the Civil Code, means to
take as satisfactory or sufficient, or agree to an incomplete or irregular
performance. Hence, the mere receipt of a partial payment is not
equivalent to the required acceptance of performance as would
extinguish the whole obligation."16(Emphasis supplied)
There is thus a clear distinction between acceptance and mere receipt. In this case, it
is evident that Artigo merely received the partial payment without waiving the
balance. Thus, there is no estoppel to speak of.
The De Castros further argue that laches should apply because Artigo did not file his
complaint in court until May 29, 1989, or almost four years later. Hence, Artigo's
claim for the balance of his commission is barred by laches.
Laches means the failure or neglect, for an unreasonable and unexplained length of
time, to do that which by exercising due diligence could or should have been done
earlier. It is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it
or declined to assert it.17
Artigo disputes the claim that he neglected to assert his rights. He was appointed as
agent on January 24, 1984. The two lots were finally sold in June 1985. As found by
the trial court, Artigo demanded in April and July of 1985 the payment of his
commission by Constante on the basis of the selling price of P7.05 million but there
was no response from Constante. 18 After it became clear that his demands for
payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989.
Actions upon a written contract, such as a contract of agency, must be brought within
ten years from the time the right of action accrues.19 The right of action accrues from
the moment the breach of right or duty occurs. From this moment, the creditor can
institute the action even as the ten-year prescriptive period begins to run. 20
The De Castros admit that Artigo's claim was filed within the ten-year prescriptive
period. The De Castros, however, still maintain that Artigo's cause of action is barred
by laches. Laches does not apply because only four years had lapsed from the time of
the sale in June 1985. Artigo made a demand in July 1985 and filed the action in court
on May 29, 1989, well within the ten-year prescriptive period. This does not
constitute an unreasonable delay in asserting one's right. The Court has ruled, "a
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 Page 72 of 104

delay within the prescriptive period is sanctioned by law and is not considered to be
a delay that would bar relief." 21 In explaining that laches applies only in the absence
of a statutory prescriptive period, the Court has stated -
"Laches is recourse in equity. Equity, however, is applied only in the
absence, never in contravention, of statutory law. Thus, laches, cannot,
as a rule, be used to abate a collection suit filed within the prescriptive
period mandated by the Civil Code."22
Clearly, the De Castros' defense of laches finds no support in law, equity or
jurisprudence.
Third issue: whether the determination of the purchase price was made in violation
of the Rules on Evidence
The De Castros want the Court to re-examine the probative value of the evidence
adduced in the trial court to determine whether the actual selling price of the two
lots was P7.05 million and not P3.6 million. The De Castros contend that it is
erroneous to base the 5 percent commission on a purchase price of P7.05 million as
ordered by the trial court and the appellate court. The De Castros insist that the
purchase price is P3.6 million as expressly stated in the deed of sale, the due
execution and authenticity of which was admitted during the trial.
discretion of the court, and if such discretion is well exercised, as in this case, it will
not be disturbed on appeal.25 Moral damages may be awarded when in a breach of
contract the defendant acted in bad faith, or in wanton disregard of his contractual
obligation.26 On the other hand, attorney's fees are awarded in instances where "the
defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's
plainly valid, just and demandable claim."27 There is no reason to disturb the trial
court's finding that "the defendants' lack of good faith and unkind treatment of the
plaintiff in refusing to give his due commission deserve censure." This warrants the
award of P25,000.00 in moral damages and P 45,000.00 in attorney's fees. The
amounts are, in our view, fair and reasonable. Having found a buyer for the two lots,
Artigo had already performed his part of the bargain under the contract of agency.
The De Castros should have exercised fairness and good judgment in dealing with
Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent broker's
commission based on the actual purchase price of the two lots.
WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of
Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.
SO ORDERED.

The De Castros believe that the trial and appellate courts committed a mistake in
considering incompetent evidence and disregarding the best evidence and parole
evidence rules. They claim that the Court of Appeals erroneously affirmed sub
silentio the trial court's reliance on the various correspondences between Constante
and Times Transit which were mere photocopies that do not satisfy the best evidence
rule. Further, these letters covered only the first negotiations between Constante and
Times Transit which failed; hence, these are immaterial in determining the final
purchase price.

The De Castros further argue that if there was an undervaluation, Artigo who signed
as witness benefited therefrom, and being equally guilty, should be left where he
presently stands. They likewise claim that the Court of Appeals erred in relying on
evidence which were not offered for the purpose considered by the trial court.
Specifically, Exhibits "B", "C", "D" and "E" were not offered to prove that the purchase
price was P7.05 Million. Finally, they argue that the courts a quo erred in giving
credence to the perjured testimony of Artigo. They want the entire testimony of
Artigo rejected as a falsehood because he was lying when he claimed at the outset
that he was a licensed real estate broker when he was not.

Whether the actual purchase price was P7.05 Million as found by the trial court and
affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a
question of fact and not of law. Inevitably, this calls for an inquiry into the facts and
evidence on record. This we can not do.

It is not the function of this Court to re-examine the evidence submitted by the
parties, or analyze or weigh the evidence again.23 This Court is not the proper venue
to consider a factual issue as it is not a trier of facts. In petitions for review on
certiorari as a mode of appeal under Rule 45, a petitioner can only raise questions of
law. Our pronouncement in the case of Cormero vs. Court of Appeals24 bears
reiteration:

"At the outset, it is evident from the errors assigned that the petition is
anchored on a plea to review the factual conclusion reached by the
respondent court. Such task however is foreclosed by the rule that in
petitions for certiorari as a mode of appeal, like this one, only questions
of law distinctly set forth may be raised. These questions have been
defined as those that do not call for any examination of the probative
value of the evidence presented by the parties. (Uniland Resources vs.
Development Bank of the Philippines, 200 SCRA 751 [1991] citing
Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of
Appeals, 149 SCRA 67). And when this court is asked to go over the proof
presented by the parties, and analyze, assess and weigh them to
ascertain if the trial court and the appellate court were correct in
according superior credit to this or that piece of evidence and
eventually, to the totality of the evidence of one party or the other, the
court cannot and will not do the same. (Elayda vs. Court of Appeals, 199
SCRA 349 [1991]). Thus, in the absence of any showing that the findings
complained of are totally devoid of support in the record, or that they
are so glaringly erroneous as to constitute serious abuse of discretion,
such findings must stand, for this court is not expected or required to
examine or contrast the oral and documentary evidence submitted by
the parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing
Santa Ana vs. Hernandez, 18 SCRA 973 [1966])."

We find no reason to depart from this principle. The trial and appellate courts are in a
much better position to evaluate properly the evidence. Hence, we find no other
recourse but to affirm their finding on the actual purchase price.1âwphi1.nêt

Fourth Issue: whether award of moral damages and attorney's fees is proper

The De Castros claim that Artigo failed to prove that he is entitled to moral damages
and attorney's fees. The De Castros, however, cite no concrete reason except to say
that they are the ones entitled to damages since the case was filed to harass and
extort money from them.

Law and jurisprudence support the award of moral damages and attorney's fees in
favor of Artigo. The award of damages and attorney's fees is left to the sound

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G.R. No. 88539 October 26, 1993
KUE CUISON, doing business under the firm name and style"KUE CUISON PAPER
SUPPLY," petitioner,
vs.
THE COURT OF APPEALS, VALIANT INVESTMENT ASSOCIATES, respondents.
Leighton R. Siazon for petitioner.
Melanio L. Zoreta for private respondent.
BIDIN, J.:
This petition for review assails the decision of the respondent Court of Appeals
ordering petitioner to pay private respondent, among others, the sum of P297,482.30
with interest. Said decision reversed the appealed decision of the trial court rendered
in favor of petitioner.
The case involves an action for a sum of money filed by respondent against petitioner
anchored on the following antecedent facts:
Petitioner Kue Cuison is a sole proprietorship engaged in the purchase and sale of
newsprint, bond paper and scrap, with places of business at Baesa, Quezon City, and
Sto. Cristo, Binondo, Manila. Private respondent Valiant Investment Associates, on
the other hand, is a partnership duly organized and existing under the laws of the
Philippines with business address at Kalookan City.
From December 4, 1979 to February 15, 1980, private respondent delivered various
kinds of paper products amounting to P297,487.30 to a certain Lilian Tan of LT
Trading. The deliveries were made by respondent pursuant to orders allegedly placed
by Tiu Huy Tiac who was then employed in the Binondo office of petitioner. It was
likewise pursuant to Tiac's instructions that the merchandise was delivered to Lilian
Tan. Upon delivery, Lilian Tan paid for the merchandise by issuing several checks
payable to cash at the specific request of Tiu Huy Tiac. In turn, Tiac issued nine (9)
postdated checks to private respondent as payment for the paper products.
Unfortunately, sad checks were later dishonored by the drawee bank.
Thereafter, private respondent made several demands upon petitioner to pay for the
merchandise in question, claiming that Tiu Huy Tiac was duly authorized by petitioner
as the manager of his Binondo office, to enter into the questioned transactions with
private respondent and Lilian Tan. Petitioner denied any involvement in the
transaction entered into by Tiu Huy Tiac and refused to pay private respondent the
amount corresponding to the selling price of the subject merchandise.
Left with no recourse, private respondent filed an action against petitioner for the
collection of P297,487.30 representing the price of the merchandise. After due
hearing, the trial court dismissed the complaint against petitioner for lack of merit.
On appeal, however, the decision of the trial court was modified, but was in effect
reversed by the Court of Appeals, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is MODIFIED in
that defendant-appellant Kue Cuison is hereby ordered to
pay plaintiff-appellant Valiant Investment Associates the
sum of P297,487.30 with 12% interest from the filing of the
complaint until the amount is fully paid, plus the sum of 7%
of the total amount due as attorney's fees, and to pay the
costs. In all other respects, the decision appealed from is
affirmed. (Rollo, p. 55)
In this petition, petitioner contends that:
THE HONORABLE COURT ERRED IN FINDING TIU HUY TIAC
AGENT OF DEFENDANT-APPELLANT CONTRARY TO THE
UNDISPUTED/ESTABLISHED FACTS AND CIRCUMSTANCES.
THE HONORABLE COURT ERRED IN FINDING DEFENDANT-
APPELLANT LIABLE FOR AN OBLIGATION UNDISPUTEDLY
BELONGING TO TIU HUY TIAC.
THE HONORABLE COURT ERRED IN REVERSING THE WELL-FOUNDED DECISION OF
THE TRIAL COURT, (Rollo, p, 19)
The issue here is really quite simple — whether or not Tiu Huy Tiac possessed the
required authority from petitioner sufficient to hold the latter liable for the disputed
transaction.
This petition ought to have been denied outright, forin the final analysis, it raises a
factual issue. It is elementary that in petitions for review under Rule 45, this Court
only passes upon questions of law. An exception thereto occurs where the findings of
fact of the Court of Appeals are at variance with the trial court, in which case the
Court reviews the evidence in order to arrive at the correct findings based on the
records.
CASES: Agency
Page 73 of 104
As to the merits of the case, it is a well-established rule that one who clothes another
with apparent authority as his agent and holds him out to the public as such cannot
be permitted to deny the authority of such person to act as his agent, to the
prejudice of innocent third parties dealing with such person in good faith and in the
honest belief that he is what he appears to be (Macke, et al, v. Camps, 7 Phil. 553
(1907]; Philippine National Bank. v Court of Appeals, 94 SCRA 357 [1979]). From the
facts and the evidence on record, there is no doubt that this rule obtains. The
petition must therefore fail.
It is evident from the records that by his own acts and admission, petitioner held out
Tiu Huy Tiac to the public as the manager of his store in Sto. Cristo, Binondo, Manila.
More particularly, petitioner explicitly introduced Tiu Huy Tiac to Bernardino
Villanueva, respondent's manager, as his (petitioner's) branch manager as testified to
by Bernardino Villanueva. Secondly, Lilian Tan, who has been doing business with
petitioner for quite a while, also testified that she knew Tiu Huy Tiac to be the
manager of petitioner's Sto. Cristo, Binondo branch. This general perception of Tiu
Huy Tiac as the manager of petitioner's Sto. Cristo store is even made manifest by the
fact that Tiu Huy Tiac is known in the community to be the "kinakapatid"
(godbrother) of petitioner. In fact, even petitioner admitted his close relationship
with Tiu Huy Tiac when he said that they are "like brothers" (Rollo, p. 54). There was
thus no reason for anybody especially those transacting business with petitioner to
even doubt the authority of Tiu Huy Tiac as his manager in the Sto. Cristo Binondo
branch.
In a futile attempt to discredit Villanueva, petitioner alleges that the former's
testimony is clearly self-serving inasmuch as Villanueva worked for private
respondent as its manager.
We disagree, The argument that Villanueva's testimony is self-serving and therefore
inadmissible on the lame excuse of his employment with private respondent utterly
misconstrues the nature of "'self-serving evidence" and the specific ground for its
exclusion. As pointed out by this Court in Co v. Court of Appeals et, al., (99 SCRA 321
[1980]):
Self-serving evidence is evidence made by a party out of
court at one time; it does not include a party's testimony as
a witness in court. It is excluded on the same ground as any
hearsay evidence, that is the lack of opportunity for cross-
examination by the adverse party, and on the consideration
that its admission would open the door to fraud and to
fabrication of testimony. On theother hand, a party's
testimony in court is sworn and affords the other party the
opportunity for cross-examination (emphasis supplied)
Petitioner cites Villanueva's failure, despite his commitment to do so on cross-
examination, to produce the very first invoice of the transaction between petitioner
and private respondent as another ground to discredit Villanueva's testimony. Such
failure, proves that Villanueva was not only bluffing when he pretended that he can
produce the invoice, but that Villanueva was likewise prevaricating when he insisted
that such prior transactions actually took place. Petitioner is mistaken. In fact, it was
petitioner's counsel himself who withdrew the reservation to have Villanueva
produce the document in court. As aptly observed by the Court of Appeals in its
decision:
. . . However, during the hearing on March 3, 1981,
Villanueva failed to present the document adverted to
because defendant-appellant's counsel withdrew his
reservation to have the former (Villanueva) produce the
document or invoice, thus prompting plaintiff-appellant to
rest its case that same day (t.s.n., pp. 39-40, Sess. of March
3, 1981). Now, defendant-appellant assails the credibility of
Villanueva for having allegedly failed to produce even one
single document to show that plaintiff-appellant have had
transactions before, when in fact said failure of Villanueva
to produce said document is a direct off-shoot of the action
of defendant-appellant's counsel who withdrew his
reservation for the production of the document or invoice
and which led plaintiff-appellant to rest its case that very
day. (Rollo, p.52)
In the same manner, petitioner assails the credibility of Lilian Tan by alleging that Tan
was part of an intricate plot to defraud him. However, petitioner failed to
substantiate or prove that the subject transaction was designed to defraud him.
Ironically, it was even the testimony of petitioner's daughter and assistant manager
Imelda Kue Cuison which confirmed the credibility of Tan as a witness. On the witness
stand, Imelda testified that she knew for a fact that prior to the transaction in
question, Tan regularly transacted business with her father (petitioner herein),
thereby corroborating Tan's testimony to the same effect. As correctly found by the
respondent court, there was no logical explanation for Tan to impute liability upon
petitioner. Rather, the testimony of Imelda Kue Cuison only served to add credence to
Tan's testimony as regards the transaction, the liability for which petitioner wishes to
be absolved.
But of even greater weight than any of these testimonies, is petitioner's categorical
admission on the witness stand that Tiu Huy Tiac was the manager of his store in Sto.
Cristo, Binondo, to wit:
Court:
xxx xxx xxx
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 Page 74 of 104

Q And who was managing the store in Sto. Cristo?
A At first it was Mr. Ang, then later Mr. Tiu Huy Tiac but I cannot remember
the exact year.
Q So, Mr. Tiu Huy Tiac took over the management,.
an equitable maxim that as between two innocent parties, the one who made it
possible for the wrong to be done should be the one to bear the resulting loss
(Francisco vs. Government Service Insurance System, 7 SCRA 577 [1963]).
Inasmuch as the fundamental issue of the capacity or incapacity of the purported
agent Tiu Huy Tiac, has already been resolved, the Court deems it unnecessary to
resolve the other peripheral issues raised by petitioner.

A Not that was because every afternoon, I was there, sir. WHEREFORE, the instant petition in hereby DENIED for lack of merit. Costs against
petitioner.
Q But in the morning, who takes charge?
SO ORDERED.
A Tiu Huy Tiac takes charge of management and if there (sic) orders for
newsprint or bond papers they are always referred to the compound in
Baesa, sir. (t.s.n., p. 16, Session of January 20, 1981, CA decision, Rollo, p.
50, emphasis supplied).

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

Moreover, petitioner's unexplained delay in disowning the transactions entered into

by Tiu Huy Tiac despite several attempts made by respondent to collect the amount
from him, proved all the more that petitioner was aware of the questioned
commission was tantamount to an admission by silence under Rule 130 Section 23 of
the Rules of Court, thus: "Any act or declaration made in the presence of and within
the observation of a party who does or says nothing when the act or declaration is
such as naturally to call for action or comment if not true, may be given in evidence
against him."

All of these point to the fact that at the time of the transaction Tiu Huy Tiac was
admittedly the manager of petitioner's store in Sto. Cristo, Binondo. Consequently,
the transaction in question as well as the concomitant obligation is valid and binding
upon petitioner.

By his representations, petitioner is now estopped from disclaiming liability for the
transaction entered by Tiu Huy Tiac on his behalf. It matters not whether the
representations are intentional or merely negligent so long as innocent, third persons
relied upon such representations in good faith and for value As held in the case
of Manila Remnant Co. Inc. v. Court of Appeals, (191 SCRA 622 [1990]):

More in point, we find that by the principle of estoppel, Manila Remnant is

deemed to have allowed its agent to act as though it had plenary powers.
Article 1911 of the Civil Code provides:

"Even when the agent has exceeded his authority, the principal
issolidarily liable with the agent if the former allowed the latter to act
as though he had full powers." (Emphasis supplied).

The above-quoted article is new. It is intended to protect the rights of

innocent persons. In such a situation, both the principal and the agent may
be considered as joint tortfeasors whose liability is joint and solidary.

Authority by estoppel has arisen in the instant case because by its

negligence, the principal, Manila Remnant, has permitted its agent, A.U.
Valencia and Co., to exercise powers not granted to it. That the principal
might not have had actual knowledge of theagent's misdeed is of no
moment.

Tiu Huy Tiac, therefore, by petitioner's own representations and manifestations,

became an agent of petitioner by estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon (Article 1431, Civil Code of the Philippines). A
party cannot be allowed to go back on his own acts and representations to the
prejudice of the other party who, in good faith, relied upon them (Philippine National
Bank v. Intermediate Appellate Court, et al., 189 SCRA 680 [1990]).

Taken in this light,. petitioner is liable for the transaction entered into by Tiu Huy Tiac
on his behalf. Thus, even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to fact as though he
had full powers (Article 1911 Civil Code), as in the case at bar.

Finally, although it may appear that Tiu Huy Tiac defrauded his principal (petitioner)
in not turning over the proceeds of the transaction to the latter, such fact cannot in
any way relieve nor exonerate petitioner of his liability to private respondent. For it is

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a
decision1 of the Court of Appeals in CA-G.R. No. CV-04294, entitled "American
Airlines, Inc. vs. Orient Air Services and Hotel Representatives, Inc." which affirmed,
with modification, the decision2 of the Regional Trial Court of Manila, Branch IV,
which dismissed the complaint and granted therein defendant's counterclaim for
agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air),
an air carrier offering passenger and air cargo transportation in the Philippines, and
Orient Air Services and Hotel Representatives (hereinafter referred to as Orient Air),
entered into a General Sales Agency Agreement (hereinafter referred to as the
Agreement), whereby the former authorized the latter to act as its exclusive general
sales agent within the Philippines for the sale of air passenger transportation.
Pertinent provisions of the agreement are reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties
hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General
Sales Agent within the Philippines, including any United States military
installation therein which are not serviced by an Air Carrier
Representation Office (ACRO), for the sale of air passenger
transportation. The services to be performed by Orient Air Services shall
include:
(a) soliciting and promoting passenger traffic for the
services of American and, if necessary, employing staff
competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of
business to be used exclusively for the transaction of the
business of American;
(c) arranging for distribution of American's timetables,
tariffs and promotional material to sales agents and the
general public in the assigned territory;
(d) servicing and supervising of sales agents (including such
sub-agents as may be appointed by Orient Air Services with
the prior written consent of American) in the assigned
territory including if required by American the control of
remittances and commissions retained; and
(e) holding out a passenger reservation facility to sales
agents and the general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger
transportation within the United States, neither Orient Air Services nor
its sub-agents will perform services for any other air carrier similar to
those to be performed hereunder for American without the prior written
consent of American. Subject to periodic instructions and continued
consent from American, Orient Air Services may sell air passenger
transportation to be performed within the United States by other
scheduled air carriers provided American does not provide substantially
equivalent schedules between the points involved.
xxx xxx xxx
CASES: Agency
Page 75 of 104
4. Remittances
Orient Air Services shall remit in United States dollars to American the
ticket stock or exchange orders, less commissions to which Orient Air
Services is entitled hereunder, not less frequently than semi-monthly, on
the 15th and last days of each month for sales made during the
preceding half month.
All monies collected by Orient Air Services for transportation sold
hereunder on American's ticket stock or on exchange orders, less
applicable commissions to which Orient Air Services is entitled
hereunder, are the property of American and shall be held in trust by
Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold
hereunder by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all
sales of transportation by Orient Air Services or its sub-agents over
American's services and any connecting through air transportation,
when made on American's ticket stock, equal to the following
percentages of the tariff fares and charges:
(i) For transportation solely between points within the
United States and between such points and Canada: 7% or
such other rate(s) as may be prescribed by the Air Traffic
Conference of America.
(ii) For transportation included in a through ticket covering
transportation between points other than those described
above: 8% or such other rate(s) as may be prescribed by the
International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air
Services an overriding commission of 3% of the tariff fares and charges
for all sales of transportation over American's service by Orient Air
Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing
any of the provisions of this Agreement or shall become bankrupt or
make any assignment for the benefit of or enter into any agreement or
promise with its creditors or go into liquidation, or suffer any of its goods
to be taken in execution, or if it ceases to be in business, this Agreement
may, at the option of American, be terminated forthwith and American
may, without prejudice to any of its rights under this Agreement, take
possession of any ticket forms, exchange orders, traffic material or other
property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or
resolutions of the International Air Transport Association and the Air
Traffic Conference of America, and such rules or resolutions shall control
in the event of any conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event
Orient Air Services is unable to transfer to the United States the funds
payable by Orient Air Services to American under this Agreement. Either
party may terminate the Agreement without cause by giving the other
30 days' notice by letter, telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of
January to March 1981 in the amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets sold originally by Orient Air and
terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit
against Orient Air with the Court of First Instance of Manila, Branch 24, for
Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

Restraining Order4 averring the aforesaid basis for the termination of the Agreement
as well as therein defendant's previous record of failures "to promptly settle past
outstanding refunds of which there were available funds in the possession of the
defendant, . . . to the damage and prejudice of plaintiff."5
In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the
material allegations of the complaint with respect to plaintiff's entitlement to alleged
unremitted amounts, contending that after application thereof to the commissions
due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant contended that the actions taken by
American Air in the course of terminating the Agreement as well as the termination
itself were untenable, Orient Air claiming that American Air's precipitous conduct had
occasioned prejudice to its business interests.
Finding that the record and the evidence substantiated the allegations of the
defendant, the trial court ruled in its favor, rendering a decision dated 16 July 1984,
the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby
rendered in favor of defendant and against plaintiff dismissing the
complaint and holding the termination made by the latter as affecting
the GSA agreement illegal and improper and order the plaintiff to
reinstate defendant as its general sales agent for passenger
tranportation in the Philippines in accordance with said GSA agreement;
plaintiff is ordered to pay defendant the balance of the overriding
commission on total flown revenue covering the period from March 16,
1977 to December 31, 1980 in the amount of US$84,821.31 plus the
additional amount of US$8,000.00 by way of proper 3% overriding
commission per month commencing from January 1, 1981 until such
reinstatement or said amounts in its Philippine peso equivalent legally
prevailing at the time of payment plus legal interest to commence from
the filing of the counterclaim up to the time of payment. Further,
plaintiff is directed to pay defendant the amount of One Million Five
Hundred Thousand (Pl,500,000.00) pesos as and for exemplary damages;
and the amount of Three Hundred Thousand (P300,000.00) pesos as and
by way of attorney's fees.
Costs against plaintiff.7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the findings of the court a quo on their
material points but with some modifications with respect to the monetary awards
granted. The dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications —
1) American is ordered to pay Orient the sum
of US$53,491.11 representing the balance of the latter's overriding
commission covering the period March 16, 1977 to December 31,
1980, or its Philippine peso equivalent in accordance with the official
rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the
latter's overriding commission per month starting January 1, 1981 until
date of termination, May 9, 1981 or its Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on July
10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July
10, 1981 the date the answer with counterclaim was filed, until full
payment;
4) American is ordered to pay Orient exemplary damages of
P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as
attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the
substance thereof and arguing for its reversal. The appellate court's decision was also
the subject of a Motion for Partial Reconsideration by Orient Air which prayed for the
restoration of the trial court's ruling with respect to the monetary awards. The Court
of Appeals, by resolution promulgated on 17 December 1986, denied American Air's
motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays
for affirmance of the trial court's award of exemplary damages and
attorney's fees, but granted insofar as the rate of exchange is concerned.
The decision of January 27, 1986 is modified in paragraphs (1) and (2) of
the dispositive part so that the payment of the sums mentioned therein
shall be at their Philippine peso equivalent in accordance with the official
rate of exchange legally prevailing on the date of actual payment.9
CASES: Agency
Page 76 of 104
Both parties appealed the aforesaid resolution and decision of the respondent court,
Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No.
76933. By resolution10 of this Court dated 25 March 1987 both petitions were
consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the
3% overriding commission. It is the stand of American Air that such commission is
based only on sales of its services actually negotiated or transacted by Orient Air,
otherwise referred to as "ticketed sales." As basis thereof, primary reliance is placed
upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air
Services an overriding commission of 3% of the tariff fees and charges
for all sales of transportation over American's services by Orient Air
Services or itssub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the
former not having opted to appoint any sub-agents, it is American Air's contention
that Orient Air can claim entitlement to the disputed overriding commission based
only on ticketed sales. This is supposed to be the clear meaning of the underscored
portion of the above provision. Thus, to be entitled to the 3% overriding commission,
the sale must be made by Orient Air and the sale must be done with the use of
American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3%
overriding commission covers the total revenue of American Air and not merely that
derived from ticketed sales undertaken by Orient Air. The latter, in justification of its
submission, invokes its designation as the exclusive General Sales Agent of American
Air, with the corresponding obligations arising from such agency, such as, the
promotion and solicitation for the services of its principal. In effect, by virtue of such
exclusivity, "all sales of transportation over American Air's services are necessarily by
Orient Air."11
It is a well settled legal principle that in the interpretation of a contract, the entirety
thereof must be taken into consideration to ascertain the meaning of its
provisions.12 The various stipulations in the contract must be read together to give
effect to all.13 After a careful examination of the records, the Court finds merit in the
contention of Orient Air that the Agreement, when interpreted in accordance with
the foregoing principles, entitles it to the 3% overriding commission based on total
revenue, or as referred to by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air
passenger transportation, and the solicitation of sales therefor. In return for such
efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a
sales agency commission, ranging from 7-8% of tariff fares and charges from sales by
Orient Air when made on American Air ticket stock; and second, an overriding
commission of 3% of tariff fares and charges for all sales of passenger transportation
over American Air services. It is immediately observed that the precondition attached
to the first type of commission does not obtain for the second type of commissions.
The latter type of commissions would accrue for sales of American Air services made
not on its ticket stock but on the ticket stock of other air carriers sold by such carriers
or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit
the basis of such overriding commissions to sales from American Air ticket stock
would erase any distinction between the two (2) types of commissions and would
lead to the absurd conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times be avoided with
every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records
that American Air was the party responsible for the preparation of the Agreement.
Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who caused the ambiguity and could
have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil
Code provides that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity. 14 To put it differently, when
several interpretations of a provision are otherwise equally proper, that
interpretation or construction is to be adopted which is most favorable to the party in
whose favor the provision was made and who did not cause the ambiguity. 15 We
therefore agree with the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The
respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds
justification from paragraph 4 of the Agreement, Exh. F, which provides
for remittances to American less commissions to which Orient is entitled,
and from paragraph 5(d) which specifically allows Orient to retain the
full amount of its commissions. Since, as stated ante, Orient is entitled to
the 3% override. American's premise, therefore, for the cancellation of
the Agreement did not exist. . . ."
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 Page 77 of 104

We agree with the findings of the respondent appellate court. As earlier established,
Orient Air was entitled to an overriding commission based on total flown revenue.
American Air's perception that Orient Air was remiss or in default of its obligations
under the Agreement was, in fact, a situation where the latter acted in accordance
with the Agreement—that of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the latter was still
obligated to Orient Air by way of such commissions. Orient Air was clearly justified in
retaining and refusing to remit the sums claimed by American Air. The latter's
termination of the Agreement was, therefore, without cause and basis, for which it
should be held liable to Orient Air.

On the matter of damages, the respondent appellate court modified by reduction the
trial court's award of exemplary damages and attorney's fees. This Court sees no
error in such modification and, thus, affirms the same.

It is believed, however, that respondent appellate court erred in affirming the rest of
the decision of the trial court.1âwphi1We refer particularly to the lower court's
decision ordering American Air to "reinstate defendant as its general sales agent for
passenger transportation in the Philippines in accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect,
compels American Air to extend its personality to Orient Air. Such would be violative
of the principles and essence of agency, defined by law as a contract whereby "a
person binds himself to render some service or to do something in representation or
on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER .
17
(emphasis supplied) In an agent-principal relationship, the personality of the
principal is extended through the facility of the agent. In so doing, the agent, by legal
fiction, becomes the principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any court. The
Agreement itself between the parties states that "either party may terminate the
Agreementwithout cause by giving the other 30 days' notice by letter, telegram or
cable." (emphasis supplied) We, therefore, set aside the portion of the ruling of the
respondent appellate court reinstating Orient Air as general sales agent of American
Air.

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and
resolution of the respondent Court of Appeals, dated 27 January 1986 and 17
December 1986, respectively. Costs against petitioner American Air.

SO ORDERED.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


G.R. No. 85494 May 7, 1991
CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V. RAMNANI and MOTI G.
RAMNANI, petitioners,
vs.
COURT OF APPEALS, SPOUSES ISHWAR JETHMAL RAMNANI, SONYA JETHMAL
RAMNANI and OVERSEAS HOLDING CO., LTD., respondents.
G.R. No. 85496 May 7, 1991
SPOUSES ISHWAR JETHMAL RAMNANI AND SONYA JET RAMNANI, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ORTIGAS & CO., LTD. PARTNERSHIP, and
OVERSEAS HOLDING CO., LTD., respondents.
Quasha, Asperilla Ancheta, Peña and Nolasco for petitioners Ishwar Jethmal Ramnani
& Sonya Ramnani.
Salonga, Andres, Hernandez & Allado for Choithram Jethmal Ramnani, Nirmla
Ramnani & Moti Ramnani.
Rama Law Office for private respondents in collaboration with Salonga, Andres,
Hernandez & Allado.
Eulogio R. Rodriguez for Ortigas & Co., Ltd.
GANCAYCO, J.:
This case involves the bitter quarrel of two brothers over two (2) parcels of land and
its improvements now worth a fortune. The bone of contention is the apparently
conflicting factual findings of the trial court and the appellate court, the resolution of
which will materially affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the
full blood. Ishwar and his spouse Sonya had their main business based in New York.
Realizing the difficulty of managing their investments in the Philippines they executed
a general power of attorney on January 24, 1966 appointing Navalrai and Choithram
as attorneys-in-fact, empowering them to manage and conduct their business
concern in the Philippines.1
On February 1, 1966 and on May 16, 1966, Choithram, in his capacity as aforesaid
attorney-in-fact of Ishwar, entered into two agreements for the purchase of two
parcels of land located in Barrio Ugong, Pasig, Rizal, from Ortigas & Company, Ltd.
Partnership (Ortigas for short) with a total area of approximately 10,048 square
meters.2Per agreement, Choithram paid the down payment and installments on the
lot with his personal checks. A building was constructed thereon by Choithram in
1966 and this was occupied and rented by Jethmal Industries and a wardrobe shop
called Eppie's Creation. Three other buildings were built thereon by Choithram
through a loan of P100,000.00 obtained from the Merchants Bank as well as the
income derived from the first building. The buildings were leased out by Choithram
as attorney-in-fact of Ishwar. Two of these buildings were later burned.
Sometime in 1970 Ishwar asked Choithram to account for the income and expenses
relative to these properties during the period 1967 to 1970. Choithram failed and
refused to render such accounting. As a consequence, on February 4, 1971, Ishwar
revoked the general power of attorney. Choithram and Ortigas were duly notified of
such revocation on April 1, 1971 and May 24, 1971, respectively.3 Said notice was also
registered with the Securities and Exchange Commission on March 29, 1971 4 and was
published in the April 2, 1971 issue of The Manila Times for the information of the
general public.5
Nevertheless, Choithram as such attorney-in-fact of Ishwar, transferred all rights and
interests of Ishwar and Sonya in favor of his daughter-in-law, Nirmla Ramnani, on
February 19, 1973. Her husband is Moti, son of Choithram. Upon complete payment
of the lots, Ortigas executed the corresponding deeds of sale in favor of
Nirmla.6 Transfer Certificates of Title Nos. 403150 and 403152 of the Register of
Deeds of Rizal were issued in her favor.
Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for short) filed a
complaint in the Court of First Instance of Rizal against Choithram and/or spouses
Nirmla and Moti (Choithram et al. for brevity) and Ortigas for reconveyance of said
properties or payment of its value and damages. An amended complaint for damages
was thereafter filed by said spouses.
After the issues were joined and the trial on the merits, a decision was rendered by
the trial court on December 3, 1985 dismissing the complaint and counterclaim. A
motion for reconsideration thereof filed by spouses Ishwar was denied on March 3,
1986.
An appeal therefrom was interposed by spouses Ishwar to the Court of Appeals
wherein in due course a decision was promulgated on March 14, 1988, the
dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered reversing and setting aside
the appealed decision of the lower court dated December 3, 1985 and
CASES: Agency
Page 78 of 104
the Order dated March 3, 1986 which denied plaintiffs-appellants'
Motion for Reconsideration from aforesaid decision. A new decision is
hereby rendered sentencing defendants- appellees Choithram Jethmal
Ramnani, Nirmla V. Ramnani, Moti C. Ramnani, and Ortigas and
Company Limited Partnership to pay, jointly and severally, plaintiffs-
appellants the following:
1. Actual or compensatory damages to the extent of the fair market
value of the properties in question and all improvements thereon
covered by Transfer Certificate of Title No. 403150 and Transfer
Certificate of Title No. 403152 of the Registry of Deeds of Rizal,
prevailing at the time of the satisfaction of the judgment but in no case
shall such damages be less than the value of said properties as appraised
by Asian Appraisal, Inc. in its Appraisal Report dated August 1985
(Exhibits T to T-14, inclusive).
2. All rental incomes paid or ought to be paid for the use and occupancy
of the properties in question and all improvements thereon consisting of
buildings, and to be computed as follows:
a) On Building C occupied by Eppie's Creation and Jethmal
Industries from 1967 to 1973, inclusive, based on the 1967
to 1973 monthly rentals paid by Eppie's Creation;
b) Also on Building C above, occupied by Jethmal Industries
and Lavine from 1974 to 1978, the rental incomes based on
then rates prevailing as shown under Exhibit "P"; and from
1979 to 1981, based on then prevailing rates as indicated
under Exhibit "Q";
c) On Building A occupied by Transworld Knitting Mills from
1972 to 1978, the rental incomes based upon then
prevailing rates shown under Exhibit "P", and from 1979 to
1981, based on prevailing rates per Exhibit "Q";
d) On the two Bays Buildings occupied by Sigma-Mariwasa
from 1972 to 1978, the rentals based on the Lease Contract,
Exhibit "P", and from 1979 to 1980, the rentals based on the
Lease Contract, Exhibit "Q",
and thereafter commencing 1982, to account for and turn over the
rental incomes paid or ought to be paid for the use and occupancy of the
properties and all improvements totalling 10,048 sq. m based on the
rate per square meter prevailing in 1981 as indicated annually
cumulative up to 1984. Then, commencing 1985 and up to the
satisfaction of the judgment, rentals shall be computed at ten percent
(10%) annually of the fair market values of the properties as appraised
by the Asian Appraisal, Inc. in August 1985 (Exhibits T to T-14, inclusive.)
3. Moral damages in the sum of P200,000.00;
4. Exemplary damages in the sum of P100,000.00;
5. Attorney's fees equivalent to 10% of the award herein made;
6. Legal interest on the total amount awarded computed from first
demand in 1967 and until the full amount is paid and satisfied; and
7. The cost of suit.7
Acting on a motion for reconsideration filed by Choithram, et al. and Ortigas, the
appellate court promulgated an amended decision on October 17, 1988 granting the
motion for reconsideration of Ortigas by affirming the dismissal of the case by the
lower court as against Ortigas but denying the motion for reconsideration of
Choithram, et al.8
Choithram, et al. thereafter filed a petition for review of said judgment of the
appellate court alleging the following grounds:
1. The Court of Appeals gravely abused its discretion in making a factual
finding not supported by and contrary, to the evidence presented at the
Trial Court.
2. The Court of Appeals acted in excess of jurisdiction in awarding
damages based on the value of the real properties in question where the
cause of action of private respondents is recovery of a sum of money.
ARGUMENTS
I
THE COURT OF APPEALS ACTED IN GRAVE ABUSE OF ITS DISCRETION IN
MAKING A FACTUAL FINDING THAT PRIVATE RESPONDENT ISHWAR
REMITTED THE AMOUNT OF US $150,000.00 TO PETITIONER
CHOITHRAM IN THE ABSENCE OF PROOF OF SUCH REMITTANCE.
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II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION
AND MANIFEST PARTIALITY IN DISREGARDING THE TRIAL COURTS
FINDINGS BASED ON THE DIRECT DOCUMENTARY AND TESTIMONIAL
EVIDENCE PRESENTED BY CHOITHRAM IN THE TRIAL COURT
ESTABLISHING THAT THE PROPERTIES WERE PURCHASED WITH
PERSONAL FUNDS OF PETITIONER CHOITHRAM AND NOT WITH MONEY
ALLEGEDLY REMITTED BY RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN EXCESS OF JURISDICTION IN
AWARDING DAMAGES BASED ON THE VALUE OF THE PROPERTIES AND
THE FRUITS OF THE IMPROVEMENTS THEREON. 9
Similarly, spouses Ishwar filed a petition for review of said amended decision of the
appellate court exculpating Ortigas of liability based on the following assigned errors
I Choithram precisely to be used in the real estate business, the trial court made the
THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE
ERROR AND HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD
WITH LAW AND/OR WITH APPLICABLE DECISIONS OF THIS HONORABLE
COURT—
A) IN PROMULGATING THE QUESTIONED AMENDED
DECISION (ANNEX "A") RELIEVING RESPONDENT ORTIGAS
FROM LIABILITY AND DISMISSING PETITIONERS' AMENDED
COMPLAINT IN CIVIL CASE NO. 534-P, AS AGAINST SAID
RESPONDENT ORTIGAS;
B) IN HOLDING IN SAID AMENDED DECISION THAT AT ANY
RATE NO ONE EVER TESTIFIED THAT ORTIGAS WAS A
SUBSCRIBER TO THE MANILA TIMES PUBLICATION OR THAT
ANY OF ITS OFFICERS READ THE NOTICE AS PUBLISHED IN
THE MANILA TIMES, THEREBY ERRONEOUSLY CONCLUDING
THAT FOR RESPONDENT ORTIGAS TO BE CONSTRUCTIVELY
BOUND BY THE PUBLISHED NOTICE OF REVOCATION,
ORTIGAS AND/OR ANY OF ITS OFFICERS MUST BE A
SUBSCRIBER AND/OR THAT ANY OF ITS OFFICERS SHOULD
READ THE NOTICE AS ACTUALLY PUBLISHED;
C) IN HOLDING IN SAID AMENDED DECISION THAT ORTIGAS
COULD NOT BE HELD LIABLE JOINTLY AND SEVERALLY WITH
THE DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND
NIRMLA RAMNANI, AS ORTIGAS RELIED ON THE WORD OF
CHOITHRAM THAT ALL ALONG HE WAS ACTING FOR AND IN
BEHALF OF HIS BROTHER ISHWAR WHEN IT TRANSFERRED
THE RIGHTS OF THE LATTER TO NIRMLA V. RAMNANI;
D) IN IGNORING THE EVIDENCE DULY PRESENTED AND
ADMITTED DURING THE TRIAL THAT ORTIGAS WAS
PROPERLY NOTIFIED OF THE NOTICE OF REVOCATION OF
THE GENERAL POWER OF ATTORNEY GIVEN TO
CHOITHRAM, EVIDENCED BY THE PUBLICATION IN THE
MANILA TIMES ISSUE OF APRIL 2, 1971 (EXH. F) WHICH
CONSTITUTES NOTICE TO THE WHOLE WORLD; THE RECEIPT
OF THE NOTICE OF SUCH REVOCATION WHICH WAS SENT
TO ORTIGAS ON MAY 22, 1971 BY ATTY. MARIANO P.
MARCOS AND RECEIVED BY ORTIGAS ON MAY 24, 1971
(EXH. G) AND THE FILING OF THE NOTICE WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MARCH
29,1971 (EXH. H);
E) IN DISCARDING ITS FINDINGS CONTAINED IN ITS
DECISION OF 14 MARCH 1988 (ANNEX B) THAT ORTIGAS
WAS DULY NOTIFIED OF THE REVOCATION OF THE POWER
OF ATTORNEY OF CHOITHRAM, HENCE ORTIGAS ACTED IN
BAD FAITH IN EXECUTING THE DEED OF SALE TO THE
PROPERTIES IN QUESTION IN FAVOR OF NIRMLA V.
RAMNANI;
F) IN SUSTAINING RESPONDENT ORTIGAS VACUOUS
REHASHED ARGUMENTS IN ITS MOTION FOR
RECONSIDERATION THAT IT WOULD NOT GAIN ONE
CENTAVO MORE FROM CHOITHRAM FOR THE SALE OF SAID
LOTS AND THE SUBSEQUENT TRANSFER OF THE SAME TO
THE MATTER'S DAUGHTER-IN-LAW, AND THAT IT WAS IN
GOOD FAITH WHEN IT TRANSFERRED ISHWAR'S RIGHTS TO
THE LOTS IN QUESTION.
II
THE RESPONDENT HONORABLE COURT OF APPEALS HAS SO FAR
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE QUESTIONED AMENDED DECISION
OF 17 NOVEMBER 1988 (ANNEX A) THAT RESPONDENT ORTIGAS & CO.,
LTD., IS NOT JOINTLY AND SEVERALLY LIABLE WITH DEFENDANTS-
CASES: Agency
Page 79 of 104
APPELLEES CHOITHRAM, MOTI AND NIRMLA RAMNANI IN SPITE OF ITS
ORIGINAL DECISION OF 14 MARCH 1988 THAT ORTIGAS WAS DULY
NOTIFIED OF THE REVOCATION OF THE POWER OF ATTORNEY OF
CHOITHRAM RAMNANI.10
The center of controversy is the testimony of Ishwar that during the latter part of
1965, he sent the amount of US $150,000.00 to Choithram in two bank drafts of
US$65,000.00 and US$85,000.00 for the purpose of investing the same in real estate
in the Philippines. The trial court considered this lone testimony unworthy of faith
and credit. On the other hand, the appellate court found that the trial court
misapprehended the facts in complete disregard of the evidence, documentary and
testimonial.
Another crucial issue is the claim of Choithram that because he was then a British
citizen, as a temporary arrangement, he arranged the purchase of the properties in
the name of Ishwar who was an American citizen and who was then qualified to
purchase property in the Philippines under the then Parity Amendment. The trial
court believed this account but it was debunked by the appellate court.
As to the issue of whether of not spouses Ishwar actually sent US$150,000.00 to
following disquisition —
After a careful, considered and conscientious examination of the
evidence adduced in the case at bar, plaintiff Ishwar Jethmal Ramanani's
main evidence, which centers on the alleged payment by sending
through registered mail from New York two (2) US$ drafts of $85,000.00
and $65,000.00 in the latter part of 1965 (TSN 28 Feb. 1984, p. 10-11).
The sending of these moneys were before the execution of that General
Power of Attorney, which was dated in New York, on January 24, 1966.
Because of these alleged remittances of US $150,000.00 and the
subsequent acquisition of the properties in question, plaintiffs averred
that they constituted a trust in favor of defendant Choithram Jethmal
Ramnani. This Court can be in full agreement if the plaintiffs were only
able to prove preponderantly these remittances. The entire record of this
case is bereft of even a shred of proof to that effect. It is completely
barren. His uncorroborated testimony that he remitted these amounts in
the "later part of 1965" does not engender enough faith and credence.
Inadequacy of details of such remittance on the two (2) US dollar drafts
in such big amounts is completely not positive, credible, probable and
entirely not in accord with human experience. This is a classic situation,
plaintiffs not exhibiting any commercial document or any document
and/or paper as regard to these alleged remittances. Plaintiff Ishwar
Ramnani is not an ordinary businessman in the strict sense of the word.
Remember his main business is based in New York, and he should know
better how to send these alleged remittances. Worst, plaintiffs did not
present even a scum of proof, that defendant Choithram Ramnani
received the alleged two US dollar drafts. Significantly, he does not know
even the bank where these two (2) US dollar drafts were purchased.
Indeed, plaintiff Ishwar Ramnani's lone testimony is unworthy of faith
and credit and, therefore, deserves scant consideration, and since the
plaintiffs' theory is built or based on such testimony, their cause of
action collapses or falls with it.
Further, the rate of exchange that time in 1966 was P4.00 to $1.00. The
alleged two US dollar drafts amounted to $150,000.00 or about
P600,000.00. Assuming the cash price of the two (2) lots was only
P530,000.00 (ALTHOUGH he said: "Based on my knowledge I have no
evidence," when asked if he even knows the cash price of the two lots).
If he were really the true and bonafide investor and purchaser for profit
as he asserted, he could have paid the price in full in cash directly and
obtained the title in his name and not thru "Contracts To Sell" in
installments paying interest and thru an attorney-in fact (TSN of May 2,
1984, pp. 10-11) and, again, plaintiff Ishwar Ramnani told this Court that
he does not know whether or not his late father-in-law borrowed the
two US dollar drafts from the Swiss Bank or whether or not his late
father-in-law had any debit memo from the Swiss Bank (TSN of May 2,
1984, pp. 9-10).11
On the other hand, the appellate court, in giving credence to the version of Ishwar,
had this to say —
While it is true, that generally the findings of fact of the trial court are
binding upon the appellate courts, said rule admits of exceptions such as
when (1) the conclusion is a finding grounded entirely on speculations,
surmises and conjectures; (2) when the inferences made is manifestly
mistaken, absurd and impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of
facts and when the court, in making its findings, went beyond the issues
of the case and the same are contrary to the admissions of both
appellant and appellee (Ramos vs. Court of Appeals, 63 SCRA 33;
Philippine American Life Assurance Co. vs. Santamaria, 31 SCRA 798;
Aldaba vs. Court of Appeals, 24 SCRA 189).
The evidence on record shows that the t court acted under a
misapprehension of facts and the inferences made on the evidence
palpably a mistake.
The trial court's observation that "the entire records of the case is bereft
of even a shred of proof" that plaintiff-appellants have remitted to
defendant-appellee Choithram Ramnani the amount of US $ 150,000.00
for investment in real estate in the Philippines, is not borne by the
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY
 Page 80 of 104

evidence on record and shows the trial court's misapprehension of the Q These two bank drafts which you mentioned and the use
facts if not a complete disregard of the evidence, both documentary and for it you sent them by registered mail, did you send them
testimonial. from New Your?

Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his own behalf,
declared that during the latter part of 1965, he sent the amount of US
$150,000.00 to his brother Choithram in two bank drafts of US
$65,000.00 and US $85,000.00 for the purpose of investing the same in
real estate in the Philippines. His testimony is as follows:
A That is right.
Q And the two bank drafts which were put in the registered
mail, the registered mail was addressed to whom?

ATTY. MARAPAO: A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-15).

Mr. Witness, you said that your attorney-in-fact paid in your
behalf. Can you tell this Honorable Court where your
attorney-in-fact got the money to pay this property?
ATTY. CRUZ:
On cross-examination, the witness reiterated the remittance of the
money to his brother Choithram, which was sent to him by his father-in-
law, Rochiram L. Mulchandoni from Switzerland, a man of immense
wealth, which even defendants-appellees' witness Navalrai Ramnani
admits to be so (tsn., p. 16, S. Oct. 13, 1985). Thus, on cross-
examination, Ishwar testified as follows:

Wait. It is now clear it becomes incompetent or hearsay. Q How did you receive these two bank drafts from the bank
the name of which you cannot remember?

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

Witness can answer.

Q From where did your father- in-law sent these two bank
drafts?
A I paid through my attorney-in-fact. I am the one who gave
him the money.
A From Switzerland.

ATTY. MARAPAO:
Q He was in Switzerland.

Q You gave him the money?

A Probably, they sent out these two drafts from Switzerland.

A That's right.
(TSN, 7 March 1984, pp. 16-17; Emphasis supplied.)

Q How much money did you give him?

This positive and affirmative testimony of plaintiff-appellant that he sent
the two (2) bank drafts totalling US $ 150,000.00 to his brother, is proof
A US $ 150,000.00. of said remittance. Such positive testimony has greater probative force
than defendant-appellee's denial of receipt of said bank drafts, for a
Q How was it given then? witness who testifies affirmatively that something did happen should be
believed for it is unlikely that a witness will remember what never
happened (Underhill's Cr. Guidance, 5th Ed., Vol. 1, pp. 10-11).
A Through Bank drafts. US $65,000.00 and US $85,000.00
bank drafts. The total amount which is $ 150,000.00 (TSN,
28 February 1984, p. 10; Emphasis supplied.) That is not all. Shortly thereafter, plaintiff-appellant Ishwar Ramnani
executed a General Power of Attorney (Exhibit "A") dated January 24,
1966 appointing his brothers, defendants-appellees Navalrai and
xxx xxx xxx Choithram as attorney-in-fact empowering the latter to conduct and
manage plaintiffs-appellants' business affairs in the Philippines and
specifically—
ATTY. CRUZ:

No. 14. To acquire, purchase for us, real estates and

Q The two bank drafts which you sent I assume you bought
that from some banks in New York?
A No, sir.
Q But there is no question those two bank drafts were for
the purpose of paying down payment and installment of the
two parcels of land?
A Down payment, installment and to put up the building.
Q I thought you said that the buildings were constructed . . .
subject to our continuing objection from rentals of first
building?
ATTY. MARAPAO:
Your Honor, that is misleading.
improvements for the purpose of real estate business
anywhere in the Philippines and to develop, subdivide,
improve and to resell to buying public (individual, firm or
corporation); to enter in any contract of sale in oar behalf
and to enter mortgages between the vendees and the
herein grantors that may be needed to finance the real
estate business being undertaken.
Pursuant thereto, on February 1, 1966 and May 16, 1966, Choithram
Jethmal Ramnani entered into Agreements (Exhibits "B' and "C") with
the other defendant. Ortigas and Company, Ltd., for the purchase of two
(2) parcels of land situated at Barrio Ugong, Pasig, Rizal, with said
defendant-appellee signing the Agreements in his capacity as Attorney-
in-fact of Ishwar Jethmal Ramnani.
Again, on January 5, 1972, almost seven (7) years after Ishwar sent the
US $ 150,000.00 in 1965, Choithram Ramnani, as attorney-in fact of
Ishwar entered into a Contract of Lease with Sigma-Mariwasa
(Exhibit "P") thereby re-affirming the ownership of Ishwar over the
disputed property and the trust relationship between the latter as
principal and Choithram as attorney-in-fact of Ishwar.

COURT;
All of these facts indicate that if plaintiff-appellant Ishwar had not earlier
sent the US $ 150,000.00 to his brother, Choithram, there would be no
Witness (may) answer. purpose for him to execute a power of attorney appointing his brothers
as s attorney-in-fact in buying real estate in the Philippines.
A Yes, the first building was immediately put up after the
purchase of the two parcels of land that was in 1966 and As against Choithram's denial that he did not receive the US $150,000.00
the finds were used for the construction of the building remitted by Ishwar and that the Power of Attorney, as well as the
from the US $150,000.00 (TSN, 7 March 1984, page 14; Agreements entered into with Ortigas & Co., were only temporary
Emphasis supplied.) arrangements, Ishwar's testimony that he did send the bank drafts to
Choithram and was received by the latter, is the more credible version
xxx xxx xxx since it is natural, reasonable and probable. It is in accord with the
common experience, knowledge and observation of ordinary men
(Gardner vs. Wentors 18 Iowa 533). And in determining where the
superior weight of the evidence on the issues involved lies, the court

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


may consider the probability or improbability of the testimony of the
witness (Sec. 1, Rule 133, Rules of Court).
Contrary, therefore, to the trial court's sweeping observation that 'the
entire records of the case is bereft of even a shred of proof that
Choithram received the alleged bank drafts amounting to US $
150,000.00, we have not only testimonial evidence but also
documentary and circumstantial evidence proving said remittance of the
money and the fiduciary relationship between the former and Ishwar. 12
The Court agrees. The environmental circumstances of this case buttress the claim of
Ishwar that he did entrust the amount of US $ 150,000.00 to his brother, Choithram,
which the latter invested in the real property business subject of this litigation in his
capacity as attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in the possession of Ishwar to evidence the
same, but it is not unusual among brothers and close family members to entrust
money and valuables to each other without any formalities or receipt due to the
special relationship of trust between them.
And another proof thereof is the fact that Ishwar, out of frustration when Choithram
failed to account for the realty business despite his demands, revoked the general
power of attorney he extended to Choithram and Navalrai. Thereafter, Choithram
wrote a letter to Ishwar pleading that the power of attorney be renewed or another
authority to the same effect be extended, which reads as follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty. immediately, because the case has
been postponed for two weeks. The same way as it has
been send before in favor of both names. Send it
immediately otherwise everything will be lost unnecessarily,
and then it will take us in litigation. Now that we have gone
ahead with a case and would like to end it immediately
otherwise squatters will take the entire land. Therefore,
send it immediately.
(2) Ortigas also has sued us because we are holding the
installments, because they have refused to give a rebate of
P5.00 per meter which they have to give us as per contract.
They have filed the law suit that since we have not paid the
installment they should get back the land. The hearing of
this case is in the month of July. Therefore, please send the
power immediately. In one case DADA (Elder Brother) will
represent and in another one, I shall.
(3) In case if you do not want to give power then make one
letter in favor of Dada and the other one in my favor
showing that in any litigation we can represent you and
your wife, and whatever the court decide it will be
acceptable by me. You can ask any lawyer, he will be able to
prepare these letters. After that you can have these letters
ratify before P.I. Consulate. It should be dated April 15,
1971.
(4) Try to send the power because it will be more useful.
Make it in any manner whatever way you have confident in
it. But please send it immediately.
You have cancelled the power. Therefore, you have lost your reputation everywhere.
What can I further write you about it. I have told everybody that due to certain
reasons I have written you to do this that is why you have done this. This way your
reputation have been kept intact. Otherwise if I want to do something about it, I can
show you that inspite of the power you have cancelled you can not do anything. You
can keep this letter because my conscience is clear. I do not have anything in my mind.
I should not be writing you this, but because my conscience is clear do you know that
if I had predated papers what could you have done? Or do you know that I have
many paper signed by you and if had done anything or do then what can you do
about it? It is not necessary to write further about this. It does not matter if you have
cancelled the power. At that time if I had predated and done something about it what
could you have done? You do not know me. I am not after money. I can earn money
anytime. It has been ten months since I have not received a single penny for expenses
from Dada (elder brother). Why there are no expenses? We can not draw a single
penny from knitting (factory). Well I am not going to write you further, nor there is
any need for it. This much I am writing you because of the way you have conducted
yourself. But remember, whenever I hale the money I will not keep it myself Right now
I have not got anything at all.
I am not going to write any further.
Keep your business clean with Naru. Otherwise he will discontinue because he likes
to keep his business very clean.13
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Page 81 of 104
The said letter was in Sindhi language. It was translated to English by the First
Secretary of the Embassy of Pakistan, which translation was verified correct by the
Chairman, Department of Sindhi, University of Karachi.14
From the foregoing letter what could be gleaned is that—
1. Choithram asked for the issuance of another power of attorney in
their favor so they can continue to represent Ishwar as Ortigas has sued
them for unpaid installments. It also appears therefrom that Ortigas
learned of the revocation of the power of attorney so the request to
issue another.
2. Choithram reassured Ishwar to have confidence in him as he was not
after money, and that he was not interested in Ishwar's money.
3. To demonstrate that he can be relied upon, he said that he could have
ante-dated the sales agreement of the Ortigas lots before the issuance
of the powers of attorney and acquired the same in his name, if he
wanted to, but he did not do so.
4. He said he had not received a single penny for expenses from Dada
(their elder brother Navalrai). Thus, confirming that if he was not given
money by Ishwar to buy the Ortigas lots, he could not have
consummated the sale.
5. It is important to note that in said letter Choithram never claimed
ownership of the property in question. He affirmed the fact that he
bought the same as mere agent and in behalf of Ishwar. Neither did he
mention the alleged temporary arrangement whereby Ishwar, being an
American citizen, shall appear to be the buyer of the said property, but
that after Choithram acquires Philippine citizenship, its ownership shall
be transferred to Choithram.
This brings us to this temporary arrangement theory of Choithram.
The appellate court disposed of this matter in this wise
Choithram's claim that he purchased the two parcels of land for himself
in 1966 but placed it in the name of his younger brother, Ishwar, who is
an American citizen, as a temporary arrangement,' because as a British
subject he is disqualified under the 1935 Constitution to acquire real
property in the Philippines, which is not so with respect to American
citizens in view of the Ordinance Appended to the Constitution granting
them parity rights, there is nothing in the records showing that Ishwar
ever agreed to such a temporary arrangement.
During the entire period from 1965, when the US $ 150,000. 00 was
transmitted to Choithram, and until Ishwar filed a complaint against him
in 1982, or over 16 years, Choithram never mentioned of a temporary
arrangement nor can he present any memorandum or writing
evidencing such temporary arrangement, prompting plaintiff-appellant
to observe:
The properties in question which are located in a prime
industrial site in Ugong, Pasig, Metro Manila have a present
fair market value of no less than P22,364,000.00 (Exhibits T
to T-14, inclusive), and yet for such valuable pieces of
property, Choithram who now belatedly that he purchased
the same for himself did not document in writing or in a
memorandum the alleged temporary arrangement with
Ishwar' (pp. 4-41, Appellant's Brief).
Such verbal allegation of a temporary arrangement is simply improbable
and inconsistent. It has repeatedly been held that important contracts
made without evidence are highly improbable.
The improbability of such temporary arrangement is brought to fore
when we consider that Choithram has a son (Haresh Jethmal Ramnani)
who is an American citizen under whose name the properties in question
could be registered, both during the time the contracts to sell were
executed and at the time absolute title over the same was to be
delivered. At the time the Agreements were entered into with defendant
Ortigas & Co. in 1966, Haresh, was already 18 years old and
consequently, Choithram could have executed the deeds in trust for his
minor son. But, he did not do this. Three (3) years, thereafter, or in 1968
after Haresh had attained the age of 21, Choithram should have
terminated the temporary arrangement with Ishwar, which according to
him would be effective only pending the acquisition of citizenship
papers. Again, he did not do anything.
Evidence to be believed, said Vice Chancellor Van Fleet of
New Jersey, must not only proceed from the mouth of a
credible witness, but it must be credible in itself—such as
the common experience and observation of mankind can
approve as probable under the circumstances. We have no
test of the truth of human testimony, except its conformity
to our knowledge, observation and experience. Whatever is
repugnant to these belongs to the miraculous and is outside
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

of judicial cognizance. (Daggers vs. Van Dyek 37 M.J. Eq.
130, 132).
Another factor that can be counted against the temporary arrangement
excuse is that upon the revocation on February 4, 1971 of the Power of
attorney dated January 24, 1966 in favor of Navalrai and Choithram by
Ishwar, Choithram wrote (tsn, p. 21, S. July 19, 1985) a letter dated June
25, 1971 (Exhibits R, R-1, R-2 and R-3) imploring Ishwar to execute a new
power of attorney in their favor. That if he did not want to give power,
then Ishwar could make a letter in favor of Dada and another in his favor
so that in any litigation involving the properties in question, both of
them could represent Ishwar and his wife. Choithram tried to convince
Ishwar to issue the power of attorney in whatever manner he may want.
In said letter no mention was made at all of any temporary arrangement.
On the contrary, said letter recognize(s) the existence of principal and
attorney-in-fact relationship between Ishwar and himself. Choithram
wrote: . . . do you know that if I had predated papers what could you
have done? Or do you know that I have many papers signed by you and
if I had done anything or do then what can you do about it?' Choithram
was saying that he could have repudiated the trust and ran away with
the properties of Ishwar by predating documents and Ishwar would be
entirely helpless. He was bitter as a result of Ishwar's revocation of the
power of attorney but no mention was made of any temporary
arrangement or a claim of ownership over the properties in question nor
was he able to present any memorandum or document to prove the
existence of such temporary arrangement.
Choithram is also estopped in pais or by deed from claiming an interest
over the properties in question adverse to that of Ishwar. Section 3(a) of
Rule 131 of the Rules of Court states that whenever a party has, by his
own declaration, act, or omission intentionally and deliberately led
another to believe a particular thing true and act upon such belief, he
cannot in any litigation arising out of such declaration, act or omission
be permitted to falsify it.' While estoppel by deed is a bar which
precludes a party to a deed and his privies from asserting as against the
other and his privies any right of title in derogation of the deed, or from
denying the truth of any material fact asserted in it (31 C.J.S. 195; 19 Am.
Jur. 603).
Thus, defendants-appellees are not permitted to repudiate their
admissions and representations or to assert any right or title in
derogation of the deeds or from denying the truth of any material fact
asserted in the (1) power of attorney dated January 24, 1966 (Exhibit
A); (2) the Agreements of February 1, 1966 and May 16, 1966 (Exhibits B
and C); and (3) the Contract of Lease dated January 5, 1972 (Exhibit P).
. . . The doctrine of estoppel is based upon the grounds of
public policy, fair dealing, good faith and justice, and its
purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to
whom they were directed and who reasonably relied
thereon. The doctrine of estoppel springs from equitable
principles and the equities in the case. It is designed to aid
the law in the administration of justice where without its
aid injustice might result. It has been applied by court
wherever and whenever special circumstances of a case so
demands' (Philippine National Bank vs. Court of Appeals, 94
SCRA 357, 368 [1979]).
It was only after the services of counsel has been obtained that
Choithram alleged for the first time in his Answer that the General Power
of attorney (Annex A) with the Contracts to Sell (Annexes B and C) were
made only for the sole purpose of assuring defendants' acquisition and
ownership of the lots described thereon in due time under the law; that
said instruments do not reflect the true intention of the parties (par. 2,
Answer dated May 30, 1983), seventeen (17) long years from the time he
received the money transmitted to him by his brother, Ishwar.
Moreover, Choithram's 'temporary arrangement,' by which he claimed
purchasing the two (2) parcels in question in 1966 and placing them in
the name of Ishwar who is an American citizen, to circumvent the
disqualification provision of aliens acquiring real properties in the
Philippines under the 1935 Philippine Constitution, as Choithram was
then a British subject, show a palpable disregard of the law of the land
and to sustain the supposed "temporary arrangement" with Ishwar
would be sanctioning the perpetration of an illegal act and culpable
violation of the Constitution.
Defendants-appellees likewise violated the Anti-Dummy Law
(Commonwealth Act 108, as amended), which provides in Section 1
thereof that:
In all cases in which any constitutional or legal provision
requires Philippine or any other specific citizenship as a
requisite for the exercise or enjoyment of a right, franchise
or privilege, . . . any alien or foreigner profiting thereby,
shall be punished . . . by imprisonment . . . and of a fine of
not less than the value of the right, franchise or privileges,
which is enjoyed or acquired in violation of the provisions
hereof . . .
CASES: Agency
Page 82 of 104
Having come to court with unclean hands, Choithram must not be
permitted foist his 'temporary arrangement' scheme as a defense before
this court. Being in delicto, he does not have any right whatsoever being
shielded from his own wrong-doing, which is not so with respect to
Ishwar, who was not a party to such an arrangement.
The falsity of Choithram's defense is further aggravated by the material
inconsistencies and contradictions in his testimony. While on January 23,
1985 he testified that he purchased the land in question on his own
behalf (tsn, p. 4, S. Jan. 23, 1985), in the July 18, 1985 hearing, forgetting
probably what he stated before, Choithram testified that he was only an
attorney-in-fact of Ishwar (tsn, p. 5, S. July 18, 1985). Also in the hearing
of January 23, 1985, Choithram declared that nobody rented the
building that was constructed on the parcels of land in question (tsn, pp.
5 and 6), only to admit in the hearing of October 30, 1985, that he was in
fact renting the building for P12,000. 00 per annum (tsn, p. 3). Again, in
the hearing of July 19, 1985, Choithram testified that he had no
knowledge of the revocation of the Power of Attorney (tsn, pp. 20- 21),
only to backtrack when confronted with the letter of June 25, 1971
(Exhibits R to R-3), which he admitted to be in "his own writing,"
indicating knowledge of the revocation of the Power of Attorney.
These inconsistencies are not minor but go into the entire credibility of
the testimony of Choithram and the rule is that contradictions on a very
crucial point by a witness, renders s testimony incredible People vs.
Rafallo, 80 Phil. 22). Not only this the doctrine of falsus in uno, falsus in
omnibus is fully applicable as far as the testimony of Choithram is
concerned. The cardinal rule, which has served in all ages, and has been
applied to all conditions of men, is that a witness willfully falsifying the
truth in one particular, when upon oath, ought never to be believed
upon the strength of his own testimony, whatever he may assert (U.S. vs.
Osgood 27 Feb. Case No. 15971-a, p. 364); Gonzales vs. Mauricio, 52
Phil, 728), for what ground of judicial relief can there be left when the
party has shown such gross insensibility to the difference between right
and wrong, between truth and falsehood? (The Santisima Trinidad, 7
Wheat, 283, 5 U.S. [L. ed.] 454).
True, that Choithram's testimony finds corroboration from the testimony
of his brother, Navalrai, but the same would not be of much help to
Choithram. Not only is Navalrai an interested and biased witness, having
admitted his close relationship with Choithram and that whenever he or
Choithram had problems, they ran to each other (tsn, pp. 17-18, S. Sept.
20, 1985), Navalrai has a pecuniary interest in the success of Choithram
in the case in question. Both he and Choithram are business partners in
Jethmal and Sons and/or Jethmal Industries, wherein he owns 60% of
the company and Choithram, 40% (p. 62, Appellant's Brief). Since the
acquisition of the properties in question in 1966, Navalrai was occupying
1,200 square meters thereof as a factory site plus the fact that his son
(Navalrais) was occupying the apartment on top of the factory with his
family rent free except the amount of P l,000.00 a month to pay for taxes
on said properties (tsn, p. 17, S. Oct. 3, 1985).
Inherent contradictions also marked Navalrai testimony. "While the
latter was very meticulous in keeping a receipt for the P 10,000.00 that
he paid Ishwar as settlement in Jethmal Industries, yet in the alleged
payment of P 100,000.00 to Ishwar, no receipt or voucher was ever
issued by him (tsn, p. 17, S. Oct. 3, 1983). 15
We concur.
The foregoing findings of facts of the Court of Appeals which are supported by the
evidence is conclusive on this Court. The Court finds that Ishwar entrusted
US$150,000.00 to Choithram in 1965 for investment in the realty business. Soon
thereafter, a general power of attorney was executed by Ishwar in favor of both
Navalrai and Choithram. If it is true that the purpose only is to enable Choithram to
purchase realty temporarily in the name of Ishwar, why the inclusion of their elder
brother Navalrai as an attorney-in-fact?
Then, acting as attorney-in-fact of Ishwar, Choithram purchased two parcels of land
located in Barrio Ugong Pasig, Rizal, from Ortigas in 1966. With the balance of the
money of Ishwar, Choithram erected a building on said lot. Subsequently, with a loan
obtained from a bank and the income of the said property, Choithram constructed
three other buildings thereon. He managed the business and collected the rentals.
Due to their relationship of confidence it was only in 1970 when Ishwar demanded
for an accounting from Choithram. And even as Ishwar revoked the general power of
attorney on February 4, 1971, of which Choithram was duly notified, Choithram
wrote to Ishwar on June 25, 1971 requesting that he execute a new power of
attorney in their favor. 16 When Ishwar did not respond thereto, Choithram
nevertheless proceeded as such attorney-in-fact to assign all the rights and interest of
Ishwar to his daughter-in-law Nirmla in 1973 without the knowledge and consent of
Ishwar. Ortigas in turn executed the corresponding deeds of sale in favor of Nirmla
after full payment of the purchase accomplice of the lots.
In the prefatory statement of their petition, Choithram pictured Ishwar to be so
motivated by greed and ungratefulness, who squandered the family business in New
York, who had to turn to his wife for support, accustomed to living in ostentation and
who resorted to blackmail in filing several criminal and civil suits against them. These
statements find no support and should be stricken from the records. Indeed, they are
irrelevant to the proceeding.
Moreover, assuming Ishwar is of such a low character as Choithram proposes to make
this Court to believe, why is it that of all persons, under his temporary arrangement
theory, Choithram opted to entrust the purchase of valuable real estate and built four
buildings thereon all in the name of Ishwar? Is it not an unconscious emergence of
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

the truth that this otherwise wayward brother of theirs was on the contrary able to
raise enough capital through the generosity of his father-in-law for the purchase of
the very properties in question? As the appellate court aptly observed if truly this
temporary arrangement story is the only motivation, why Ishwar of all people? Why
not the own son of Choithram, Haresh who is also an American citizen and who was
already 18 years old at the time of purchase in 1966? The Court agrees with the
observation that this theory is an afterthought which surfaced only when Choithram,
Nirmla and Moti filed their answer.
When Ishwar asked for an accounting in 1970 and revoked the general power of
attorney in 1971, Choithram had a total change of heart. He decided to claim the
property as his. He caused the transfer of the rights and interest of Ishwar to Nirmla.
On his representation, Ortigas executed the deeds of sale of the properties in favor of
Nirmla. Choithram obviously surmised Ishwar cannot stake a valid claim over the
property by so doing.
Clearly, this transfer to Nirmla is fictitious and, as admitted by Choithram, was
intended only to place the property in her name until Choithram acquires Philippine
citizenship.17 What appears certain is that it appears to be a scheme of Choithram to
place the property beyond the reach of Ishwar should he successfully claim the same.
Thus, it must be struck down.
Worse still, on September 27, 1990 spouses Ishwar filed an urgent motion for the
issuance of a writ of preliminary attachment and to require Choithram, et al. to
submit certain documents, inviting the attention of this Court to the following:
a) Donation by Choithram of his 2,500 shares of stock in General
Garments Corporation in favor of his children on December 29, 1989; 18
b) Sale on August 2, 1990 by Choithram of his 100 shares in Biflex
(Phils.), Inc., in favor of his children;19 and
c) Mortgage on June 20, 1989 by Nirmla through her attorney-in-fact,
Choithram, of the properties subject of this litigation, for the amount of
$3 Million in favor of Overseas Holding, Co. Ltd., (Overseas for brevity), a
corporation which appears to be organized and existing under and by
virtue of the laws of Cayman Islands, with a capital of only $100.00
divided into 100 shares of $1.00 each, and with address at P.O. Box 1790,
Grand Cayman, Cayman Islands.20
An opposition thereto was filed by Choithram, et al. but no documents were
produced. A manifestation and reply to the opposition was filed by spouses Ishwar.
All these acts of Choithram, et al. appear to be fraudulent attempts to remove these
properties to the detriment of spouses Ishwar should the latter prevail in this
litigation.
On December 10, 1990 the court issued a resolution that substantially reads as
follows:
Considering the allegations of petitioners Ishwar Jethmal Ramnani and
Sonya Ramnani that respondents Choithram Jethmal Ramnani, Nirmla
Ramnani and Moti G. Ramnani have fraudulently executed a simulated
mortgage of the properties subject of this litigation dated June 20, 1989,
in favor of Overseas Holding Co., Ltd. which appears to be a corporation
organized in Cayman Islands, for the amount of $ 3,000,000.00, which is
much more than the value of the properties in litigation; that said
alleged mortgagee appears to be a "shell" corporation with a capital of
only $100.00; and that this alleged transaction appears to be intended to
defraud petitioners Ishwar and Sonya Jethmal Ramnani of any favorable
judgment that this Court may render in this case;
Wherefore the Court Resolved to issue a writ of preliminary injunction
enjoining and prohibiting said respondents Choithram Jethmal Ramnani,
Nirmla V. Ramnani, Moti G. Ramnani and the Overseas Holding Co., Ltd.
from encumbering, selling or otherwise disposing of the properties and
improvements subject of this litigation until further orders of the Court.
Petitioners Ishwar and Sonya Jethmal Ramnani are hereby required to
post a bond of P 100,000.00 to answer for any damages d respondents
may suffer by way of this injunction if the Court finally decides the said
petitioners are not entitled thereto.
The Overseas Holding Co., Ltd. with address at P.O. Box 1790 Grand
Cayman, Cayman Islands, is hereby IMPLEADED as a respondent in these
cases, and is hereby required to SUBMIT its comment on the Urgent
Motion for the Issuance of a Writ of Preliminary Attachment and Motion
for Production of Documents, the Manifestation and the Reply to the
Opposition filed by said petitioners, within Sixty (60) days after service
by publication on it in accordance with the provisions of Section 17, Rule
14 of the Rules of Court, at the expense of petitioners Ishwar and Sonya
Jethmal Ramnani.
Let copies of this resolution be served on the Register of Deeds of Pasig,
Rizal, and the Provincial Assessor of Pasig, Rizal, both in Metro Manila,
for its annotation on the transfer Certificates of Titles Nos. 403150 and
403152 registered in the name of respondent Nirmla V. Ramnani, and on
the tax declarations of the said properties and its improvements subject
of this litigation.21
CASES: Agency
Page 83 of 104
The required injunction bond in the amount of P 100,000.00 was filed by the spouses
Ishwar which was approved by the Court. The above resolution of the Court was
published in the Manila Bulletin issue of December 17, 1990 at the expense of said
spouses.22 On December 19, 1990 the said resolution and petition for review with
annexes in G.R. Nos. 85494 and 85496 were transmitted to respondent Overseas,
Grand Cayman Islands at its address c/o Cayman Overseas Trust Co. Ltd., through the
United Parcel Services Bill of Lading23 and it was actually delivered to said company
on January 23, 1991.24
On January 22, 1991, Choithram, et al., filed a motion to dissolve the writ of
preliminary injunction alleging that there is no basis therefor as in the amended
complaint what is sought is actual damages and not a reconveyance of the property,
that there is no reason for its issuance, and that acts already executed cannot be
enjoined. They also offered to file a counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses Ishwar that there is basis for the
injunction as the alleged mortgage of the property is simulated and the other
donations of the shares of Choithram to his children are fraudulent schemes to
negate any judgment the Court may render for petitioners.
No comment or answer was filed by Overseas despite due notice, thus it is and must
be considered to be in default and to have lost the right to contest the
representations of spouses Ishwar to declare the aforesaid alleged mortgage nun and
void.
This purported mortgage of the subject properties in litigation appears to be
fraudulent and simulated. The stated amount of $3 Million for which it was
mortgaged is much more than the value of the mortgaged properties and its
improvements. The alleged mortgagee-company (Overseas) was organized only on
June 26,1989 but the mortgage was executed much earlier, on June 20, 1989, that is
six (6) days before Overseas was organized. Overseas is a "shelf" company worth only
$100.00. 25 In the manifestation of spouses Ishwar dated April 1, 1991, the Court was
informed that this matter was brought to the attention of the Central Bank (CB) for
investigation, and that in a letter of March 20, 1991, the CB informed counsel for
spouses Ishwar that said alleged foreign loan of Choithram, et al. from Overseas has
not been previously approved/registered with the CB.26
Obviously, this is another ploy of Choithram, et al. to place these properties beyond
the reach of spouses Ishwar should they obtain a favorable judgment in this case. The
Court finds and so declares that this alleged mortgage should be as it is hereby
declared null and void.
All these contemporaneous and subsequent acts of Choithram, et al., betray the
weakness of their cause so they had to take an steps, even as the case was already
pending in Court, to render ineffective any judgment that may be rendered against
them.
The problem is compounded in that respondent Ortigas is caught in the web of this
bitter fight. It had all the time been dealing with Choithram as attorney-in-fact of
Ishwar. However, evidence had been adduced that notice in writing had been served
not only on Choithram, but also on Ortigas, of the revocation of Choithram's power of
attorney by Ishwar's lawyer, on May 24, 1971. 27 A publication of said notice was made
in the April 2, 1971 issue of The Manila Times for the information of the general
public.28 Such notice of revocation in a newspaper of general circulation is sufficient
warning to third persons including Ortigas. 29 A notice of revocation was also
registered with the Securities and Exchange Commission on March 29, 1 971. 30
Indeed in the letter of Choithram to Ishwar of June 25, 1971, Choithram was pleading
that Ishwar execute another power of attorney to be shown to Ortigas who
apparently learned of the revocation of Choithram's power of attorney. 31 Despite said
notices, Ortigas nevertheless acceded to the representation of Choithram, as alleged
attorney-in-fact of Ishwar, to assign the rights of petitioner Ishwar to Nirmla. While
the primary blame should be laid at the doorstep of Choithram, Ortigas is not entirely
without fault. It should have required Choithram to secure another power of attorney
from Ishwar. For recklessly believing the pretension of Choithram that his power of
attorney was still good, it must, therefore, share in the latter's liability to Ishwar.
In the original complaint, the spouses Ishwar asked for a reconveyance of the
properties and/or payment of its present value and damages. 32 In the amended
complaint they asked, among others, for actual damages of not less than the present
value of the real properties in litigation, moral and exemplary damages, attorneys
fees, costs of the suit and further prayed for "such other reliefs as may be deemed
just and equitable in the premises .33 The amended complaint contain the following
positive allegations:
7. Defendant Choithram Ramnani, in evident bad faith and despite due
notice of the revocation of the General Power of Attorney, Annex 'D"
hereof, caused the transfer of the rights over the said parcels of land to
his daughter-in-law, defendant Nirmla Ramnani in connivance with
defendant Ortigas & Co., the latter having agreed to the said transfer
despite receiving a letter from plaintiffs' lawyer informing them of the
said revocation; copy of the letter is hereto attached and made an
integral part hereof as Annex "H";
8. Defendant Nirmla Ramnani having acquired the aforesaid property by
fraud is, by force of law, considered a trustee of an implied trust for the
benefit of plaintiff and is obliged to return the same to the latter:
9. Several efforts were made to settle the matter within the family but
defendants (Choithram Ramnani, Nirmla Ramnani and Moti Ramnani)
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refused and up to now fail and still refuse to cooperate and respond to
the same; thus, the present case;
10. In addition to having been deprived of their rights over the
properties (described in par. 3 hereof), plaintiffs, by reason of
defendants' fraudulent act, suffered actual damages by way of lost
rental on the property which defendants (Choithram Ramnani, Nirmla
Ramnani and Moti Ramnani have collected for themselves; 34
In said amended complaint, spouses Ishwar, among others, pray for payment of
actual damages in an amount no less than the value of the properties in litigation
instead of a reconveyance as sought in the original complaint. Apparently they opted
not to insist on a reconveyance as they are American citizens as alleged in the
amended complaint.
The allegations of the amended complaint above reproduced clearly spelled out that
the transfer of the property to Nirmla was fraudulent and that it should be
considered to be held in trust by Nirmla for spouses Ishwar. As above-discussed, this
allegation is well-taken and the transfer of the property to Nirmla should be
considered to have created an implied trust by Nirmla as trustee of the property for
the benefit of spouses Ishwar.35
The motion to dissolve the writ of preliminary injunction filed by Choithram, et al.
should be denied. Its issuance by this Court is proper and warranted under the
circumstances of the case. Under Section 3(c) Rule 58 of the Rules of Court, a writ of
preliminary injunction may be granted at any time after commencement of the action
and before judgment when it is established:
(c) that the defendant is doing, threatens, or is about to do, or is
procuring or suffering to be done, some act probably in violation of
plaintiffs's rights respecting the subject of the action, and tending to
render the judgment ineffectual.
As above extensively discussed, Choithram, et al. have committed and threaten to
commit further acts of disposition of the properties in litigation as well as the other
assets of Choithram, apparently designed to render ineffective any judgment the
Court may render favorable to spouses Ishwar.
The purpose of the provisional remedy of preliminary injunction is to preserve
the status quo of the things subject of the litigation and to protect the rights of the
spouses Ishwar respecting the subject of the action during the pendency of the
Suit36 and not to obstruct the administration of justice or prejudice the adverse
party.37 In this case for damages, should Choithram, et al. continue to commit acts of
disposition of the properties subject of the litigation, an award of damages to
spouses Ishwar would thereby be rendered ineffectual and meaningless. 38
Consequently, if only to protect the interest of spouses Ishwar, the Court hereby finds
and holds that the motion for the issuance of a writ of preliminary attachment filed
by spouses Ishwar should be granted covering the properties subject of this litigation.
Section 1, Rule 57 of the Rules of Court provides that at the commencement of an
action or at any time thereafter, the plaintiff or any proper party may have the
property of the adverse party attached as security for the satisfaction of any
judgment that may be recovered, in, among others, the following cases:
(d) In an action against a party who has been guilty of a fraud in
contracting the debt or incurring the obligation upon which the action is
brought, or in concealing or disposing of the property for the taking,
detention or conversion of which the action is brought;
(e) In an action against a party who has removed or disposed of his
property, or is about to do so, with intent to defraud his creditors; . . .
Verily, the acts of Choithram, et al. of disposing the properties subject of the litigation
disclose a scheme to defraud spouses Ishwar so they may not be able to recover at all
given a judgment in their favor, the requiring the issuance of the writ of attachment
in this instance.
Nevertheless, under the peculiar circumstances of this case and despite the fact that
Choithram, et al., have committed acts which demonstrate their bad faith and
scheme to defraud spouses Ishwar and Sonya of their rightful share in the properties
in litigation, the Court cannot ignore the fact that Choithram must have been
motivated by a strong conviction that as the industrial partner in the acquisition of
said assets he has as much claim to said properties as Ishwar, the capitalist partner in
the joint venture.
The scenario is clear. Spouses Ishwar supplied the capital of $150,000.00 for the
business.1âwphi1 They entrusted the money to Choithram to invest in a profitable
business venture in the Philippines. For this purpose they appointed Choithram as
their attorney-in-fact.
Choithram in turn decided to invest in the real estate business. He bought the two (2)
parcels of land in question from Ortigas as attorney-in-fact of Ishwar- Instead of
paying for the lots in cash, he paid in installments and used the balance of the capital
entrusted to him, plus a loan, to build two buildings. Although the buildings were
burned later, Choithram was able to build two other buildings on the property. He
rented them out and collected the rentals. Through the industry and genius of
Choithram, Ishwar's property was developed and improved into what it is now—a
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valuable asset worth millions of pesos. As of the last estimate in 1985, while the case
was pending before the trial court, the market value of the properties is no less than
P22,304,000.00.39 It should be worth much more today.
We have a situation where two brothers engaged in a business venture. One
furnished the capital, the other contributed his industry and talent. Justice and equity
dictate that the two share equally the fruit of their joint investment and efforts.
Perhaps this Solomonic solution may pave the way towards their reconciliation. Both
would stand to gain. No one would end up the loser. After all, blood is thicker than
water.
However, the Court cannot just close its eyes to the devious machinations and
schemes that Choithram employed in attempting to dispose of, if not dissipate, the
properties to deprive spouses Ishwar of any possible means to recover any award the
Court may grant in their favor. Since Choithram, et al. acted with evident bad faith
and malice, they should pay moral and exemplary damages as well as attorney's fees
to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is DENIED, while the petition in G.R. No.
85496 is hereby given due course and GRANTED. The judgment of the Court of
Appeals dated October 18, 1988 is hereby modified as follows:
1. Dividing equally between respondents spouses Ishwar, on the one hand, and
petitioner Choithram Ramnani, on the other, (in G.R. No. 85494) the two parcels of
land subject of this litigation, including all the improvements thereon, presently
covered by transfer Certificates of Title Nos. 403150 and 403152 of the Registry of
Deeds, as well as the rental income of the property from 1967 to the present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and
respondent Ortigas and Company, Limited Partnership (in G.R. No. 85496) are
ordered solidarily to pay in cash the value of said one-half (1/2) share in the said land
and improvements pertaining to respondents spouses Ishwar and Sonya at their fair
market value at the time of the satisfaction of this judgment but in no case less than
their value as appraised by the Asian Appraisal, Inc. in its Appraisal Report dated
August 1985 (Exhibits T to T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti Ramnani and respondent Ortigas & Co.,
Ltd. Partnership shall also be jointly and severally liable to pay to said respondents
spouses Ishwar and Sonya Ramnani one-half (1/2) of the total rental income of said
properties and improvements from 1967 up to the date of satisfaction of the
judgment to be computed as follows:
a. On Building C occupied by Eppie's Creation and Jethmal
Industries from 1967 to 1973, inclusive, based on the 1967
to 1973 monthly rentals paid by Eppie's Creation;
b. Also on Building C above, occupied by Jethmal Industries
and Lavine from 1974 to 1978, the rental incomes based on
then rates prevailing as shown under Exhibit "P"; and from
1979 to 1981, based on then prevailing rates as indicated
under Exhibit "Q";
c. On Building A occupied by Transworld Knitting Mills from
1972 to 1978, the rental incomes based upon then
prevailing rates shown under Exhibit "P", and from 1979 to
1981, based on prevailing rates per Exhibit "Q";
d. On the two Bays Buildings occupied by Sigma-Mariwasa
from 1972 to 1978, the rentals based on the Lease Contract,
Exhibit "P", and from 1979 to 1980, the rentals based on the
Lease Contract, Exhibit "Q".
and thereafter commencing 1982, to account for and turn over the rental incomes
paid or ought to be paid for the use and occupancy of the properties and all
improvements totalling 10,048 sq. m., based on the rate per square meter prevailing
in 1981 as indicated annually cumulative up to 1984. Then, commencing 1985 and up
to the satisfaction of the judgment, rentals shall be computed at ten percent (10%)
annually of the fair market values of the properties as appraised by the Asian
Appraisals, Inc. in August 1985. (Exhibits T to T-14, inclusive.)
4. To determine the market value of the properties at the time of the satisfaction of
this judgment and the total rental incomes thereof, the trial court is hereby directed
to hold a hearing with deliberate dispatch for this purpose only and to have the
judgment immediately executed after such determination.
5. Petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, are also jointly and
severally liable to pay respondents Ishwar and Sonya Ramnani the amount of
P500,000.00 as moral damages, P200,000.00 as exemplary damages and attorney's
fees equal to 10% of the total award. to said respondents spouses.
6. The motion to dissolve the writ of preliminary injunction dated December 10, 1990
filed by petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, is hereby
DENIED and the said injunction is hereby made permanent. Let a writ of attachment
be issued and levied against the properties and improvements subject of this
litigation to secure the payment of the above awards to spouses Ishwar and Sonya.
7. The mortgage constituted on the subject property dated June 20, 1989 by
petitioners Choithram and Nirmla, both surnamed Ramnani in favor of respondent
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 Page 85 of 104

Overseas Holding, Co. Ltd. (in G.R. No. 85496) for the amount of $3-M is hereby
declared null and void. The Register of Deeds of Pasig, Rizal, is directed to cancel the
annotation of d mortgage on the titles of the properties in question.

8. Should respondent Ortigas Co., Ltd. Partnership pay the awards to Ishwar and
Sonya Ramnani under this judgment, it shall be entitled to reimbursement from
petitioners Choithram, Nirmla and Moti, all surnamed Ramnani.

9. The above awards shag bear legal rate of interest of six percent (6%) per
annum from the time this judgment becomes final until they are fully paid by
petitioners Choithram Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and Ortigas,
Co., Ltd. Partnership. Said petitioners Choithram, et al. and respondent Ortigas shall
also pay the costs.

SO ORDERED.

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G.R. No. L-41420 July 10, 1992
CMS LOGGING, INC., petitioner,
vs.
THE COURT OF APPEALS and D.R. AGUINALDO CORPORATION, respondents.
NOCON, J.:
This is a petition for review on certiorari from the decision dated July 31, 1975 of the
Court of Appeals in CA-G.R. No. 47763-R which affirmed in toto the decision of the
Court of First Instance of Manila, Branch VII, in Civil Case No. 56355 dismissing the
complaint filed by petitioner CMS Logging, Inc. (CMS, for brevity) against private
respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and ordering the
former to pay the latter attorney's fees in the amount of P1,000.00 and the costs.
The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged
in the logging business, while private respondent DRACOR is engaged in the business
of exporting and selling logs and lumber. On August 28, 1957, CMS and DRACOR
entered into a contract of agency 1 whereby the former appointed the latter as its
exclusive export and sales agent for all logs that the former may produce, for a period
of five (5) years. The pertinent portions of the agreement, which was drawn up by
DRACOR, 2 are as follows:
1. SISON [CMS] hereby appoints DRACOR as his sole and
exclusive export sales agent with full authority, subject to
the conditions and limitations hereinafter set forth, to sell
and export under a firm sales contract acceptable to SISON,
all logs produced by SISON for a period of five (5) years
commencing upon the execution of the agreement and
upon the terms and conditions hereinafter provided and
DRACOR hereby accepts such appointment;
xxx xxx xxx
3. It is expressly agreed that DRACOR shall handle
exclusively all negotiations of all export sales of SISON with
the buyers and arrange the procurement and schedules of
the vessel or vessels for the shipment of SISON's logs in
accordance with SISON's written requests, but DRACOR
shall not in anyway [sic] be liable or responsible for any
delay, default or failure of the vessel or vessels to comply
with the schedules agreed upon;
xxx xxx xxx
9. It is expressly agreed by the parties hereto that DRACOR
shall receive five (5%) per cent commission of the gross
sales of logs of SISON based on F.O.B. invoice value which
commission shall be deducted from the proceeds of any
and/or all moneys received by DRACOR for and in behalf
and for the account of SISON;
By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of
77,264,672 board feet of logs in Japan, from September 20, 1957 to April 4, 1962.
About six months prior to the expiration of the agreement, while on a trip to Tokyo,
Japan, CMS's president, Atty. Carlos Moran Sison, and general manager and legal
counsel, Atty. Teodoro R. Dominguez, discovered that DRACOR had used Shinko
Trading Co., Ltd. (Shinko for brevity) as agent, representative or liaison officer in
selling CMS's logs in Japan for which Shinko earned a commission of U.S. $1.00 per
1,000 board feet from the buyer of the logs. Under this arrangement, Shinko was able
to collect a total of U.S. $77,264.67. 3
CMS claimed that this commission paid to Shinko was in violation of the agreement
and that it (CMS) is entitled to this amount as part of the proceeds of the sale of the
logs. CMS contended that since DRACOR had been paid the 5% commission under
the agreement, it is no longer entitled to the additional commission paid to Shinko as
this tantamount to DRACOR receiving double compensation for the services it
rendered.
After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or
P2,883,351.90, 4 directly to several firms in Japan without the aid or intervention of
DRACOR.
CMS sued DRACOR for the commission received by Shinko and for moral and
exemplary damages, while DRACOR counterclaimed for its commission, amounting to
P144,167.59, from the sales made by CMS of logs to Japanese firms. In its reply, CMS
averred as a defense to the counterclaim that DRACOR had retained the sum of
P101,167.59 as part of its commission for the sales made by CMS. 5 Thus, as its
counterclaim to DRACOR's counterclaim, CMS demanded DRACOR return the amount
it unlawfully retained. DRACOR later filed an amended counterclaim, alleging that the
balance of its commission on the sales made by CMS was P42,630.82, 6 thus impliedly
admitting that it retained the amount alleged by CMS.
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Page 86 of 104
In dismissing the complaint, the trial court ruled that no evidence was presented to
show that Shinko received the commission of U.S. $77,264.67 arising from the sale of
CMS's logs in Japan, though the trial court stated that "Shinko was able to collect the
total amount of $77,264.67 US Dollars (Exhs. M and M-1)." 7 The counterclaim was
likewise dismissed, as it was shown that DRACOR had waived its rights to the balance
of its commission in a letter dated February 2, 1963 to Atty. Carlos Moran Sison,
president of CMS. 8 From said decision, only CMS appealed to the Court of Appeals.
The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of the complaint
since "[t]he trial court could not have made a categorical finding that Shinko collected
commissions from the buyers of Sison's logs in Japan, and could not have held that
Sison is entitled to recover from Dracor the amount collected by Shinko as
commissions, plaintiff-appellant having failed to prove by competent evidence its
claims." 10
Moreover, the appellate court held:
There is reason to believe that Shinko Trading Co. Ltd., was
paid by defendant-appellee out of its own commission of
5%, as indicated in the letter of its president to the
president of Sison, dated February 2, 1963 (Exhibit "N"),
and in the Agreement between Aguinaldo Development
Corporation (ADECOR) and Shinko Trading Co., Ltd. (Exhibit
"9"). Daniel R. Aguinaldo stated in his said letter:
. . . , I informed you that if you wanted to pay me for the
service, then it would be no more than at the standard rate
of 5% commission because in our own case, we pay our
Japanese agents 2-1/2%. Accordingly, we would only add a
similar amount of 2-1/2% for the service which we would
render you in the Philippines. 11
Aggrieved, CMS appealed to this Court by way of a petition for review
on certiorari, alleging (1) that the Court of Appeals erred in not making a complete
findings of fact; (2) that the testimony of Atty. Teodoro R. Dominguez, regarding the
admission by Shinko's president and director that it collected a commission of U.S.
$1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible against
DRACOR; (3) that the statement of DRACOR's chief legal counsel in his memorandum
dated May 31, 1965, Exhibit "K", is an admission that Shinko was able to collect the
commission in question; (4) that the fact that Shinko received the questioned
commissions is deemed admitted by DRACOR by its silence under Section 23, Rule
130 of the Rules of Court when it failed to reply to Atty. Carlos Moran Sison's letter
dated February 6, 1962; (5) that DRACOR is not entitled to its 5% commission arising
from the direct sales made by CMS to buyers in Japan; and (6) that DRACOR is guilty
of fraud and bad faith in its dealings with CMS.
With regard to CMS's arguments concerning whether or not Shinko received the
commission in question, We find the same unmeritorious.
To begin with, these arguments question the findings of fact made by the Court of
Appeals, which are final and conclusive and can not be reviewed on appeal to the
Supreme Court. 12
Moreover, while it is true that the evidence adduced establishes the fact that Shinko
is DRACOR's agent or liaison in Japan, 13 there is no evidence which established the
fact that Shinko did receive the amount of U.S. $77,264.67 as commission arising
from the sale of CMS's logs to various Japanese firms.
The fact that Shinko received the commissions in question was not established by the
testimony of Atty. Teodoro R. Dominguez to the effect that Shinko's president and
director told him that Shinko received a commission of U.S. $1.00 for every 1,000
board feet of logs sold, since the same is hearsay. Similarly, the letter of Mr. K. Shibata
of Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr. Shibata was not presented to
testify on his letter.
CMS's other evidence have little or no probative value at all. The statements made in
the memorandum of Atty. Simplicio R. Ciocon to DRACOR dated May 31, 1965, 15 the
letter dated February 2, 1963 of Daniel
R. Aguinaldo, 16 president of DRACOR, and the reply-letter dated January 9, 1964 17 by
DRACOR's counsel Atty. V. E. Del Rosario to CMS's demand letter dated September 25,
1963 can not be categorized as admissions that Shinko did receive the commissions in
question.
The alleged admission made by Atty. Ciocon, to wit —
Furthermore, as per our records, our shipment of logs to
Toyo Menka Kaisha, Ltd., is only for a net volume of
67,747,732 board feet which should enable Shinko to
collect a commission of US $67,747.73 only
can not be considered as such since the statement was made in the
context of questioning CMS's tally of logs delivered to various Japanese
firms.
Similarly, the statement of Daniel R. Aguinaldo, to wit —
. . . Knowing as we do that Toyo Menka is a large and
reputable company, it is obvious that they paid Shinko for
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 Page 87 of 104

certain services which Shinko must have satisfactorily
performed for them in Japan otherwise they would not
have paid Shinko
and that of Atty. V. E. Del Rosario,
. . . It does not seem proper, therefore, for CMS Logging,
Inc., as principal, to concern itself with, much less question,
the right of Shinko Trading Co., Ltd. with which our client
debt directly, to whatever benefits it might have derived
form the ultimate consumer/buyer of these logs, Toyo
Menka Kaisha, Ltd. There appears to be no justification for
your client's contention that these benefits, whether they
can be considered as commissions paid by Toyo Menka
Kaisha to Shinko Trading, are to be regarded part of the
gross sales.
can not be considered admissions that Shinko received the questioned
commissions since neither statements declared categorically that Shinko
did in fact receive the commissions and that these arose from the sale of
CMS's logs.
Since the contract of agency was revoked by CMS when it sold its logs to Japanese
firms without the intervention of DRACOR, the latter is no longer entitled to its
commission from the proceeds of such sale and is not entitled to retain whatever
moneys it may have received as its commission for said transactions. Neither would
DRACOR be entitled to collect damages from CMS, since damages are generally not
awarded to the agent for the revocation of the agency, and the case at bar is not one
falling under the exception mentioned, which is to evade the payment of the agent's
commission.
Regarding CMS's contention that the Court of Appeals erred in not finding that
DRACOR had committed acts of fraud and bad faith, We find the same unmeritorious.
Like the contention involving Shinko and the questioned commissions, the findings of
the Court of Appeals on the matter were based on its appreciation of the evidence,
and these findings are binding on this Court.
In fine, We affirm the ruling of the Court of Appeals that there is no evidence to
support CMS's contention that Shinko earned a separate commission of U.S. $1.00 for
every 1,000 board feet of logs from the buyer of CMS's logs. However, We reverse the
ruling of the Court of Appeals with regard to DRACOR's right to retain the amount of
P101,536.77 as part of its commission from the sale of logs by CMS, and hold that
DRACOR has no right to its commission. Consequently, DRACOR is hereby ordered to
remit to CMS the amount of P101,536.77.

As correctly stated by the appellate court: WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the
preceding paragraph. Costs de officio.
It is a rule that "a statement is not competent as an
admission where it does not, under a reasonable SO ORDERED.
construction, appear to admit or acknowledge the fact
which is sought to be proved by it". An admission or
declaration to be competent must have been expressed in
definite, certain and unequivocal language (Bank of the
Philippine Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64). 18

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

This is to acknowledge receipt of your letter dated February

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

xxx xxx xxx

We have no record or knowledge of any such payment of

commission made by Toyo Menka to Shinko. If the payment
was made by Toyo Menka to Shinko, as stated in your letter,
we knew nothing about it and had nothing to do with it.

The finding of fact made by the trial court, i.e., that "Shinko was able to collect the
total amount of $77,264.67 US Dollars," can not be given weight since this was based
on the summary prepared by CMS itself, Exhibits "M" and "M-1".

Moreover, even if it was shown that Shinko did in fact receive the commissions in
question, CMS is not entitled thereto since these were apparently paid by the
buyers to Shinko for arranging the sale. This is therefore not part of the gross sales of
CMS's logs.

However, We find merit in CMS's contention that the appellate court erred in holding
that DRACOR was entitled to its commission from the sales made by CMS to Japanese
firms.

The principal may revoke a contract of agency at will, and such revocation may be
express, or implied, 20 and may be availed of even if the period fixed in the contract of
agency as not yet expired. 21 As the principal has this absolute right to revoke the
agency, the agent can not object thereto; neither may he claim damages arising from
such revocation, 22 unless it is shown that such was done in order to evade the
payment of agent's commission. 23

In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to
Japanese firms. Yet, during the existence of the contract of agency, DRACOR admitted
that CMS sold its logs directly to several Japanese firms. This act constituted an
implied revocation of the contract of agency under Article 1924 of the Civil Code,
which provides:

Art. 1924 The agency is revoked if the principal directly

manages the business entrusted to the agent, dealing
directly with third persons.

In New Manila Lumber Company, Inc. vs. Republic of the Philippines, 24 this Court
ruled that the act of a contractor, who, after executing powers of attorney in favor of
another empowering the latter to collect whatever amounts may be due to him from
the Government, and thereafter demanded and collected from the government the
money the collection of which he entrusted to his attorney-in-fact, constituted
revocation of the agency in favor of the attorney-in-fact.

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 Page 88 of 104

It is dictum that in order for an agent to be entitled to a commission, he must be the

procuring cause of the sale, which simply means that the measures employed by him
G.R. No. 141525 September 2, 2005 and the efforts he exerted must result in a sale.2 In other words, an agent receives his
commission only upon the successful conclusion of a sale.3 Conversely, it follows that
where his efforts are unsuccessful, or there was no effort on his part, he is not
CARLOS SANCHEZ, Petitioners, entitled to a commission.
vs.
MEDICARD PHILIPPINES, INC., DR. NICANOR MONTOYA and CARLOS
EJERCITO, Respondent. In Prats vs. Court of Appeals,4 this Court held that for the purpose of equity, an agent
who is not the efficient procuring cause is nonetheless entitled to his commission,
where said agent, notwithstanding the expiration of his authority, nonetheless, took
DECISION diligent steps to bring back together the parties, such that a sale was finalized and
consummated between them. In Manotok Borthers vs. Court of Appeals,5 where the
Deed of Sale was only executed after the agent’s extended authority had expired, this
SANDOVAL-GUTIERREZ, J.:
Court, applying its ruling in Prats, held that the agent (in Manotok) is entitled to a
commission since he was the efficient procuring cause of the sale, notwithstanding
This petition for review on certiorari seeks to reverse the Decision1 of the Court of that the sale took place after his authority had lapsed. The proximate, close, and
Appeals dated February 24, 1999 and its Resolution dated January 12, 2000 in CA- causal connection between the agent’s efforts and the principal’s sale of his property
G.R. CV No. 47681. can not be ignored.

The facts, as established by the trial court and affirmed by the Court of Appeals,
follow:
Sometime in 1987, Medicard Philippines, Inc. (Medicard), respondent, appointed
petitioner as its special corporate agent. As such agent, Medicard gave him a
commission based on the "cash brought in."
In September, 1988, through petitioner’s efforts, Medicard and United Laboratories
Group of Companies (Unilab) executed a Health Care Program Contract. Under this
contract, Unilab shall pay Medicard a fixed monthly premium for the health insurance
of its personnel. Unilab paid Medicard ₱4,148,005.00 representing the premium for
one (1) year. Medicard then handed petitioner 18% of said amount or ₱746,640.90
representing his commission.
Again, through petitioner’s initiative, the agency contract between Medicard and
Unilab was renewed for another year, or from October 1, 1989 to September 30,
1990, incorporating therein the increase of premium from ₱4,148,005.00 to
₱7,456,896.00. Medicard paid petitioner ₱1,342,241.00 as his commission.
Prior to the expiration of the renewed contract, Medicard proposed to Unilab,
through petitioner, an increase of the premium for the next year. Unilab rejected the
proposal "for the reason that it was too high," prompting Dr. Nicanor Montoya
(Medicard’s president and general manager), also a respondent, to request petitioner
to reduce his commission, but the latter refused.
In a letter dated October 3, 1990, Unilab, through Carlos Ejercito, another
respondent, confirmed its decision not to renew the health program contract with
Medicard.
Meanwhile, in order not to prejudice its personnel by the termination of their health
insurance, Unilab, through respondent Ejercito, negotiated with Dr. Montoya and
other officers of Medicard, to discuss ways in order to continue the insurance
coverage of those personnel.
Under the new scheme, Unilab shall pay Medicard only the amount corresponding to
the actual hospitalization expenses incurred by each personnel plus 15% service fee
for using Medicard facilities, which amount shall not be less than ₱780,000.00.
It may be recalled that through petitioner’s efforts, Medicard was able to enter into a
one-year Health Care Program Contract with Unilab. As a result, Medicard paid
petitioner his commission. Again, through his efforts, the contract was renewed and
once more, he received his commission. Before the expiration of the renewed
contract, Medicard, through petitioner, proposed an increase in premium, but Unilab
rejected this proposal. Medicard then requested petitioner to reduce his commission
should the contract be renewed on its third year, but he was obstinate. Meantime, on
October 3, 1990, Unilab informed Medicard it was no longer renewing the Health
Care Program contract.
In order not to prejudice its personnel, Unilab, through respondent Ejercito,
negotiated with respondent Dr. Montoya of Medicard, in order to find mutually
beneficial ways of continuing the Health Care Program. The negotiations resulted in a
new contract wherein Unilab shall pay Medicard the hospitalization expenses actually
incurred by each employees, plus a service fee. Under the "cost plus" system which
replaced the premium scheme, petitioner was not given a commission.
It is clear that since petitioner refused to reduce his commission, Medicard directly
negotiated with Unilab, thus revoking its agency contract with petitioner. We hold
that such revocation is authorized by Article 1924 of the Civil Code which provides:
"Art. 1924. The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons."
Moreover, as found by the lower courts, petitioner did not render services to
Medicard, his principal, to entitle him to a commission. There is no indication from
the records that he exerted any effort in order that Unilab and Medicard, after the
expiration of the Health Care Program Contract, can renew it for the third time. In
fact, his refusal to reduce his commission constrained Medicard to negotiate directly
with Unilab. We find no reason in law or in equity to rule that he is entitled to a
commission. Obviously, he was not the agent or the "procuring cause" of the third
Health Care Program Contract between Medicard and Unilab.
WHEREFORE, the petition is DENIED. The challenged Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 47681 are AFFIRMED IN TOTO. Costs against
petitioner. SO ORDERED.

Medicard did not give petitioner any commission under the new scheme.

In a letter dated March 15, 1991, petitioner demanded from Medicard payment of
₱338,000.00 as his commission plus damages, but the latter refused to heed his
demand.

Thus, petitioner filed with the Regional Trial Court (RTC), Branch 66, Makati City, a
complaint for sum of money against Medicard, Dr. Nicanor Montoya and Carlos
Ejercito, herein respondents.

After hearing, the RTC rendered its Decision dismissing petitioner’s complaint and
respondents’ counterclaim.

On appeal, the Court of Appeals affirmed the trial court’s assailed Decision. The
Appellate Court held that there is no proof that the execution of the new contract
between the parties under the "cost plus" system is a strategy to deprive petitioner
of his commission; that Medicard did not commit any fraudulent act in revoking its
agency contract with Sanchez; that when Unilab rejected Medicard’s proposal for an
increase of premium, their Health Care Program Contract on its third year was
effectively revoked; and that where the contract is ineffectual, then the agent is not
entitled to a commission.

Petitioner filed a motion for reconsideration, but this was denied by the Court of
Appeals on January 12, 2000.

Hence, the instant petition for review on certiorari.

The basic issue for our resolution is whether the Court of Appeals erred in holding
that the contract of agency has been revoked by Medicard, hence, petitioner is not
entitled to a commission.

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G.R. No. 161757 January 25, 2006
SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC.Petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON. ERNESTO S.
DINOPOL, in his capacity as Labor Arbiter, NLRC; NCR, Arbitration Branch, Quezon
City and DIVINA A. MONTEHERMOZO,Respondents.
DECISION
CARPIO MORALES, J.:
Petitioner, Sunace International Management Services (Sunace), a corporation duly
organized and existing under the laws of the Philippines, deployed to Taiwan Divina
A. Montehermozo (Divina) as a domestic helper under a 12-month contract effective
February 1, 1997.1 The deployment was with the assistance of a Taiwanese broker,
Edmund Wang, President of Jet Crown International Co., Ltd.
After her 12-month contract expired on February 1, 1998, Divina continued working
for her Taiwanese employer, Hang Rui Xiong, for two more years, after which she
returned to the Philippines on February 4, 2000.
Shortly after her return or on February 14, 2000, Divina filed a complaint2 before the
National Labor Relations Commission (NLRC) against Sunace, one Adelaide Perez, the
Taiwanese broker, and the employer-foreign principal alleging that she was jailed for
three months and that she was underpaid.
The following day or on February 15, 2000, Labor Arbitration Associate Regina T.
Gavin issued Summons3 to the Manager of Sunace, furnishing it with a copy of
Divina’s complaint and directing it to appear for mandatory conference on February
28, 2000.
The scheduled mandatory conference was reset. It appears to have been concluded,
however.
On April 6, 2000, Divina filed her Position Paper4 claiming that under her original one-
year contract and the 2-year extended contract which was with the knowledge and
consent of Sunace, the following amounts representing income tax and savings were
deducted:
Year Deduction for Income Tax Deduction for Savings
1997 NT10,450.00 NT23,100.00
1998 NT9,500.00 NT36,000.00
1999 NT13,300.00 NT36,000.00;5
and while the amounts deducted in 1997 were refunded to her, those deducted in
1998 and 1999 were not. On even date, Sunace, by its Proprietor/General Manager
Maria Luisa Olarte, filed its Verified Answer and Position Paper, 6claiming as follows,
quoted verbatim:
COMPLAINANT IS NOT ENTITLED FOR THE REFUND OF HER 24 MONTHS SAVINGS
3. Complainant could not anymore claim nor entitled for the refund of her 24 months
savings as she already took back her saving already last year and the employer did
not deduct any money from her salary, in accordance with a Fascimile Message from
the respondent SUNACE’s employer, Jet Crown International Co. Ltd., a xerographic
copy of which is herewith attached as ANNEX "2" hereof;
COMPLAINANT IS NOT ENTITLED TO REFUND OF HER 14 MONTHS TAX AND
PAYMENT OF ATTORNEY’S FEES
4. There is no basis for the grant of tax refund to the complainant as the she finished
her one year contract and hence, was not illegally dismissed by her employer. She
could only lay claim over the tax refund or much more be awarded of damages such
as attorney’s fees as said reliefs are available only when the dismissal of a migrant
worker is without just valid or lawful cause as defined by law or contract.
The rationales behind the award of tax refund and payment of attorney’s fees is not
to enrich the complainant but to compensate him for actual injury suffered.
Complainant did not suffer injury, hence, does not deserve to be compensated for
whatever kind of damages.
Hence, the complainant has NO cause of action against respondent SUNACE for
monetary claims, considering that she has been totally paid of all the monetary
benefits due her under her Employment Contract to her full satisfaction.
6. Furthermore, the tax deducted from her salary is in compliance with the Taiwanese
law, which respondent SUNACE has no control and complainant has to obey and this
Honorable Office has no authority/jurisdiction to intervene because the power to tax
is a sovereign power which the Taiwanese Government is supreme in its own
territory. The sovereign power of taxation of a state is recognized under international
law and among sovereign states.
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Page 89 of 104
7. That respondent SUNACE respectfully reserves the right to file supplemental
Verified Answer and/or Position Paper to substantiate its prayer for the dismissal of
the above case against the herein respondent. AND BY WAY OF -
x x x x (Emphasis and underscoring supplied)
Reacting to Divina’s Position Paper, Sunace filed on April 25, 2000 an ". . . answer to
complainant’s position paper"7alleging that Divina’s 2-year extension of her contract
was without its knowledge and consent, hence, it had no liability attaching to any
claim arising therefrom, and Divina in fact executed a Waiver/Quitclaim and Release
of Responsibility and an Affidavit of Desistance, copy of each document was annexed
to said ". . . answer to complainant’s position paper."
To Sunace’s ". . . answer to complainant’s position paper," Divina filed a 2-page
reply,8 without, however, refuting Sunace’s disclaimer of knowledge of the extension
of her contract and without saying anything about the Release, Waiver and Quitclaim
and Affidavit of Desistance.
The Labor Arbiter, rejected Sunace’s claim that the extension of Divina’s contract for
two more years was without its knowledge and consent in this wise:
We reject Sunace’s submission that it should not be held responsible for the amount
withheld because her contract was extended for 2 more years without its knowledge
and consent because as Annex "B"9 shows, Sunace and Edmund Wang have not
stopped communicating with each other and yet the matter of the contract’s
extension and Sunace’s alleged non-consent thereto has not been categorically
established.
What Sunace should have done was to write to POEA about the extension and its
objection thereto, copy furnished the complainant herself, her foreign employer,
Hang Rui Xiong and the Taiwanese broker, Edmund Wang.
And because it did not, it is presumed to have consented to the extension and should
be liable for anything that resulted thereform (sic).10 (Underscoring supplied)
The Labor Arbiter rejected too Sunace’s argument that it is not liable on account of
Divina’s execution of a Waiver and Quitclaim and an Affidavit of Desistance. Observed
the Labor Arbiter:
Should the parties arrive at any agreement as to the whole or any part of the dispute,
the same shall be reduced to writing and signed by the parties and their respective
counsel (sic), if any, before the Labor Arbiter.
The settlement shall be approved by the Labor Arbiter after being satisfied that it was
voluntarily entered into by the parties and after having explained to them the terms
and consequences thereof.
A compromise agreement entered into by the parties not in the presence of the
Labor Arbiter before whom the case is pending shall be approved by him, if after
confronting the parties, particularly the complainants, he is satisfied that they
understand the terms and conditions of the settlement and that it was entered into
freely voluntarily (sic) by them and the agreement is not contrary to law, morals, and
public policy.
And because no consideration is indicated in the documents, we strike them down as
contrary to law, morals, and public policy.11
He accordingly decided in favor of Divina, by decision of October 9, 2000, 12 the
dispositive portion of which reads:
Wherefore, judgment is hereby rendered ordering respondents SUNACE
INTERNATIONAL SERVICES and its owner ADELAIDA PERGE, both in their personal
capacities and as agent of Hang Rui Xiong/Edmund Wang to jointly and severally pay
complainant DIVINA A. MONTEHERMOZO the sum of NT91,950.00 in its peso
equivalent at the date of payment, as refund for the amounts which she is hereby
adjudged entitled to as earlier discussed plus 10% thereof as attorney’s fees since
compelled to litigate, complainant had to engage the services of counsel.
SO ORDERED.13 (Underescoring supplied)
On appeal of Sunace, the NLRC, by Resolution of April 30, 2002, 14 affirmed the Labor
Arbiter’s decision.
Via petition for certiorari,15 Sunace elevated the case to the Court of Appeals which
dismissed it outright by Resolution of November 12, 2002,16 the full text of which
reads:
The petition for certiorari faces outright dismissal.
The petition failed to allege facts constitutive of grave abuse of discretion on the part
of the public respondent amounting to lack of jurisdiction when the NLRC affirmed
the Labor Arbiter’s finding that petitioner Sunace International Management Services
impliedly consented to the extension of the contract of private respondent Divina A.
Montehermozo. It is undisputed that petitioner was continually communicating with
private respondent’s foreign employer (sic). As agent of the foreign principal,
"petitioner cannot profess ignorance of such extension as obviously, the act of the
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 Page 90 of 104

principal extending complainant (sic) employment contract necessarily bound it." original employment contract, the foreign principal directly negotiated with Divina
Grave abuse of discretion is not present in the case at bar. and entered into a new and separate employment contract in Taiwan. Article 1924 of
the New Civil Code reading

ACCORDINGLY, the petition is hereby DENIED DUE COURSE and DISMISSED.17

The agency is revoked if the principal directly manages the business entrusted to the
agent, dealing directly with third persons.
SO ORDERED.

thus applies.
(Emphasis on words in capital letters in the original; emphasis on words in small
letters and underscoring supplied)
In light of the foregoing discussions, consideration of the validity of the Waiver and
Affidavit of Desistance which Divina executed in favor of Sunace is rendered
Its Motion for Reconsideration having been denied by the appellate court by unnecessary.
Resolution of January 14, 2004, 18Sunace filed the present petition for review on
certiorari.
WHEREFORE, the petition is GRANTED. The challenged resolutions of the Court of
Appeals are hereby REVERSED and SET ASIDE. The complaint of respondent
The Court of Appeals affirmed the Labor Arbiter and NLRC’s finding that Sunace knew Divina A. Montehermozo against petitioner is DISMISSED.
of and impliedly consented to the extension of Divina’s 2-year contract. It went on to
state that "It is undisputed that [Sunace] was continually communicating with
[Divina’s] foreign employer." It thus concluded that "[a]s agent of the foreign SO ORDERED.
principal, ‘petitioner cannot profess ignorance of such extension as obviously, the act
of the principal extending complainant (sic) employment contract necessarily bound
it.’"

Contrary to the Court of Appeals finding, the alleged continuous communication was
with the Taiwanese brokerWang, not with the foreign employer Xiong.

The February 21, 2000 telefax message from the Taiwanese broker to Sunace,
the only basis of a finding of continuous communication, reads verbatim:

xxxx

Regarding to Divina, she did not say anything about her saving in police
station. As we contact with her employer, she took back her saving already
last years. And they did not deduct any money from her salary. Or she will call
back her employer to check it again. If her employer said yes! we will get it
back for her.

Thank you and best regards.

(Sgd.)
Edmund Wang
President19
The finding of the Court of Appeals solely on the basis of the above-quoted telefax
message, that Sunace continually communicated with the foreign "principal" (sic) and
therefore was aware of and had consented to the execution of the extension of the
contract is misplaced. The message does not provide evidence that Sunace was privy
to the new contract executed after the expiration on February 1, 1998 of the original
contract. That Sunace and the Taiwanese broker communicated regarding Divina’s
allegedly withheld savings does not necessarily mean that Sunace ratified the
extension of the contract. As Sunace points out in its Reply20 filed before the Court of
Appeals,

As can be seen from that letter communication, it was just an information given to
the petitioner that the private respondent had t[aken] already her savings from her
foreign employer and that no deduction was made on her salary. It contains nothing
about the extension or the petitioner’s consent thereto. 21

Parenthetically, since the telefax message is dated February 21, 2000, it is safe to
assume that it was sent to enlighten Sunace who had been directed, by Summons
issued on February 15, 2000, to appear on February 28, 2000 for a mandatory
conference following Divina’s filing of the complaint on February 14, 2000.

Respecting the Court of Appeals following dictum:

As agent of its foreign principal, [Sunace] cannot profess ignorance of such an

extension as obviously, the act of its principal extending [Divina’s] employment
contract necessarily bound it,22

it too is a misapplication, a misapplication of the theory of imputed knowledge.

The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to
the principal, employer Xiong, not the other way around.23 The knowledge of the
principal-foreign employer cannot, therefore, be imputed to its agent Sunace.

There being no substantial proof that Sunace knew of and consented to be bound
under the 2-year employment contract extension, it cannot be said to be privy
thereto. As such, it and its "owner" cannot be held solidarily liable for any of Divina’s
claims arising from the 2-year employment extension. As the New Civil Code
provides,

Contracts take effect only between the parties, their assigns, and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law.24

Furthermore, as Sunace correctly points out, there was an implied revocation of its
agency relationship with its foreign principal when, after the termination of the

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G.R. No. 175885 February 13, 2009
ZENAIDA G. MENDOZA, Petitioner,
vs.
ENGR. EDUARDO PAULE, ENGR. ALEXANDER COLOMA and NATIONAL IRRIGATION
ADMINISTRATION (NIA MUÑOZ, NUEVA ECIJA), Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 176271 February 13, 2009
MANUEL DELA CRUZ Petitioner,
vs.
ENGR. EDUARDO M. PAULE, ENGR. ALEXANDER COLOMA and NATIONAL
IRRIGATION ADMINISTRATION (NIA MUÑOZ, NUEVA ECIJA), Respondents.
DECISION
YNARES-SANTIAGO, J.:
These consolidated petitions assail the August 28, 2006 Decision1 of the Court of
Appeals in CA-G.R. CV No. 80819 dismissing the complaint in Civil Case No. 18-SD
(2000),2 and its December 11, 2006 Resolution3 denying the herein petitioners’
motion for reconsideration.
Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M. Paule Construction and
Trading (EMPCT). On May 24, 1999, PAULE executed a special power of attorney (SPA)
authorizing Zenaida G. Mendoza (MENDOZA) to participate in the pre-qualification
and bidding of a National Irrigation Administration (NIA) project and to represent him
in all transactions related thereto, to wit:
1. To represent E.M. PAULE CONSTRUCTION & TRADING of which I
(PAULE) am the General Manager in all my business transactions with
National Irrigation Authority, Muñoz, Nueva Ecija.
2. To participate in the bidding, to secure bid bonds and other
documents pre-requisite in the bidding of Casicnan Multi-Purpose
Irrigation and Power Plant (CMIPPL 04-99), National Irrigation Authority,
Muñoz, Nueva Ecija.
3. To receive and collect payment in check in behalf of E.M. PAULE
CONSTRUCTION & TRADING.
4. To do and perform such acts and things that may be necessary and/or
required to make the herein authority effective.4
On September 29, 1999, EMPCT, through MENDOZA, participated in the bidding of
the NIA-Casecnan Multi-Purpose Irrigation and Power Project (NIA-CMIPP) and was
awarded Packages A-10 and B-11 of the NIA-CMIPP Schedule A. On November 16,
1999, MENDOZA received the Notice of Award which was signed by Engineer
Alexander M. Coloma (COLOMA), then Acting Project Manager for the NIA-CMIPP.
Packages A-10 and B-11 involved the construction of a road system, canal structures
and drainage box culverts with a project cost of P5,613,591.69.
When Manuel de la Cruz (CRUZ) learned that MENDOZA is in need of heavy
equipment for use in the NIA project, he met up with MENDOZA in Bayuga, Muñoz,
Nueva Ecija, in an apartment where the latter was holding office under an EMPCT
signboard. A series of meetings followed in said EMPCT office among CRUZ,
MENDOZA and PAULE.
On December 2 and 20, 1999, MENDOZA and CRUZ signed two Job
Orders/Agreements5 for the lease of the latter’s heavy equipment (dump trucks for
hauling purposes) to EMPCT.
On April 27, 2000, PAULE revoked6 the SPA he previously issued in favor of MENDOZA;
consequently, NIA refused to make payment to MENDOZA on her billings. CRUZ,
therefore, could not be paid for the rent of the equipment. Upon advice of
MENDOZA, CRUZ addressed his demands for payment of lease rentals directly to NIA
but the latter refused to acknowledge the same and informed CRUZ that it would be
remitting payment only to EMPCT as the winning contractor for the project.
In a letter dated April 5, 2000, CRUZ demanded from MENDOZA and/or EMPCT
payment of the outstanding rentals which amounted to P726,000.00 as of March 31,
2000.
On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with Branch 37 of the
Regional Trial Court of Nueva Ecija, for collection of sum of money with damages and
a prayer for the issuance of a writ of preliminary injunction against PAULE, COLOMA
and the NIA. PAULE in turn filed a third-party complaint against MENDOZA, who filed
her answer thereto, with a cross-claim against PAULE.
MENDOZA alleged in her cross-claim that because of PAULE’s "whimsical revocation"
of the SPA, she was barred from collecting payments from NIA, thus resulting in her
inability to fund her checks which she had issued to suppliers of materials, equipment
CASES: Agency
Page 91 of 104
and labor for the project. She claimed that estafa and B.P. Blg. 22 cases were filed
against her; that she could no longer finance her children’s education; that she was
evicted from her home; that her vehicle was foreclosed upon; and that her
reputation was destroyed, thus entitling her to actual and moral damages in the
respective amounts of P3 million and P1 million.
Meanwhile, on August 23, 2000, PAULE again constituted MENDOZA as his attorney-
in-fact –
1. To represent me (PAULE), in my capacity as General Manager of the
E.M. PAULE CONSTRUCTION AND TRADING, in all meetings, conferences
and transactions exclusively for the construction of the projects known
as Package A-10 of Schedule A and Package No. B-11 Schedule B, which
are 38.61% and 63.18% finished as of June 21, 2000, per attached
Accomplishment Reports x x x;
2. To implement, execute, administer and supervise the said projects in
whatever stage they are in as of to date, to collect checks and other
payments due on said projects and act as the Project Manager for E.M.
PAULE CONSTRUCTION AND TRADING;
3. To do and perform such acts and things that may be necessary and
required to make the herein power and authority effective.7
At the pre-trial conference, the other parties were declared as in default and CRUZ
was allowed to present his evidence ex parte. Among the witnesses he presented was
MENDOZA, who was impleaded as defendant in PAULE’s third-party complaint.
On March 6, 2003, MENDOZA filed a motion to declare third-party plaintiff PAULE
non-suited with prayer that she be allowed to present her evidence ex parte.
However, without resolving MENDOZA’s motion to declare PAULE non-suited, and
without granting her the opportunity to present her evidence ex parte, the trial court
rendered its decision dated August 7, 2003, the dispositive portion of which states, as
follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff as follows:
1. Ordering defendant Paule to pay the plaintiff the sum of P726,000.00
by way of actual damages or compensation for the services rendered by
him;
2. Ordering defendant Paule to pay plaintiff the sum of P500,000.00 by
way of moral damages;
3. Ordering defendant Paule to pay plaintiff the sum of P50,000.00 by
way of reasonable attorney’s fees;
4. Ordering defendant Paule to pay the costs of suit; and
5. Ordering defendant National Irrigation Administration (NIA) to
withhold the balance still due from it to defendant Paule/E.M. Paule
Construction and Trading under NIA-CMIPP Contract Package A-10 and
to pay plaintiff therefrom to the extent of defendant Paule’s liability
herein adjudged.
SO ORDERED.8
In holding PAULE liable, the trial court found that MENDOZA was duly constituted as
EMPCT’s agent for purposes of the NIA project and that MENDOZA validly contracted
with CRUZ for the rental of heavy equipment that was to be used therefor. It found
unavailing PAULE’s assertion that MENDOZA merely borrowed and used his
contractor’s license in exchange for a consideration of 3% of the aggregate amount of
the project. The trial court held that through the SPAs he executed, PAULE clothed
MENDOZA with apparent authority and held her out to the public as his agent; as
principal, PAULE must comply with the obligations which MENDOZA contracted
within the scope of her authority and for his benefit. Furthermore, PAULE knew of
the transactions which MENDOZA entered into since at various times when she and
CRUZ met at the EMPCT office, PAULE was present and offered no objections. The
trial court declared that it would be unfair to allow PAULE to enrich himself and
disown his acts at the expense of CRUZ.
PAULE and MENDOZA both appealed the trial court’s decision to the Court of
Appeals.
PAULE claimed that he did not receive a copy of the order of default; that it was
improper for MENDOZA, as third-party defendant, to have taken the stand as plaintiff
CRUZ’s witness; and that the trial court erred in finding that an agency was created
between him and MENDOZA, and that he was liable as principal thereunder.
On the other hand, MENDOZA argued that the trial court erred in deciding the case
without affording her the opportunity to present evidence on her cross-claim against
PAULE; that, as a result, her cross-claim against PAULE was not resolved, leaving her
unable to collect the amounts of P3,018,864.04, P500,000.00, and P839,450.88
which allegedly represent the unpaid costs of the project and the amount PAULE
received in excess of payments made by NIA.
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On August 28, 2006, the Court of Appeals rendered the assailed Decision which
dismissed CRUZ’s complaint, as well as MENDOZA’s appeal. The appellate court held
that the SPAs issued in MENDOZA’s favor did not grant the latter the authority to
enter into contract with CRUZ for hauling services; the SPAs limit MENDOZA’s
authority to only represent EMPCT in its business transactions with NIA, to
participate in the bidding of the project, to receive and collect payment in behalf of
EMPCT, and to perform such acts as may be necessary and/or required to make the
said authority effective. Thus, the engagement of CRUZ’s hauling services was done
beyond the scope of MENDOZA’s authority.
As for CRUZ, the Court of Appeals held that he knew the limits of MENDOZA’s
authority under the SPAs yet he still transacted with her. Citing Manila Memorial Park
Cemetery, Inc. v. Linsangan,9 the appellate court declared that the principal (PAULE)
may not be bound by the acts of the agent (MENDOZA) where the third person
(CRUZ) transacting with the agent knew that the latter was acting beyond the scope
of her power or authority under the agency.
With respect to MENDOZA’s appeal, the Court of Appeals held that when the trial
court rendered judgment, not only did it rule on the plaintiff’s complaint; in effect, it
resolved the third-party complaint as well;10 that the trial court correctly dismissed
the cross-claim and did not unduly ignore or disregard it; that MENDOZA may not
claim, on appeal, the amounts of P3,018,864.04, P500,000.00, and P839,450.88
which allegedly represent the unpaid costs of the project and the amount PAULE
received in excess of payments made by NIA, as these are not covered by her cross-
claim in the court a quo, which seeks reimbursement only of the amounts of P3
million and P1 million, respectively, for actual damages (debts to suppliers, laborers,
lessors of heavy equipment, lost personal property) and moral damages she claims
she suffered as a result of PAULE’s revocation of the SPAs; and that the revocation of
the SPAs is a prerogative that is allowed to PAULE under Article 1920 11 of the Civil
Code.
CRUZ and MENDOZA’s motions for reconsideration were denied; hence, these
consolidated petitions:
G.R. No. 175885 (MENDOZA PETITION)
a) The Court of Appeals erred in sustaining the trial court’s failure to
resolve her motion praying that PAULE be declared non-suited on his
third-party complaint, as well as her motion seeking that she be allowed
to present evidence ex parte on her cross-claim;
b) The Court of Appeals erred when it sanctioned the trial court’s failure
to resolve her cross-claim against PAULE; and,
c) The Court of Appeals erred in its application of Article 1920 of the Civil
Code, and in adjudging that MENDOZA had no right to claim actual
damages from PAULE for debts incurred on account of the SPAs issued to
her.
G.R. No. 176271 (CRUZ PETITION)
CRUZ argues that the decision of the Court of Appeals is contrary to the provisions of
law on agency, and conflicts with the Resolution of the Court in G.R. No. 173275,
which affirmed the Court of Appeals’ decision in CA-G.R. CV No. 81175, finding the
existence of an agency relation and where PAULE was declared as MENDOZA’s
principal under the subject SPAs and, thus, liable for obligations (unpaid construction
materials, fuel and heavy equipment rentals) incurred by the latter for the purpose of
implementing and carrying out the NIA project awarded to EMPCT.
CRUZ argues that MENDOZA was acting within the scope of her authority when she
hired his services as hauler of debris because the NIA project (both Packages A-10
and B-11 of the NIA-CMIPP) consisted of construction of canal structures, which
involved the clearing and disposal of waste, acts that are necessary and incidental to
PAULE’s obligation under the NIA project; and that the decision in a civil case
involving the same SPAs, where PAULE was found liable as MENDOZA’s principal
already became final and executory; that in Civil Case No. 90-SD filed by MENDOZA
against PAULE,12 the latter was adjudged liable to the former for unpaid rentals of
heavy equipment and for construction materials which MENDOZA obtained for use in
the subject NIA project. On September 15, 2003, judgment was rendered in said civil
case against PAULE, to wit:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff (MENDOZA) and
against the defendant (PAULE) as follows:
1. Ordering defendant Paule to pay plaintiff the sum of P138,304.00
representing the obligation incurred by the plaintiff with LGH
Construction;
2. Ordering defendant Paule to pay plaintiff the sum of P200,000.00
representing the balance of the obligation incurred by the plaintiff with
Artemio Alejandrino;
3. Ordering defendant Paule to pay plaintiff the sum of P520,000.00 by
way of moral damages, and further sum of P100,000.00 by way of
exemplary damages;
4. Ordering defendant Paule to pay plaintiff the sum of P25,000.00 as for
attorney’s fees; and
CASES: Agency
Page 92 of 104
5. To pay the cost of suit.13
PAULE appealed14 the above decision, but it was dismissed by the Court of Appeals in
a Decision15 which reads, in part:
As to the finding of the trial court that the principle of agency is applicable in this
case, this Court agrees therewith. It must be emphasized that appellant (PAULE)
authorized appellee (MENDOZA) to perform any and all acts necessary to make the
business transaction of EMPCT with NIA effective. Needless to state, said business
transaction pertained to the construction of canal structures which necessitated the
utilization of construction materials and equipments.1avvphi1 Having given said
authority, appellant cannot be allowed to turn its back on the transactions entered
into by appellee in behalf of EMPCT.
The amount of moral damages and attorney’s fees awarded by the trial court being
justifiable and commensurate to the damage suffered by appellee, this Court shall
not disturb the same. It is well-settled that the award of damages as well as
attorney’s fees lies upon the discretion of the court in the context of the facts and
circumstances of each case.
WHEREFORE, the appeal is DISMISSED and the appealed Decision is AFFIRMED.
SO ORDERED.16
PAULE filed a petition to this Court docketed as G.R. No. 173275 but it was denied
with finality on September 13, 2006.
MENDOZA, for her part, claims that she has a right to be heard on her cause of action
as stated in her cross-claim against PAULE; that the trial court’s failure to resolve the
cross-claim was a violation of her constitutional right to be apprised of the facts or
the law on which the trial court’s decision is based; that PAULE may not revoke her
appointment as attorney-in-fact for and in behalf of EMPCT because, as manager of
their partnership in the NIA project, she was obligated to collect from NIA the funds
to be used for the payment of suppliers and contractors with whom she had earlier
contracted for labor, materials and equipment.
PAULE, on the other hand, argues in his Comment that MENDOZA’s authority under
the SPAs was for the limited purpose of securing the NIA project; that MENDOZA was
not authorized to contract with other parties with regard to the works and services
required for the project, such as CRUZ’s hauling services; that MENDOZA acted
beyond her authority in contracting with CRUZ, and PAULE, as principal, should not
be made civilly liable to CRUZ under the SPAs; and that MENDOZA has no cause of
action against him for actual and moral damages since the latter exceeded her
authority under the agency.
We grant the consolidated petitions.
Records show that PAULE (or, more appropriately, EMPCT) and MENDOZA had
entered into a partnership in regard to the NIA project. PAULE‘s contribution thereto
is his contractor’s license and expertise, while MENDOZA would provide and secure
the needed funds for labor, materials and services; deal with the suppliers and sub-
contractors; and in general and together with PAULE, oversee the effective
implementation of the project. For this, PAULE would receive as his share three per
cent (3%) of the project cost while the rest of the profits shall go to MENDOZA. PAULE
admits to this arrangement in all his pleadings.17
Although the SPAs limit MENDOZA’s authority to such acts as representing EMPCT in
its business transactions with NIA, participating in the bidding of the project,
receiving and collecting payment in behalf of EMPCT, and performing other acts in
furtherance thereof, the evidence shows that when MENDOZA and CRUZ met and
discussed (at the EMPCT office in Bayuga, Muñoz, Nueva Ecija) the lease of the
latter’s heavy equipment for use in the project, PAULE was present and interposed no
objection to MENDOZA’s actuations. In his pleadings, PAULE does not even deny this.
Quite the contrary, MENDOZA’s actions were in accord with what she and PAULE
originally agreed upon, as to division of labor and delineation of functions within
their partnership. Under the Civil Code, every partner is an agent of the partnership
for the purpose of its business;18 each one may separately execute all acts of
administration, unless a specification of their respective duties has been agreed
upon, or else it is stipulated that any one of them shall not act without the consent of
all the others.19 At any rate, PAULE does not have any valid cause for opposition
because his only role in the partnership is to provide his contractor’s license and
expertise, while the sourcing of funds, materials, labor and equipment has been
relegated to MENDOZA.
Moreover, it does not speak well for PAULE that he reinstated MENDOZA as his
attorney-in-fact, this time with broader powers to implement, execute, administer
and supervise the NIA project, to collect checks and other payments due on said
project, and act as the Project Manager for EMPCT, even after CRUZ has already filed
his complaint. Despite knowledge that he was already being sued on the SPAs, he
proceeded to execute another in MENDOZA’s favor, and even granted her broader
powers of administration than in those being sued upon. If he truly believed that
MENDOZA exceeded her authority with respect to the initial SPA, then he would not
have issued another SPA. If he thought that his trust had been violated, then he
should not have executed another SPA in favor of MENDOZA, much less grant her
broader authority.
Given the present factual milieu, CRUZ has a cause of action against PAULE and
MENDOZA. Thus, the Court of Appeals erred in dismissing CRUZ’s complaint on a
finding of exceeded agency. Besides, that PAULE could be held liable under the SPAs
for transactions entered into by MENDOZA with laborers, suppliers of materials and
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 Page 93 of 104

services for use in the NIA project, has been settled with finality in G.R. No. 173275.
What has been adjudged in said case as regards the SPAs should be made to apply to
the instant case. Although the said case involves different parties and transactions, it
finally disposed of the matter regarding the SPAs – specifically their effect as among
PAULE, MENDOZA and third parties with whom MENDOZA had contracted with by
virtue of the SPAs – a disposition that should apply to CRUZ as well. If a particular
point or question is in issue in the second action, and the judgment will depend on
the determination of that particular point or question, a former judgment between
the same parties or their privies will be final and conclusive in the second if that same
point or question was in issue and adjudicated in the first suit. Identity of cause of
action is not required but merely identity of issues.20

There was no valid reason for PAULE to revoke MENDOZA’s SPAs. Since MENDOZA
took care of the funding and sourcing of labor, materials and equipment for the
project, it is only logical that she controls the finances, which means that the SPAs
issued to her were necessary for the proper performance of her role in the
partnership, and to discharge the obligations she had already contracted prior to
revocation. Without the SPAs, she could not collect from NIA, because as far as it is
concerned, EMPCT – and not the PAULE-MENDOZA partnership – is the entity it had
contracted with. Without these payments from NIA, there would be no source of
funds to complete the project and to pay off obligations incurred. As MENDOZA
correctly argues, an agency cannot be revoked if a bilateral contract depends upon it,
or if it is the means of fulfilling an obligation already contracted, or if a partner is
appointed manager of a partnership in the contract of partnership and his removal
from the management is unjustifiable.21

PAULE’s revocation of the SPAs was done in evident bad faith. Admitting all
throughout that his only entitlement in the partnership with MENDOZA is his 3%
royalty for the use of his contractor’s license, he knew that the rest of the amounts
collected from NIA was owing to MENDOZA and suppliers of materials and services,
as well as the laborers. Yet, he deliberately revoked MENDOZA’s authority such that
the latter could no longer collect from NIA the amounts necessary to proceed with
the project and settle outstanding obligations.lawphil.net

From the way he conducted himself, PAULE committed a willful and deliberate breach
of his contractual duty to his partner and those with whom the partnership had
contracted. Thus, PAULE should be made liable for moral damages.

Bad faith does not simply connote bad judgment or negligence; it imputes a
dishonest purpose or some moral obliquity and conscious doing of a wrong; a breach
of a sworn duty through some motive or intent or ill-will; it partakes of the nature of
fraud (Spiegel v. Beacon Participation, 8 NE 2nd Series, 895, 1007). It contemplates a
state of mind affirmatively operating with furtive design or some motive of self-
interest or ill will for ulterior purposes (Air France v. Carrascoso, 18 SCRA 155, 166-
167). Evident bad faith connotes a manifest deliberate intent on the part of the
accused to do wrong or cause damage.22

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

Where the defendant has interposed a counterclaim (whether compulsory or

permissive) or is seeking affirmative relief by a cross-complaint, the plaintiff cannot
dismiss the action so as to affect the right of the defendant in his counterclaim or
prayer for affirmative relief. The reason for that exception is clear. When the answer
sets up an independent action against the plaintiff, it then becomes an action by the
defendant against the plaintiff, and, of course, the plaintiff has no right to ask for a
dismissal of the defendant’s action. The present rule embodied in Sections 2 and 3 of
Rule 17 of the 1997 Rules of Civil Procedure ordains a more equitable disposition of
the counterclaims by ensuring that any judgment thereon is based on the merit of
the counterclaim itself and not on the survival of the main complaint. Certainly, if the
counterclaim is palpably without merit or suffers jurisdictional flaws which stand
independent of the complaint, the trial court is not precluded from dismissing it
under the amended rules, provided that the judgment or order dismissing the
counterclaim is premised on those defects. At the same time, if the counterclaim is
justified, the amended rules now unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of the complaint.23

Notwithstanding the immutable character of PAULE’s liability to MENDOZA, however,

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

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

SO ORDERED.

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 Page 94 of 104

of the General Agency Agreement. But the records will

show that the principal cause of the termination of the
G.R. No. 83122 October 19, 1990 plaintiff as General Agent of defendant PHILAMGEN was his
refusal to share his Delta commission.

ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA, petitioners,

vs. That it should be noted that there were several attempts
THE HONORABLE COURT OF APPEALS, BIENVENIDO M. ARAGON, ROBERT E. made by defendant Bienvenido M. Aragon to share with the
PARNELL, CARLOS K. CATOLICO and THE PHILIPPINE AMERICAN GENERAL Delta commission of plaintiff Arturo P. Valenzuela. He had
INSURANCE COMPANY, INC., respondents. persistently pursued the sharing scheme to the point of
terminating plaintiff Arturo P. Valenzuela, and to make
matters worse, defendants made it appear that plaintiff
Albino B. Achas for petitioners. Arturo P. Valenzuela had substantial accounts with
defendant PHILAMGEN.
Angara, Abello, Concepcion, Regala & Cruz for private respondents.
Not only that, defendants have also started (a) to treat
separately the Delta Commission of plaintiff Arturo P.
Valenzuela, (b) to reverse the Delta commission due plaintiff
GUTIERREZ, JR., J.:
Arturo P. Valenzuela by not crediting or applying said
commission earned to the account of plaintiff Arturo P.
This is a petition for review of the January 29, 1988 decision of the Court of Appeals Valenzuela, (c) placed plaintiff Arturo P. Valenzuela's agency
and the April 27, 1988 resolution denying the petitioners' motion for reconsideration, transactions on a "cash and carry basis", (d) sending threats
which decision and resolution reversed the decision dated June 23,1986 of the Court to cancel existing policies issued by plaintiff Arturo P.
of First Instance of Manila, Branch 34 in Civil Case No. 121126 upholding the Valenzuela's agency, (e) to divert plaintiff Arturo P.
petitioners' causes of action and granting all the reliefs prayed for in their complaint Valenzuela's insurance business to other agencies, and (f) to
against private respondents. spread wild and malicious rumors that plaintiff Arturo P.
Valenzuela has substantial account with defendant
PHILAMGEN to force plaintiff Arturo P. Valenzuela into
The antecedent facts of the case are as follows: agreeing with the sharing of his Delta commission." (pp. 9-
10, Decision, Annex 1, Petition).
Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of private
respondent Philippine American General Insurance Company, Inc. (Philamgen for xxx xxx xxx
short) since 1965. As such, he was authorized to solicit and sell in behalf of
Philamgen all kinds of non-life insurance, and in consideration of services rendered
was entitled to receive the full agent's commission of 32.5% from Philamgen under These acts of harrassment done by defendants on plaintiff
the scheduled commission rates (Exhibits "A" and "1"). From 1973 to 1975, Arturo P. Valenzuela to force him to agree to the sharing of
Valenzuela solicited marine insurance from one of his clients, the Delta Motors, Inc. his Delta commission, which culminated in the termination
(Division of Electronics Airconditioning and Refrigeration) in the amount of P4.4 of plaintiff Arturo P. Valenzuela as one of defendant
Million from which he was entitled to a commission of 32% (Exhibit "B"). However, PHILAMGEN's General Agent, do not justify said termination
Valenzuela did not receive his full commission which amounted to P1.6 Million from of the General Agency Agreement entered into by
the P4.4 Million insurance coverage of the Delta Motors. During the period 1976 to defendant PHILAMGEN and plaintiff Arturo P. Valenzuela.
1978, premium payments amounting to P1,946,886.00 were paid directly to
Philamgen and Valenzuela's commission to which he is entitled amounted to
That since defendants are not justified in the termination of
P632,737.00.
plaintiff Arturo P. Valenzuela as one of their General Agents,
defendants shall be liable for the resulting damage and loss
In 1977, Philamgen started to become interested in and expressed its intent to share of business of plaintiff Arturo P. Valenzuela. (Arts.
in the commission due Valenzuela (Exhibits "III" and "III-1") on a fifty-fifty basis 2199/2200, Civil Code of the Philippines). (Ibid, p. 11)
(Exhibit "C"). Valenzuela refused (Exhibit "D").
The court accordingly rendered judgment, the dispositive portion of which reads:
On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon insisted on
the sharing of the commission with Valenzuela (Exhibit E). This was followed by
WHEREFORE, judgment is hereby rendered in favor of the
another sharing proposal dated June 1, 1978. On June 16,1978, Valenzuela firmly
plaintiffs and against defendants ordering the latter to
reiterated his objection to the proposals of respondents stating that: "It is with great
reinstate plaintiff Arturo P. Valenzuela as its General Agent,
reluctance that I have to decline upon request to signify my conformity to your
and to pay plaintiffs, jointly and severally, the following:
alternative proposal regarding the payment of the commission due me. However, I
have no choice for to do otherwise would be violative of the Agency Agreement
executed between our goodselves." (Exhibit B-1) 1. The amount of five hundred twenty-one thousand nine
hundred sixty four and 16/100 pesos (P521,964.16)
representing plaintiff Arturo P. Valenzuela's Delta
Because of the refusal of Valenzuela, Philamgen and its officers, namely: Bienvenido
Commission with interest at the legal rate from the time of
Aragon, Carlos Catolico and Robert E. Parnell took drastic action against Valenzuela.
the filing of the complaint, which amount shall be adjusted
They: (a) reversed the commission due him by not crediting in his account the
in accordance with Article 1250 of the Civil Code of the
commission earned from the Delta Motors, Inc. insurance (Exhibit "J" and "2"); (b)
Philippines;
placed agency transactions on a cash and carry basis; (c) threatened the cancellation
of policies issued by his agency (Exhibits "H" to "H-2"); and (d) started to leak out
news that Valenzuela has a substantial account with Philamgen. All of these acts 2. The amount of seventy-five thousand pesos (P75,000.00)
resulted in the decline of his business as insurance agent (Exhibits "N", "O", "K" and per month as compensatory damages from 1980 until such
"K-8"). Then on December 27, 1978, Philamgen terminated the General Agency time that defendant Philamgen shall reinstate plaintiff
Agreement of Valenzuela (Exhibit "J", pp. 1-3, Decision Trial Court dated June 23, Arturo P. Valenzuela as one of its general agents;
1986, Civil Case No. 121126, Annex I, Petition).

3. The amount of three hundred fifty thousand pesos

The petitioners sought relief by filing the complaint against the private respondents (P350,000.00) for each plaintiff as moral damages;
in the court a quo (Complaint of January 24, 1979, Annex "F" Petition). After due
proceedings, the trial court found:
4. The amount of seventy-five thousand pesos (P75,000.00)
as and for attorney's fees;
xxx xxx xxx

5. Costs of the suit. (Ibid., P. 12)

Defendants tried to justify the termination of plaintiff
Arturo P. Valenzuela as one of defendant PHILAMGEN's
General Agent by making it appear that plaintiff Arturo P. From the aforesaid decision of the trial court, Bienvenido
Valenzuela has a substantial account with defendant Aragon, Robert E. Parnell, Carlos K. Catolico and
PHILAMGEN particularly Delta Motors, Inc.'s Account, PHILAMGEN respondents herein, and defendants-
thereby prejudicing defendant PHILAMGEN's interest appellants below, interposed an appeal on the following:
(Exhibits 6,"11","11- "12- A"and"13-A").
ASSIGNMENT OF ERRORS
Defendants also invoked the provisions of the Civil Code of
the Philippines (Article 1868) and the provisions of the
I
General Agency Agreement as their basis for terminating
plaintiff Arturo P. Valenzuela as one of their General Agents.
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF
ARTURO P. VALENZUELA HAD NO OUTSTANDING ACCOUNT
That defendants' position could have been justified had the
WITH DEFENDANT PHILAMGEN AT THE TIME OF THE
termination of plaintiff Arturo P. Valenzuela was (sic) based
TERMINATION OF THE AGENCY.
solely on the provisions of the Civil Code and the conditions

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


II
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF
ARTURO P. VALENZUELA IS ENTITLED TO THE FULL
COMMISSION OF 32.5% ON THE DELTA ACCOUNT.
III
THE LOWER COURT ERRED IN HOLDING THAT THE
TERMINATION OF PLAINTIFF ARTURO P. VALENZUELA WAS
NOT JUSTIFIED AND THAT CONSEQUENTLY DEFENDANTS
ARE LIABLE FOR ACTUAL AND MORAL DAMAGES,
ATTORNEYS FEES AND COSTS.
IV
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES
AGAINST DEFENDANT PHILAMGEN WAS PROPER, THE
LOWER COURT ERRED IN AWARDING DAMAGES EVEN
AGAINST THE INDIVIDUAL DEFENDANTS WHO ARE MERE
CORPORATE AGENTS ACTING WITHIN THE SCOPE OF THEIR
AUTHORITY.
V
ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN
FAVOR OF PLAINTIFF ARTURO P. VALENZUELA WAS PROPER,
THE LOWER COURT ERRED IN AWARDING DAMAGES IN
FAVOR OF HOSPITALITA VALENZUELA, WHO, NOT BEING THE
REAL PARTY IN INTEREST IS NOT TO OBTAIN RELIEF.
On January 29, 1988, respondent Court of Appeals promulgated its decision in the
appealed case. The dispositive portion of the decision reads:
WHEREFORE, the decision appealed from is hereby
modified accordingly and judgment is hereby rendered
ordering:
1. Plaintiff-appellee Valenzuela to pay defendant-appellant
Philamgen the sum of one million nine hundred thirty two
thousand five hundred thirty-two pesos and seventeen
centavos (P1,902,532.17), with legal interest thereon from
the date of finality of this judgment until fully paid.
2. Both plaintiff-appellees to pay jointly and severally
defendants-appellants the sum of fifty thousand pesos
(P50,000.00) as and by way of attorney's fees.
No pronouncement is made as to costs. (p. 44, Rollo)
There is in this instance irreconcilable divergence in the findings and conclusions of
the Court of Appeals, vis-a-visthose of the trial court particularly on the pivotal issue
whether or not Philamgen and/or its officers can be held liable for damages due to
the termination of the General Agency Agreement it entered into with the
petitioners. In its questioned decision the Court of Appeals observed that:
In any event the principal's power to revoke an agency at
will is so pervasive, that the Supreme Court has consistently
held that termination may be effected even if the principal
acts in bad faith, subject only to the principal's liability for
damages (Danon v. Antonio A. Brimo & Co., 42 Phil. 133;
Reyes v. Mosqueda, 53 O.G. 2158 and Infante V. Cunanan,
93 Phil. 691, cited in Paras, Vol. V, Civil Code of the
Philippines Annotated [1986] 696).
The lower court, however, thought the termination of
Valenzuela as General Agent improper because the record
will show the principal cause of the termination of the
plaintiff as General Agent of defendant Philamgen was his
refusal to share his Delta commission. (Decision, p. 9; p.
13, Rollo, 41)
Because of the conflicting conclusions, this Court deemed it necessary in the interest
of substantial justice to scrutinize the evidence and records of the cases. While it is an
established principle that the factual findings of the Court of Appeals are final and
may not be reviewed on appeal to this Court, there are however certain exceptions to
the rule which this Court has recognized and accepted, among which, are when the
judgment is based on a misapprehension of facts and when the findings of the
appellate court, are contrary to those of the trial court (Manlapaz v. Court of Appeals,
147 SCRA 236 [1987]); Guita v. Court of Appeals, 139 SCRA 576 [1986]). Where the
findings of the Court of Appeals and the trial court are contrary to each other, this
Court may scrutinize the evidence on record (Cruz v. Court of Appeals, 129 SCRA 222
[1984]; Mendoza v. Court of Appeals, 156 SCRA 597 [1987]; Maclan v. Santos, 156
SCRA 542 [1987]). When the conclusion of the Court of Appeals is grounded entirely
on speculation, surmises or conjectures, or when the inference made is manifestly
mistaken, absurd or impossible, or when there is grave abuse of discretion, or when
the judgment is based on a misapprehension of facts, and when the findings of facts
CASES: Agency
Page 95 of 104
are conflict the exception also applies (Malaysian Airline System Bernad v. Court of
Appeals, 156 SCRA 321 [1987]).
After a painstaking review of the entire records of the case and the findings of facts of
both the court a quo and respondent appellate court, we are constrained to affirm
the trial court's findings and rule for the petitioners.
We agree with the court a quo that the principal cause of the termination of
Valenzuela as General Agent of Philamgen arose from his refusal to share his Delta
commission. The records sustain the conclusions of the trial court on the
apparent bad faith of the private respondents in terminating the General Agency
Agreement of petitioners. It is axiomatic that the findings of fact of a trial judge are
entitled to great weight (People v. Atanacio, 128 SCRA 22 [1984]) and should not be
disturbed on appeal unless for strong and cogent reasons, because the trial court is in
a better position to examine the evidence as well as to observe the demeanor of the
witnesses while testifying (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]; People v.
Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans., Inc. v. Court of Appeals, 147 SCRA
82 [1987]). In the case at bar, the records show that the findings and conclusions of
the trial court are supported by substantial evidence and there appears to be no
cogent reason to disturb them (Mendoza v. Court of Appeals. 156 SCRA 597 [1987]).
As early as September 30,1977, Philamgen told the petitioners of its desire to share
the Delta Commission with them. It stated that should Delta back out from the
agreement, the petitioners would be charged interests through a reduced
commission after full payment by Delta.
On January 23, 1978 Philamgen proposed reducing the petitioners' commissions by
50% thus giving them an agent's commission of 16.25%. On February 8, 1978,
Philamgen insisted on the reduction scheme followed on June 1, 1978 by still another
insistence on reducing commissions and proposing two alternative schemes for
reduction. There were other pressures. Demands to settle accounts, to confer and
thresh out differences regarding the petitioners' income and the threat to terminate
the agency followed. The petitioners were told that the Delta commissions would not
be credited to their account (Exhibit "J"). They were informed that the Valenzuela
agency would be placed on a cash and carry basis thus removing the 60-day credit for
premiums due. (TSN., March 26, 1979, pp. 54-57). Existing policies were threatened
to be cancelled (Exhibits "H" and "14"; TSN., March 26, 1979, pp. 29-30). The
Valenzuela business was threatened with diversion to other agencies. (Exhibit
"NNN"). Rumors were also spread about alleged accounts of the Valenzuela agency
(TSN., January 25, 1980, p. 41). The petitioners consistently opposed the pressures to
hand over the agency or half of their commissions and for a treatment of the Delta
account distinct from other accounts. The pressures and demands, however,
continued until the agency agreement itself was finally terminated.
It is also evident from the records that the agency involving petitioner and private
respondent is one "coupled with an interest," and, therefore, should not be freely
revocable at the unilateral will of the latter.
In the insurance business in the Philippines, the most difficult and frustrating period
is the solicitation and persuasion of the prospective clients to buy insurance policies.
Normally, agents would encounter much embarrassment, difficulties, and oftentimes
frustrations in the solicitation and procurement of the insurance policies. To sell
policies, an agent exerts great effort, patience, perseverance, ingenuity, tact,
imagination, time and money. In the case of Valenzuela, he was able to build up an
Agency from scratch in 1965 to a highly productive enterprise with gross billings of
about Two Million Five Hundred Thousand Pesos (P2,500,000.00) premiums per
annum. The records sustain the finding that the private respondent started to covet a
share of the insurance business that Valenzuela had built up, developed and nurtured
to profitability through over thirteen (13) years of patient work and perseverance.
When Valenzuela refused to share his commission in the Delta account, the boom
suddenly fell on him.
The private respondents by the simple expedient of terminating the General Agency
Agreement appropriated the entire insurance business of Valenzuela. With the
termination of the General Agency Agreement, Valenzuela would no longer be
entitled to commission on the renewal of insurance policies of clients sourced from
his agency. Worse, despite the termination of the agency, Philamgen continued to
hold Valenzuela jointly and severally liable with the insured for unpaid premiums.
Under these circumstances, it is clear that Valenzuela had an interest in the
continuation of the agency when it was unceremoniously terminated not only
because of the commissions he should continue to receive from the insurance
business he has solicited and procured but also for the fact that by the very acts of
the respondents, he was made liable to Philamgen in the event the insured fail to pay
the premiums due. They are estopped by their own positive averments and claims for
damages. Therefore, the respondents cannot state that the agency relationship
between Valenzuela and Philamgen is not coupled with interest. "There may be cases
in which an agent has been induced to assume a responsibility or incur a liability, in
reliance upon the continuance of the authority under such circumstances that, if the
authority be withdrawn, the agent will be exposed to personal loss or liability" (See
MEC 569 p. 406).
Furthermore, there is an exception to the principle that an agency is revocable at will
and that is when the agency has been given not only for the interest of the principal
but for the interest of third persons or for the mutual interest of the principal and the
agent. In these cases, it is evident that the agency ceases to be freely revocable by
the sole will of the principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350).
The following citations are apropos:
The principal may not defeat the agent's right to
indemnification by a termination of the contract of agency
(Erskine v. Chevrolet Motors Co. 185 NC 479, 117 SE 706, 32
ALR 196).
RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY

Where the principal terminates or repudiates the agent's
employment in violation of the contract of employment and
without cause ... the agent is entitled to receive either the
amount of net losses caused and gains prevented by the
breach, or the reasonable value of the services rendered.
Thus, the agent is entitled to prospective profits which he
would have made except for such wrongful termination
provided that such profits are not conjectural, or
speculative but are capable of determination upon some
fairly reliable basis. And a principal's revocation of the
agency agreement made to avoid payment of compensation
for a result which he has actually accomplished (Hildendorf
v. Hague, 293 NW 2d 272; Newhall v. Journal Printing Co.,
105 Minn 44,117 NW 228; Gaylen Machinery Corp. v.
Pitman-Moore Co. [C.A. 2 NY] 273 F 2d 340)
If a principal violates a contractual or quasi-contractual duty
which he owes his agent, the agent may as a rule bring an
appropriate action for the breach of that duty. The agent
may in a proper case maintain an action at law for
compensation or damages ... A wrongfully discharged agent
has a right of action for damages and in such action the
measure and element of damages are controlled generally
by the rules governing any other action for the employer's
breach of an employment contract. (Riggs v. Lindsay, 11 US
500, 3L Ed 419; Tiffin Glass Co. v. Stoehr, 54 Ohio 157, 43 NE
2798)
At any rate, the question of whether or not the agency agreement is coupled with
interest is helpful to the petitioners' cause but is not the primary and compelling
reason. For the pivotal factor rendering Philamgen and the other private respondents
liable in damages is that the termination by them of the General Agency Agreement
was tainted with bad faith. Hence, if a principal acts in bad faith and with abuse of
right in terminating the agency, then he is liable in damages. This is in accordance
with the precepts in Human Relations enshrined in our Civil Code that "every person
must in the exercise of his rights and in the performance of his duties act with justice,
give every one his due, and observe honesty and good faith: (Art. 19, Civil Code), and
every person who, contrary to law, wilfully or negligently causes damages to another,
shall indemnify the latter for the same (Art. 20, id). "Any person who wilfully causes
loss or injury to another in a manner contrary to morals, good customs and public
policy shall compensate the latter for the damages" (Art. 21, id.).
As to the issue of whether or not the petitioners are liable to Philamgen for the
unpaid and uncollected premiums which the respondent court ordered Valenzuela to
pay Philamgen the amount of One Million Nine Hundred Thirty-Two Thousand Five
Hundred Thirty-Two and 17/100 Pesos (P1,932,532,17) with legal interest thereon
until fully paid (Decision-January 20, 1988, p. 16; Petition, Annex "A"), we rule that
the respondent court erred in holding Valenzuela liable. We find no factual and legal
basis for the award. Under Section 77 of the Insurance Code, the remedy for the non-
payment of premiums is to put an end to and render the insurance policy not binding
—
Sec. 77 ... [N]otwithstanding any agreement to the contrary,
no policy or contract of insurance is valid and binding unless
and until the premiums thereof have been paid except in
the case of a life or industrial life policy whenever the grace
period provision applies (P.D. 612, as amended otherwise
known as the Insurance Code of 1974)
In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419
[1979]) we held that the non-payment of premium does not merely suspend but puts
an end to an insurance contract since the time of the payment is peculiarly of the
essence of the contract. And in Arce v. The Capital Insurance and Surety Co. Inc. (117
SCRA 63, [1982]), we reiterated the rule that unless premium is paid, an insurance
contract does not take effect. Thus:
It is to be noted that Delgado (Capital Insurance & Surety
Co., Inc. v. Delgado, 9 SCRA 177 [1963] was decided in the
light of the Insurance Act before Sec. 72 was amended by
the underscored portion. Supra. Prior to the Amendment,
an insurance contract was effective even if the premium
had not been paid so that an insurer was obligated to pay
indemnity in case of loss and correlatively he had also the
right to sue for payment of the premium. But the
amendment to Sec. 72 has radically changed the legal
regime in that unless the premium is paid there is no
insurance. " (Arce v. Capitol Insurance and Surety Co., Inc.,
117 SCRA 66; Emphasis supplied)
In Philippine Phoenix Surety case, we held:
Moreover, an insurer cannot treat a contract as valid for the
purpose of collecting premiums and invalid for the purpose
of indemnity. (Citing Insurance Law and Practice by John
Alan Appleman, Vol. 15, p. 331; Emphasis supplied)
The foregoing findings are buttressed by Section 776 of the
insurance Code (Presidential Decree No. 612, promulgated
on December 18, 1974), which now provides that no
contract of Insurance by an insurance company is valid and
binding unless and until the premium thereof has been
CASES: Agency
Page 96 of 104
paid, notwithstanding any agreement to the contrary (Ibid.,
92 SCRA 425)
Perforce, since admittedly the premiums have not been paid, the policies issued have
lapsed. The insurance coverage did not go into effect or did not continue and the
obligation of Philamgen as insurer ceased. Hence, for Philamgen which had no more
liability under the lapsed and inexistent policies to demand, much less sue Valenzuela
for the unpaid premiums would be the height of injustice and unfair dealing. In this
instance, with the lapsing of the policies through the nonpayment of premiums by
the insured there were no more insurance contracts to speak of. As this Court held in
the Philippine Phoenix Surety case, supra "the non-payment of premiums does not
merely suspend but puts an end to an insurance contract since the time of the
payment is peculiarly of the essence of the contract."
The respondent appellate court also seriously erred in according undue reliance to
the report of Banaria and Banaria and Company, auditors, that as of December 31,
1978, Valenzuela owed Philamgen P1,528,698.40. This audit report of Banaria was
commissioned by Philamgen after Valenzuela was almost through with the
presentation of his evidence. In essence, the Banaria report started with an
unconfirmed and unaudited beginning balance of account of P1,758,185.43 as of
August 20, 1976. But even with that unaudited and unconfirmed beginning balance
of P1,758,185.43, Banaria still came up with the amount of P3,865.49 as Valenzuela's
balance as of December 1978 with Philamgen (Exh. "38-A-3"). In fact, as of December
31, 1976, and December 31, 1977, Valenzuela had no unpaid account with Philamgen
(Ref: Annexes "D", "D-1", "E", Petitioner's Memorandum). But even disregarding
these annexes which are records of Philamgen and addressed to Valenzuela in due
course of business, the facts show that as of July 1977, the beginning balance of
Valenzuela's account with Philamgen amounted to P744,159.80. This was confirmed
by Philamgen itself not only once but four (4) times on different occasions, as shown
by the records.
On April 3,1978, Philamgen sent Valenzuela a statement of account with a beginning
balance of P744,159-80 as of July 1977.
On May 23, 1978, another statement of account with exactly the same beginning
balance was sent to Valenzuela.
On November 17, 1978, Philamgen sent still another statement of account with
P744,159.80 as the beginning balance.
And on December 20, 1978, a statement of account with exactly the same figure was
sent to Valenzuela.
It was only after the filing of the complaint that a radically different statement of
accounts surfaced in court. Certainly, Philamgen's own statements made by its own
accountants over a long period of time and covering examinations made on four
different occasions must prevail over unconfirmed and unaudited statements made
to support a position made in the course of defending against a lawsuit.
It is not correct to say that Valenzuela should have presented its own records to
refute the unconfirmed and unaudited finding of the Banaria auditor. The records of
Philamgen itself are the best refutation against figures made as an afterthought in
the course of litigation. Moreover, Valenzuela asked for a meeting where the figures
would be reconciled. Philamgen refused to meet with him and, instead, terminated
the agency agreement.
After off-setting the amount of P744,159.80, beginning balance as of July 1977, by
way of credits representing the commission due from Delta and other accounts,
Valenzuela had overpaid Philamgen the amount of P530,040.37 as of November 30,
1978. Philamgen cannot later be heard to complain that it committed a mistake in its
computation. The alleged error may be given credence if committed only once. But as
earlier stated, the reconciliation of accounts was arrived at four (4) times on different
occasions where Philamgen was duly represented by its account executives. On the
basis of these admissions and representations, Philamgen cannot later on assume a
different posture and claim that it was mistaken in its representation with respect to
the correct beginning balance as of July 1977 amounting to P744,159.80. The Banaria
audit report commissioned by Philamgen is unreliable since its results are admittedly
based on an unconfirmed and unaudited beginning balance of P1,758,185.43 as of
August 20,1976.
As so aptly stated by the trial court in its decision:
Defendants also conducted an audit of accounts of plaintiff
Arturo P. Valenzuela after the controversy has started. In
fact, after hearing plaintiffs have already rested their case.
The results of said audit were presented in Court to show
plaintiff Arturo P. Valenzuela's accountability to defendant
PHILAMGEN. However, the auditor, when presented as
witness in this case testified that the beginning balance of
their audit report was based on an unaudited amount of
P1,758,185.43 (Exhibit 46-A) as of August 20, 1976, which
was unverified and merely supplied by the officers of
defendant PHILAMGEN.
Even defendants very own Exhibit 38- A-3, showed that
plaintiff Arturo P. Valenzuela's balance as of 1978 amounted
to only P3,865.59, not P826,128.46 as stated in defendant
Bienvenido M. Aragon's letter dated December 20,1978
(Exhibit 14) or P1,528,698.40 as reflected in defendant's
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 Page 97 of 104

Exhibit 46 (Audit Report of Banaria dated December 24,

1980).

These glaring discrepancy (sic) in the accountability of

plaintiff Arturo P. Valenzuela to defendant PHILAMGEN only
lends credence to the claim of plaintiff Arturo P. Valenzuela
that he has no outstanding account with defendant
PHILAMGEN when the latter, thru defendant Bienvenido M.
Aragon, terminated the General Agency Agreement entered
into by plaintiff (Exhibit A) effective January 31, 1979 (see
Exhibits "2" and "2-A"). Plaintiff Arturo P. Valenzuela has
shown that as of October 31, 1978, he has overpaid
defendant PHILAMGEN in the amount of P53,040.37
(Exhibit "EEE", which computation was based on defendant
PHILAMGEN's balance of P744,159.80 furnished on several
occasions to plaintiff Arturo P. Valenzuela by defendant
PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 , YY , YY-2 ,
ZZ and , ZZ-2).

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

The trial court in its decision awarded to Valenzuela the amount of Seventy Five
Thousand Pesos (P75,000,00) per month as compensatory damages from June 1980
until its decision becomes final and executory. This award is justified in the light of
the evidence extant on record (Exhibits "N", "N-10", "0", "0-1", "P" and "P-1")
showing that the average gross premium collection monthly of Valenzuela over a
period of four (4) months from December 1978 to February 1979, amounted to over
P300,000.00 from which he is entitled to a commission of P100,000.00 more or less
per month. Moreover, his annual sales production amounted to P2,500,000.00 from
where he was given 32.5% commissions. Under Article 2200 of the new Civil Code,
"indemnification for damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee failed to obtain."

The circumstances of the case, however, require that the contractual relationship
between the parties shall be terminated upon the satisfaction of the judgment. No
more claims arising from or as a result of the agency shall be entertained by the
courts after that date.

ACCORDINGLY, the petition is GRANTED. The impugned decision of January 29, 1988
and resolution of April 27, 1988 of respondent court are hereby SET ASIDE. The
decision of the trial court dated January 23, 1986 in Civil Case No. 121126 is
REINSTATED with the MODIFICATIONS that the amount of FIVE HUNDRED TWENTY
ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS (P521,964.16)
representing the petitioners Delta commission shall earn only legal interests without
any adjustments under Article 1250 of the Civil Code and that the contractual
relationship between Arturo P. Valenzuela and Philippine American General Insurance
Company shall be deemed terminated upon the satisfaction of the judgment as
modified.

SO ORDERED.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY


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.
CASES: Agency
Page 98 of 104
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.
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 Page 99 of 104

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.
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.

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

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 Page 100 of 104

in the payment of its loans amounting to P389,246,324.60 (principal and accrued

interest) to PNB.
G.R. No. 151218 January 28, 2003
In the meantime, PNB received remittances from foreign banks totaling
NATIONAL SUGAR TRADING and/or the SUGAR REGULATORY US$36,564,558.90 or the equivalent of P696,281,405.09 representing the proceeds of
ADMINISTRATION, petitioners, NASUTRA's sugar exports. 19 Said remittances were then applied by PNB to the unpaid
vs. accounts of NASUTRA/PHILSUCOM with PNB and PHILEXCHANGE. The schedule of
PHILIPPINE NATIONAL BANK, respondent. remittances and applications are as follows:

YNARES-SANTIAGO, J.: SCHEDULE OF REMITTANCES & APPLICATIONS

This is a petition for review which seeks to set aside the decision of the Court of Account of NASUTRA
Appeals dated August 10, 2001 in CA-G.R. SP. No. 58102, 1 upholding the decision of
the Office of the President dated September 17, 1999, 2 as well as the resolution
dated December 12, 2001 denying petitioners' motion for reconsideration. July 31, 1988

REMITTANCES
The antecedent facts, as culled from the records, are as follows:
Date Remitting Bank Amount
11-19-85 Bankers Trust-New York P259,253,573.46
Sometime in February 1974, then President Ferdinand E. Marcos issued Presidential
Decree No. 388 3 constituting the Philippine Sugar Commission (PHILSUCOM), as the 11-26-85 Bankers Trust-New York 144,459,242.84
sole buying and selling agent of sugar on the quedan permit level. In November of 03-06-86 Credit Lyonnais-Manila 209,880,477.07
the same year, PD 579 4 was issued, authorizing the Philippine Exchange Company,
Inc. (PHILEXCHANGE), a wholly owned subsidiary of Philippine National Bank (PNB) to 04-22-86 Societé Generalé-Manila 82,151,953.10
serve as the marketing agent of PHILSUCOM. Pursuant to PD 579, PHILEXCHANGE's
06-09-86 Credit Lyonnais-Manila 536,158.62
purchases of sugar shall be financed by PNB and the proceeds of sugar trading
operations of PHILEXCHANGE shall be used to pay its liabilities with PNB. 5 Total P696,281,405.09
APPLICATIONS
Similarly, in February 1975, PD 659 was issued, constituting PHILEXCHANGE and/or Date Applied to Amount
PNB as the exclusive sugar trading agencies of the government for buying sugar from
planters or millers and selling or exporting them. 6 PNB then extended loans to 1986 NASUTRA account with PNB P389,246,324.60
PHILEXCHANGE for the latter's sugar trading operations. At first, PHILEXCHANGE
1986 Claims of various CAB planters 15,863,898.79
religiously paid its obligations to PNB by depositing the proceeds of the sale of sugar
with the bank. Subsequently, however, with the fall of sugar prices in the world Claims of various PNB branches for interest or
market, PHILEXCHANGE defaulted in the payments of its loans amounting to 1987 the unpaid CY 1984–85 sugar proceeds 65,412,245.84
P206,070,172.57. 7
1987& Philsucom account carried in the books of 206,070,172.57
1988 Philexchange P676,592,641.80
In July 1977, the National Sugar Trading Corporation (NASUTRA) replaced
PHILEXCHANGE as the marketing agent of PHILSUCOM. Accordingly, PHILEXCHANGE Unapplied Remittance P19,688,763.29" 20
sold and turned over all sugar quedans to NASUTRA. However, no physical inventory Subsequently, PNB applied the P19,688,763.29 to PHILSUCOM's account with
of the sugar covered by the quedans was made. 8 Neither NASUTRA nor PHILSUCOM PHILEXCHANGE which in turn was applied to PHILEXCHANGE's account with PNB. 21
was required to immediately pay PHILEXCHANGE. Notwithstanding this concession,
NASUTRA and PHILSUCOM still failed to pay the sugar stocks covered by quedans to
PHILEXCHANGE which, as of June 30, 1984, amounted to P498,828,845.03. As a Accordingly, NASUTRA requested 22 PNB to furnish it with the necessary documents
consequence, PHILEXCHANGE was not able to pay its obligations to PNB. and/or explanation 23concerning the disposition/application, accounting and
restitution of the remittances in question. Dissatisfied, and believing that PNB failed
to provide them with said documents, NASUTRA and SRA filed a petition for
To finance its sugar trading operations, NASUTRA applied for and was granted 9 a arbitration 24with the Department of Justice on August 13, 1991.
P408 Million Revolving Credit Line by PNB in 1981. Every time NASUTRA availed of
the credit line, 10 its Executive Vice-President, Jose Unson, executed a promissory
note in favor of PNB. After due proceedings, the Secretary of Justice rendered a decision, to wit:

In order to stabilize sugar liquidation prices at a minimum of P300.00 per picul, WHEREFORE, judgment is hereby rendered —
PHILSUCOM issued on March 15, 1985 Circular Letter No. EC-4-85, considering all
sugar produced during crop year 1984–1985 as domestic sugar. Furthermore,
1. Declaring that of the amount of Six Hundred Ninety Six Million Two
PHILSUCOM's Chairman of Executive Committee, Armando C. Gustillo proposed on
Hundred Eighty One Thousand Four Hundred Five and 09/100 Pesos
May 14, 1985 the following liquidation scheme of the sugar quedans 11 assigned to
(P696,281,405.09) equivalent of US$36,564,558.90, foreign remittances
PNB by the sugar planters:
received by respondent PNB, for and in behalf of petitioner NASUTRA—

Upon notice from NASUTRA, PNB shall credit the individual producer and millers loan
a) the amount of Three Hundred Eighty Nine Million Two
accounts for their sugar proceeds and shall treat the same as loans of NASUTRA.
Hundred Forty Six Thousand Three Hundred Twenty Four
and 60/100 Pesos (P389,246,324.60) was validly applied to
Such loans shall be charged interest at the prevailing rates and it shall commence five outstanding account of NASUTRA to PNB;
(5) days after receipt by PNB of quedans from NASUTRA. 12
b) the amount of Sixty Five Billion Four Hundred Twelve
PNB, for its part, issued Resolution No. 353 dated May 20, 1985 approving 13 the Thousand Two Hundred Forty Five and 84/100 Pesos
PHILSUCOM/NASUTRA proposal for the payment of the sugar quedans assigned to it. (P65,412,245.84) was validly applied to claims of various
Pursuant to said resolution, NASUTRA would assume the interest on the planter/mill PNB branches for interest on the unpaid CY 1984–85 sugar
loan accounts. The pertinent portion of the Resolution states: proceeds;

Five (5) days after receipt of the quedans, NASUTRA shall absorb the accruing interest Or a total of Four Hundred Fifty Four Million Six Hundred Fifty Eight
on that portion of the planter/mill loan with PNB commensurate to the net Thousand Five Hundred Seventy and 44/100 Pesos (P454,658,570.44).
liquidation value of the sugar delivered, or in other words, NASUTRA proposes to
assume interest that will run on the planter/mill loan equivalent to the net proceeds
2. Ordering respondent PNB to pay petitioners —
of the sugar quedans, reckoned five (5) days after quedan delivery to PNB. 14

a) the amount of Two Hundred Six Million Seventy

Despite such liquidation scheme, NASUTRA/PHILSUCOM still failed to remit the
Thousand One Hundred Seventy Two and 57/100 Pesos
interest payments to PNB and its branches, which interests amounted to
(P206,070,172.57) representing the amount of remittance
P65,412,245.84 in 1986. 15 As a result thereof, then President Marcos issued PD 2005
applied to PHILSUCOM account carried in the books of
dissolving NASUTRA effective January 31, 1986. NASUTRA's records of its sugar
Philexchange;
trading operations, however, were destroyed during the Edsa Revolution in February
1986.
b) the amount of Fifteen Million Eight Hundred Sixty Three
Thousand Eight Hundred Ninety Eight and 79/100 Pesos
On May 28, 1986, then President Corazon C. Aquino issued Executive Order (EO) No.
(P15,863,898.79) representing the amount applied to settle
18 creating the Sugar Regulatory Administration (SRA) and abolishing PHILSUCOM. All
Claims of Various CAB Planters; and to pay interest on both
the assets and records of PHILSUCOM 16including its beneficial interests over the
items, at legal rate from date of filing of this case.
assets of NASUTRA were transferred to SRA. 17 On January 24, 1989, before the
completion of the three-year winding up period, NASUTRA established a trusteeship
to liquidate and settle its accounts. 18 This notwithstanding, NASUTRA still defaulted Costs of suit will be shared equally by the parties.

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SO ORDERED. 25
Both parties appealed before the Office of the President. On September 17, 1999, the
Office of the President modified the decision of the Secretary of Justice, to wit:
IN VIEW OF ALL THE FOREGOING, the decision of the Secretary of Justice
is hereby AFFIRMED with the MODIFICATION that the application by the
Philippine National Bank of the amounts of P225,758,935.86 and
P15,863,898.79 as payment of the Philippine Sugar Commission's
account carried in the books of Philippine Exchange Co., Inc. and the
claims of various CAB planters, respectively, is hereby declared legal and
valid.
26
SO ORDERED.
Petitioners' subsequent Motion for Reconsideration was denied by the Office of the
President. 27 Thereafter, petitioners filed a petition for review with the Court of
Appeals, alleging, inter alia, that the Office of the President erred when it relied
solely on the documents submitted by PNB to determine the amount of the subject
remittances and in not ordering PNB to render an accounting of the said remittances;
in declaring as valid and legal PNB's application of the subject remittances to alleged
NASUTRA's accounts with PNB and PHILEXCHANGE without NASUTRA's knowledge,
consent and authority.
On August 10, 2001, Court of Appeals rendered judgment dismissing the
petition. 28 Petitioners filed a Motion for Reconsideration, which was denied on
December 12, 2001.
Hence this petition, raising the lone issue:
THE CA DECIDED NOT IN ACCORD WITH LAW AND WITH THE APPLICABLE
DECISION OF THIS HONORABLE COURT, AND GRAVELY ABUSED ITS
DISCRETION, WHEN IT UPHELD THE LEGALITY AND VALIDITY OF THE
OFFSETTING OR COMPENSATION OF THE SUBJECT REMITTANCES TO
ALLEGED ACCOUNTS OF NASUTRA WITH PNB AND PHILEX DESPITE THE
FACT THAT NO CREDITOR-DEBTOR RELATIONSHIP EXISTED BETWEEN PNB
AND NASUTRA WITH RESPECT TO THE SAID REMITTANCES.
In essence, NASUTRA and SRA aver that no compensation involving the subject
remittances can take effect by operation of law since the relationship created
between PNB and NASUTRA was one of trustee-beneficiary and not one of creditor
and debtor. They also claim that no legal compensation can take place in favor of
PHILEXCHANGE since the subject remittances were received by PNB and not
PHILEXCHANGE, a corporation clothed with a separate and distinct corporate
personality from PNB. They added that PHILEXCHANGE's account had already
prescribed.
Moreover, NASUTRA and SRA contend that, assuming arguendo that creditor-debtor
relationship existed between PNB and NASUTRA, compensation was still illegal, since
PNB has not proven the existence of the P408 million revolving credit line and the
CAB Planters Account. Petitioners also assert that the CAB Planters Account is an
unliquidated account considering that it still has to be recomputed pursuant to the
Sugar Reconstitution Law. 29
Respondent PNB counters that it can apply the foreign remittances on the long-
overdue obligations of NASUTRA. They were entered into by NASUTRA with the
blessing, if not with express mandate, of the National Government in the pursuit of
national interest and policy. PNB invokes also the Letter of Intent submitted by the
National Government to the International Monetary Fund (IMF), wherein the
government made specific reference to the immediate payment by NASUTRA and
PHILSUCOM of their outstanding obligations with PNB to buoy up the country's
sagging economy. 30
Petitioners' arguments are specious.
Article 1306 of the New Civil Code provides:
Contracting parties may establish such stipulations, clauses terms and conditions as
they may deem convenient provided they are not contrary to law, morals, good
customs, public order or public policy.
In the instant case, NASUTRA applied for a P408 million credit line with PNB in order
to finance its trading operations. PNB, on the other hand, approved said credit line in
its Resolution No. 68. Thereafter, NASUTRA availed of the credit and in fact drew
P389,246,324.60, in principal and accrued interest, from the approved credit line.
Evidence shows that every time NASUTRA availed of the credit, its Executive Vice
President, Jose Unson, executed a promissory note 31 in favor of PNB with the
following proviso:
In the event that this note is not paid at maturity or when the same becomes due
under any of the provisions hereof, I/We hereby authorize the Bank, at its option and
without notice, to apply to the payment of this note, any and all moneys, securities
and things of values which may be in the hands on deposit or otherwise belonging to
me/us and for this purpose, I/We hereby, jointly and severally, irrevocably constitute
and appoint the Bank to be my/our true Attorney-in-Fact with full power and
authority for me/us and in my/our name and behalf and without prior notice to
negotiate, sell and transfer any moneys, securities and things of value which it may
CASES: Agency
Page 101 of 104
hold, by public or private sale and apply the proceeds thereof to the payment of this
note. (Italics ours)
While we agree with petitioners that the application of subject remittances cannot be
justified under Article 1278 in relation to Article 1279 of the Civil Code, considering
that some elements of legal compensation were lacking, application of the subject
remittances to NASUTRA's account with PNB and the claims of various PNB branches
for interest on the unpaid CY 1984–1985 sugar proceeds is authorized under the
above-quoted stipulation. PNB correctly treated the subject remittances for the
account of NASUTRA as moneys in its hands which may be applied for the payment of
the note.
Also, the relationship between NASUTRA/SRA and PNB when the former constituted
the latter as its attorney-in-fact is not a simple agency. NASUTRA/SRA has assigned
and practically surrendered its rights in favor of PNB for a substantial
consideration. 32 To reiterate, NASUTRA/SRA executed promissory notes in favor of
PNB every time it availed of the credit line. The agency established between the
parties is one coupled with interest which cannot be revoked or cancelled at will by
any of the parties. 33
Notwithstanding its availment of the approved credit, NASUTRA, for reasons only
known to itself, insisted in claiming for refund of the remittances. NASUTRA's posture
is untenable. NASUTRA's actuation runs counter to the good faith covenant in
contractual relations, required under Article 1159 of the Civil Code, to wit:
Obligations arising from contract have the force of law between the contracting
parties and should be complied with in good faith.
Verily, parties may freely stipulate their duties and obligations which perforce would
be binding on them. Not being repugnant to any legal proscription, the agreement
entered into by NASUTRA/SRA and PNB must be respected and have the force of law
between them.
With respect to the application of the sum of P65,412,245.84, 34 the record shows
that NASUTRA failed to remit the interest payments to PNB despite its obligation
under the liquidation scheme proposed by the Chairman of its Executive Committee,
Armando C. Gustillo, to stabilize sugar liquidation prices. Certainly, the authority
granted by NASUTRA to Armando Gustillo to propose such liquidation scheme was an
authority to represent NASUTRA. Undisputedly, any obligation or liability arising from
such agreement shall be binding on the parties. NASUTRA, for its part, cannot now
renege on its duties, considering that it took advantage of the loan.
Having established that PNB validly applied the subject remittances to the interest of
NASUTRA's loan in the amount of P65,412,245.84, the application of the remainder
of the remittance amounting to P15,863,898.79 to the principal is proper.
With respect to the Central Azucarera de Bais (CAB) Planters account, petitioners
maintained that the subject remittances cannot be applied to payment thereof,
considering that it is unliquidated and needs recomputation, pursuant to Section 3 of
Republic Act No. 7202 or the Sugar Reconstitution Law, which provides:
The Philippine National Bank of the Philippines and other government-owned and
controlled financial institutions which have granted loans to the sugar producers shall
extend to accounts of said sugar producers incurred from Crop Year 1974–1975 up to
and including Crop Year 1984–1985 the following:
(a) Condonation of interest charged by the banks in excess of twelve
percent (12%) per annum and all penalties and surcharges:
(b) The recomputed loans shall be amortized for a period of thirteen (13)
years inclusive of a three-year grace period on principal portion of the
loan will carry an interest rate of twelve (12%) and on the outstanding
balance effective when the original promissory notes were signed and
funds released to the producer.
Section 6 of Rules and Regulations implementing RA No. 7202 also provides:
SECTION 2. In cases, however, where sugar producers have no
outstanding loan balance with said financial institutions as of the date of
effectivity of RA No. 7202 (i.e. sugar producers who have fully paid their
loans either through actual payment or foreclosure of collateral, or who
have partially paid their loans and after the computation of the interest
charges, they end up with excess payment to said financial institutions),
said producers shall be entitled to the benefits of recomputation in
accordance with Sections 3 and 4 of RA No. 7202, but the said financial
institutions, instead of refunding the interest in excess of twelve (12%)
percent per annum, interests, penalties and surcharges apply the excess
payment as an offset and/or as payment for the producers' outstanding
loan obligations. Applications of restructuring banks under Section 6 of
RA No. 7202 shall be filed with the Central Monetary Authority of the
Philippines within one (1) year from application of excess payment.
Although it appears from said provision that PNB was directed to condone interest,
penalties and surcharges charged in excess of 12% per annum, the passage of said
law did not forestall legal compensation that had taken place before its effectivity.
The loan had been definitely ascertained, assessed and determined by PNB. Pursuant
to Section 4 35 of RA 7202, there would be condonation of interest whether the
accounts were fully or partially paid.
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 Page 102 of 104

With regard to the application of the amount of P206,070,172.57 to the PHILSUCOM

account carried in the books of PHILEXCHANGE, petitioners maintain that there could
be no application of the subject remittance, considering that the remittances were
received by PNB and not PHILEXCHANGE which has a personality separate and
distinct from PNB.

Petitioners' contention is not well-taken.

There exist clear indications that insofar as sugar trading was concerned,
PHILEXCHANGE and PNB were treated as one entity. Purchases of sugar of
PHILEXCHANGE as the exclusive sugar trading arm of PHILSUCOM were financed by
PNB pursuant to PD 579. More importantly, PNB, a wholly owned bank of the
government at that time, in turn wholly owned and controlled PHILEXCHANGE. Also,
Section 2 (a), PD 659 declared as illegal the sale, transfer and assignment of sugar by
any planter, producer, miller, central, or refinery to any person or entity other than
Philippine Exchange, Inc. and/or the PNB. To reiterate, PHILEXCHANGE failed to pay
its loans with PNB because of the fall of the sugar prices in the world market. When
NASUTRA substituted PHILEXCHANGE as marketing agent of PHILSUCOM,
1,485,532.47 metric tons 36 of export sugar were turned over by PHILEXCHANGE to
NASUTRA. To reiterate, the foreign remittances constituted proceeds of the sale of
the sugar covered by quedans transferred by PHILEXCHANGE to NASUTRA.

WHEREFORE, in view of the foregoing, the instant petition for review is DENIED. The
decision of the Court of Appeals dated August 10, 2001 is AFFIRMED.

SO ORDERED.

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A.C. No. 5182 August 12, 2004
SUSANA DE GUZMAN BUADO and NENA LISING, complainants,
vs.
ATTY. EUFRACIO T. LAYAG, respondent.
RESOLUTION
PER CURIAM:
The instant case arose from a verified Letter-Complaint1 for malpractice filed with this
Court on December 9, 1999, against respondent Atty. Eufracio T. Layag by Susana de
Guzman Buado and Nena Lising. The complaint stated that de Guzman Buado and
Lising had instituted a criminal action for estafa 2 against Atty. Layag with the Office of
the City Prosecutor of Caloocan City and that the City Prosecutor had resolved that
there was prima facie evidence to justify the filing in court of informations for two (2)
counts of estafa against Atty. Layag.3 Accordingly, two cases for estafa, docketed as
Criminal Cases Nos. C-58087 and C-58088 were filed with the Regional Trial Court
(RTC) of Caloocan City, Branch 124.4
In our Resolution of January 31, 2000, we directed that Atty. Layag be furnished a
copy of the complaint for his comment.
In his Comment dated April 11, 2000, Atty. Layag denied committing any malpractice,
saying that he merely complied with the wishes of his client, the late Rosita de
Guzman, to deliver any money judgment in Civil Case No. C-14265 before the RTC of
Caloocan City, Branch 121, to her attorney-in-fact, one Marie Paz P. Gonzales.
Respondent prayed that the complaint be dismissed for want of merit.
Thereafter, this Court resolved on July 10, 2000 to refer the matter to the Integrated
Bar of the Philippines (IBP) for investigation, report, and recommendation. 5
As culled from the report and recommendation6 dated September 25, 2003 of the IBP
Investigating Commissioner, Atty. Milagros V. San Juan, the facts in this case are as
follows:
Herein complainant Lising and her sister, Rosita de Guzman (mother of herein
complainant Susana de Guzman Buado), were the plaintiffs in Civil Case No. C-14265,
entitled Rosita de Guzman, et al., v. Inland Trailways, Inc.,which was decided by the
RTC of Caloocan City, Branch 121, in favor of the plaintiffs on May 16, 1991. Both
Lising and de Guzman were represented in said case by herein respondent, Atty.
Layag. The losing party, Inland Trailways, Inc., appealed the trial court's judgment to
the Court of Appeals, said appeal being docketed as CA-G.R. CV No. 34012.
In its decision dated January 5, 1995, the appellate court affirmed the judgment of
the trial court. However, on July 3, 1993, or while CA-G.R. CV No. 34012 was pending
before the appellate court, de Guzman died.
Pursuant to the judgment against it, Inland Trailways, Inc., issued the following
checks: (1) Traders Royal Bank Check No. 0000790549 dated February 15, 1996
for P15,000 payable to Atty. Layag; (2) Traders Royal Bank Check No. 0000790548
dated March 8, 1996 in the amount of P30,180 payable to Lising; and (3) Traders
Royal Bank Check No. 0000790547 dated March 8, 1996 for the sum of P49,000
payable to de Guzman who had by then already passed away. The aforementioned
checks were received by respondent lawyer from Pablo Gernale, Jr., the deputy
sheriff of the RTC in February 1996. Atty. Layag did not inform Lising and the heirs of
de Guzman about the checks. Instead he gave the checks to one Marie Paz Gonzales
for encashment on the strength of a Special Power of Attorney, purportedly executed
by de Guzman constituting Gonzales as her attorney-in-fact. The Special Power of
Attorney supposedly authorized Gonzales, among others, to encash, indorse, and/or
deposit any check or bill of exchange received in settlement of Civil Case No. C-
14265.
It was only in February 1998 that Lising and de Guzman Buado, while checking the
status of Civil Case No. C-14265, found that judgment had been rendered in the said
case and that the losing party had paid the damages awarded by issuing checks which
were received by their counsel, Atty. Layag, two years earlier. De Guzman Buado and
Lising then made demands upon Atty. Layag to give them the proceeds of the checks,
but to no avail. Marie Paz Gonzales eventually gave Lising P10,000. No further
amounts were remitted to either Lising or de Guzman Buado despite demands by
them.
After the parties presented their oral and documentary evidence before the IBP
Commissioner, the matter was deemed submitted for resolution. On September 25,
2003, the IBP Investigating Commissioner made the following recommendations:
It is submitted that respondent has betrayed the trust of her (sic) clients.
It is recommended that respondent be suspended from the practice of
law for the maximum period allowed under the law and that he be
ordered to turn over to the Complainants the amounts he received in
behalf of the complainants Susana de Guzman Buado and Nena Lising.
CASES: Agency
Page 103 of 104
Respectfully submitted.7
The IBP Investigating Commissioner, in her recommendation, found that in giving the
checks to a party not entitled to them, Atty. Layag disregarded the rights and interests
of his clients in violation of Canons 15, 8 16,9 and 1710 of the Code of Professional
Responsibility.
On the Special Power of Attorney11 purportedly executed by Rosita de Guzman in
favor of Marie Paz Gonzales, the Investigating Commissioner held that even
assuming arguendo that there was indeed a Special Power of Attorney, it nonetheless
had no force and effect after the death of Rosita de Guzman. Hence, any authority
she had conferred upon Gonzales was already extinguished. According to the IBP
Investigating Commissioner, since respondent represented de Guzman in Civil Case
No. C-14265, upon her death, respondent had the obligation to preserve whatever
benefits accrued to the decedent on behalf of and for the benefit of her lawful heirs.
On October 25, 2003, the IBP Board of Governors passed its resolution on the case,
affirming with modification the recommendation by the Investigating Commissioner,
thus:
RESOLVED to ADOPT and APPROVE, as it is hereby ADOPTED and
APPROVED, the Report and Recommendation of the Investigating
Commissioner of the above-entitled case, herein made part of this
Resolution/Decision as Annex "A"; and, finding the recommendation
fully supported by the evidence on record and the applicable laws and
rules, with modification, and considering that Respondent has betrayed
the trust of her (sic) clients in violation of Canon 15, 16 and 17 of the
Code of Professional Responsibility, Atty. Eufracio T. Layag is
hereby DISBARRED and Ordered to turn over immediately to the
Complainants the amounts received in their behalf. 12
Respondent then moved for reconsideration of the foregoing resolution before this
Court. In view of the recommended penalty of disbarment, the Court En
Banc accepted the respondent's motion for our consideration.
Placed in issue are: (1) the sufficiency of the evidence to prove the respondent's
liability for violation of the Code of Professional Responsibility; and (2) the propriety
of the recommended penalty.
After careful scrutiny of the proceedings conducted by the IBP Investigating
Commissioner, we find that the factual findings made in her report and
recommendation are well supported by the evidence on record. Respondent Atty.
Layag does not deny receiving the checks in question, but he claimed he turned over
said checks to Marie Paz Gonzales, pursuant to the alleged Special Power of Attorney
executed by Rosita de Guzman in favor of Gonzales, authorizing the latter to encash,
indorse, or deposit any check received as a result of the judgment in Civil Case No. C-
14265. Respondent contended that in so doing, he was being true to the wishes and
desires of his client, the late Rosita de Guzman.
The respondent's arguments fail to persuade us. As a lawyer, with more than thirty
(30) years in practice, respondent is charged with knowledge of the law. He should
know that it was error for him to rely on a Special Power of Attorney after the death
of the principal, Rosita de Guzman. As pointed out by the IBP Investigating
Commissioner, even assuming there was a Special Power of Attorney, although
respondent could not produce a copy nor prove its existence, when de Guzman died
that document ceased to be operative. This is clear from Article 1919 13 of the Civil
Code. While there are instances, as provided in Article 1930, 14 where the agency is
not extinguished by the death of the principal, the instant case does not fall under
the exceptions. Clearly, at the time Atty. Layag received and turned over the checks
corresponding to the award of damages in Civil Case No. C-14265 in February 1996,
there was no longer any valid Special Power of Attorney. Again, as pointed out by the
IBP Investigating Commissioner, respondent's duty when the award of damages was
made, was to preserve and deliver the amount received to the heirs of his client, de
Guzman, and not to any other person.
With respect to the check from Inland Trailways, Inc., and made payable to Lising,
respondent should have delivered it directly to Lising. The Special Power of Attorney,
which he keeps on harping on, did not cover Lising's case. Its coverage -- assuming
again that the document existed -- pertained only to de Guzman. Respondent
certainly could not take refuge in any provision of said Special Power of Attorney
insofar as Lising's check is concerned.
Respondent now denies any attorney-client relationship with Lising because, as he
insists, he was only engaged by de Guzman. But in his Comment to the Complaint,
respondent admits that he included Lising when they filed suit against Inland
Trailways, Inc., before the RTC of Caloocan City, upon the request of de Guzman.
Absent any showing on record that Lising was represented by another counsel in Civil
Case No. C-14265 and the subsequent appeal, CA-G.R. CV No. 34012, the only
conclusion we could reach is that she was also represented by Atty. Layag. But even if
granted the opposite conclusion that he was not Lising's lawyer, it cannot exonerate
the respondent with respect to Lising's check. It would only make things worse for
him, for it would show that he misappropriated the monetary award of a party whom
he did not represent. In our view, respondent's insistence that Lising was not his
client is more damaging to his cause.
In the course of his professional relationship with his client, a lawyer may receive
money or property for or from the client. He shall hold such property in trust, and he
is under obligation to make an accounting thereof as required by Rule 16.01 15 of the
Code of Professional Responsibility. This obligation to hold property in trust includes
money received by a lawyer as a result of a judgment favorable to his client. 16 In the
present case, Atty. Layag did not make an accounting of the judgment awards he
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received and the checks he allegedly turned over to Marie Paz Gonzales. Further,
when complainants demanded that he deliver to them the checks pertaining to de
Guzman Buado and Lising for the judgment in Civil Case No. C-14265, Atty. Layag did
not do so, in violation of Rule 16.03. 17

The inescapable conclusion we can make, given the circumstances in this case, is that
by his actions, respondent failed to observe the utmost good faith, loyalty, candor
and fidelity required of an attorney in his dealings with his clients. His acts of
misappropriating the money of his clients are grossly immoral and unprofessional.
There is no doubt in our mind that he deserves severe punishment.

But is disbarment the proper penalty for Atty. Layag?

Disbarment is the most severe form of disciplinary sanction. The power to disbar
must always be exercised with great caution, for only the most imperative
reasons,18 and in clear cases of misconduct affecting the standing and moral character
of the lawyer as an officer of the court and a member of the bar. 19 Accordingly,
disbarment should not be decreed where any punishment less severe – such as a
reprimand, suspension, or fine - would accomplish the end desired. 20 In the instant
case, what we seek to exact from the respondent is strict compliance and fidelity with
his duties to his clients. Accordingly, we agree with the recommendation of the IBP
Investigating Commissioner that suspension, rather than disbarment, of respondent
would suffice. In our view, however, such suspension should be indefinite, subject to
further orders by this Court.

WHEREFORE, the IBP Board of Governors Resolution No. XVI-2003-230 in

Administrative Case No. 5182 finding respondent LIABLE for violation of the Canons
15, 16, and 17 of the Code of Professional Responsibility is hereby AFFIRMED with
the MODIFICATION that instead of the recommended penalty of disbarment,
respondent Atty. Eufracio T. Layag is hereby INDEFINITELY SUSPENDED from the
practice of law. Respondent is further DIRECTED to immediately turn over to
complainants Susana de Guzman Buado and Nena Lising the amounts of P49,000.00
and P30,180.00, respectively, as well as all other amounts if any, he might have
received for and on their behalf. Respondent is also ORDERED to REPORT to the
Office of the Bar Confidant his compliance within fifteen (15) days from receipt
hereof. Let a copy of this Resolution be attached to the personal record of Atty.
Eufracio T. Layag and copies be furnished the Integrated Bar of the Philippines and
the Office of the Court Administrator for dissemination to all lower courts. This
Resolution is immediately executory.

SO ORDERED.

CASES: Agency RONQUILLO JD-2B|Sem 1 AY 2018-2019 AGENCY