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Republic of the Philippines Court of First Instance of Cebu, praying (1) that the

SUPREME COURT sale of the undivided share of the deceased

Manila Concepcion Rallos in lot 5983 be d unenforceable,
and said share be reconveyed to her estate; (2) that
G.R. No. L-24332 January 31, 1978 the Certificate of 'title issued in the name of Felix Go
Chan & Sons Realty Corporation be cancelled and
RAMON RALLOS, Administrator of the Estate of another title be issued in the names of the
CONCEPCION RALLOS, petitioner, corporation and the "Intestate estate of Concepcion
vs. Rallos" in equal undivided and (3) that plaintiff be
FELIX GO CHAN & SONS REALTY indemnified by way of attorney's fees and payment
CORPORATION and COURT OF of costs of suit. Named party defendants were Felix
APPEALS, respondents. Go Chan & Sons Realty Corporation, Simeon
Rallos, and the Register of Deeds of Cebu, but
Seno, Mendoza & Associates for petitioner. subsequently, the latter was dropped from the
complaint. The complaint was amended twice;
Ramon Duterte for private respondent. defendant Corporation's Answer contained a
crossclaim against its co-defendant, Simon Rallos
while the latter filed third-party complaint against his
sister, Gerundia Rallos While the case was pending
in the trial court, both Simon and his sister Gerundia
MUÑOZ PALMA, J.: died and they were substituted by the respective
administrators of their estates.
This is a case of an attorney-in-fact, Simeon Rallos,
who after of his death of his principal, Concepcion After trial the court a quo rendered judgment with the
Rallos, sold the latter's undivided share in a parcel following dispositive portion:
of land pursuant to a power of attorney which the
principal had executed in favor. The administrator of
A. On Plaintiffs Complaint —
the estate of the went to court to have the sale
declared uneanforceable and to recover the
disposed share. The trial court granted the relief (1) Declaring the deed
prayed for, but upon appeal the Court of Appeals of sale, Exh. "C", null
uphold the validity of the sale and the complaint. and void insofar as the
one-half pro-indiviso
share of Concepcion
Hence, this Petition for Review on certiorari.
Rallos in the property
in question, — Lot
The following facts are not disputed. Concepcion 5983 of the Cadastral
and Gerundia both surnamed Rallos were sisters Survey of Cebu — is
and registered co-owners of a parcel of land known concerned;
as Lot No. 5983 of the Cadastral Survey of Cebu
covered by Transfer Certificate of Title No. 11116 of
(2) Ordering the
the Registry of Cebu. On April 21, 1954, the sisters
Register of Deeds of
executed a special power of attorney in favor of their
Cebu City to cancel
brother, Simeon Rallos, authorizing him to sell for
Transfer Certificate of
and in their behalf lot 5983. On March 3, 1955,
Title No. 12989
Concepcion Rallos died. On September 12, 1955,
covering Lot 5983 and
Simeon Rallos sold the undivided shares of his
to issue in lieu thereof
sisters Concepcion and Gerundia in lot 5983 to Felix
another in the names
Go Chan & Sons Realty Corporation for the sum of
P10,686.90. The deed of sale was registered in the
Registry of Deeds of Cebu, TCT No. 11118 was
cancelled, and a new transfer certificate of Title No.
the Estate of
12989 was issued in the named of the vendee.
Concepcion Rallos in
the proportion of one-
On May 18, 1956 Ramon Rallos as administrator of half (1/2) share each
the Intestate Estate of Concepcion Rallos filed a pro-indiviso;
complaint docketed as Civil Case No. R-4530 of the
(3) Ordering Felix Go Rallos, against Josefina Rallos
Chan & Sons Realty special administratrix of the Estate of
Corporation to deliver Gerundia Rallos:
the possession of an
undivided one-half (1) Dismissing the third-party
(1/2) share of Lot complaint without prejudice to filing
5983 to the herein either a complaint against the regular
plaintiff; administrator of the Estate of
Gerundia Rallos or a claim in the
(4) Sentencing the Intestate-Estate of Cerundia Rallos,
defendant Juan T. covering the same subject-matter of
Borromeo, the third-party complaint, at bar. (pp.
administrator of the 98-100, Record on Appeal)
Estate of Simeon
Rallos, to pay to Felix Go Chan & Sons Realty Corporation appealed
plaintiff in concept of in due time to the Court of Appeals from the
reasonable attorney's foregoing judgment insofar as it set aside the sale of
fees the sum of the one-half (1/2) share of Concepcion Rallos. The
P1,000.00; and appellate tribunal, as adverted to earlier, resolved
the appeal on November 20, 1964 in favor of the
(5) Ordering both appellant corporation sustaining the sale in
defendants to pay the question. 1 The appellee administrator, Ramon
costs jointly and Rallos, moved for a reconsider of the decision but
severally. the same was denied in a resolution of March 4,
1965. 2
B. On GO CHANTS Cross-Claim:
What is the legal effect of an act performed by an
(1) Sentencing the co- agent after the death of his principal? Applied more
defendant Juan T. particularly to the instant case, We have the query.
Borromeo, is the sale of the undivided share of Concepcion
administrator of the Rallos in lot 5983 valid although it was executed by
Estate of Simeon the agent after the death of his principal? What is the
Rallos, to pay to law in this jurisdiction as to the effect of the death of
defendant Felix Co the principal on the authority of the agent to act for
Chan & Sons Realty and in behalf of the latter? Is the fact of knowledge
Corporation the sum of the death of the principal a material factor in
of P5,343.45, determining the legal effect of an act performed after
representing the price such death?
of one-half (1/2) share
of lot 5983; Before proceedings to the issues, We shall briefly
restate certain principles of law relevant to the matter
(2) Ordering co- tinder consideration.
defendant Juan T.
Borromeo, 1. It is a basic axiom in civil law embodied in our Civil
administrator of the Code that no one may contract in the name of
Estate of Simeon another without being authorized by the latter, or
Rallos, to pay in unless he has by law a right to represent him. 3 A
concept of reasonable contract entered into in the name of another by one
attorney's fees to Felix who has no authority or the legal representation or
Go Chan & Sons who has acted beyond his powers, shall be
Realty Corporation unenforceable, unless it is ratified, expressly or
the sum of P500.00. impliedly, by the person on whose behalf it has been
executed, before it is revoked by the other
C. On Third-Party Complaint of contracting party.4 Article 1403 (1) of the same Code
defendant Juan T. Borromeo also provides:
administrator of Estate of Simeon
ART. 1403. The following contracts is representation Them being an in. integration of the
are unenforceable, unless they are personality of the principal integration that of the
justified: agent it is not possible for the representation to
continue to exist once the death of either is
(1) Those entered into in the name of establish. Pothier agrees with Manresa that by
another person by one who hi - been reason of the nature of agency, death is a necessary
given no authority or legal cause for its extinction. Laurent says that the juridical
representation or who has acted tie between the principal and the agent is severed
beyond his powers; ... ipso jure upon the death of either without necessity
for the heirs of the fact to notify the agent of the fact
Out of the above given principles, sprung the of death of the former. 9
creation and acceptance of the relationship of
agency whereby one party, caged the principal The same rule prevails at common law — the death
(mandante), authorizes another, called the agent of the principal effects instantaneous and absolute
(mandatario), to act for and in his behalf in revocation of the authority of the agent unless the
transactions with third persons. The essential Power be coupled with an interest. 10 This is the
elements of agency are: (1) there is consent, prevalent rule in American Jurisprudence where it is
express or implied of the parties to establish the well-settled that a power without an interest confer.
relationship; (2) the object is the execution of a red upon an agent is dissolved by the principal's
juridical act in relation to a third person; (3) the death, and any attempted execution of the power
agents acts as a representative and not for himself, afterward is not binding on the heirs or
and (4) the agent acts within the scope of his representatives of the deceased. 11
authority. 5
3. Is the general rule provided for in Article 1919 that
Agency is basically personal representative, the death of the principal or of the agent extinguishes
and derivative in nature. The authority of the agent the agency, subject to any exception, and if so, is the
to act emanates from the powers granted to him by instant case within that exception? That is the
his principal; his act is the act of the principal if done determinative point in issue in this litigation. It is the
within the scope of the authority. Qui facit per alium contention of respondent corporation which was
facit se. "He who acts through another acts sustained by respondent court that notwithstanding
himself". 6 the death of the principal Concepcion Rallos the act
of the attorney-in-fact, Simeon Rallos in selling the
2. There are various ways of extinguishing former's sham in the property is valid and
agency, 7 but her We are concerned only with one enforceable inasmuch as the corporation acted in
cause — death of the principal Paragraph 3 of Art. good faith in buying the property in question.
1919 of the Civil Code which was taken from Art.
1709 of the Spanish Civil Code provides: Articles 1930 and 1931 of the Civil Code provide the
exceptions to the general rule afore-mentioned.
ART. 1919. Agency is extinguished.
ART. 1930. The agency shall remain
xxx xxx xxx in full force and effect even after the
death of the principal, if it has been
3. By the death, civil interdiction, constituted in the common interest of
insanity or insolvency of the principal the latter and of the agent, or in the
or of the agent; ... (Emphasis interest of a third person who has
supplied) accepted the stipulation in his favor.

By reason of the very nature of the relationship ART. 1931. Anything done by the
between Principal and agent, agency is extinguished agent, without knowledge of the
by the death of the principal or the agent. This is the death of the principal or of any other
law in this jurisdiction.8 cause which extinguishes the
agency, is valid and shall be fully
Manresa commenting on Art. 1709 of the Spanish effective with respect to third persons
Civil Code explains that the rationale for the law is who may have contracted with him in
found in the juridical basis of agency which good. faith.
Article 1930 is not involved because admittedly the principal does not render the act of an
special power of attorney executed in favor of agent unenforceable, where the latter
Simeon Rallos was not coupled with an interest. had no knowledge of such
extinguishment of the agency. (1
Article 1931 is the applicable law. Under this SCRA 406, 412)
provision, an act done by the agent after the death
of his principal is valid and effective only under two 4. In sustaining the validity of the sale to respondent
conditions, viz: (1) that the agent acted without consideration the Court of Appeals reasoned out
knowledge of the death of the principal and (2) that that there is no provision in the Code which provides
the third person who contracted with the agent that whatever is done by an agent having knowledge
himself acted in good faith. Good faith here means of the death of his principal is void even with respect
that the third person was not aware of the death of to third persons who may have contracted with him
the principal at the time he contracted with said in good faith and without knowledge of the death of
agent. These two requisites must concur the the principal. 16
absence of one will render the act of the agent
invalid and unenforceable. We cannot see the merits of the foregoing argument
as it ignores the existence of the general rule
In the instant case, it cannot be questioned that the enunciated in Article 1919 that the death of the
agent, Simeon Rallos, knew of the death of his principal extinguishes the agency. That being the
principal at the time he sold the latter's share in Lot general rule it follows a fortiorithat any act of an
No. 5983 to respondent corporation. The knowledge agent after the death of his principal is void ab
of the death is clearly to be inferred from the initio unless the same fags under the exception
pleadings filed by Simon Rallos before the trial provided for in the aforementioned Articles 1930 and
court. 12 That Simeon Rallos knew of the death of his 1931. Article 1931, being an exception to the general
sister Concepcion is also a finding of fact of the court rule, is to be strictly construed, it is not to be given
a quo 13 and of respondent appellate court when the an interpretation or application beyond the clear
latter stated that Simon Rallos 'must have known of import of its terms for otherwise the courts will be
the death of his sister, and yet he proceeded with the involved in a process of legislation outside of their
sale of the lot in the name of both his sisters judicial function.
Concepcion and Gerundia Rallos without informing
appellant (the realty corporation) of the death of the 5. Another argument advanced by respondent court
former. 14 is that the vendee acting in good faith relied on the
power of attorney which was duly registered on the
On the basis of the established knowledge of Simon original certificate of title recorded in the Register of
Rallos concerning the death of his principal Deeds of the province of Cebu, that no notice of the
Concepcion Rallos, Article 1931 of the Civil Code is death was aver annotated on said certificate of title
inapplicable. The law expressly requires for its by the heirs of the principal and accordingly they
application lack of knowledge on the part of the must suffer the consequences of such omission. 17
agent of the death of his principal; it is not enough
that the third person acted in good faith. Thus in To support such argument reference is made to a
Buason & Reyes v. Panuyas, the Court applying portion in Manresa's Commentaries which We
Article 1738 of the old Civil rode now Art. 1931 of the quote:
new Civil Code sustained the validity , of a sale
made after the death of the principal because it was If the agency has been granted for
not shown that the agent knew of his principal's the purpose of contracting with
demise. 15 To the same effect is the case of Herrera, certain persons, the revocation must
et al., v. Luy Kim Guan, et al., 1961, where in the be made known to them. But if the
words of Justice Jesus Barrera the Court stated: agency is general iii nature, without
reference to particular person with
... even granting arguemendo that whom the agent is to contract, it is
Luis Herrera did die in 1936, plaintiffs sufficient that the principal exercise
presented no proof and there is no due diligence to make the revocation
indication in the record, that the agent of the agency publicity known.
Luy Kim Guan was aware of the
death of his principal at the time he In case of a general power which
sold the property. The death 6f the does not specify the persons to
whom represents' on should be et al., v. Nano and Vallejo, 61 Phil. 625. We quote
made, it is the general opinion that all from the brief:
acts, executed with third persons who
contracted in good faith, Without In the case of Angel Blondeau et al.
knowledge of the revocation, are v. Agustin Nano et al., 61 Phil. 630,
valid. In such case, the principal may one Vallejo was a co-owner of lands
exercise his right against the agent, with Agustin Nano. The latter had a
who, knowing of the revocation, power of attorney supposedly
continued to assume a personality executed by Vallejo Nano in his favor.
which he no longer had. (Manresa Vallejo delivered to Nano his land
Vol. 11, pp. 561 and 575; pp. 15-16, titles. The power was registered in
rollo) the Office of the Register of Deeds.
When the lawyer-husband of Angela
The above discourse however, treats of revocation Blondeau went to that Office, he
by an act of the principal as a mode of terminating found all in order including the power
an agency which is to be distinguished from of attorney. But Vallejo denied having
revocation by operation of law such as death of the executed the power The lower court
principal which obtains in this case. On page six of sustained Vallejo and the plaintiff
this Opinion We stressed that by reason of the very Blondeau appealed. Reversing the
nature of the relationship between principal and decision of the court a quo, the
agent, agency is extinguished ipso jure upon the Supreme Court, quoting the ruling in
death of either principal or agent. Although a the case of Eliason v. Wilborn, 261
revocation of a power of attorney to be effective must U.S. 457, held:
be communicated to the parties concerned, 18 yet a
revocation by operation of law, such as by death of But there is a
the principal is, as a rule, instantaneously effective narrower ground on
inasmuch as "by legal fiction the agent's exercise of which the defenses of
authority is regarded as an execution of the the defendant-
principal's continuing will. 19 With death, the appellee must be
principal's will ceases or is the of authority is overruled. Agustin
extinguished. Nano had possession
of Jose Vallejo's title
The Civil Code does not impose a duty on the heirs papers. Without those
to notify the agent of the death of the principal What title papers handed
the Code provides in Article 1932 is that, if the agent over to Nano with the
die his heirs must notify the principal thereof, and in acquiescence of
the meantime adopt such measures as the Vallejo, a fraud could
circumstances may demand in the interest of the not have been
latter. Hence, the fact that no notice of the death of perpetuated. When
the principal was registered on the certificate of title Fernando de la
of the property in the Office of the Register of Deeds, Canters, a member of
is not fatal to the cause of the estate of the principal the Philippine Bar and
the husband of Angela
6. Holding that the good faith of a third person in said Blondeau, the
with an agent affords the former sufficient protection, principal plaintiff,
respondent court drew a "parallel" between the searched the
instant case and that of an innocent purchaser for registration record, he
value of a land, stating that if a person purchases a found them in due
registered land from one who acquired it in bad faith form including the
— even to the extent of foregoing or falsifying the power of attorney of
deed of sale in his favor — the registered owner has Vallajo in favor of
no recourse against such innocent purchaser for Nano. If this had not
value but only against the forger. 20 been so and if
thereafter the proper
To support the correctness of this respondent notation of the
corporation, in its brief, cites the case of Blondeau, encumbrance could
not have been made, however, That in all cases of
Angela Blondeau registration provided by fraud, the
would not have sent owner may pursue all his legal and
P12,000.00 to the equitable remedies against the
defendant Vallejo.' An parties to such fraud without
executed transfer of prejudice, however, to the right, of
registered lands any innocent holder for value of a
placed by the certificate of title. ... (Act No. 496 as
registered owner amended)
thereof in the hands of
another operates as a 7. One last point raised by respondent corporation in
representation to a support of the appealed decision is an 1842 ruling of
third party that the the Supreme Court of Pennsylvania in Cassiday v.
holder of the transfer McKenzie wherein payments made to an agent after
is authorized to deal the death of the principal were held to be "good", "the
with the land. parties being ignorant of the death". Let us take note
that the Opinion of Justice Rogers was premised on
As between two the statement that the parties were ignorant of the
innocent persons, one death of the principal. We quote from that decision
of whom must suffer the following:
the consequence of a
breach of trust, the ... Here the precise point is, whether
one who made it a payment to an agent when the
possible by his act of Parties are ignorant of the death is a
coincidence bear the good payment. in addition to the case
loss. (pp. 19-21) in Campbell before cited, the same
judge Lord Ellenboruogh, has
The Blondeau decision, however, is not on all fours decided in 5 Esp. 117, the general
with the case before Us because here We are question that a payment after the
confronted with one who admittedly was an agent of death of principal is not good. Thus,
his sister and who sold the property of the latter after a payment of sailor's wages to a
her death with full knowledge of such death. The person having a power of attorney to
situation is expressly covered by a provision of law receive them, has been held void
on agency the terms of which are clear and when the principal was dead at the
unmistakable leaving no room for an interpretation time of the payment. If, by this case,
contrary to its tenor, in the same manner that the it is meant merely to decide the
ruling in Blondeau and the cases cited therein found general proposition that by operation
a basis in Section 55 of the Land Registration Law of law the death of the principal is a
which in part provides: revocation of the powers of the
attorney, no objection can be taken to
xxx xxx xxx it. But if it intended to say that his
principle applies where there was
The production of the owner's 110 notice of death, or opportunity of
duplicate certificate whenever any twice I must be permitted to dissent
voluntary instrument is presented for from it.
registration shall be conclusive
authority from the registered owner to ... That a payment may be good
the register of deeds to enter a new today, or bad tomorrow, from the
certificate or to make a memorandum accident circumstance of the death of
of registration in accordance with the principal, which he did not know,
such instruments, and the new and which by no possibility could he
certificate or memorandum Shall be know? It would be unjust to the agent
binding upon the registered owner and unjust to the debtor. In the civil
and upon all persons claiming under law, the acts of the agent, done bona
him in favor of every purchaser for fide in ignorance of the death of his
value and in good faith: Provided principal are held valid and binding
upon the heirs of the latter. The same judgment of a of great respectability,
rule holds in the Scottish law, and I it stands alone among common law
cannot believe the common law is so authorities and is opposed by an
unreasonable... (39 Am. Dec. 76, 80, array too formidable to permit us to
81; emphasis supplied) following it. (15 Cal. 12,17, cited in 2
C.J. 549)
To avoid any wrong impression which the Opinion
in Cassiday v. McKenzie may evoke, mention may Whatever conflict of legal opinion was generated
be made that the above represents the minority view by Cassiday v. McKenzie in American jurisprudence,
in American jurisprudence. Thus in Clayton v. no such conflict exists in our own for the simple
Merrett, the Court said.— reason that our statute, the Civil Code, expressly
provides for two exceptions to the general rule that
There are several cases which seem death of the principal revokes ipso jure the agency,
to hold that although, as a general to wit: (1) that the agency is coupled with an interest
principle, death revokes an agency (Art 1930), and (2) that the act of the agent was
and renders null every act of the executed without knowledge of the death of the
agent thereafter performed, yet that principal and the third person who contracted with
where a payment has been made in the agent acted also in good faith (Art. 1931).
ignorance of the death, such Exception No. 2 is the doctrine followed in Cassiday,
payment will be good. The leading and again We stress the indispensable requirement
case so holding is that of Cassiday v. that the agent acted without knowledge or notice of
McKenzie, 4 Watts & S. (Pa) 282, 39 the death of the principal In the case before Us the
Am. 76, where, in an elaborate agent Ramon Rallos executed the sale
opinion, this view ii broadly notwithstanding notice of the death of his principal
announced. It is referred to, and Accordingly, the agent's act is unenforceable against
seems to have been followed, in the the estate of his principal.
case of Dick v. Page, 17 Mo. 234, 57
AmD 267; but in this latter case it IN VIEW OF ALL THE FOREGOING, We set aside
appeared that the estate of the the ecision of respondent appellate court, and We
deceased principal had received the affirm en toto the judgment rendered by then Hon.
benefit of the money paid, and Amador E. Gomez of the Court of First Instance of
therefore the representative of the Cebu, quoted in pages 2 and 3 of this Opinion, with
estate might well have been held to costs against respondent realty corporation at all
be estopped from suing for it again. . instances.
. . These cases, in so far, at least, as
they announce the doctrine under So Ordered.
discussion, are exceptional. The
Pennsylvania Case, supra (Cassiday
v. McKenzie 4 Watts & S. 282, 39
AmD 76), is believed to stand almost,
if not quite, alone in announcing the
principle in its broadest scope. (52,
Misc. 353, 357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v.

McKenzie, and pointing out that the opinion, except
so far as it related to the particular facts, was a
mere dictum, Baldwin J. said:

The opinion, therefore, of the learned

Judge may be regarded more as an
extrajudicial indication of his views on
the general subject, than as the
adjudication of the Court upon the
point in question. But accordingly all
power weight to this opinion, as the
Republic of the Philippines helpers. Six (6) truckloads of copper cathodes were
SUPREME COURT to be delivered to Balagtas, Bulacan, while the
Manila other six (6) truckloads were destined for Lawang
Bato, Valenzuela City. The cargoes in six
SECOND DIVISION truckloads for Lawang Bato were duly delivered in
Columbia’s warehouses there. Of the six (6) trucks
G.R. No. 179446 January 10, 2011 en route to Balagtas, Bulacan, however, only five
(5) reached the destination. One (1) truck, loaded
LOADMASTERS CUSTOMS SERVICES, with 11 bundles or 232 pieces of copper cathodes,
INC., Petitioner, failed to deliver its cargo.
GLODEL BROKERAGE CORPORATION and Later on, the said truck, an Isuzu with Plate No.
R&B INSURANCE CORPORATION, Respondents. NSD-117, was recovered but without the copper
cathodes. Because of this incident, Columbia filed
DECISION with R&B Insurance a claim for insurance indemnity
in the amount of ₱1,903,335.39. After the requisite
MENDOZA, J.: investigation and adjustment, R&B Insurance paid
Columbia the amount of ₱1,896,789.62 as
insurance indemnity.
This is a petition for review on certiorari under Rule
45 of the Revised Rules of Court assailing the
August 24, 2007 Decision1 of the Court of Appeals R&B Insurance, thereafter, filed a complaint for
(CA) in CA-G.R. CV No. 82822, entitled "R&B damages against both Loadmasters and Glodel
Insurance Corporation v. Glodel Brokerage before the Regional Trial Court, Branch 14, Manila
Corporation and Loadmasters Customs Services, (RTC), docketed as Civil Case No. 02-103040. It
Inc.," which held petitioner Loadmasters Customs sought reimbursement of the amount it had paid to
Services, Inc. (Loadmasters) liable to respondent Columbia for the loss of the subject cargo. It
Glodel Brokerage Corporation (Glodel) in the claimed that it had been subrogated "to the right of
amount of ₱1,896,789.62 representing the the consignee to recover from the party/parties who
insurance indemnity which R&B Insurance may be held legally liable for the loss."2
Corporation (R&B Insurance) paid to the insured-
consignee, Columbia Wire and Cable On November 19, 2003, the RTC rendered a
Corporation (Columbia). decision3 holding Glodel liable for damages for the
loss of the subject cargo and dismissing
THE FACTS: Loadmasters’ counterclaim for damages and
attorney’s fees against R&B Insurance. The
dispositive portion of the decision reads:
On August 28, 2001, R&B Insurance issued Marine
Policy No. MN-00105/2001 in favor of Columbia to
insure the shipment of 132 bundles of electric WHEREFORE, all premises considered, the
copper cathodes against All Risks. On August 28, plaintiff having established by preponderance of
2001, the cargoes were shipped on board the evidence its claims against defendant Glodel
vessel "Richard Rey" from Isabela, Leyte, to Pier Brokerage Corporation, judgment is hereby
10, North Harbor, Manila. They arrived on the same rendered ordering the latter:
1. To pay plaintiff R&B Insurance
Columbia engaged the services of Glodel for the Corporation the sum of ₱1,896,789.62 as
release and withdrawal of the cargoes from the pier actual and compensatory damages, with
and the subsequent delivery to its interest from the date of complaint until fully
warehouses/plants. Glodel, in turn, engaged the paid;
services of Loadmasters for the use of its delivery
trucks to transport the cargoes to Columbia’s 2. To pay plaintiff R&B Insurance
warehouses/plants in Bulacan and Valenzuela City. Corporation the amount equivalent to 10%
of the principal amount recovered as and for
The goods were loaded on board twelve (12) trucks attorney’s fees plus ₱1,500.00 per
owned by Loadmasters, driven by its employed appearance in Court;
drivers and accompanied by its employed truck
3. To pay plaintiff R&B Insurance To totally exculpate itself from responsibility for the
Corporation the sum of ₱22,427.18 as lost goods, Loadmasters argues that it cannot be
litigation expenses. considered an agent of Glodel because it never
represented the latter in its dealings with the
WHEREAS, the defendant Loadmasters Customs consignee. At any rate, it further contends that
Services, Inc.’s counterclaim for damages and Glodel has no recourse against it for its (Glodel’s)
attorney’s fees against plaintiff are hereby failure to file a cross-claim pursuant to Section 2,
dismissed. Rule 9 of the 1997 Rules of Civil Procedure.

With costs against defendant Glodel Brokerage Glodel, in its Comment,7 counters that Loadmasters
Corporation. is liable to it under its cross-claim because the latter
was grossly negligent in the transportation of the
SO ORDERED.4 subject cargo. With respect to Loadmasters’ claim
that it is already estopped from filing a cross-claim,
Both R&B Insurance and Glodel appealed the RTC Glodel insists that it can still do so even for the first
decision to the CA. time on appeal because there is no rule that
provides otherwise. Finally, Glodel argues that its
On August 24, 2007, the CA rendered the assailed relationship with Loadmasters is that of Charter
decision which reads in part: wherein the transporter (Loadmasters) is only hired
for the specific job of delivering the merchandise.
Thus, the diligence required in this case is merely
Considering that appellee is an agent of appellant
ordinary diligence or that of a good father of the
Glodel, whatever liability the latter owes to
family, not the extraordinary diligence required of
appellant R&B Insurance Corporation as insurance
common carriers.
indemnity must likewise be the amount it shall be
paid by appellee Loadmasters.
R&B Insurance, for its part, claims that Glodel is
deemed to have interposed a cross-claim against
WHEREFORE, the foregoing considered, the
Loadmasters because it was not prevented from
appeal is PARTLY GRANTED in that the appellee
presenting evidence to prove its position even
Loadmasters is likewise held liable to appellant
without amending its Answer. As to the relationship
Glodel in the amount of ₱1,896,789.62
between Loadmasters and Glodel, it contends that
representing the insurance indemnity appellant
a contract of agency existed between the two
Glodel has been held liable to appellant R&B
Insurance Corporation.
Subrogation is the substitution of one person in the
Appellant Glodel’s appeal to absolve it from any
place of another with reference to a lawful claim or
liability is herein DISMISSED.
right, so that he who is substituted succeeds to the
rights of the other in relation to a debt or claim,
SO ORDERED.5 including its remedies or securities.9 Doubtless,
R&B Insurance is subrogated to the rights of the
Hence, Loadmasters filed the present petition for insured to the extent of the amount it paid the
review on certiorari before this Court presenting the consignee under the marine insurance, as provided
following under Article 2207 of the Civil Code, which reads:

ISSUES ART. 2207. If the plaintiff’s property has been

insured, and he has received indemnity from the
1. Can Petitioner Loadmasters be held insurance company for the injury or loss arising out
liable to Respondent Glodel in spite of of the wrong or breach of contract complained of,
the fact that the latter respondent Glodel the insurance company shall be subrogated to the
did not file a cross-claim against it rights of the insured against the wrong-doer or the
(Loadmasters)? person who has violated the contract. If the amount
paid by the insurance company does not fully cover
2. Under the set of facts established and the injury or loss, the aggrieved party shall be
undisputed in the case, can petitioner entitled to recover the deficiency from the person
Loadmasters be legally considered as an causing the loss or injury.
Agent of respondent Glodel?6
As subrogee of the rights and interest of the business and for reasons of public policy, to
consignee, R&B Insurance has the right to seek observe the extraordinary diligence in the vigilance
reimbursement from either Loadmasters or Glodel over the goods transported by them according to all
or both for breach of contract and/or tort. the circumstances of such case, as required by
Article 1733 of the Civil Code. When the Court
The issue now is who, between Glodel and speaks of extraordinary diligence, it is that extreme
Loadmasters, is liable to pay R&B Insurance for the measure of care and caution which persons of
amount of the indemnity it paid Columbia. unusual prudence and circumspection observe for
securing and preserving their own property or
At the outset, it is well to resolve the issue of rights.15 This exacting standard imposed on
whether Loadmasters and Glodel are common common carriers in a contract of carriage of goods
carriers to determine their liability for the loss of the is intended to tilt the scales in favor of the shipper
subject cargo. Under Article 1732 of the Civil Code, who is at the mercy of the common carrier once the
common carriers are persons, corporations, firms, goods have been lodged for shipment.16 Thus, in
or associations engaged in the business of carrying case of loss of the goods, the common carrier is
or transporting passenger or goods, or both by presumed to have been at fault or to have acted
land, water or air for compensation, offering their negligently.17 This presumption of fault or
services to the public. negligence, however, may be rebutted by proof that
the common carrier has observed extraordinary
Based on the aforecited definition, Loadmasters is diligence over the goods.
a common carrier because it is engaged in the
business of transporting goods by land, through its With respect to the time frame of this extraordinary
trucking service. It is a common carrier as responsibility, the Civil Code provides that the
distinguished from a private carrier wherein the exercise of extraordinary diligence lasts from the
carriage is generally undertaken by special time the goods are unconditionally placed in the
agreement and it does not hold itself out to carry possession of, and received by, the carrier for
goods for the general public.10 The distinction is transportation until the same are delivered, actually
significant in the sense that "the rights and or constructively, by the carrier to the consignee, or
obligations of the parties to a contract of private to the person who has a right to receive them.18
carriage are governed principally by their
stipulations, not by the law on common carriers."11 Premises considered, the Court is of the view that
both Loadmasters and Glodel are jointly and
In the present case, there is no indication that the severally liable to R & B Insurance for the loss of
undertaking in the contract between Loadmasters the subject cargo. Under Article 2194 of the New
and Glodel was private in character. There is no Civil Code, "the responsibility of two or more
showing that Loadmasters solely and exclusively persons who are liable for a quasi-delict is
rendered services to Glodel. solidary."

In fact, Loadmasters admitted that it is a common Loadmasters’ claim that it was never privy to the
carrier.12 contract entered into by Glodel with the consignee
Columbia or R&B Insurance as subrogee, is not a
In the same vein, Glodel is also considered a valid defense. It may not have a direct contractual
common carrier within the context of Article 1732. relation with Columbia, but it is liable for tort under
In its Memorandum,13 it states that it "is a the provisions of Article 2176 of the Civil Code on
corporation duly organized and existing under the quasi-delicts which expressly provide:
laws of the Republic of the Philippines and is
engaged in the business of customs brokering." It ART. 2176. Whoever by act or omission causes
cannot be considered otherwise because as held damage to another, there being fault or negligence,
by this Court in Schmitz Transport & Brokerage is obliged to pay for the damage done. Such fault or
Corporation v. Transport Venture, Inc.,14 a customs negligence, if there is no pre-existing contractual
broker is also regarded as a common carrier, the relation between the parties, is called a quasi-delict
transportation of goods being an integral part of its and is governed by the provisions of this Chapter.
Pertinent is the ruling enunciated in the case
Loadmasters and Glodel, being both common of Mindanao Terminal and Brokerage Service, Inc.
carriers, are mandated from the nature of their v. Phoenix Assurance Company of New
York,/McGee & Co., Inc.19 where this Court held assigned task of delivering the goods safely to the
that a tort may arise despite the absence of a warehouse.
contractual relationship, to wit:
Whenever an employee’s negligence causes
We agree with the Court of Appeals that the damage or injury to another, there instantly arises a
complaint filed by Phoenix and McGee against presumption juris tantum that the employer failed to
Mindanao Terminal, from which the present case exercise diligentissimi patris families in the
has arisen, states a cause of action. The present selection (culpa in eligiendo) or supervision (culpa
action is based on quasi-delict, arising from the in vigilando) of its employees.20 To avoid liability for
negligent and careless loading and stowing of the a quasi-delict committed by its employee, an
cargoes belonging to Del Monte Produce. Even employer must overcome the presumption by
assuming that both Phoenix and McGee have only presenting convincing proof that he exercised the
been subrogated in the rights of Del Monte care and diligence of a good father of a family in
Produce, who is not a party to the contract of the selection and supervision of his employee.21 In
service between Mindanao Terminal and Del this regard, Loadmasters failed.
Monte, still the insurance carriers may have a
cause of action in light of the Court’s consistent Glodel is also liable because of its failure to
ruling that the act that breaks the contract may be exercise extraordinary diligence. It failed to ensure
also a tort. In fine, a liability for tort may arise even that Loadmasters would fully comply with the
under a contract, where tort is that which breaches undertaking to safely transport the subject cargo to
the contract. In the present case, Phoenix and the designated destination. It should have been
McGee are not suing for damages for injuries more prudent in entrusting the goods to
arising from the breach of the contract of Loadmasters by taking precautionary measures,
service but from the alleged negligent such as providing escorts to accompany the trucks
manner by which Mindanao Terminal handled the in delivering the cargoes. Glodel should, therefore,
cargoes belonging to Del Monte Produce. Despite be held liable with Loadmasters. Its defense
the absence of contractual relationship between of force majeure is unavailing.
Del Monte Produce and Mindanao Terminal, the
allegation of negligence on the part of the At this juncture, the Court clarifies that there exists
defendant should be sufficient to establish a cause no principal-agent relationship between Glodel and
of action arising from quasi-delict. [Emphases Loadmasters, as erroneously found by the CA.
supplied] Article 1868 of the Civil Code provides: "By the
contract of agency a person binds himself to render
In connection therewith, Article 2180 provides: some service or to do something in representation
or on behalf of another, with the consent or
ART. 2180. The obligation imposed by Article 2176 authority of the latter." The elements of a contract
is demandable not only for one’s own acts or of agency are: (1) consent, express or implied, of
omissions, but also for those of persons for whom the parties to establish the relationship; (2) the
one is responsible. object is the execution of a juridical act in relation to
a third person; (3) the agent acts as a
xxxx representative and not for himself; (4) the agent
acts within the scope of his authority.22
Employers shall be liable for the damages caused
by their employees and household helpers acting Accordingly, there can be no contract of agency
within the scope of their assigned tasks, even between the parties. Loadmasters never
though the former are not engaged in any business represented Glodel. Neither was it ever authorized
or industry. to make such representation. It is a settled rule that
the basis for agency is representation, that is, the
It is not disputed that the subject cargo was lost agent acts for and on behalf of the principal on
while in the custody of Loadmasters whose matters within the scope of his authority and said
employees (truck driver and helper) were acts have the same legal effect as if they were
instrumental in the hijacking or robbery of the personally executed by the principal. On the part of
shipment. As employer, Loadmasters should be the principal, there must be an actual intention to
made answerable for the damages caused by its appoint or an intention naturally inferable from his
employees who acted within the scope of their words or actions, while on the part of the agent,
there must be an intention to accept the
appointment and act on it.23 Such mutual intent is the subject cargo. In this case, however, it cannot
not obtaining in this case. succeed in seeking judicial sanction against
Loadmasters because the records disclose that it
What then is the extent of the respective liabilities did not properly interpose a cross-claim against the
of Loadmasters and Glodel? Each wrongdoer is latter. Glodel did not even pray that Loadmasters
liable for the total damage suffered by R&B be liable for any and all claims that it may be
Insurance. Where there are several causes for the adjudged liable in favor of R&B Insurance. Under
resulting damages, a party is not relieved from the Rules, a compulsory counterclaim, or a cross-
liability, even partially. It is sufficient that the claim, not set up shall be barred.25Thus, a cross-
negligence of a party is an efficient cause without claim cannot be set up for the first time on appeal.
which the damage would not have resulted. It is no
defense to one of the concurrent tortfeasors that For the consequence, Glodel has no one to blame
the damage would not have resulted from his but itself. The Court cannot come to its aid on
negligence alone, without the negligence or equitable grounds. "Equity, which has been aptly
wrongful acts of the other concurrent tortfeasor. As described as ‘a justice outside legality,’ is applied
stated in the case of Far Eastern Shipping v. Court only in the absence of, and never against, statutory
of Appeals,24 law or judicial rules of procedure."26 The Court
cannot be a lawyer and take the cudgels for a party
X x x. Where several causes producing an injury who has been at fault or negligent.
are concurrent and each is an efficient cause
without which the injury would not have happened, WHEREFORE, the petition is PARTIALLY
the injury may be attributed to all or any of the GRANTED. The August 24, 2007 Decision of the
causes and recovery may be had against any or all Court of Appeals is MODIFIED to read as follows:
of the responsible persons although under the
circumstances of the case, it may appear that one WHEREFORE, judgment is rendered declaring
of them was more culpable, and that the duty owed petitioner Loadmasters Customs Services, Inc. and
by them to the injured person was not the same. No respondent Glodel Brokerage Corporation jointly
actor's negligence ceases to be a proximate cause and severally liable to respondent R&B Insurance
merely because it does not exceed the negligence Corporation for the insurance indemnity it paid to
of other actors. Each wrongdoer is responsible for consignee Columbia Wire & Cable Corporation and
the entire result and is liable as though his acts ordering both parties to pay, jointly and severally,
were the sole cause of the injury. R&B Insurance Corporation a] the amount of
₱1,896,789.62 representing the insurance
There is no contribution between joint tortfeasors indemnity; b] the amount equivalent to ten (10%)
whose liability is solidary since both of them are percent thereof for attorney’s fees; and c] the
liable for the total damage. Where the concurrent or amount of ₱22,427.18 for litigation expenses.
successive negligent acts or omissions of two or
more persons, although acting independently, are The cross-claim belatedly prayed for by respondent
in combination the direct and proximate cause of a Glodel Brokerage Corporation against petitioner
single injury to a third person, it is impossible to Loadmasters Customs Services, Inc. is DENIED.
determine in what proportion each contributed to
the injury and either of them is responsible for SO ORDERED.
the whole injury. Where their concurring
negligence resulted in injury or damage to a third
party, they become joint tortfeasors and are
solidarily liable for the resulting damage under
Article 2194 of the Civil Code. [Emphasis supplied]

The Court now resolves the issue of whether

Glodel can collect from Loadmasters, it having
failed to file a cross-claim against the

Undoubtedly, Glodel has a definite cause of action

against Loadmasters for breach of contract of
service as the latter is primarily liable for the loss of
few days for the confirmation of the Tokyo-
San Francisco segment of the trip. After
calling up Canilao of TWSI, defendant
Tagunicar told plaintiffs that their flight is now
confirmed all the way. Thereafter, she
attached the confirmation stickers on the
plane tickets (Exhs. A & B).

FIRST DIVISION A few days before the scheduled flight of

plaintiffs, their son, Adrian Yu, called the Pan
G.R. No. 123560 March 27, 2000 Am office to verify the status of the flight.
According to said Adrian Yu, a personnel of
defendant Pan Am told him over the phone
that plaintiffs' booking[s] are confirmed.
YU, petitioners,
PAN AMERICAN WORLD AIRWAYS, INC., On July 23, 1978, plaintiffs left for Hongkong
TOURIST WORLD SERVICES, INC., JULIETA and stayed there for five (5) days. They left
CANILAO and CLAUDIA Hongkong for Tokyo on July 28, 1978. Upon
TAGUNICAR, respondents. their arrival in Tokyo, they called up Pan-Am
office for reconfirmation of their flight to San
Francisco. Said office, however, informed
them that their names are not in the manifest.
Since plaintiffs were supposed to leave on
This petition for review seeks a reversal of the 31 the 29th of July, 1978, and could not remain
August 1995 Decision 1 and 11 January 1998 in Japan for more than 72 hours, they were
Resolution 2 of the Court of Appeals holding private constrained to agree to accept airline tickets
respondent Claudia Tagunicar solely liable for moral for Taipei instead, per advise of JAL officials.
and exemplary damages and attorney's fees, and This is the only option left to them because
deleting the trial court's award for actual damages. Northwest Airlines was then on strike, hence,
there was no chance for the plaintiffs to
The facts as found by the trial court are as follows: obtain airline seats to the United States
within 72 hours. Plaintiffs paid for these
Plaintiff Yu Eng Cho is the owner of Young tickets.
Hardware Co. and Achilles Marketing. In
connection with [this] business, he travels Upon reaching Taipei, there were no flight[s]
from time to time to Malaysia, Taipei and available for plaintiffs, thus, they were forced
Hongkong. On July 10, 1976, plaintiffs to return back to Manila on August 3, 1978,
bought plane tickets (Exhs. A & B) from instead of proceeding to the United States.
defendant Claudia Tagunicar who [Japan] Air Lines (JAL) refunded the plaintiffs
represented herself to be an agent of the difference of the price for Tokyo-Taipei
defendant Tourist World Services, Inc. [and] Tokyo-San Francisco (Exhs. I & J) in
(TWSI). The destination[s] are Hongkong, the total amount of P2,602.00.
Tokyo, San Francisco, U.S.A., for the
amount of P25,000.00 per computation of In view of their failure to reach Fairfield, New
said defendant Claudia Tagunicar (Exhs. C Jersey, Radiant Heat Enterprises, Inc.
& C-1). The purpose of this trip is to go to cancelled Yu Eng Cho's option to buy the two
Fairfield, New Jersey, U.S.A. to buy to two lines of infra-red heating system (Exh. K).
(2) lines of infrared heating system The agreement was for him to inspect the
processing textured plastic article (Exh. K). equipment and make final arrangement[s]
with the said company not later than August
On said date, only the passage from Manila 7, 1978. From this business transaction,
to Hongkong, then to Tokyo, were confirmed. plaintiff Yu Eng Cho expected to realize a
[PAA] Flight 002 from Tokyo to San profit of P300,000.00 to P400,000.00.
Francisco was on "RQ" status, meaning "on
request". Per instruction of defendant [A] scrutiny of defendants' respective
Claudia Tagunicar, plaintiffs returned after a evidence reveals the following:
Plaintiffs, who were intending to go to the TWSI/Canilao to verify; and if Canilao would
United States, were referred to defendant answer that the bookings are not yet
Claudia Tagunicar, an independent travel confirmed, she would relate that to the
solicitor, for the purchase of their plane plaintiffs.
tickets. As such travel solicitor, she helps in
the processing of travel papers like passport, Defendant Tagunicar claims that on July 13,
plane tickets, booking of passengers and 1978, a few days before the scheduled flight,
some assistance at the airport. She is known plaintiff Yu Eng Cho personally went to her
to defendants Pan-Am, TWSI/Julieta office, pressing her about their flight. She
Canilao, because she has been dealing with called up defendant Julieta Canilao, and the
them in the past years. Defendant Tagunicar latter told her "o sige Claudia, confirm na."
advised plaintiffs to take Pan-Am because She even noted this in her index card (Exh.
Northwest Airlines was then on strike and L), that it was Julieta who confirmed the
plaintiffs are passing Hongkong, Tokyo, then booking (Exh. L-1). It was then that she
San Francisco and Pan-Am has a flight from allegedly attached the confirmation stickers
Tokyo to San Francisco. After verifying from (Exhs. 2, 2-B TWSI) to the tickets. These
defendant TWSI, thru Julieta Canilao, she stickers came from TWSI.
informed plaintiffs that the fare would be
P25,093.93 giving them a discount of Defendant Tagunicar alleges that it was only
P738.95 (Exhs. C, C-1). Plaintiffs, however, in the first week of August, 1978 that she
gave her a check in the amount of learned from Adrian Yu, son of plaintiffs, that
P25,000.00 only for the two round trip tickets. the latter were not able to take the flight from
Out of this transaction, Tagunicar received a Tokyo to San Francisco, U.S.A. After a few
7% commission and 1% commission for days, said Adrian Yu came over with a
defendant TWSI. gentleman and a lady, who turned out to be
a lawyer and his secretary. Defendant
Defendant Claudia Tagunicar purchased the Tagunicar claims that plaintiffs were asking
two round-trip Pan-Am tickets from for her help so that they could file an action
defendant Julieta Canilao with the following against Pan-Am. Because of plaintiffs'
schedules: promise she will not be involved, she agreed
to sign the affidavit (Exh. M) prepared by the
Origin Destination Airline Date Time/Travel lawyer.

Manila Hongkong CX900 7-23- Defendants TWSI/Canilao denied having

1135/1325hrs confirmed the Tokyo-San Francisco segment
of plaintiffs' flight because flights then were
Hongkong Tokyo CS500 7-28- really tight because of the on-going strike at
1615/2115hrs Northwest Airlines. Defendant Claudia
Tagunicar is very much aware that [said]
Tokyo San Francisco PA002 7-29- particular segment was not confirmed,
1930/1640hrs because on the very day of plaintiffs'
departure, Tagunicar called up TWSI from
The use of another airline, like in this case it the airport; defendant Canilao asked her why
is Cathay Pacific out of Manila, is allowed, she attached stickers on the tickets when in
although the tickets issued are Pan-Am fact that portion of the flight was not yet
tickets, as long as it is in connection with a confirmed. Neither TWSI nor Pan-Am
Pan-Am flight. When the two (2) tickets confirmed the flight and never authorized
(Exhs. A & B) were issued to plaintiffs, the defendant Tagunicar to attach the
letter "RQ" appears below the printed word confirmation stickers. In fact, the
"status" for the flights from Tokyo to San confirmation stickers used by defendant
Francisco which means "under request," Tagunicar are stickers exclusively for use of
(Exh. 3-A, 4-A Pan-Am). Before the date of Pan-Am only. Furthermore, if it is the travel
the scheduled departure, defendant agency that confirms the booking, the IATA
Tagunicar received several calls from the number of said agency should appear on the
plaintiffs inquiring about the status of their validation or confirmation stickers. The IATA
bookings. Tagunicar in turn called up number that appears on the stickers
attached to plaintiffs' tickets (Exhs. A & B) is 3) Attorney's fees in the amount of
2-82-0770 (Exhs. 1, 1-A TWSI), when in fact P10,000.00 plus costs of suit.
TWSI's IATA number is 2-83-0770 (Exhs. 5,
5-A TWSI). 3 The award of actual damages is hereby
A complaint for damages was filed by petitioners
against private respondents Pan American World SO ORDERED.
Airways, Inc. (Pan Am), Tourist World Services, Inc.
(TWSI), Julieta Canilao (Canilao), and Claudia In so ruling, respondent court found that Tagunicar
Tagunicar (Tagunicar) for expenses allegedly is an independent travel solicitor and is not a duly
incurred such as costs of tickets and hotel authorized agent or representative of either Pan Am
accommodations when petitioners were compelled or TWSI. It held that their business transactions are
to stay in Hongkong and then in Tokyo by reason of not sufficient to consider Pan Am as the principal,
the non-confirmation of their booking with Pan-Am. and Tagunicar and TWSI as its agent and sub-agent,
In a Decision dated November 14, 1991, the respectively. It further held that Tagunicar was not
Regional Trial Court of Manila, Branch 3, held the authorized to confirm the bookings of, nor issue
defendants jointly and severally liable, except validation stickers to, herein petitioners and hence,
defendant Julieta Canilao, thus: Pan Am and TWSI cannot be held responsible for
her actions. Finally, it deleted the award for actual
WHEREFORE, judgment is hereby rendered damages for lack of proof.
for the plaintiffs and ordering defendants Pan
American World Airways, Inc., Tourist World Hence this petition based on the following
Services, Inc. and Claudia Tagunicar, jointly assignment of errors:
and severally, to pay plaintiffs the sum of
P200,000.00 as actual damages, minus 1. the Court of Appeals, in reversing the
P2,602.00 already refunded to the plaintiffs; decision of the trial court, misapplied the
P200,000.00 as moral damages; ruling in Nicos Industrial Corporation
P100,000.00 as exemplary damages; an vs. Court of Appeals, et. al. [206 SCRA 127];
amount equivalent to 20% of the award for and
and as attorney's fees, plus the sum of
P30,000.00 as litigation expenses. 2. the findings of the Court of Appeals that
petitioners' ticket reservations in question
Defendants' counterclaims are hereby were not confirmed and that there is no
dismissed for lack of merit. agency relationship among PAN-AM, TWSI
and Tagunicar are contrary to the judicial
SO ORDERED. admissions of PAN-AM, TWSI and
Tagunicar and likewise contrary to the
Only respondents Pan Am and Tagunicar appealed findings of fact of the trial court.
to the Court of Appeals. On 11 August 1995, the
appellate court rendered judgment modifying the We affirm.
amount of damages awarded, holding private
respondent Tagunicar solely liable therefor, and I. The first issue deserves scant consideration.
absolving respondents Pan Am and TWSI from any Petitioners contend that contrary to the ruling of the
and all liability, thus: Court of Appeals, the decision of the trial court
conforms to the standards of an ideal decision set
PREMISES CONSIDERED, the decision of in Nicos Industrial Corporation, et. al. vs. Court of
the Regional Trial Court is hereby SET Appeals, et. al., 4 as "that which, with welcome
ASIDE and a new one entered declaring economy of words, arrives at the factual findings,
appellant Tagunicar solely liable for: reaches the legal conclusions, renders its ruling and,
having done so, ends." It is averred that the trial
1) Moral damages in the amount of court's decision contains a detailed statement of the
P50,000.00; relevant facts and evidence adduced by the parties
which thereafter became the bases for the court's
2) Exemplary damages in the amount conclusions.
of P25,000.00; and
A careful scrutiny of the decision rendered by the II. Petitioners assert that Tagunicar is a sub-agent of
trial court will show that after narrating the evidence TWSI while TWSI is a duly authorized ticketing agent
of the parties, it proceeded to dispose of the case of Pan Am. Proceeding from this premise, they
with a one-paragraph generalization, to wit: contend that TWSI and Pan Am should be held liable
as principals for the acts of Tagunicar. Petitioners
On the basis of the foregoing facts, the Court stubbornly insist that the existence of the agency
is constrained to conclude that defendant relationship has been established by the judicial
Pan-Am is the principal, and defendants admissions allegedly made by respondents herein,
TWSI and Tagunicar, its authorized agent to wit: (1) the admission made by Pan Am in its
and sub-agent, respectively. Consequently, Answer that TWSI is its authorized ticket agent; (2)
defendants Pan-Am, TWSI and Claudia the affidavit executed by Tagunicar where she
Tagunicar should be held jointly and admitted that she is a duly authorized agent of TWSI;
severally liable to plaintiffs for damages. and (3) the admission made by Canilao that TWSI
Defendant Julieta Canilao, who acted in her received commissions from ticket sales made by
official capacity as Office Manager of Tagunicar.
defendant TWSI should not be held
personally liable. 5 We do not agree. By the contract of agency, a
person binds himself to render some service or to do
The trial court's finding of facts is but a summary of something in representation or on behalf of another,
the testimonies of the witnesses and the with the consent or authority of the latter. 7 The
documentary evidence presented by the parties. It elements of agency are: (1) consent, express or
did not distinctly and clearly set forth, nor implied, of the parties to establish the relationship;
substantiate, the factual and legal bases for holding (2) the object is the execution of a juridical act in
respondents TWSI, Pan Am and Tagunicar jointly relation to a third person; (3) the agent acts as a
and severally liable. In Del Mundo vs. CA, et representative and not for himself; (4) the agent acts
al. 6 where the trial court, after summarizing the within the scope of his authority. 8 It is a settled rule
conflicting asseverations of the parties, disposed of that persons dealing with an assumed agent are
the kernel issue in just two (2) paragraphs, we held: bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but
It is understandable that courts, with their also the nature and extent of authority, and in case
heavy dockets and time constraints, often either is controverted, the burden of proof is upon
find themselves with little to spare in the them to establish it. 9
preparation of decisions to the extent most
desirable. We have thus pointed out that In the case at bar, petitioners rely on the affidavit of
judges might learn to synthesize and to respondent Tagunicar where she stated that she is
simplify their pronouncements. an authorized agent of TWSI. This affidavit,
Nevertheless, concisely written such as they however, has weak probative value in light of
may be, decisions must still distinctly and respondent Tagunicar's testimony in court to the
clearly express, at least in minimum contrary. Affidavits, being taken ex parte, are almost
essence, its factual and legal bases. always incomplete and often inaccurate, sometimes
from partial suggestion, or for want of suggestion
For failing to explain clearly and well the factual and and inquiries. Their infirmity as a species of evidence
legal bases of its award of moral damages, we set it is a matter of judicial experience and are thus
aside in said case. Once more, we stress that considered inferior to the testimony given in
nothing less than Section 14 of Article VIII of the court. 10 Further, affidavits are not complete
Constitution requires that "no decision shall be reproductions of what the declarant has in mind
rendered by any court without expressing therein because they are generally prepared by the
clearly and distinctly the facts and the law on which administering officer and the affiant simply signs
it is based." This is demanded by the due process them after the same have been read to
clause of the Constitution. In the case at bar, the her. 11 Respondent Tagunicar testified that her
decision of the trial court leaves much to be desired affidavit was prepared and typewritten by the
both in form and substance. Even while said secretary of petitioners' lawyer, Atty. Acebedo, who
decision infringes the Constitution, we will not both came with Adrian Yu, son of petitioners, when
belabor this infirmity and rather examine the the latter went to see her at her office. This was
sufficiency of the evidence submitted by the confirmed by Adrian Yu who testified that Atty.
petitioners. Acebedo brought his notarial seal and notarized the
affidavit of the same day. 12 The circumstances commission and merely gives the net amount to
under which said affidavit was prepared put in doubt TWSI. 25 From all sides of the legal prism, the
petitioners' claim that it was executed voluntarily by transaction is simply a contract of sale wherein
respondent Tagunicar. It appears that the affidavit Tagunicar buys airline tickets from TWSI and then
was prepared and was based on the answers which sells it at a premium to her clients.
respondent Tagunicar gave to the questions
propounded to her by Atty. Acebedo. 13 They never III. Petitioners included respondent Pan Am in the
told her that the affidavit would be used in a case to complainant on the supposition that since TWSI is
be filed against her. 14 They even assured her that its duly authorized agent, and respondent Tagunicar
she would not be included as defendant if she is an agent of TWSI, then Pan Am should also be
agreed to execute the affidavit. 15 Respondent held responsible for the acts of respondent
Tagunicar was prevailed upon by petitioners' son Tagunicar. Our disquisitions above show that this
and their lawyer to sign the affidavit despite her contention lacks factual and legal bases. Indeed,
objection to the statement therein that she was an there is nothing in the records to show that
agent of TWSI. They assured her that "it is respondent Tagunicar has been employed by Pan
immaterial"16 and that "if we file a suit against you we Am as its agent, except the bare allegation of
cannot get anything from you." 17 This purported petitioners. The real motive of petitioners in suing
admission of respondent Tagunicar cannot be used Pan Am appears in its Amended Complaint that
by petitioners to prove their agency relationship. At "[d]efendants TWSI, Canilao and Tagunicar may not
any rate, even if such affidavit is to be given any be financially capable of paying plaintiffs the
probative value, the existence of the agency amounts herein sought to be recovered, and in such
relationship cannot be established on its sole basis. event, defendant Pan Am, being their ultimate
The declarations of the agent alone are generally principal, is primarily and/or subsidiary liable to pay
insufficient to establish the fact or extent of his the said amounts to plaintiffs." 26 This lends credence
authority. 18 In addition, as between the negative to respondent Tagunicar's testimony that she was
allegation of respondents Canilao and Tagunicar persuaded to execute an affidavit implicating
that neither is an agent nor principal of the other, and respondents because petitioners knew they would
the affirmative allegation of petitioners that an not be able to get anything of value from her. In the
agency relationship exists, it is the latter who have past, we have warned that this Court will not tolerate
the burden of evidence to prove their an abuse of judicial process by passengers in order
allegation, 19 failing in which, their claim must to pry on international airlines for damage awards,
necessarily fail. like "trophies in a safari." 27

We stress that respondent Tagunicar categorically This meritless suit against Pan Am becomes more
denied in open court that she is a duly authorized glaring with petitioner' inaction after they were
agent of TWSI, and declared that she is an bumped off in Tokyo. If petitioners were of the
independent travel agent. 20 We have consistently honest belief that Pan Am was responsible for the
ruled that in case of conflict between statements in misfortune which beset them, there is no evidence
the affidavit and testimonial declarations, the latter to show that they lodged a protest with Pan Am's
command greater weight. 21 Tokyo office immediately after they were refused
passage for the flight to San Francisco, or even upon
As further proofs of agency, petitioners call our their arrival in Manila. The testimony of petitioner Yu
attention to TWSI's Exhibits "7", "7-A", and "8" which Eng Cho in this regard is of title value, viz:
show that Tagunicar and TWSI received sales
commissions from Pan Am. Exhibit "7" 22 is the Ticket Atty. Jalandoni: . . .
Sales Report submitted by TWSI to Pan Am
reflecting the commissions received by TWSI as an q Upon arrival at the Tokyo airport, what did
agent of Pan Am. Exhibit "7-A" 23 is a listing of the you do if any in connection with your
routes taken by passengers who were audited to schedule[d] trip?
TWSI's sales report. Exhibit "8" 24 is a receipt issued
by TWSI covering the payment made by Tagunicar a I went to the Hotel, Holiday Inn and from
for the tickets she bought from TWSI. These there I immediately called up Pan Am office
documents cannot justify the decision that Tagunicar in Tokyo to reconfirm my flight, but they told
was paid a commission either by TWSI or Pan Am. me that our names were not listed in the
On the contrary, Tagunicar testified that when she manifest, so next morning, very early in the
pays TWSI, she already deducts in advance her morning I went to the airport, Pan Am office
in the airport to verify and they told me the q Why did you accept the Japan Airlines offer
same and we were not allowed to leave. for you to go to Taipei?

q You were scheduled to be in Tokyo for how a Because there is no chance for us to go to
long Mr. Yu? the United States within 72 hours because
during that time Northwest Airlines [was] on
a We have to leave the next day 29th. strike so the seats are very scarce. So they
advised me better left (sic) before the 72
q In other words, what was your status as a hours otherwise you will have trouble with the
passenger? Japanese immigration.

a Transient passengers. We cannot stay for q As a consequence of that you were force[d]
more than 72 hours. to take the trip to Taipei?

xxx xxx xxx a Yes, sir. 28 (emphasis supplied)

q As a consequence of the fact that you It grinds against the grain of human experience that
claimed that the Pan Am office in Tokyo told petitioners did not insist that they be allowed to
you that your names were not in the board, considering that it was then doubly difficult to
manifest, what did you do, if any? get seats because of the ongoing Northwest Airlines
strike. It is also perplexing that petitioners readily
a I ask[ed] them if I can go anywhere in the accepted whatever the Tokyo office had to offer as
State? They told me I can go to LA via Japan an alternative. Inexplicably too, no demand letter
Airlines and I accepted it. was sent to respondents TWSI and Canilao. 29 Nor
was a demand letter sent to respondent Pan Am. To
q Do you have the tickets with you that they say the least, the motive of petitioners in suing Pan
issued for Los Angels? Am is suspect.

a It was taken by the Japanese Airlines We hasten to add that it is not sufficient to prove that
instead they issue[d] me a ticket to Taipei. Pan Am did not allow petitioners to board to justify
petitioners' claim for damages. Mere refusal to
accede to the passenger's wishes does not
xxx xxx xxx
necessarily translate into damages in the absence of
bad faith. 30 The settled rule is that the law presumes
q Were you able to take the trip to Los good faith such that any person who seeks to be
Angeles via Pan Am tickets that was issued awarded damages due to acts of another has the
to you in lieu of the tickets to San Francisco? burden of proving that the latter acted in bad faith or
with ill motive. 31 In the case at bar, we find the
a No, sir. evidence presented by petitioners insufficient to
overcome the presumption of good faith. They have
q Why not? failed to show any wanton, malevolent or reckless
misconduct imputable to respondent Pan Am in its
a The Japanese Airlines said that there were refusal to accommodate petitioners in its Tokyo-San
no more available seats. Francisco flight. Pan Am could not have acted in bad
faith because petitioners did not have confirmed
q And as a consequence of that, what did you tickets and more importantly, they were not in the
do, if any? passenger manifest.

a I am so much scared and worried, so the In not a few cases, this Court did not hesitable to
Japanese Airlines advised us to go to Taipei hold an airline liable for damages for having acted in
and I accepted it. bad faith in refusing to accommodate a passenger
who had a confirmed ticket and whose name
xxx xxx xxx appeared in the passenger manifest. In Ortigas
Jr. v. Lufthansa German Airlines Inc., 32 we ruled that
there was a valid and binding contract between the
airline and its passenger after finding that validating
sticker on the passenger's ticket had the letters by petitioners at the Manila, Hongkong and Tokyo
"O.K." appearing in the "Res. Status" box which offices in Pan Am, are eloquent indications that
means "space confirmed" and that the ticket is petitioners knew that their tickets have not been
confirmed or validated. In Pan American World confirmed. For, as correctly observed by Pan Am,
Airways Inc. v. IAC, et al. 33 where a would-be- why would one continually try to have one's ticket
passenger had the necessary ticket, baggage claim confirmed if it had already been confirmed? (2) The
and clearance from immigration all clearly showing validation stickers which respondent Tagunicar
that she was a confirmed passenger and included in attached to petitioners' tickets were those intended
the passenger manifest and yet was denied for the exclusive use of airline companies. She had
accommodation in said flight, we awarded damages. no authority to use them. Hence, said validation
In Armovit, et al. v. CA, et al., 34 we upheld the award stickers, wherein the word "OK" appears in the
of damages made against an airline for gross status box, are not valid and binding. (3) The names
negligence committed in the issuance of tickets with of petitioners do not appear in the passengers
erroneous entries as to the time of flight. In Alitalia manifest. (4) Respondent Tagunicar's "Exhibit
Airways v. CA, et al., 35we held that when airline 1" 38 shows that the status of the San Francisco-New
issues a ticket to a passenger confirmed on a York segment was "Ok", meaning it was confirmed,
particular flight, on a certain date, a contract of but that the status of the Tokyo-San Francisco
carriage arises, and the passenger has every right segment was still "on request". (5) Respondent
to expect that he would fly on that flight and on that Canilao testified that on the day that petitioners were
date. If he does not, then the carrier opens itself to a to depart for Hongkong, respondent Tagunicar
suit for breach of contract of carriage. And finally, an called her from the airport asking for confirmation of
award of damages was held proper in the case the Tokyo-San Francisco flight, and that when she
of Zalamea, et al. v. CA, et al., 36 where a confirmed told respondent Tagunicar that she should not have
passenger included in the manifest was denied allowed petitioners to leave because their tickets
accommodation in such flight. have not been confirmed, respondent Tagunicar
merely said "Bahala na." 39This was never
On the other hand, the respondent airline controverted nor refuted by respondent Tagunicar.
in Sarreal, Sr. v. Japan Airlines Co., Ltd., 37 was held (6) To prove that it really did not confirm the
not liable for damages where the passenger was not bookings of petitioners, respondent Canilao pointed
allowed to board the plane because his ticket had out that the validation stickers which respondent
not been confirmed. We ruled that "[t]he stub that the Tagunicar attached to the tickets of petitioners had
lady employee put on the petitioner's ticket showed IATA No. 2-82-0770 stamped on it, whereas the
among other coded items, under the column "status" IATA number of TWSI is 28-30770. 40
the letters "RQ" — which was understood to mean
"Request." Clearly, this does not mean a Undoubtedly, respondent Tagunicar should be liable
confirmation but only a request. JAL Traffic for having acted in bad faith in misrepresenting to
Supervisor explained that it would have been petitioners that their tickets have been confirmed.
different if what was written in the stub were the letter Her culpability, however, was properly mitigated.
"ok" in which case the petitioner would have been Petitioner Yu Eng Cho testified that he repeatedly
assured of a seat on said flight. But in this case, the tried to follow up on the confirmation of their tickets
petitioner was more of a wait-listed passenger than with Pan Am because he doubted the confirmation
a regularly booked passenger." made by respondent Tagunicar. 41 This is clear proof
that petitioners knew that they might be bumped off
In the case at bar, petitioners' ticket were on "RQ" at Tokyo when they decided to proceed with the trip.
status. They were not confirmed passengers and Aware of this risk, petitioners exerted efforts to
their names were not listed in the passenger confirm their tickets in Manila, then in Hongkong,
manifest. In other words, this is not a case where and finally in Tokyo. Resultantly, we find the
Pan Am bound itself to transport petitioners and modification as to the amount of damages awarded
thereafter reneged on its obligation. Hence, just and equitable under the circumstances.
respondent airline cannot be held liable for
damages. WHEREFORE, the decision appealed from is
hereby AFFIRMED. Cost against
IV. We hold that respondent Court of Appeals petitioners.1âwphi1.nêt
correctly rules that the tickets were never confirmed
for good reasons: (1) The persistent calls made by SO ORDERE
respondent Tagunicar to Canilao, and those made
Republic of the Philippines the Company as evidenced by an Official Receipt
SUPREME COURT issued by the Company directly to the policyholder.
The Company may terminate this Agreement for any
G.R. No. 167622 June 29, 2010 breach or violation of any of the provisions hereof by
the Agent by giving written notice to the Agent within
GREGORIO V. TONGKO, Petitioner, fifteen (15) days from the time of the discovery of the
vs. breach. No waiver, extinguishment, abandonment,
THE MANUFACTURERS LIFE INSURANCE CO. withdrawal or cancellation of the right to terminate
(PHILS.), INC. and RENATO A. VERGEL DE this Agreement by the Company shall be construed
DIOS,Respondents. for any previous failure to exercise its right under any
provision of this Agreement.
Either of the parties hereto may likewise terminate
BRION, J.: his Agreement at any time without cause, by giving
to the other party fifteen (15) days notice in writing.2
This resolves the Motion for Reconsideration1 dated
December 3, 2008 filed by respondent The Tongko additionally agreed (1) to comply with all
Manufacturers Life Insurance Co. (Phils.), Inc. regulations and requirements of Manulife, and (2) to
(Manulife) to set aside our Decision of November 7, maintain a standard of knowledge and competency
2008. In the assailed decision, we found that an in the sale of Manulife’s products, satisfactory to
employer-employee relationship existed between Manulife and sufficient to meet the volume of the
Manulife and petitioner Gregorio Tongko and new business, required by his Production Club
ordered Manulife to pay Tongko backwages and membership.3
separation pay for illegal dismissal.
The second phase started in 1983 when Tongko was
The following facts have been stated in our Decision named Unit Manager in Manulife’s Sales Agency
of November 7, 2008, now under reconsideration, Organization. In 1990, he became a Branch
but are repeated, simply for purposes of clarity. Manager. Six years later (or in 1996), Tongko
became a Regional Sales Manager.4
The contractual relationship between Tongko and
Manulife had two basic phases. The first or initial Tongko’s gross earnings consisted of commissions,
phase began on July 1, 1977, under a Career persistency income, and management overrides.
Agent’s Agreement (Agreement) that provided: Since the beginning, Tongko consistently declared
himself self-employed in his income tax returns.
It is understood and agreed that the Agent is an Thus, under oath, he declared his gross business
independent contractor and nothing contained income and deducted his business expenses to
herein shall be construed or interpreted as creating arrive at his taxable business income. Manulife
an employer-employee relationship between the withheld the corresponding 10% tax on Tongko’s
Company and the Agent. earnings.5

xxxx In 2001, Manulife instituted manpower development

programs at the regional sales management level.
a) The Agent shall canvass for applications for Life Respondent Renato Vergel de Dios wrote Tongko a
Insurance, Annuities, Group policies and other letter dated November 6, 2001 on concerns that
products offered by the Company, and collect, in were brought up during the October 18, 2001 Metro
exchange for provisional receipts issued by the North Sales Managers Meeting. De Dios wrote:
Agent, money due to or become due to the Company
in respect of applications or policies obtained by or The first step to transforming Manulife into a big
through the Agent or from policyholders allotted by league player has been very clear – to increase the
the Company to the Agent for servicing, subject to number of agents to at least 1,000 strong for a start.
subsequent confirmation of receipt of payment by This may seem diametrically opposed to the way
Manulife was run when you first joined the
organization. Since then, however, substantial
changes have taken place in the organization, as Sales Managers to verify its validity. As you must
these have been influenced by developments both have noted, no Sales Manager came forward on
from within and without the company. their own to confirm your statement and it took you
to name Malou Samson as a source of the same, an
xxxx allegation that Malou herself denied at our meeting
and in your very presence.
The issues around agent recruiting are central to the
intended objectives hence the need for a Senior This only confirms, Greg, that those prior comments
Managers’ meeting earlier last month when Kevin have no solid basis at all. I now believe what I had
O’Connor, SVP-Agency, took to the floor to thought all along, that these allegations were simply
determine from our senior agency leaders what meant to muddle the issues surrounding the inability
more could be done to bolster manpower of your Region to meet its agency development
development. At earlier meetings, Kevin had objectives!
presented information where evidently, your Region
was the lowest performer (on a per Manager basis) Issue # 3: "Sales Managers are doing what the
in terms of recruiting in 2000 and, as of today, company asks them to do but, in the process, they
continues to remain one of the laggards in this area. earn less."

While discussions, in general, were positive other xxxx

than for certain comments from your end which were
perceived to be uncalled for, it became clear that a All the above notwithstanding, we had your own
one-on-one meeting with you was necessary to records checked and we found that you made a lot
ensure that you and management, were on the same more money in the Year 2000 versus 1999. In
plane. As gleaned from some of your previous addition, you also volunteered the information to
comments in prior meetings (both in group and one- Kevin when you said that you probably will make
on-one), it was not clear that we were proceeding in more money in the Year 2001 compared to Year
the same direction. 2000. Obviously, your above statement about
making "less money" did not refer to you but the way
Kevin held subsequent series of meetings with you you argued this point had us almost believing that
as a result, one of which I joined briefly. In those you were spouting the gospel of truth when you were
subsequent meetings you reiterated certain views, not. x x x
the validity of which we challenged and
subsequently found as having no basis. xxxx

With such views coming from you, I was a bit All of a sudden, Greg, I have become much more
concerned that the rest of the Metro North Managers worried about your ability to lead this group towards
may be a bit confused as to the directions the the new direction that we have been discussing
company was taking. For this reason, I sought a these past few weeks, i.e., Manulife’s goal to
meeting with everyone in your management team, become a major agency-led distribution company in
including you, to clear the air, so to speak. the Philippines. While as you claim, you have not
stopped anyone from recruiting, I have never heard
This note is intended to confirm the items that were you proactively push for greater agency recruiting.
discussed at the said Metro North Region’s Sales You have not been proactive all these years when it
Managers meeting held at the 7/F Conference room comes to agency growth.
last 18 October.
I cannot afford to see a major region fail to deliver on
Issue # 2: "Some Managers are unhappy with their its developmental goals next year and so, we are
earnings and would want to revert to the position of making the following changes in the interim:
1. You will hire at your expense a competent
This is an often repeated issue you have raised with assistant who can unload you of much of the routine
me and with Kevin. For this reason, I placed the tasks which can be easily delegated. This assistant
issue on the table before the rest of your Region’s should be so chosen as to complement your skills
and help you in the areas where you feel "may not essentially alleged – despite the clear terms of the
be your cup of tea." letter terminating his Agency Agreement – that he
was Manulife’s employee before he was illegally
You have stated, if not implied, that your work as dismissed.8
Regional Manager may be too taxing for you and for
your health. The above could solve this problem. Thus, the threshold issue is the existence of an
employment relationship. A finding that none exists
xxxx renders the question of illegal dismissal moot; a
finding that an employment relationship exists, on
2. Effective immediately, Kevin and the rest of the the other hand, necessarily leads to the need to
Agency Operations will deal with the North Star determine the validity of the termination of the
Branch (NSB) in autonomous fashion. x x x relationship.

I have decided to make this change so as to reduce A. Tongko’s Case for Employment Relationship
your span of control and allow you to concentrate
more fully on overseeing the remaining groups Tongko asserted that as Unit Manager, he was paid
under Metro North, your Central Unit and the rest of an annual over-rider not exceeding ₱50,000.00,
the Sales Managers in Metro North. I will hold you regardless of production levels attained and
solely responsible for meeting the objectives of exclusive of commissions and bonuses. He also
these remaining groups. claimed that as Regional Sales Manager, he was
given a travel and entertainment allowance of
xxxx ₱36,000.00 per year in addition to his overriding
commissions; he was tasked with numerous
The above changes can end at this point and they administrative functions and supervisory authority
need not go any further. This, however, is entirely over Manulife’s employees, aside from merely
dependent upon you. But you have to understand selling policies and recruiting agents for Manulife;
that meeting corporate objectives by everyone is and he recommended and recruited insurance
primary and will not be compromised. We are agents subject to vetting and approval by Manulife.
meeting tough challenges next year, and I would He further alleges that he was assigned a definite
want everybody on board. Any resistance or holding place in the Manulife offices when he was not in the
back by anyone will be dealt with accordingly.6 field – at the 3rd Floor, Manulife Center, 108
Tordesillas corner Gallardo Sts., Salcedo Village,
Subsequently, de Dios wrote Tongko another letter, Makati City – for which he never paid any rental.
dated December 18, 2001, terminating Tongko’s Manulife provided the office equipment he used,
services: including tables, chairs, computers and printers (and
even office stationery), and paid for the electricity,
water and telephone bills. As Regional Sales
It would appear, however, that despite the series of
Manager, Tongko additionally asserts that he was
meetings and communications, both one-on-one
required to follow at least three codes of conduct.9
meetings between yourself and SVP Kevin
O’Connor, some of them with me, as well as group
meetings with your Sales Managers, all these efforts B. Manulife’s Case – Agency Relationship with
have failed in helping you align your directions with Tongko
Management’s avowed agency growth policy.
Manulife argues that Tongko had no fixed wage or
xxxx salary. Under the Agreement, Tongko was paid
commissions of varying amounts, computed based
on the premium paid in full and actually received by
On account thereof, Management is exercising its
Manulife on policies obtained through an agent. As
prerogative under Section 14 of your Agents
sales manager, Tongko was paid overriding sales
Contract as we are now issuing this notice of
commission derived from sales made by agents
termination of your Agency Agreement with us
under his unit/structure/branch/region. Manulife also
effective fifteen days from the date of this letter.7
points out that it deducted and withheld a 10% tax
from all commissions Tongko received; Tongko
Tongko responded by filing an illegal dismissal even declared himself to be self-employed and
complaint with the National Labor Relations consistently paid taxes as such—i.e., he availed of
Commission (NLRC) Arbitration Branch. He tax deductions such as ordinary and necessary
trade, business and professional expenses to which Financial Code of Conduct, and the
a business is entitled. Financial Code of Conduct
Manulife asserts that the labor tribunals have no
jurisdiction over Tongko’s claim as he was not its 2.2 The various affidavits of
employee as characterized in the four-fold test and Manulife’s insurance agents and
our ruling in Carungcong v. National Labor Relations managers, who occupied similar
Commission.10 positions as Tongko, showed that
they performed administrative duties
The Conflicting Rulings of the Lower Tribunals that established employment with
Manulife;12 and
The labor arbiter decreed that no employer-
employee relationship existed between the parties. 2.3 Tongko was tasked to recruit
However, the NLRC reversed the labor arbiter’s some agents in addition to his other
decision on appeal; it found the existence of an administrative functions. De Dios’
employer-employee relationship and concluded that letter harped on the direction
Tongko had been illegally dismissed. In the petition Manulife intended to take, viz.,
for certiorari with the Court of Appeals (CA), the greater agency recruitment as the
appellate court found that the NLRC gravely abused primary means to sell more policies;
its discretion in its ruling and reverted to the labor Tongko’s alleged failure to follow this
arbiter’s decision that no employer-employee directive led to the termination of his
relationship existed between Tongko and Manulife. employment with Manulife.

Our Decision of November 7, 2008 The Motion for Reconsideration

In our Decision of November 7, 2008, we reversed Manulife disagreed with our Decision and filed the
the CA ruling and found that an employment present motion for reconsideration on the
relationship existed between Tongko and Manulife. following GROUNDS:
We concluded that Tongko is Manulife’s employee
for the following reasons: 1. The November 7[, 2008] Decision violates
Manulife’s right to due process by: (a)
1. Our ruling in the first Insular11 case did not confining the review only to the issue of
foreclose the possibility of an insurance "control" and utterly disregarding all the other
agent becoming an employee of an issues that had been joined in this case; (b)
insurance company; if evidence exists mischaracterizing the divergence of
showing that the company promulgated rules conclusions between the CA and the NLRC
or regulations that effectively controlled or decisions as confined only to that on
restricted an insurance agent’s choice of "control"; (c) grossly failing to consider the
methods or the methods themselves in findings and conclusions of the CA on the
selling insurance, an employer-employee majority of the material evidence, especially
relationship would be present. The [Tongko’s] declaration in his income tax
determination of the existence of an returns that he was a "business person" or
employer-employee relationship is thus on a "self-employed"; and (d) allowing [Tongko] to
case-to-case basis depending on the repudiate his sworn statement in a public
evidence on record. document.

2. Manulife had the power of control over 2. The November 7[, 2008] Decision
Tongko, sufficient to characterize him as an contravenes settled rules in contract law and
employee, as shown by the following agency, distorts not only the legal
indicators: relationships of agencies to sell but also
distributorship and franchising, and ignores
2.1 Tongko undertook to comply with the constitutional and policy context of
Manulife’s rules, regulations and contract law vis-à-vis labor law.
other requirements, i.e., the different
codes of conduct such as the Agent 3. The November 7[, 2008] Decision ignores
Code of Conduct, the Manulife the findings of the CA on the three elements
of the four-fold test other than the "control" which no one disputes) that the parties adopted to
test, reverses well-settled doctrines of law on govern their relationship for purposes of selling the
employer-employee relationships, and insurance the company offers. To forget these other
grossly misapplies the "control test," by laws is to take a myopic view of the present case and
selecting, without basis, a few items of to add to the uncertainties that now exist in
evidence to the exclusion of more material considering the legal relationship between the
evidence to support its conclusion that there insurance company and its "agents."
is "control."
The main issue of whether an agency or an
4. The November 7[, 2008] Decision is employment relationship exists depends on the
judicial legislation, beyond the scope incidents of the relationship. The Labor Code
authorized by Articles 8 and 9 of the Civil concept of "control" has to be compared and
Code, beyond the powers granted to this distinguished with the "control" that must necessarily
Court under Article VIII, Section 1 of the exist in a principal-agent relationship. The principal
Constitution and contravenes through cannot but also have his or her say in directing the
judicial legislation, the constitutional course of the principal-agent relationship, especially
prohibition against impairment of contracts in cases where the company-representative
under Article III, Section 10 of the relationship in the insurance industry is an agency.
a. The laws on insurance and agency
5. For all the above reasons, the November
7[, 2008] Decision made unsustainable and The business of insurance is a highly regulated
reversible errors, which should be corrected, commercial activity in the country, in terms
in concluding that Respondent Manulife and particularly of who can be in the insurance business,
Petitioner had an employer-employee who can act for and in behalf of an insurer, and how
relationship, that Respondent Manulife these parties shall conduct themselves in the
illegally dismissed Petitioner, and for insurance business. Section 186 of the Insurance
consequently ordering Respondent Manulife Code provides that "No person, partnership, or
to pay Petitioner backwages, separation pay, association of persons shall transact any insurance
nominal damages and attorney’s fees.13 business in the Philippines except as agent of a
person or corporation authorized to do the business
THE COURT’S RULING of insurance in the Philippines." Sections 299 and
300 of the Insurance Code on Insurance Agents and
A. The Insurance and the Civil Codes; Brokers, among other provisions, provide:
the Parties’ Intent and Established
Industry Practices Section 299. No insurance company doing business
in the Philippines, nor any agent thereof, shall pay
We cannot consider the present case purely from a any commission or other compensation to any
labor law perspective, oblivious that the factual person for services in obtaining insurance, unless
antecedents were set in the insurance industry so such person shall have first procured from the
that the Insurance Code primarily governs. Chapter Commissioner a license to act as an insurance agent
IV, Title 1 of this Code is wholly devoted to of such company or as an insurance broker as
"Insurance Agents and Brokers" and specifically hereinafter provided.
defines the agents and brokers relationship with the
insurance company and how they are governed by No person shall act as an insurance agent or as an
the Code and regulated by the Insurance insurance broker in the solicitation or procurement of
Commission. applications for insurance, or receive for services in
obtaining insurance, any commission or other
The Insurance Code, of course, does not wholly compensation from any insurance company doing
regulate the "agency" that it speaks of, as agency is business in the Philippines or any agent thereof,
a civil law matter governed by the Civil Code. Thus, without first procuring a license so to act from the
at the very least, three sets of laws – namely, the Commissioner x x x The Commissioner shall satisfy
Insurance Code, the Labor Code and the Civil Code himself as to the competence and trustworthiness of
– have to be considered in looking at the present the applicant and shall have the right to refuse to
case. Not to be forgotten, too, is the Agreement issue or renew and to suspend or revoke any such
(partly reproduced on page 2 of this Dissent and license in his
Section 300. Any person who for compensation Generally, the determinative element is the control
solicits or obtains insurance on behalf of any exercised over the one rendering service. The
insurance company or transmits for a person other employer controls the employee both in the results
than himself an application for a policy or contract of and in the means and manner of achieving this
insurance to or from such company or offers or result. The principal in an agency relationship, on the
assumes to act in the negotiating of such insurance other hand, also has the prerogative to exercise
shall be an insurance agent within the intent of this control over the agent in undertaking the assigned
section and shall thereby become liable to all the task based on the parameters outlined in the
duties, requirements, liabilities and penalties to pertinent laws.
which an insurance agent is subject.
Under the general law on agency as applied to
The application for an insurance agent’s license insurance, an agency must be express in light of the
requires a written examination, and the applicant need for a license and for the designation by the
must be of good moral character and must not have insurance company. In the present case, the
been convicted of a crime involving moral Agreement fully serves as grant of authority to
turpitude.14 The insurance agent who collects Tongko as Manulife’s insurance agent.17 This
premiums from an insured person for remittance to agreement is supplemented by the company’s
the insurance company does so in a fiduciary agency practices and usages, duly accepted by the
capacity, and an insurance company which delivers agent in carrying out the agency.18 By authority of
an insurance policy or contract to an authorized the Insurance Code, an insurance agency is for
agent is deemed to have authorized the agent to compensation,19 a matter the Civil Code Rules on
receive payment on the company’s behalf.15 Section Agency presumes in the absence of proof to the
361 further prohibits the offer, negotiation, or contrary.20 Other than the compensation, the
collection of any amount other than that specified in principal is bound to advance to, or to reimburse, the
the policy and this covers any rebate from the agent the agreed sums necessary for the execution
premium or any special favor or advantage in the of the agency.21 By implication at least under Article
dividends or benefit accruing from the policy. 1994 of the Civil Code, the principal can appoint two
or more agents to carry out the same assigned
Thus, under the Insurance Code, the agent must, as tasks,22 based necessarily on the specific
a matter of qualification, be licensed and must also instructions and directives given to them.
act within the parameters of the authority granted
under the license and under the contract with the With particular relevance to the present case is the
principal. Other than the need for a license, the provision that "In the execution of the agency, the
agent is limited in the way he offers and negotiates agent shall act in accordance with the instructions of
for the sale of the company’s insurance products, in the principal."23 This provision is pertinent for
his collection activities, and in the delivery of the purposes of the necessary control that the principal
insurance contract or policy. Rules regarding the exercises over the agent in undertaking the
desired results (e.g., the required volume to continue assigned task, and is an area where the instructions
to qualify as a company agent, rules to check on the can intrude into the labor law concept of control so
parameters on the authority given to the agent, and that minute consideration of the facts is necessary.
rules to ensure that industry, legal and ethical rules A related article is Article 1891 of the Civil Code
are followed) are built-in elements of control specific which binds the agent to render an account of his
to an insurance agency and should not and cannot transactions to the principal.
be read as elements of control that attend an
employment relationship governed by the Labor B. The Cited Case
The Decision of November 7, 2008 refers to the first
On the other hand, the Civil Code defines an agent Insular and Grepalife cases to establish that the
as a "person [who] binds himself to render some company rules and regulations that an agent has to
service or to do something in representation or on comply with are indicative of an employer-employee
behalf of another, with the consent or authority of the relationship.24 The Dissenting Opinions of Justice
latter."16 While this is a very broad definition that on Presbitero Velasco, Jr. and Justice Conchita Carpio
its face may even encompass an employment Morales also cite Insular Life Assurance Co. v.
relationship, the distinctions between agency and National Labor Relations Commission (second
employment are sufficiently established by law and Insular case)25 to support the view that Tongko is
jurisprudence. Manulife’s employee. On the other hand, Manulife
cites the Carungcong case and AFP Mutual Benefit such contract or agreement, had there been any,
Association, Inc. v. National Labor Relations could have at the very least provided the bases for
Commission (AFPMBAI case)26 to support its properly ascertaining the juridical relationship
allegation that Tongko was not its employee. established between the parties.

A caveat has been given above with respect to the These critical differences, particularly between the
use of the rulings in the cited cases because none of present case and the Grepalife and the second
them is on all fours with the present case; the Insular Life cases, should therefore immediately
uniqueness of the factual situation of the present drive us to be more prudent and cautious in applying
case prevents it from being directly and readily cast the rulings in these cases.
in the mold of the cited cases. These cited cases are
themselves different from one another; this C. Analysis of the Evidence
difference underscores the need to read and quote
them in the context of their own factual situations. c.1. The Agreement

The present case at first glance appears aligned with The primary evidence in the present case is the July
the facts in the Carungcong, the Grepalife, and the 1, 1977 Agreement that governed and defined the
second Insular Life cases. A critical difference, parties’ relations until the Agreement’s termination in
however, exists as these cited cases dealt with the 2001. This Agreement stood for more than two
proper legal characterization of a subsequent decades and, based on the records of the case, was
management contract that superseded the original never modified or novated. It assumes primacy
agency contract between the insurance company because it directly dealt with the nature of the
and its agent. Carungcong dealt with a subsequent parties’ relationship up to the very end; moreover,
Agreement making Carungcong a New Business both parties never disputed its authenticity or the
Manager that clearly superseded the Agreement accuracy of its terms.
designating Carungcong as an agent empowered to
solicit applications for insurance. The Grepalife By the Agreement’s express terms, Tongko served
case, on the other hand, dealt with the proper legal as an "insurance agent" for Manulife, not as an
characterization of the appointment of the Ruiz employee. To be sure, the Agreement’s legal
brothers to positions higher than their original characterization of the nature of the relationship
position as insurance agents. Thus, after analyzing cannot be conclusive and binding on the courts; as
the duties and functions of the Ruiz brothers, as the dissent clearly stated, the characterization of the
these were enumerated in their contracts, we juridical relationship the Agreement embodied is a
concluded that the company practically dictated the matter of law that is for the courts to determine. At
manner by which the Ruiz brothers were to carry out the same time, though, the characterization the
their jobs. Finally, the second Insular Life case dealt parties gave to their relationship in the Agreement
with the implications of de los Reyes’ appointment cannot simply be brushed aside because it
as acting unit manager which, like the subsequent embodies their intent at the time they entered the
contracts in the Carungcong and the Grepalife Agreement, and they were governed by this
cases, was clearly defined under a subsequent understanding throughout their relationship. At the
contract. In all these cited cases, a determination of very least, the provision on the absence of employer-
the presence of the Labor Code element of control employee relationship between the parties can be
was made on the basis of the stipulations of the an aid in considering the Agreement and its
subsequent contracts. implementation, and in appreciating the other
evidence on record.
In stark contrast with the Carungcong, the Grepalife,
and the second Insular Life cases, the only contract The parties’ legal characterization of their intent,
or document extant and submitted as evidence in the although not conclusive, is critical in this case
present case is the Agreement – a pure agency because this intent is not illegal or outside the
agreement in the Civil Code context similar to the contemplation of law, particularly of the Insurance
original contract in the first Insular Life case and the and the Civil Codes. From this perspective, the
contract in the AFPMBAI case. And while Tongko provisions of the Insurance Code cannot be
was later on designated unit manager in 1983, disregarded as this Code (as heretofore already
Branch Manager in 1990, and Regional Sales noted) expressly envisions a principal-agent
Manager in 1996, no formal contract regarding these relationship between the insurance company and
undertakings appears in the records of the case. Any the insurance agent in the sale of insurance to the
public.1awph!1 For this reason, we can take judicial To be sure, this interpretation could have been
notice that as a matter of Insurance Code-based contradicted if other agreements had been
business practice, an agency relationship prevails in submitted as evidence of the relationship between
the insurance industry for the purpose of selling Manulife and Tongko on the latter’s expanded
insurance. The Agreement, by its express terms, is undertakings. In the absence of any such evidence,
in accordance with the Insurance Code model when however, this reading – based on the available
it provided for a principal-agent relationship, and evidence and the applicable insurance and civil law
thus cannot lightly be set aside nor simply be provisions – must stand, subject only to objective
considered as an agreement that does not reflect the and evidentiary Labor Code tests on the existence
parties’ true intent. This intent, incidentally, is of an employer-employee relationship.
reinforced by the system of compensation the
Agreement provides, which likewise is in In applying such Labor Code tests, however, the
accordance with the production-based sales enforcement of the Agreement during the course of
commissions the Insurance Code provides. the parties’ relationship should be noted. From 1977
until the termination of the Agreement, Tongko’s
Significantly, evidence shows that Tongko’s role as occupation was to sell Manulife’s insurance policies
an insurance agent never changed during his and products. Both parties acquiesced with the
relationship with Manulife. If changes occurred at all, terms and conditions of the Agreement. Tongko, for
the changes did not appear to be in the nature of his part, accepted all the benefits flowing from the
their core relationship. Tongko essentially remained Agreement, particularly the generous commissions.
an agent, but moved up in this role through
Manulife’s recognition that he could use other Evidence indicates that Tongko consistently clung to
agents approved by Manulife, but operating under the view that he was an independent agent selling
his guidance and in whose commissions he had a Manulife insurance products since he invariably
share. For want of a better term, Tongko perhaps declared himself a business or self-employed
could be labeled as a "lead agent" who guided under person in his income tax returns. This consistency
his wing other Manulife agents similarly tasked with with, and action made pursuant to the
the selling of Manulife insurance. Agreement were pieces of evidence that were
never mentioned nor considered in our Decision
Like Tongko, the evidence suggests that these other of November 7, 2008. Had they been considered,
agents operated under their own agency they could, at the very least, serve as Tongko’s
agreements. Thus, if Tongko’s compensation admissions against his interest. Strictly speaking,
scheme changed at all during his relationship with Tongko’s tax returns cannot but be legally significant
Manulife, the change was solely for purposes of because he certified under oath the amount he
crediting him with his share in the commissions the earned as gross business income, claimed business
agents under his wing generated. As an agent who deductions, leading to his net taxable income. This
was recruiting and guiding other insurance agents, should be evidence of the first order that cannot be
Tongko likewise moved up in terms of the brushed aside by a mere denial. Even on a layman’s
reimbursement of expenses he incurred in the view that is devoid of legal considerations, the extent
course of his lead agency, a prerogative he enjoyed of his annual income alone renders his claimed
pursuant to Article 1912 of the Civil Code. Thus, employment status doubtful.27
Tongko received greater reimbursements for his
expenses and was even allowed to use Manulife Hand in hand with the concept of admission against
facilities in his interactions with the agents, all of interest in considering the tax returns, the concept of
whom were, in the strict sense, Manulife agents estoppel – a legal and equitable concept28 –
approved and certified as such by Manulife with the necessarily must come into play. Tongko’s previous
Insurance Commission. admissions in several years of tax returns as an
independent agent, as against his belated claim that
That Tongko assumed a leadership role but he was all along an employee, are too diametrically
nevertheless wholly remained an agent is the opposed to be simply dismissed or ignored.
inevitable conclusion that results from the reading of Interestingly, Justice Velasco’s dissenting opinion
the Agreement (the only agreement on record in this states that Tongko was forced to declare himself a
case) and his continuing role thereunder as sales business or self-employed person by Manulife’s
agent, from the perspective of the Insurance and the persistent refusal to recognize him as its
Civil Codes and in light of what Tongko himself employee.29 Regrettably, the dissent has shown
attested to as his role as Regional Sales Manager. no basis for this conclusion, an understandable
omission since no evidence in fact exists on this practically left Tongko alone not only in doing the
point in the records of the case. In fact, what the business of selling insurance, but also in guiding the
evidence shows is Tongko’s full conformity with, and agents under his wing. As discussed below, the
action as, an independent agent until his relationship alleged directives covered by de Dios’ letter,
with Manulife took a bad turn. heretofore quoted in full, were policy directions and
targeted results that the company wanted Tongko
Another interesting point the dissent raised with and the other sales groups to realign with in their
respect to the Agreement is its conclusion that the own selling activities. This is the reality that the
Agreement negated any employment relationship parties’ presented evidence consistently tells us.
between Tongko and Manulife so that the
commissions he earned as a sales agent should not What, to Tongko, serve as evidence of labor law
be considered in the determination of the control are the codes of conduct that Manulife
backwages and separation pay that should be given imposes on its agents in the sale of insurance. The
to him. This part of the dissent is correct although it mere presentation of codes or of rules and
went on to twist this conclusion by asserting that regulations, however, is not per se indicative of labor
Tongko had dual roles in his relationship with law control as the law and jurisprudence teach us.
Manulife; he was an agent, not an employee, in so
far as he sold insurance for Manulife, but was an As already recited above, the Insurance Code
employee in his capacity as a manager. Thus, the imposes obligations on both the insurance company
dissent concluded that Tongko’s backwages should and its agents in the performance of their respective
only be with respect to his role as Manulife’s obligations under the Code, particularly on licenses
manager. and their renewals, on the representations to be
made to potential customers, the collection of
The conclusion with respect to Tongko’s premiums, on the delivery of insurance policies, on
employment as a manager is, of course, the matter of compensation, and on measures to
unacceptable for the legal, factual and practical ensure ethical business practice in the industry.
reasons discussed in this Resolution. In brief,
the factual reason is grounded on the lack of The general law on agency, on the other hand,
evidentiary support of the conclusion that Manulife expressly allows the principal an element of control
exercised control over Tongko in the sense over the agent in a manner consistent with an
understood in the Labor Code. The legal reason, agency relationship. In this sense, these control
partly based on the lack of factual basis, is the measures cannot be read as indicative of labor law
erroneous legal conclusion that Manulife controlled control. Foremost among these are the directives
Tongko and was thus its employee. The practical that the principal may impose on the agent to
reason, on the other hand, is the havoc that the achieve the assigned tasks, to the extent that they
dissent’s unwarranted conclusion would cause the do not involve the means and manner of undertaking
insurance industry that, by the law’s own design, these tasks. The law likewise obligates the agent to
operated along the lines of principal-agent render an account; in this sense, the principal may
relationship in the sale of insurance. impose on the agent specific instructions on how an
account shall be made, particularly on the matter of
c.2. Other Evidence of Alleged Control expenses and reimbursements. To these extents,
control can be imposed through rules and
A glaring evidentiary gap for Tongko in this case is regulations without intruding into the labor law
the lack of evidence on record showing that Manulife concept of control for purposes of employment.
ever exercised means-and-manner control, even to
a limited extent, over Tongko during his ascent in From jurisprudence, an important lesson that the
Manulife’s sales ladder. In 1983, Tongko was first Insular Life case teaches us is that a
appointed unit manager. Inexplicably, Tongko never commitment to abide by the rules and regulations of
bothered to present any evidence at all on what this an insurance company does not ipso facto make the
designation meant. This also holds true for Tongko’s insurance agent an employee. Neither do guidelines
appointment as branch manager in 1990, and as somehow restrictive of the insurance agent’s
Regional Sales Manager in 1996. The best evidence conduct necessarily indicate "control" as this term is
of control – the agreement or directive relating to defined in jurisprudence. Guidelines indicative of
Tongko’s duties and responsibilities – was never labor law "control," as the first Insular Life case
introduced as part of the records of the case. The tells us, should not merely relate to the mutually
reality is, prior to de Dios’ letter, Manulife had desirable result intended by the contractual
relationship; they must have the nature of fieldwork, consultations and one- agents, and
dictating the means or methods to be employed in on-one evaluation and analysis of documentation
attaining the result, or of fixing the methodology and particular accounts collections of de
of binding or restricting the party hired to the use of
these means. In fact, results-wise, the principal can
impose production quotas and can determine how Aside from these affidavits however, no other
many agents, with specific territories, ought to be evidence exists regarding the effects of Tongko’s
employed to achieve the company’s objectives. additional roles in Manulife’s sales operations on the
These are management policy decisions that the contractual relationship between them.
labor law element of control cannot reach. Our ruling
in these respects in the first Insular Life case was To the dissent, Tongko’s administrative functions as
practically reiterated in Carungcong. Thus, as will be recruiter, trainer, or supervisor of other sales agents
shown more fully below, Manulife’s codes of constituted a substantive alteration of Manulife’s
conduct,30 all of which do not intrude into the authority over Tongko and the performance of his
insurance agents’ means and manner of conducting end of the relationship with Manulife. We could not
their sales and only control them as to the desired deny though that Tongko remained, first and
results and Insurance Code norms, cannot be used foremost, an insurance agent, and that his additional
as basis for a finding that the labor law concept of role as Branch Manager did not lessen his main and
control existed between Manulife and Tongko. dominant role as insurance agent; this role
continued to dominate the relations between Tongko
The dissent considers the imposition of and Manulife even after Tongko assumed his
administrative and managerial functions on Tongko leadership role among agents. This conclusion
as indicative of labor law control; thus, Tongko as cannot be denied because it proceeds from the
manager, but not as insurance agent, became undisputed fact that Tongko and Manulife never
Manulife’s employee. It drew this conclusion from altered their July 1, 1977 Agreement, a distinction
what the other Manulife managers disclosed in their the present case has with the contractual changes
affidavits (i.e., their enumerated administrative and made in the second Insular Life case. Tongko’s
managerial functions) and after comparing these results-based commissions, too, attest to the
statements with the managers in Grepalife. The primacy he gave to his role as insurance sales
dissent compared the control exercised by Manulife agent.
over its managers in the present case with the
control the managers in the Grepalife case The dissent apparently did not also properly analyze
exercised over their employees by presenting the and appreciate the great qualitative difference that
following matrix:31 exists between:

 the Manulife managers’ role is to coordinate

Duties of Manulife’s Manager Duties of Grepalife’s
activities of the agents under the managers’
Unit in the agents’ daily, weekly, and monthly
- to render or recommend - train understudies for selling activities,
the position of making sure that their
prospective agents to be licensed, district manager respective sales targets are met.
trained and contracted to sell  the District Manager’s duty in Grepalife is to
Manulife products and who will be properly account, record, and document the
part of my Unit company's funds, spot-check and audit the
work of the zone supervisors, conserve the
- to coordinate activities of the - properly account, record and
company's business in the district through
agents under [the managers’] Unit document the company’s funds, spot-
"reinstatements," follow up the submission of
in [the agents’] daily, weekly and check and audit the work of the zone
weekly remittance reports of the debit agents
monthly selling activities, making supervisors, x x x follow up the
and zone supervisors, preserve company
sure that their respective sales submission of weekly remittance
property in good condition, train
targets are met; reports of the debit agents and zone
understudies for the position of district
managers, and maintain his quota of sales
- to conduct periodic training (the failure of which is a ground for
sessions for [the] agents to further - direct and supervise the sales
enhance their sales skill; and activities of the debit
 the agents under Supervisor’s
Zone (also in
him, x x x undertake and discharge
Grepalife) has the duty to direct and
- to assist [the] agents with their the functions of absenteesupervisedebit
the sales activities of the debit
sales activities by way of joint agents, spot-check the record
agents of under
debit him, conserve company
property through "reinstatements," 6. I have my own staff that handles the day
undertake and discharge the functions of to day operations of my office;
absentee debit agents, spot-check the
records of debit agents, and insure proper 7. My staff are my own employees and
documentation of sales and collections by received salaries from me;
the debit agents.
These job contents are worlds apart in terms of
"control." In Grepalife, the details of how to do the 9. My commission and incentives are all
job are specified and pre-determined; in the present reported to the Bureau of Internal Revenue
case, the operative words are the "sales target," the (BIR) as income by a self-employed
methodology being left undefined except to the individual or professional with a ten (10)
extent of being "coordinative." To be sure, a percent creditable withholding tax. I also
"coordinative" standard for a manager cannot be remit monthly for professionals.
indicative of control; the standard only essentially
describes what a Branch Manager is – the person in These statements, read with the above comparative
the lead who orchestrates activities within the group. analysis of the Manulife and the Grepalife cases,
To "coordinate," and thereby to lead and to would have readily yielded the conclusion that no
orchestrate, is not so much a matter of control by employer-employee relationship existed between
Manulife; it is simply a statement of a branch Manulife and Tongko.
manager’s role in relation with his agents from the
point of view of Manulife whose business Tongko’s Even de Dios’ letter is not determinative of control as
sales group carries. it indicates the least amount of intrusion into
Tongko’s exercise of his role as manager in guiding
A disturbing note, with respect to the presented the sales agents. Strictly viewed, de Dios’ directives
affidavits and Tongko’s alleged administrative are merely operational guidelines on how Tongko
functions, is the selective citation of the portions could align his operations with Manulife’s re-directed
supportive of an employment relationship and the goal of being a "big league player." The method is to
consequent omission of portions leading to the expand coverage through the use of more agents.
contrary conclusion. For example, the following This requirement for the recruitment of more agents
portions of the affidavit of Regional Sales Manager is not a means-and-method control as it relates,
John Chua, with counterparts in the other affidavits, more than anything else, and is directly relevant, to
were not brought out in the Decision of November 7, Manulife’s objective of expanded business
2008, while the other portions suggesting labor law operations through the use of a bigger sales force
control were highlighted. Specifically, the following whose members are all on a principal-agent
portions of the affidavits were not brought out:32 relationship. An important point to note here is that
Tongko was not supervising regular full-time
1.a. I have no fixed wages or salary since my employees of Manulife engaged in the running of the
services are compensated by way of insurance business; Tongko was effectively guiding
commissions based on the computed his corps of sales agents, who are bound to Manulife
premiums paid in full on the policies obtained through the same Agreement that he had with
thereat; Manulife, all the while sharing in these agents’
commissions through his overrides. This is the lead
1.b. I have no fixed working hours and agent concept mentioned above for want of a more
employ my own method in soliticing appropriate term, since the title of Branch Manager
insurance at a time and place I see fit; used by the parties is really a misnomer given that
what is involved is not a specific regular branch of
1.c. I have my own assistant and messenger the company but a corps of non-employed agents,
who handle my daily work load; defined in terms of covered territory, through which
the company sells insurance. Still another point to
1.d. I use my own facilities, tools, materials consider is that Tongko was not even setting policies
and supplies in carrying out my business of in the way a regular company manager does;
selling insurance; company aims and objectives were simply relayed
to him with suggestions on how these objectives can
xxxx be reached through the expansion of a non-
employee sales force.
Interestingly, a large part of de Dios’ letter focused  can Manulife terminate his role as lead agent
on income, which Manulife demonstrated, in separately from his agency contract; and
Tongko’s case, to be unaffected by the new goal and  to what extent does Manulife control the
direction the company had set. Income in insurance means and methods of Tongko’s role as lead
agency, of course, is dependent on results, not on agent?
the means and manner of selling – a matter for
Tongko and his agents to determine and an area into The answers to these questions may, to some
which Manulife had not waded. Undeniably, de Dios’ extent, be deduced from the evidence at hand, as
letter contained a directive to secure a competent partly discussed above. But strictly speaking, the
assistant at Tongko’s own expense. While couched questions cannot definitively and concretely be
in terms of a directive, it cannot strictly be answered through the evidence on record. The
understood as an intrusion into Tongko’s method of concrete evidence required to settle these questions
operating and supervising the group of agents within is simply not there, since only the Agreement and
his delineated territory. More than anything else, the the anecdotal affidavits have been marked and
"directive" was a signal to Tongko that his results submitted as evidence.
were unsatisfactory, and was a suggestion on how
Tongko’s perceived weakness in delivering results Given this anemic state of the evidence, particularly
could be remedied. It was a solution, with an eye on on the requisite confluence of the factors
results, for a consistently underperforming group; its determinative of the existence of employer-
obvious intent was to save Tongko from the result employee relationship, the Court cannot
that he then failed to grasp – that he could lose even conclusively find that the relationship exists in the
his own status as an agent, as he in fact eventually present case, even if such relationship only refers to
did. Tongko’s additional functions. While a rough
deduction can be made, the answer will not be fully
The present case must be distinguished from the supported by the substantial evidence needed.
second Insular Life case that showed the hallmarks
of an employer-employee relationship in the Under this legal situation, the only conclusion that
management system established. These were: can be made is that the absence of evidence
exclusivity of service, control of assignments and showing Manulife’s control over Tongko’s
removal of agents under the private respondent’s contractual duties points to the absence of any
unit, and furnishing of company facilities and employer-employee relationship between Tongko
materials as well as capital described as Unit and Manulife. In the context of the established
Development Fund. All these are obviously absent evidence, Tongko remained an agent all along;
in the present case. If there is a commonality in although his subsequent duties made him a lead
these cases, it is in the collection of premiums which agent with leadership role, he was nevertheless only
is a basic authority that can be delegated to agents an agent whose basic contract yields no evidence of
under the Insurance Code. means-and-manner control.

As previously discussed, what simply happened in This conclusion renders unnecessary any further
Tongko’s case was the grant of an expanded sales discussion of the question of whether an agent may
agency role that recognized him as leader amongst simultaneously assume conflicting dual
agents in an area that Manulife defined. Whether personalities. But to set the record straight, the
this consequently resulted in the establishment concept of a single person having the dual role of
of an employment relationship can be answered agent and employee while doing the same task is a
by concrete evidence that corresponds to the novel one in our jurisprudence, which must be
following questions: viewed with caution especially when it is devoid of
any jurisprudential support or precedent. The quoted
 as lead agent, what were Tongko’s specific portions in Justice Carpio-Morales’
functions and the terms of his additional dissent,33 borrowed from both the Grepalife and the
engagement; second Insular Life cases, to support the duality
 was he paid additional compensation as a approach of the Decision of November 7, 2008, are
so-called Area Sales Manager, apart from regrettably far removed from their context – i.e., the
the commissions he received from the cases’ factual situations, the issues they decided
insurance sales he generated; and the totality of the rulings in these cases – and
 what can be Manulife’s basis to terminate his cannot yield the conclusions that the dissenting
status as lead agent; opinions drew.
The Grepalife case dealt with the sole issue of is misplaced, as Article 4 applies only when a doubt
whether the Ruiz brothers’ appointment as zone exists in the "implementation and application" of the
supervisor and district manager made them Labor Code and its implementing rules; it does not
employees of Grepalife. Indeed, because of the apply where no doubt exists as in a situation where
presence of the element of control in their contract the claimant clearly failed to substantiate his claim of
of engagements, they were employment relationship by the quantum of
considered Grepalife’s employees. This did not evidence the Labor Code requires.
mean, however, that they were simultaneously
considered agents as well as employees On the dissent’s last point regarding the lack of
of Grepalife; the Court’s ruling never implied that this jurisprudential value of our November 7, 2008
situation existed insofar as the Ruiz brothers were Decision, suffice it to state that, as discussed above,
concerned. The Court’s statement – the Insurance the Decision was not supported by the evidence
Code may govern the licensing requirements and adduced and was not in accordance with controlling
other particular duties of insurance agents, but it jurisprudence. It should, therefore, be reconsidered
does not bar the application of the Labor Code with and abandoned, but not in the manner the dissent
regard to labor standards and labor relations – suggests as the dissenting opinions are as factually
simply means that when an insurance company has and as legally erroneous as the Decision under
exercised control over its agents so as to make them reconsideration.
their employees, the relationship between the
parties, which was otherwise one for agency In light of these conclusions, the sufficiency of
governed by the Civil Code and the Insurance Code, Tongko’s failure to comply with the guidelines of de
will now be governed by the Labor Code. The reason Dios’ letter, as a ground for termination of Tongko’s
for this is simple – the contract of agency has been agency, is a matter that the labor tribunals cannot
transformed into an employer-employee rule upon in the absence of an employer-employee
relationship. relationship. Jurisdiction over the matter belongs to
the courts applying the laws of insurance, agency
The second Insular Life case, on the other hand, and contracts.
involved the issue of whether the labor bodies have
jurisdiction over an illegal termination dispute WHEREFORE, considering the foregoing
involving parties who had two contracts – first, an discussion, we REVERSE our Decision of
original contract (agency contract), which was November 7, 2008, GRANTManulife’s motion for
undoubtedly one for agency, and another reconsideration and,
subsequent contract that in turn designated the accordingly, DISMISS Tongko’s petition. No costs.
agent acting unit manager (a management contract).
Both the Insular Life and the labor arbiter were one SO ORDERED.
in the position that both were agency contracts. The
Court disagreed with this conclusion and held that
insofar as the management contract is concerned,
the labor arbiter has jurisdiction. It is in this light that
we remanded the case to the labor arbiter for further
proceedings. We never said in this case though that
the insurance agent had effectively assumed dual
personalities for the simple reason that the agency
contract has been effectively superseded by the
management contract. The management contract
provided that if the appointment was terminated for
any reason other than for cause, the acting unit
manager would be reverted to agent status and
assigned to any unit.

The dissent pointed out, as an argument to support

its employment relationship conclusion, that any
doubt in the existence of an employer-employee
relationship should be resolved in favor of the
existence of the relationship.34This observation,
apparently drawn from Article 4 of the Labor Code,
Republic of the Philippines Deed of Assignment of receivables in favor of
SUPREME COURT petitioner, the pertinent part of which states:
1.) That ASSIGNOR5 has an outstanding
THIRD DIVISION receivables from Toledo Power Corporation
in the amount of THREE HUNDRED SIXTY
G.R. No. 167552 April 23, 2007 FIVE THOUSAND (₱365,000.00) PESOS as
payment for the purchase of one unit of
INC., Petitioner,
vs. 2.) That said ASSIGNOR does hereby
CUIZON, Respondents. the ASSIGNEE6 the said receivables from
Toledo Power Corporation in the amount of
THOUSAND (₱365,000.00) PESOS which
CHICO-NAZARIO, J.: receivables the ASSIGNOR is the lawful
Before Us is a petition for review by certiorari
assailing the Decision1 of the Court of Appeals dated 3.) That the ASSIGNEE does hereby accept
10 August 2004 and its Resolution2 dated 17 March this assignment.7
2005 in CA-G.R. SP No. 71397 entitled, "Eurotech
Industrial Technologies, Inc. v. Hon. Antonio T. Following the execution of the Deed of Assignment,
Echavez." The assailed Decision and Resolution petitioner delivered to respondents the sludge pump
affirmed the Order3 dated 29 January 2002 rendered as shown by Invoice No. 12034 dated 30 June
by Judge Antonio T. Echavez ordering the dropping 1995.8
of respondent EDWIN Cuizon (EDWIN) as a party
defendant in Civil Case No. CEB-19672. Allegedly unbeknownst to petitioner, respondents,
despite the existence of the Deed of Assignment,
The generative facts of the case are as follows: proceeded to collect from Toledo Power Company
the amount of ₱365,135.29 as evidenced by Check
Petitioner is engaged in the business of importation Voucher No. 09339prepared by said power company
and distribution of various European industrial and an official receipt dated 15 August 1995 issued
equipment for customers here in the Philippines. It by Impact Systems.10Alarmed by this development,
has as one of its customers Impact Systems Sales petitioner made several demands upon respondents
("Impact Systems") which is a sole proprietorship to pay their obligations. As a result, respondents
owned by respondent ERWIN Cuizon (ERWIN). were able to make partial payments to petitioner. On
Respondent EDWIN is the sales manager of Impact 7 October 1996, petitioner’s counsel sent
Systems and was impleaded in the court a quo in respondents a final demand letter wherein it was
said capacity. stated that as of 11 June 1996, respondents’ total
obligations stood at ₱295,000.00 excluding interests
From January to April 1995, petitioner sold to Impact and attorney’s fees.11 Because of respondents’
Systems various products allegedly amounting to failure to abide by said final demand letter, petitioner
ninety-one thousand three hundred thirty-eight instituted a complaint for sum of money, damages,
(₱91,338.00) pesos. Subsequently, respondents with application for preliminary attachment against
sought to buy from petitioner one unit of sludge herein respondents before the Regional Trial Court
pump valued at ₱250,000.00 with respondents of Cebu City.12
making a down payment of fifty thousand pesos
(₱50,000.00).4 When the sludge pump arrived from On 8 January 1997, the trial court granted
the United Kingdom, petitioner refused to deliver the petitioner’s prayer for the issuance of writ of
same to respondents without their having fully preliminary attachment.13
settled their indebtedness to petitioner. Thus, on 28
June 1995, respondent EDWIN and Alberto de On 25 June 1997, respondent EDWIN filed his
Jesus, general manager of petitioner, executed a 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, proprietorship entity and the complaint shows that
disputed the total amount of Impact Systems’ defendant Erwin H. Cuizon is the proprietor; that
indebtedness to petitioner which, according to him, plaintiff corporation is represented by its general
amounted to only ₱220,000.00.16 manager Alberto de Jesus in the contract which is
dated June 28, 1995. A study of Annex "H" to the
By way of special and affirmative defenses, complaint reveals that [Impact] Systems Sales which
respondent EDWIN alleged that he is not a real party is owned solely by defendant Erwin H. Cuizon, made
in interest in this case. According to him, he was a down payment of ₱50,000.00 that Annex "H" is
acting as mere agent of his principal, which was the dated June 30, 1995 or two days after the execution
Impact Systems, in his transaction with petitioner of Annex "G", thereby showing that [Impact]
and the latter was very much aware of this fact. In Systems Sales ratified the act of Edwin B. Cuizon;
support of this argument, petitioner points to the records further show that plaintiff knew that
paragraphs 1.2 and 1.3 of petitioner’s Complaint [Impact] Systems Sales, the principal, ratified the act
stating – of Edwin B. Cuizon, the agent, when it accepted the
down payment of ₱50,000.00. Plaintiff, therefore,
1.2. Defendant Erwin H. Cuizon, is of legal cannot say that it was deceived by defendant Edwin
age, married, a resident of Cebu City. He is B. Cuizon, since in the instant case the principal has
the proprietor of a single proprietorship ratified the act of its agent and plaintiff knew about
business known as Impact Systems Sales said ratification. Plaintiff could not say that the
("Impact Systems" for brevity), with office subject contract was entered into by Edwin B.
located at 46-A del Rosario Street, Cebu Cuizon in excess of his powers since [Impact]
City, where he may be served summons and Systems Sales made a down payment of
other processes of the Honorable Court. ₱50,000.00 two days later.

1.3. Defendant Edwin B. Cuizon is of legal In view of the Foregoing, the Court directs that
age, Filipino, married, a resident of Cebu defendant Edwin B. Cuizon be dropped as party
City. He is the Sales Manager of Impact defendant.23
Systems and is sued in this action in such
capacity.17 Aggrieved by the adverse ruling of the trial court,
petitioner brought the matter to the Court of Appeals
On 26 June 1998, petitioner filed a Motion to Declare which, however, affirmed the 29 January 2002 Order
Defendant ERWIN in Default with Motion for of the court a quo. The dispositive portion of the now
Summary Judgment. The trial court granted assailed Decision of the Court of Appeals states:
petitioner’s motion to declare respondent ERWIN in
default "for his failure to answer within the prescribed WHEREFORE, finding no viable legal ground to
period despite the opportunity granted"18 but it reverse or modify the conclusions reached by the
denied petitioner’s motion for summary judgment in public respondent in his Order dated January 29,
its Order of 31 August 2001 and scheduled the pre- 2002, it is hereby AFFIRMED.24
trial of the case on 16 October 2001.19 However, the
conduct of the pre-trial conference was deferred Petitioner’s motion for reconsideration was denied
pending the resolution by the trial court of the special by the appellate court in its Resolution promulgated
and affirmative defenses raised by respondent on 17 March 2005. Hence, the present petition
EDWIN.20 raising, as sole ground for its allowance, the
After the filing of respondent EDWIN’s
Memorandum21 in support of his special and THE COURT OF APPEALS COMMITTED A
affirmative defenses and petitioner’s REVERSIBLE ERROR WHEN IT RULED THAT
opposition22 thereto, the trial court rendered its RESPONDENT EDWIN CUIZON, AS AGENT OF
assailed Order dated 29 January 2002 dropping IMPACT SYSTEMS SALES/ERWIN CUIZON, IS
respondent EDWIN as a party defendant in this NOT PERSONALLY LIABLE, BECAUSE HE HAS
case. According to the trial court – NEITHER ACTED BEYOND THE SCOPE OF HIS
A study of Annex "G" to the complaint shows that in PERPETUATION OF A FRAUD.25
the Deed of Assignment, defendant Edwin B. Cuizon
acted in behalf of or represented [Impact] Systems To support its argument, petitioner points to Article
Sales; that [Impact] Systems Sale is a single 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not is representation, that is, the agent acts for and on
personally liable to the party with whom he contracts, behalf of the principal on matters within the scope of
unless he expressly binds himself or exceeds the his authority and said acts have the same legal effect
limits of his authority without giving such party as if they were personally executed by the
sufficient notice of his powers. principal.32 By this legal fiction, the actual or real
absence of the principal is converted into his legal or
Petitioner contends that the Court of Appeals failed juridical presence – qui facit per alium facit per se.33
to appreciate the effect of ERWIN’s act of collecting
the receivables from the Toledo Power Corporation The elements of the contract of agency are: (1)
notwithstanding the existence of the Deed of consent, express or implied, of the parties to
Assignment signed by EDWIN on behalf of Impact establish the relationship; (2) the object is the
Systems. While said collection did not revoke the execution of a juridical act in relation to a third
agency relations of respondents, petitioner insists person; (3) the agent acts as a representative and
that ERWIN’s action repudiated EDWIN’s power to not for himself; (4) the agent acts within the scope of
sign the Deed of Assignment. As EDWIN did not his authority.34
sufficiently notify it of the extent of his powers as an
agent, petitioner claims that he should be made In this case, the parties do not dispute the existence
personally liable for the obligations of his principal.26 of the agency relationship between respondents
ERWIN as principal and EDWIN as agent. The only
Petitioner also contends that it fell victim to the cause of the present dispute is whether respondent
fraudulent scheme of respondents who induced it EDWIN exceeded his authority when he signed the
into selling the one unit of sludge pump to Impact Deed of Assignment thereby binding himself
Systems and signing the Deed of Assignment. personally to pay the obligations to petitioner.
Petitioner directs the attention of this Court to the Petitioner firmly believes that respondent EDWIN
fact that respondents are bound not only by their acted beyond the authority granted by his principal
principal and agent relationship but are in fact full- and he should therefore bear the effect of his deed
blooded brothers whose successive contravening pursuant to Article 1897 of the New Civil Code.
acts bore the obvious signs of conspiracy to defraud
petitioner.27 We disagree.

In his Comment,28 respondent EDWIN again posits Article 1897 reinforces the familiar doctrine that an
the argument that he is not a real party in interest in agent, who acts as such, is not personally liable to
this case and it was proper for the trial court to have the party with whom he contracts. The same
him dropped as a defendant. He insists that he was provision, however, presents two instances when an
a mere agent of Impact Systems which is owned by agent becomes personally liable to a third person.
ERWIN and that his status as such is known even to The first is when he expressly binds himself to the
petitioner as it is alleged in the Complaint that he is obligation and the second is when he exceeds his
being sued in his capacity as the sales manager of authority. In the last instance, the agent can be held
the said business venture. Likewise, respondent liable if he does not give the third party sufficient
EDWIN points to the Deed of Assignment which notice of his powers. We hold that respondent
clearly states that he was acting as a representative EDWIN does not fall within any of the exceptions
of Impact Systems in said transaction. contained in this provision.

We do not find merit in the petition. The Deed of Assignment clearly states that
respondent EDWIN signed thereon as the sales
In a contract of agency, a person binds himself to manager of Impact Systems. As discussed
render some service or to do something in elsewhere, the position of manager is unique in that
representation or on behalf of another with the it presupposes the grant of broad powers with which
latter’s consent.29 The underlying principle of the to conduct the business of the principal, thus:
contract of agency is to accomplish results by using
the services of others – to do a great variety of things The powers of an agent are particularly broad in the
like selling, buying, manufacturing, and case of one acting as a general agent or manager;
transporting.30 Its purpose is to extend the such a position presupposes a degree of confidence
personality of the principal or the party for whom reposed and investiture with liberal powers for the
another acts and from whom he or she derives the exercise of judgment and discretion in transactions
authority to act.31 It is said that the basis of agency and concerns which are incidental or appurtenant to
the business entrusted to his care and management. As we declare that respondent EDWIN acted within
In the absence of an agreement to the contrary, a his authority as an agent, who did not acquire any
managing agent may enter into any contracts that he right nor incur any liability arising from the Deed of
deems reasonably necessary or requisite for the Assignment, it follows that he is not a real party in
protection of the interests of his principal entrusted interest who should be impleaded in this case. A real
to his management. x x x.35 party in interest is one who "stands to be benefited
or injured by the judgment in the suit, or the party
Applying the foregoing to the present case, we hold entitled to the avails of the suit."41 In this respect, we
that Edwin Cuizon acted well-within his authority sustain his exclusion as a defendant in the suit
when he signed the Deed of Assignment. To recall, before the court a quo.
petitioner refused to deliver the one unit of sludge
pump unless it received, in full, the payment for WHEREFORE, premises considered, the present
Impact Systems’ indebtedness.36 We may very well petition is DENIED and the Decision dated 10
assume that Impact Systems desperately needed August 2004 and Resolution dated 17 March 2005
the sludge pump for its business since after it paid of the Court of Appeals in CA-G.R. SP No. 71397,
the amount of fifty thousand pesos (₱50,000.00) as affirming the Order dated 29 January 2002 of the
down payment on 3 March 1995,37 it still persisted in Regional Trial Court, Branch 8, Cebu City, is
negotiating with petitioner which culminated in the AFFIRMED.
execution of the Deed of Assignment of its
receivables from Toledo Power Company on 28 Let the records of this case be remanded to the
June 1995.38 The significant amount of time spent on Regional Trial Court, Branch 8, Cebu City, for the
the negotiation for the sale of the sludge pump continuation of the proceedings against respondent
underscores Impact Systems’ perseverance to get Erwin Cuizon.
hold of the said equipment. There is, therefore, no
doubt in our mind that respondent EDWIN’s SO ORDERED.
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

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
Committee for Asia of ESAC instructed Michael
Adams, a member of EC’s Board of Directors, to
dispose of the eight parcels of land. Adams engaged
the services of realtor/broker Lauro G. Marquez so
that the properties could be offered for sale to
prospective buyers. Glanville later showed the
properties to Marquez.

FIRST DIVISION Marquez thereafter offered the parcels of land and

the improvements thereon to Eduardo B. Litonjua,
G.R. No. 144805 June 8, 2006 Jr. of the Litonjua & Company, Inc. In a Letter dated
September 12, 1986, Marquez declared that he was
authorized to sell the properties for P27,000,000.00
and that the terms of the sale were subject to
LITONJUA, Petitioners,
MULTI-RESOURCES CORPORATION), Eduardo Litonjua, Jr. responded to the offer.
ETEROUTREMER, S.A. and FAR EAST BANK & Marquez showed the property to Eduardo Litonjua,
TRUST COMPANY, Respondents. Jr., and his brother Antonio K. Litonjua. The Litonjua
siblings offered to buy the property
for P20,000,000.00 cash. Marquez apprised
Glanville of the Litonjua siblings’ offer and relayed
the same to Delsaux in Belgium, but the latter did not
CALLEJO, SR., J.: respond. On October 28, 1986, Glanville telexed
Delsaux in Belgium, inquiring on his position/
On appeal via a Petition for Review on Certiorari is counterproposal to the offer of the Litonjua siblings.
the Decision1 of the Court of Appeals (CA) in CA- It was only on February 12, 1987 that Delsaux sent
G.R. CV No. 51022, which affirmed the Decision of a telex to Glanville stating that, based on the
the Regional Trial Court (RTC), Pasig City, Branch "Belgian/Swiss decision," the final offer was
165, in Civil Case No. 54887, as well as the "US$1,000,000.00 and P2,500,000.00 to cover all
Resolution2 of the CA denying the motion for existing obligations prior to final liquidation."5
reconsideration thereof.
Marquez furnished Eduardo Litonjua, Jr. with a copy
The Eternit Corporation (EC) is a corporation duly of the telex sent by Delsaux. Litonjua, Jr. accepted
organized and registered under Philippine laws. the counterproposal of Delsaux. Marquez conferred
Since 1950, it had been engaged in the manufacture with Glanville, and in a Letter dated February 26,
of roofing materials and pipe products. Its 1987, confirmed that the Litonjua siblings had
manufacturing operations were conducted on eight accepted the counter-proposal of Delsaux. He also
parcels of land with a total area of 47,233 square stated that the Litonjua siblings would confirm full
meters. The properties, located in Mandaluyong payment within 90 days after execution and
City, Metro Manila, were covered by Transfer preparation of all documents of sale, together with
Certificates of Title Nos. 451117, 451118, 451119, the necessary governmental clearances.6
451120, 451121, 451122, 451124 and 451125
under the name of Far East Bank & Trust Company, The Litonjua brothers deposited the amount of
as trustee. Ninety (90%) percent of the shares of US$1,000,000.00 with the Security Bank & Trust
stocks of EC were owned by Eteroutremer S.A. Company, Ermita Branch, and drafted an Escrow
Corporation (ESAC), a corporation organized and Agreement to expedite the sale.7
registered under the laws of Belgium.3 Jack
Glanville, an Australian citizen, was the General
Sometime later, Marquez and the Litonjua brothers
Manager and President of EC, while Claude
inquired from Glanville when the sale would be
Frederick Delsaux was the Regional Director for
implemented. In a telex dated April 22, 1987,
Asia of ESAC. Both had their offices in Belgium.
Glanville informed Delsaux that he had met with the
buyer, which had given him the impression that "he
In 1986, the management of ESAC grew concerned is prepared to press for a satisfactory conclusion to
about the political situation in the Philippines and the sale."8 He also emphasized to Delsaux that the
wanted to stop its operations in the country. The buyers were concerned because they would incur
expenses in bank commitment fees as a (Sgd.)
consequence of prolonged period of inaction.9 C.F. DELSAUX

Meanwhile, with the assumption of Corazon C. cc. To: J. GLANVILLE (Eternit Corp.)11
Aquino as President of the Republic of the
Philippines, the political situation in the Philippines When apprised of this development, the Litonjuas,
had improved. Marquez received a telephone call through counsel, wrote EC, demanding payment for
from Glanville, advising that the sale would no longer damages they had suffered on account of the
proceed. Glanville followed it up with a Letter dated aborted sale. EC, however, rejected their demand.
May 7, 1987, confirming that he had been instructed
by his principal to inform Marquez that "the decision The Litonjuas then filed a complaint for specific
has been taken at a Board Meeting not to sell the performance and damages against EC (now the
properties on which Eternit Corporation is Eterton Multi-Resources Corporation) and the Far
situated."10 East Bank & Trust Company, and ESAC in the RTC
of Pasig City. An amended complaint was filed, in
Delsaux himself later sent a letter dated May 22, which defendant EC was substituted by Eterton
1987, confirming that the ESAC Regional Office had Multi-Resources Corporation; Benito C. Tan,
decided not to proceed with the sale of the subject Ruperto V. Tan, Stock Ha T. Tan and Deogracias G.
land, to wit: Eufemio were impleaded as additional defendants
on account of their purchase of ESAC shares of
May 22, 1987 stocks and were the controlling stockholders of EC.

Mr. L.G. Marquez In their answer to the complaint, EC and ESAC

L.G. Marquez, Inc. alleged that since Eteroutremer was not doing
334 Makati Stock Exchange Bldg. business in the Philippines, it cannot be subject to
6767 Ayala Avenue the jurisdiction of Philippine courts; the Board and
Makati, Metro Manila stockholders of EC never approved any resolution to
Philippines sell subject properties nor authorized Marquez to
sell the same; and the telex dated October 28, 1986
Dear Sir: of Jack Glanville was his own personal making which
did not bind EC.
Re: Land of Eternit Corporation
On July 3, 1995, the trial court rendered judgment in
I would like to confirm officially that our Group has favor of defendants and dismissed the amended
decided not to proceed with the sale of the land complaint.12The fallo of the decision reads:
which was proposed to you.
WHEREFORE, the complaint against Eternit
The Committee for Asia of our Group met recently Corporation now Eterton Multi-Resources
(meeting every six months) and examined the Corporation and Eteroutremer, S.A. is dismissed on
position as far as the Philippines are (sic) the ground that there is no valid and binding sale
concerned. Considering [the] new political situation between the plaintiffs and said defendants.
since the departure of MR. MARCOS and a certain
stabilization in the Philippines, the Committee has The complaint as against Far East Bank and Trust
decided not to stop our operations in Manila. In fact, Company is likewise dismissed for lack of cause of
production has started again last week, and (sic) to action.
recognize the participation in the Corporation.
The counterclaim of Eternit Corporation now Eterton
We regret that we could not make a deal with you Multi-Resources Corporation and Eteroutremer,
this time, but in case the policy would change at a S.A. is also dismissed for lack of merit.13
later state, we would consult you again.
The trial court declared that since the authority of the
xxx agents/realtors was not in writing, the sale is void
and not merely unenforceable, and as such, could
Yours sincerely, not have been ratified by the principal. In any event,
such ratification cannot be given any retroactive
effect. Plaintiffs could not assume that defendants In the instant petition for review, petitioners aver that
had agreed to sell the property without a clear
authorization from the corporation concerned, that I
is, through resolutions of the Board of Directors and
stockholders. The trial court also pointed out that the THE COURT OF APPEALS ERRED IN HOLDING
supposed sale involves substantially all the assets THAT THERE WAS NO PERFECTED CONTRACT
of defendant EC which would result in the eventual OF SALE.
total cessation of its operation.14
The Litonjuas appealed the decision to the CA,
alleging that "(1) the lower court erred in concluding THE APPELLATE COURT COMMITTED GRAVE
that the real estate broker in the instant case needed ERROR OF LAW IN HOLDING THAT MARQUEZ
a written authority from appellee corporation and/or NEEDED A WRITTEN AUTHORITY FROM
that said broker had no such written authority; and RESPONDENT ETERNIT BEFORE THE SALE
(2) the lower court committed grave error of law in CAN BE PERFECTED.
holding that appellee corporation is not legally bound
for specific performance and/or damages in the III
absence of an enabling resolution of the board of
directors."15 They averred that Marquez acted
merely as a broker or go-between and not as agent
of the corporation; hence, it was not necessary for
him to be empowered as such by any written
authority. They further claimed that an agency by
estoppel was created when the corporation clothed
Marquez with apparent authority to negotiate for the
sale of the properties. However, since it was a
bilateral contract to buy and sell, it was equivalent to
a perfected contract of sale, which the corporation
was obliged to consummate.
Petitioners maintain that, based on the facts of the
In reply, EC alleged that Marquez had no written
case, there was a perfected contract of sale of the
authority from the Board of Directors to bind it;
parcels of land and the improvements thereon for
neither were Glanville and Delsaux authorized by its
"US$1,000,000.00 plus P2,500,000.00 to cover
board of directors to offer the property for sale. Since
obligations prior to final liquidation." Petitioners insist
the sale involved substantially all of the corporation’s
that they had accepted the counter-offer of
assets, it would necessarily need the authority from
respondent EC and that before the counter-offer was
the stockholders.
withdrawn by respondents, the acceptance was
made known to them through real estate broker
On June 16, 2000, the CA rendered judgment Marquez.
affirming the decision of the RTC. 16 The Litonjuas
filed a motion for reconsideration, which was also
Petitioners assert that there was no need for a
denied by the appellate court.
written authority from the Board of Directors of EC
for Marquez to validly act as
The CA ruled that Marquez, who was a real estate broker/middleman/intermediary. As broker, Marquez
broker, was a special agent within the purview of was not an ordinary agent because his authority was
Article 1874 of the New Civil Code. Under Section of a special and limited character in most respects.
23 of the Corporation Code, he needed a special His only job as a broker was to look for a buyer and
authority from EC’s board of directors to bind such to bring together the parties to the transaction. He
corporation to the sale of its properties. Delsaux, was not authorized to sell the properties or to make
who was merely the representative of ESAC (the a binding contract to respondent EC; hence,
majority stockholder of EC) had no authority to bind petitioners argue, Article 1874 of the New Civil Code
the latter. The CA pointed out that Delsaux was not does not apply.
even a member of the board of directors of EC.
Moreover, the Litonjuas failed to prove that an
In any event, petitioners aver, what is important and
agency by estoppel had been created between the
decisive was that Marquez was able to communicate
both the offer and counter-offer and their acceptance were authorized to do so by respondent EC.
of respondent EC’s counter-offer, resulting in a Petitioners insist that Delsaux confirmed his
perfected contract of sale. authority to sell the properties in his letter to
Marquez, to wit:
Petitioners posit that the testimonial and
documentary evidence on record amply shows that Dear Sir,
Glanville, who was the President and General
Manager of respondent EC, and Delsaux, who was Re: Land of Eternit Corporation
the Managing Director for ESAC Asia, had the
necessary authority to sell the subject property or, at I would like to confirm officially that our Group has
least, had been allowed by respondent EC to hold decided not to proceed with the sale of the land
themselves out in the public as having the power to which was proposed to you.
sell the subject properties. Petitioners identified such
evidence, thus: The Committee for Asia of our Group met recently
(meeting every six months) and examined the
1. The testimony of Marquez that he was position as far as the Philippines are (sic) concerned.
chosen by Glanville as the then President Considering the new political situation since the
and General Manager of Eternit, to sell the departure of MR. MARCOS and a certain
properties of said corporation to any stabilization in the Philippines, the Committee has
interested party, which authority, as decided not to stop our operations in Manila[.] [I]n
hereinabove discussed, need not be in fact production started again last week, and (sic) to
writing. reorganize the participation in the Corporation.

2. The fact that the NEGOTIATIONS for the We regret that we could not make a deal with you
sale of the subject properties this time, but in case the policy would change at a
spanned SEVERAL MONTHS, from 1986 to later stage we would consult you again.
In the meantime, I remain
3. The COUNTER-OFFER made by Eternit
through GLANVILLE to sell its properties to Yours sincerely,
the Petitioners;
4. The GOOD FAITH of Petitioners in
believing Eternit’s offer to sell the properties Petitioners further emphasize that they acted in
as evidenced by the Petitioners’ good faith when Glanville and Delsaux were
ACCEPTANCE of the counter-offer; knowingly permitted by respondent EC to sell the
properties within the scope of an apparent authority.
5. The fact that Petitioners DEPOSITED the Petitioners insist that respondents held themselves
price of [US]$1,000,000.00 with the Security to the public as possessing power to sell the subject
Bank and that an ESCROW agreement was properties.
drafted over the subject properties;
By way of comment, respondents aver that the
6. Glanville’s telex to Delsaux inquiring issues raised by the petitioners are factual, hence,
"WHEN WE (Respondents) WILL are proscribed by Rule 45 of the Rules of Court. On
IMPLEMENT ACTION TO BUY AND SELL"; the merits of the petition, respondents EC (now
EMC) and ESAC reiterate their submissions in the
7. More importantly, Exhibits "G" and "H" of CA. They maintain that Glanville, Delsaux and
the Respondents, which evidenced the fact Marquez had no authority from the stockholders of
that Petitioners’ offer was respondent EC and its Board of Directors to offer the
allegedly REJECTED by both Glanville and properties for sale to the petitioners, or to any other
Delsaux.18 person or entity for that matter. They assert that the
decision and resolution of the CA are in accord with
Petitioners insist that it is incongruous for Glanville law and the evidence on record, and should be
and Delsaux to make a counter-offer to petitioners’ affirmed in toto.
offer and thereafter reject such offer unless they
Petitioners aver in their subsequent pleadings that (1) When the conclusion is a finding grounded
respondent EC, through Glanville and Delsaux, entirely on speculations, surmises, or conjectures;
conformed to the written authority of Marquez to sell (2) when the inference made is manifestly mistaken,
the properties. The authority of Glanville and absurd, or impossible; (3) when there is grave abuse
Delsaux to bind respondent EC is evidenced by the of discretion; (4) when the judgment is based on a
fact that Glanville and Delsaux negotiated for the misapprehension of facts; (5) when the findings of
sale of 90% of stocks of respondent EC to Ruperto fact are conflicting; (6) when the Court of Appeals, in
Tan on June 1, 1997. Given the significance of their making its findings, went beyond the issues of the
positions and their duties in respondent EC at the case and the same is contrary to the admissions of
time of the transaction, and the fact that respondent both appellant and appellee; (7) when the findings of
ESAC owns 90% of the shares of stock of the Court of Appeals are contrary to those of the trial
respondent EC, a formal resolution of the Board of court; (8) when the findings of fact are conclusions
Directors would be a mere ceremonial formality. without citation of specific evidence on which they
What is important, petitioners maintain, is that are based; (9) when the Court of Appeals manifestly
Marquez was able to communicate the offer of overlooked certain relevant facts not disputed by the
respondent EC and the petitioners’ acceptance parties, which, if properly considered, would justify a
thereof. There was no time that they acted without different conclusion; and (10) when the findings of
the knowledge of respondents. In fact, respondent fact of the Court of Appeals are premised on the
EC never repudiated the acts of Glanville, Marquez absence of evidence and are contradicted by the
and Delsaux. evidence on record.23

The petition has no merit. We have reviewed the records thoroughly and find
that the petitioners failed to establish that the instant
Anent the first issue, we agree with the contention of case falls under any of the foregoing exceptions.
respondents that the issues raised by petitioner in Indeed, the assailed decision of the Court of Appeals
this case are factual. Whether or not Marquez, is supported by the evidence on record and the law.
Glanville, and Delsaux were authorized by
respondent EC to act as its agents relative to the It was the duty of the petitioners to prove that
sale of the properties of respondent EC, and if so, respondent EC had decided to sell its properties and
the boundaries of their authority as agents, is a that it had empowered Adams, Glanville and
question of fact. In the absence of express written Delsaux or Marquez to offer the properties for sale
terms creating the relationship of an agency, the to prospective buyers and to accept any counter-
existence of an agency is a fact question.20 Whether offer. Petitioners likewise failed to prove that their
an agency by estoppel was created or whether a counter-offer had been accepted by respondent EC,
person acted within the bounds of his apparent through Glanville and Delsaux. It must be stressed
authority, and whether the principal is estopped to that when specific performance is sought of a
deny the apparent authority of its agent are, likewise, contract made with an agent, the agency must be
questions of fact to be resolved on the basis of the established by clear, certain and specific proof.24
evidence on record.21 The findings of the trial court
on such issues, as affirmed by the CA, are Section 23 of Batas Pambansa Bilang 68, otherwise
conclusive on the Court, absent evidence that the known as the Corporation Code of the Philippines,
trial and appellate courts ignored, misconstrued, or provides:
misapplied facts and circumstances of substance
which, if considered, would warrant a modification or SEC. 23. The Board of Directors or Trustees. –
reversal of the outcome of the case.22 Unless otherwise provided in this Code, the
corporate powers of all corporations formed under
It must be stressed that issues of facts may not be this Code shall be exercised, all business conducted
raised in the Court under Rule 45 of the Rules of and all property of such corporations controlled and
Court because the Court is not a trier of facts. It is held by the board of directors or trustees to be
not to re-examine and assess the evidence on elected from among the holders of stocks, or where
record, whether testimonial and documentary. There there is no stock, from among the members of the
are, however, recognized exceptions where the corporation, who shall hold office for one (1) year
Court may delve into and resolve factual issues, and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate officers and agents as authorized by a board
and distinct from its members or stockholders and is resolution or by its by-laws.30 An unauthorized act of
not affected by the personal rights, an officer of the corporation is not binding on it
unless the latter ratifies the same expressly or
obligations and transactions of the latter.25 It may act impliedly by its board of directors. Any sale of real
only through its board of directors or, when property of a corporation by a person purporting to
authorized either by its by-laws or by its board be an agent thereof but without written authority from
resolution, through its officers or agents in the the corporation is null and void. The declarations of
normal course of business. The general principles of the agent alone are generally insufficient to establish
agency govern the relation between the corporation the fact or extent of his/her authority.31
and its officers or agents, subject to the articles of
incorporation, by-laws, or relevant provisions of By the contract of agency, a person binds himself to
law.26 render some service or to do something in
representation on behalf of another, with the consent
Under Section 36 of the Corporation Code, a or authority of the latter.32 Consent of both principal
corporation may sell or convey its real properties, and agent is necessary to create an agency. The
subject to the limitations prescribed by law and the principal must intend that the agent shall act for him;
Constitution, as follows: the agent must intend to accept the authority and act
on it, and the intention of the parties must find
SEC. 36. Corporate powers and capacity. – Every expression either in words or conduct between
corporation incorporated under this Code has the them.33
power and capacity:
An agency may be expressed or implied from the act
xxxx of the principal, from his silence or lack of action, or
his failure to repudiate the agency knowing that
7. To purchase, receive, take or grant, hold, convey, another person is acting on his behalf without
sell, lease, pledge, mortgage and otherwise deal authority. Acceptance by the agent may be
with such real and personal property, including expressed, or implied from his acts which carry out
securities and bonds of other corporations, as the the agency, or from his silence or inaction according
transaction of a lawful business of the corporation to the circumstances.34 Agency may be oral unless
may reasonably and necessarily require, subject to the law requires a specific form.35 However, to create
the limitations prescribed by the law and the or convey real rights over immovable property, a
Constitution. special power of attorney is necessary.36 Thus, when
a sale of a piece of land or any portion thereof is
The property of a corporation, however, is not the through an agent, the authority of the latter shall be
property of the stockholders or members, and as in writing, otherwise, the sale shall be void.37
such, may not be sold without express authority from
the board of directors.27 Physical acts, like the In this case, the petitioners as plaintiffs below, failed
offering of the properties of the corporation for sale, to adduce in evidence any resolution of the Board of
or the acceptance of a counter-offer of prospective Directors of respondent EC empowering Marquez,
buyers of such properties and the execution of the Glanville or Delsaux as its agents, to sell, let alone
deed of sale covering such property, can be offer for sale, for and in its behalf, the eight parcels
performed by the corporation only by officers or of land owned by respondent EC including the
agents duly authorized for the purpose by corporate improvements thereon. The bare fact that Delsaux
by-laws or by specific acts of the board of may have been authorized to sell to Ruperto Tan the
directors.28 Absent such valid shares of stock of respondent ESAC, on June 1,
delegation/authorization, the rule is that the 1997, cannot be used as basis for petitioners’ claim
declarations of an individual director relating to the that he had likewise been authorized by respondent
affairs of the corporation, but not in the course of, or EC to sell the parcels of land.
connected with, the performance of authorized
duties of such director, are not binding on the Moreover, the evidence of petitioners shows that
corporation.29 Adams and Glanville acted on the authority of
Delsaux, who, in turn, acted on the authority of
While a corporation may appoint agents to negotiate respondent ESAC, through its Committee for
for the sale of its real properties, the final say will Asia,38 the Board of Directors of respondent
have to be with the board of directors through its ESAC,39 and the Belgian/Swiss component of the
management of respondent ESAC.40 As such, The petitioners cannot feign ignorance of the
Adams and Glanville engaged the services of absence of any regular and valid authority of
Marquez to offer to sell the properties to prospective respondent EC empowering Adams, Glanville or
buyers. Thus, on September 12, 1986, Marquez Delsaux to offer the properties for sale and to sell the
wrote the petitioner that he was authorized to offer said properties to the petitioners. A person dealing
for sale the property for P27,000,000.00 and the with a known agent is not authorized, under any
other terms of the sale subject to negotiations. When circumstances, blindly to trust the agents;
petitioners offered to purchase the property statements as to the extent of his powers; such
for P20,000,000.00, through Marquez, the latter person must not act negligently but must use
relayed petitioners’ offer to Glanville; Glanville had reasonable diligence and prudence to ascertain
to send a telex to Delsaux to inquire the position of whether the agent acts within the scope of his
respondent ESAC to petitioners’ offer. However, as authority.45 The settled rule is that, persons dealing
admitted by petitioners in their Memorandum, with an assumed agent are bound at their peril, and
Delsaux was unable to reply immediately to the telex if they would hold the principal liable, to ascertain not
of Glanville because Delsaux had to wait for only the fact of agency but also the nature and extent
confirmation from respondent ESAC.41 When of authority, and in case either is controverted, the
Delsaux finally responded to Glanville on February burden of proof is upon them to prove it.46 In this
12, 1987, he made it clear that, based on the case, the petitioners failed to discharge their burden;
"Belgian/Swiss decision" the final offer of hence, petitioners are not entitled to damages from
respondent ESAC was US$1,000,000.00 respondent EC.
plus P2,500,000.00 to cover all existing obligations
prior to final liquidation.42 The offer of Delsaux It appears that Marquez acted not only as real estate
emanated only from the "Belgian/Swiss decision," broker for the petitioners but also as their agent. As
and not the entire management or Board of Directors gleaned from the letter of Marquez to Glanville, on
of respondent ESAC. While it is true that petitioners February 26, 1987, he confirmed, for and in behalf
accepted the counter-offer of respondent ESAC, of the petitioners, that the latter had accepted such
respondent EC was not a party to the transaction offer to sell the land and the improvements thereon.
between them; hence, EC was not bound by such However, we agree with the ruling of the appellate
acceptance. court that Marquez had no authority to bind
respondent EC to sell the subject properties. A real
While Glanville was the President and General estate broker is one who negotiates the sale of real
Manager of respondent EC, and Adams and properties. His business, generally speaking, is only
Delsaux were members of its Board of Directors, the to find a purchaser who is willing to buy the land
three acted for and in behalf of respondent ESAC, upon terms fixed by the owner. He has no authority
and not as duly authorized agents of respondent EC; to bind the principal by signing a contract of sale.
a board resolution evincing the grant of such Indeed, an authority to find a purchaser of real
authority is needed to bind EC to any agreement property does not include an authority to sell.47
regarding the sale of the subject properties. Such
board resolution is not a mere formality but is a Equally barren of merit is petitioners’ contention that
condition sine qua non to bind respondent EC. respondent EC is estopped to deny the existence of
Admittedly, respondent ESAC owned 90% of the a principal-agency relationship between it and
shares of stocks of respondent EC; however, the Glanville or Delsaux. For an agency by estoppel to
mere fact that a corporation owns a majority of the exist, the following must be established: (1) the
shares of stocks of another, or even all of such principal manifested a representation of the agent’s
shares of stocks, taken alone, will not justify their authority or knowlingly allowed the agent to assume
being treated as one corporation.43 such authority; (2) the third person, in good faith,
relied upon such representation; (3) relying upon
It bears stressing that in an agent-principal such representation, such third person has changed
relationship, the personality of the principal is his position to his detriment.48 An agency by
extended through the facility of the agent. In so estoppel, which is similar to the doctrine of apparent
doing, the agent, by legal fiction, becomes the authority, requires proof of reliance upon the
principal, authorized to perform all acts which the representations, and that, in turn, needs proof that
latter would have him do. Such a relationship can the representations predated the action taken in
only be effected with the consent of the principal, reliance.49 Such proof is lacking in this case. In their
which must not, in any way, be compelled by law or communications to the petitioners, Glanville and
by any court.44 Delsaux positively and unequivocally declared that
they were acting for and in behalf of respondent

Neither may respondent EC be deemed to have

ratified the transactions between the petitioners and
respondent ESAC, through Glanville, Delsaux and
Marquez. The transactions and the various
communications inter se were never submitted to
the Board of Directors of respondent EC for


DENIED for lack of merit. Costs against the

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
FIRST DIVISION same; that despite repeated demand, petitioner
refused to cooperate with respondent to execute the
necessary documents and other formalities required
G.R. No. 149353 June 26, 2006
by the NHMFC to effect the transfer of the title over
the property; that petitioner collected rent over the
JOCELYN B. DOLES, Petitioner, property for the month of January 1997 and refused
vs. to remit the proceeds to respondent; and that
MA. AURA TINA ANGELES, Respondent. respondent suffered damages as a result and was
forced to litigate.
Petitioner, then defendant, while admitting some
AUSTRIA-MARTINEZ, J.: allegations in the Complaint, denied that she
borrowed money from respondent, and averred that
This refers to the Petition for Review on Certiorari from June to September 1995, she referred her
under Rule 45 of the Rules of Court questioning the friends to respondent whom she knew to be
Decision1dated April 30, 2001 of the Court of engaged in the business of lending money in
Appeals (CA) in C.A.-G.R. CV No. 66985, which exchange for personal checks through her capitalist
reversed the Decision dated July 29, 1998 of the Arsenio Pua. She alleged that her friends, namely,
Regional Trial Court (RTC), Branch 21, City of Zenaida Romulo, Theresa Moratin, Julia Inocencio,
Manila; and the CA Resolution2 dated August 6, Virginia Jacob, and Elizabeth Tomelden, borrowed
2001 which denied petitioner’s Motion for money from respondent and issued personal checks
Reconsideration. in payment of the loan; that the checks bounced for
insufficiency of funds; that despite her efforts to
The antecedents of the case follow: assist respondent to collect from the borrowers, she
could no longer locate them; that, because of this,
On April 1, 1997, Ma. Aura Tina Angeles respondent became furious and threatened
(respondent) filed with the RTC a complaint for petitioner that if the accounts were not settled, a
Specific Performance with Damages against criminal case will be filed against her; that she was
Jocelyn B. Doles (petitioner), docketed as Civil Case forced to issue eight checks amounting to P350,000
No. 97-82716. Respondent alleged that petitioner to answer for the bounced checks of the borrowers
was indebted to the former in the concept of a she referred; that prior to the issuance of the checks
personal loan amounting to P405,430.00 she informed respondent that they were not
representing the principal amount and interest; that sufficiently funded but the latter nonetheless
on October 5, 1996, by virtue of a "Deed of Absolute deposited the checks and for which reason they
Sale",3 petitioner, as seller, ceded to respondent, as were subsequently dishonored; that respondent
buyer, a parcel of land, as well as the improvements then threatened to initiate a criminal case against her
thereon, with an area of 42 square meters, covered for violation of Batas Pambansa Blg. 22; that she
by Transfer Certificate of Title No. 382532,4 and was forced by respondent to execute an "Absolute
located at a subdivision project known as Camella Deed of Sale" over her property in Bacoor, Cavite,
Townhomes Sorrente in Bacoor, Cavite, in order to to avoid criminal prosecution; that the said deed had
satisfy her personal loan with respondent; that this no valid consideration; that she did not appear
property was mortgaged to National Home Mortgage before a notary public; that the Community Tax
Finance Corporation (NHMFC) to secure petitioner’s Certificate number on the deed was not hers and for
loan in the sum of P337,050.00 with that entity; that which respondent may be prosecuted for falsification
as a condition for the foregoing sale, respondent and perjury; and that she suffered damages and lost
shall assume the undue balance of the mortgage rental as a result.
and pay the monthly amortization of P4,748.11 for
the remainder of the 25 years which began on
The RTC identified the issues as follows: first, WHEREFORE, IN VIEW OF THE FOREGOING,
whether the Deed of Absolute Sale is valid; second; this appeal is hereby GRANTED. The Decision of
if valid, whether petitioner is obliged to sign and the lower court dated July 29, 1998 is REVERSED
execute the necessary documents to effect the and SET ASIDE. A new one is entered ordering
transfer of her rights over the property to the defendant-appellee to execute all necessary
respondent; and third, whether petitioner is liable for documents to effect transfer of subject property to
damages. plaintiff-appellant with the arrearages of the former’s
loan with the NHMFC, at the latter’s expense. No
On July 29, 1998, the RTC rendered a decision the costs.
dispositive portion of which states:
WHEREFORE, premises considered, the Court
hereby orders the dismissal of the complaint for The CA concluded that petitioner was the borrower
insufficiency of evidence. With costs against plaintiff. and, in turn, would "re-lend" the amount borrowed
from the respondent to her friends. Hence, the Deed
SO ORDERED. of Absolute Sale was supported by a valid
consideration, which is the sum of money petitioner
The RTC held that the sale was void for lack of owed respondent amounting to P405,430.00,
cause or consideration:5 representing both principal and interest.

Plaintiff Angeles’ admission that the borrowers are The CA took into account the following
the friends of defendant Doles and further admission circumstances in their entirety: the supposed friends
that the checks issued by these borrowers in of petitioner never presented themselves to
payment of the loan obligation negates [sic] the respondent and that all transactions were made by
cause or consideration of the contract of sale and between petitioner and respondent;7 that the
executed by and between plaintiff and defendant. money borrowed was deposited with the bank
Moreover, the property is not solely owned by account of the petitioner, while payments made for
defendant as appearing in Entry No. 9055 of the loan were deposited by the latter to respondent’s
Transfer Certificate of Title No. 382532 (Annex A, bank account;8 that petitioner herself admitted in
Complaint), thus: open court that she was "re-lending" the money
loaned from respondent to other individuals for
"Entry No. 9055. Special Power of Attorney in favor profit;9 and that the documentary evidence shows
of Jocelyn Doles covering the share of Teodorico that the actual borrowers, the friends of petitioner,
Doles on the parcel of land described in this consider her as their creditor and not the
certificate of title by virtue of the special power of respondent.10
attorney to mortgage, executed before the notary
public, etc." Furthermore, the CA held that the alleged threat or
intimidation by respondent did not vitiate consent,
The rule under the Civil Code is that contracts since the same is considered just or legal if made to
without a cause or consideration produce no effect enforce one’s claim through competent authority
whatsoever. (Art. 1352, Civil Code). under Article 133511 of the Civil Code;12 that with
respect to the arrearages of petitioner on her
Respondent appealed to the CA. In her appeal brief, monthly amortization with the NHMFC in the sum
respondent interposed her sole assignment of error: 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
On April 30, 2001, the CA promulgated its Decision,
Reconsideration with the CA, arguing that
the dispositive portion of which reads:
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 1. Petitioner argues that since she is merely the
failed to consider the fact that petitioner’s father, who agent or representative of the alleged debtors, then
co-owned the subject property, was not impleaded she is not a party to the loan; and that the Deed of
as a defendant nor was he indebted to the Sale executed between her and the respondent in
respondent and, hence, she cannot be made to sign their own names, which was predicated on that pre-
the documents to effect the transfer of ownership existing debt, is void for lack of consideration.
over the entire property.
Indeed, the Deed of Absolute Sale purports to be
On August 6, 2001, the CA issued its Resolution supported by a consideration in the form of a price
denying the motion on the ground that the foregoing certain in money16 and that this sum indisputably
matters had already been passed upon. pertains to the debt in issue. This Court has
consistently held that a contract of sale is null and
On August 13, 2001, petitioner received a copy of void and produces no effect whatsoever where the
the CA Resolution. On August 28, 2001, petitioner same is without cause or consideration.17 The
filed the present Petition and raised the following question that has to be resolved for the moment is
issues: whether this debt can be considered as a valid cause
or consideration for the sale.
To restate, the CA cited four instances in the record
WHETHER OR NOT THE PETITIONER to support its holding that petitioner "re-lends" the
CAN BE CONSIDERED AS A DEBTOR OF amount borrowed from respondent to her friends:
THE RESPONDENT. first, the friends of petitioner never presented
themselves to respondent and that all transactions
II. were made by and between petitioner and
respondent;18 second; the money passed through
WHETHER OR NOT AN AGENT WHO WAS the bank accounts of petitioner and
NOT AUTHORIZED BY THE PRINCIPAL respondent;19 third, petitioner herself admitted that
TO COLLECT DEBT IN HIS BEHALF she was "re-lending" the money loaned to other
COULD DIRECTLY COLLECT PAYMENT individuals for profit;20 and fourth, the documentary
FROM THE DEBTOR. evidence shows that the actual borrowers, the
friends of petitioner, consider her as their creditor
and not the respondent.21
On the first, third, and fourth points, the CA cites the
testimony of the petitioner, then defendant, during
her cross-examination:22
Although, as a rule, it is not the business of this Court
Atty. Diza:
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 q. You also mentioned that you were not the
instant case, namely: when the judgment is based one indebted to the plaintiff?
on a misapprehension of facts; when the findings of
facts of the courts a quo are conflicting; and when witness:
the CA manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly a. Yes, sir.
considered, could justify a different conclusion.15 To
arrive at a proper judgment, therefore, the Court Atty. Diza:
finds it necessary to re-examine the evidence
presented by the contending parties during the trial q. And you mentioned the persons[,] namely,
of the case. Elizabeth Tomelden, Teresa Moraquin,
Maria Luisa Inocencio, Zenaida Romulo,
The Petition is meritorious. they are your friends?

The principal issue is whether the Deed of Absolute witness:

Sale is supported by a valid consideration.
a. Inocencio and Moraquin are my friends q. Did the plaintiff knew [sic] that you will lend
while [as to] Jacob and Tomelden[,] they the money to your friends specifically the one
were just referred. you mentioned [a] while ago?

Atty. Diza: witness:

q. And you have transact[ed] with the a. Yes, she knows the money will go to those
plaintiff? persons.

witness: Atty. Diza:

a. Yes, sir. q. You are re-lending the money?

Atty. Diza: witness:

q. What is that transaction? a. Yes, sir.

witness: Atty. Diza:

a. To refer those persons to Aura and to refer q. What profit do you have, do you have
again to Arsenio Pua, sir. commission?

Atty. Diza: witness:

q. Did the plaintiff personally see the a. Yes, sir.

transactions with your friends?
Atty. Diza:
q. How much?
a. No, sir.
Atty. Diza:
a. Two percent to Tomelden, one percent to
q. Your friends and the plaintiff did not meet Jacob and then Inocencio and my friends
personally? none, sir.

witness: Based on the foregoing, the CA concluded

that petitioner is the real borrower, while the
a. Yes, sir. respondent, the real lender.

Atty. Diza: But as correctly noted by the RTC,

respondent, then plaintiff, made the following
q. You are intermediaries? admission during her cross examination:23

witness: Atty. Villacorta:

a. We are both intermediaries. As evidenced q. Who is this Arsenio Pua?

by the checks of the debtors they were
deposited to the name of Arsenio Pua witness:
because the money came from Arsenio Pua.
a. Principal financier, sir.
Atty. Villacorta:
Atty. Diza:
q. So the money came from Arsenio Pua? witness:

witness: a. They go direct to Jocelyn because I don’t

know them.
a. Yes, because I am only representing him,
sir. xxxx

Other portions of the testimony of Atty. Villacorta:

respondent must likewise be considered:24
q. And is it not also a fact Madam witness
Atty. Villacorta: that everytime that the defendant borrowed
money from you her friends who [are] in need
q. So it is not actually your money but the of money issued check[s] to you? There were
money of Arsenio Pua? checks issued to you?

witness: witness:

a. Yes, sir. a. Yes, there were checks issued.

Court: Atty. Villacorta:

q. It is not your money? q. By the friends of the defendant, am I

a. Yes, Your Honor.
a. Yes, sir.
Atty. Villacorta:
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the
defendant borrowed from you to q. And because of your assistance, the
accommodate somebody, are you aware of friends of the defendant who are in need of
that? money were able to obtain loan to [sic]
Arsenio Pua through your assistance?
a. I am aware of that.
a. Yes, sir.
Atty. Villacorta:
Atty. Villacorta:
q. More or less she [accommodated] several
friends of the defendant? q. So that occasion lasted for more than a
a. Yes, sir, I am aware of that.
a. Yes, sir.
Atty. Villacorta:
Atty. Villacorta:
q. And some of the checks that were issued
q. And these friends of the defendant by the friends of the defendant bounced, am
borrowed money from you with the I correct?
assurance of the defendant?
witness: agency is to extend the personality of the principal
through the facility of the agent.29
a. Yes, sir.
In the case at bar, both petitioner and respondent
Atty. Villacorta: have undeniably disclosed to each other that they
are representing someone else, and so both of them
q. And because of that Arsenio Pua got mad are estopped to deny the same. It is evident from the
with you? record that petitioner merely refers actual borrowers
and then collects and disburses the amounts of the
witness: loan upon which she received a commission; and
that respondent transacts on behalf of her "principal
a. Yes, sir. financier", a certain Arsenio Pua. If their respective
principals do not actually and personally know each
other, such ignorance does not affect their juridical
Respondent is estopped to deny that she herself
standing as agents, especially since the very
acted as agent of a certain Arsenio Pua, her
purpose of agency is to extend the personality of the
disclosed principal. She is also estopped to deny
principal through the facility of the agent.
that petitioner acted as agent for the alleged debtors,
the friends whom she (petitioner) referred.
With respect to the admission of petitioner that she
is "re-lending" the money loaned from respondent to
This Court has affirmed that, under Article 1868 of
other individuals for profit, it must be stressed that
the Civil Code, the basis of agency is
the manner in which the parties designate the
representation.25 The question of whether an agency
relationship is not controlling. If an act done by one
has been created is ordinarily a question which may
person in behalf of another is in its essential nature
be established in the same way as any other fact,
one of agency, the former is the agent of the latter
either by direct or circumstantial evidence. The
notwithstanding he or she is not so called.30 The
question is ultimately one of intention.26 Agency may
question is to be determined by the fact that one
even be implied from the words and conduct of the
represents and is acting for another, and if relations
parties and the circumstances of the particular
exist which will constitute an agency, it will be an
case.27Though the fact or extent of authority of the
agency whether the parties understood the exact
agents may not, as a general rule, be established
nature of the relation or not.31
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 That both parties acted as mere agents is shown by
asserted principal and the third persons interested in the undisputed fact that the friends of petitioner
the transaction in which he or she is engaged.28 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
In this case, petitioner knew that the financier of
not directly paid to Pua.
respondent is Pua; and respondent knew that the
borrowers are friends of petitioner.
With respect to the second point, particularly, the
finding of the CA that the disbursements and
The CA is incorrect when it considered the fact that
payments for the loan were made through the bank
the "supposed friends of [petitioner], the actual
accounts of petitioner and respondent,
borrowers, did not present themselves to
[respondent]" as evidence that negates the agency
relationship—it is sufficient that petitioner disclosed suffice it to say that in the normal course of
to respondent that the former was acting in behalf of commercial dealings and for reasons of
her principals, her friends whom she referred to convenience and practical utility it can be reasonably
respondent. For an agency to arise, it is not expected that the facilities of the agent, such as a
necessary that the principal personally encounter bank account, may be employed, and that a sub-
the third person with whom the agent interacts. The agent be appointed, such as the bank itself, to carry
law in fact contemplates, and to a great degree, out the task, especially where there is no stipulation
impersonal dealings where the principal need not to the contrary.32
personally know or meet the third person with whom
her agent transacts: precisely, the purpose of 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 Moreover, even assuming the mortgage validly
consideration. exists, the Court notes respondent’s allegation that
the mortgage with the NHMFC was for 25 years
2. A further scrutiny of the record shows, however, which began September 3, 1994. Respondent filed
that the sale might have been backed up by another her Complaint for Specific Performance in 1997.
consideration that is separate and distinct from the Since the 25 years had not lapsed, the prayer of
debt: respondent averred in her complaint and respondent to compel petitioner to execute
testified that the parties had agreed that as a necessary documents to effect the transfer of title is
condition for the conveyance of the property the premature.
respondent shall assume the balance of the
mortgage loan which petitioner allegedly owed to the WHEREFORE, the petition is granted. The Decision
NHMFC.33 This Court in the recent past has declared and Resolution of the Court of Appeals
that an assumption of a mortgage debt may are REVERSED and SET ASIDE. The complaint of
constitute a valid consideration for a sale.34 respondent in Civil Case No. 97-82716
Although the record shows that petitioner admitted
at the time of trial that she owned the property SO ORDERED.
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.
Republic of the Philippines Boulevard Hotel in Manila (Casino Filipino). The
SUPREME COURT relevant stipulations of the Junket Agreement state:
1. PAGCOR will provide ABS Corporation
SECOND DIVISION with separate junket chips. The junket chips
will be distinguished from the chips being
G.R. No. 163553 December 11, 2009 used by other players in the gaming tables.

YUN KWAN BYUNG, Petitioner, ABS Corporation will distribute these junket
vs. chips to its players and at the end of the
PHILIPPINE AMUSEMENT AND GAMING playing period, ABS Corporation will collect
CORPORATION, Respondent. the junket chips from its players and make an
accounting to the casino treasury.
2. ABS Corporation will assume sole
CARPIO, J.: responsibility to pay the winnings of its
foreign players and settle the collectibles
The Case from losing players.

Yun Kwan Byung (petitioner) filed this Petition for 3. ABS Corporation shall hold PAGCOR
Review1 assailing the Court of Appeals’ absolutely free and harmless from any
Decision2 dated 27 May 2003 in CA-G.R. CV No. damage, claim or liability which may arise
65699 as well as the Resolution3 dated 7 May 2004 from any cause in connection with the Junket
denying the Motion for Reconsideration. In the Agreement.
assailed decision, the Court of Appeals (CA)
affirmed the Regional Trial Court’s Decision4dated 6 5. In providing the gaming facilities and
May 1999. The Regional Trial Court of Manila, services to these foreign players, PAGCOR
Branch 13 (trial court), dismissed petitioner’s is entitled to receive from ABS Corporation a
demand against respondent Philippine Amusement 12.5% share in the gross winnings of ABS
and Gaming Corporation (PAGCOR) for the Corporation or 1.5 million US dollars,
redemption of gambling chips. whichever is higher, over a playing period of
6 months. PAGCOR has the option to extend
The Facts the period.6

PAGCOR is a government-owned and controlled Petitioner, a Korean national, alleges that from
corporation tasked to establish and operate November 1996 to March 1997, he came to the
gambling clubs and casinos as a means to promote Philippines four times to play for high stakes at the
tourism and generate sources of revenue for the Casino Filipino.7 Petitioner claims that in the course
government. To achieve these objectives, PAGCOR of the games, he was able to accumulate gambling
is vested with the power to enter into contracts of chips worth US$2.1 million. Petitioner presented as
every kind and for any lawful purpose that pertains evidence during the trial gambling chips with a face
to its business. Pursuant to this authority, PAGCOR value of US$1.1 million. Petitioner contends that
launched its Foreign Highroller Marketing Program when he presented the gambling chips for
(Program). The Program aims to invite patrons from encashment with PAGCOR’s employees or agents,
foreign countries to play at the dollar pit of PAGCOR refused to redeem them.8
designated PAGCOR-operated casinos under
specified terms and conditions and in accordance Petitioner brought an action against PAGCOR
with industry practice.5 seeking the redemption of gambling chips valued at
US$2.1 million. Petitioner claims that he won the
The Korean-based ABS Corporation was one of the gambling chips at the Casino Filipino, playing
international groups that availed of the Program. In continuously day and night. Petitioner alleges that
a letter-agreement dated 25 April 1996 (Junket every time he would come to Manila, PAGCOR
Agreement), ABS Corporation agreed to bring in would extend to him amenities deserving of a high
foreign players to play at the five designated gaming roller. A PAGCOR official who meets him at the
tables of the Casino Filipino Silahis at the Grand airport would bring him to Casino Filipino, a casino
managed and operated by PAGCOR. The card
dealers were all PAGCOR employees, the gambling to encash the gambling chips, petitioner filed a
chips, equipment and furnitures belonged to complaint for a sum of money before the trial
PAGCOR, and PAGCOR enforced all the court.14 PAGCOR filed a counterclaim against
regulations dealing with the operation of foreign petitioner. Then, trial ensued.
exchange gambling pits. Petitioner states that he
was able to redeem his gambling chips with the On 6 May 1999, the trial court dismissed the
cashier during his first few winning trips. But later on, complaint and counterclaim. Petitioner appealed the
the casino cashier refused to encash his gambling trial court’s decision to the CA. On 27 May 2003, the
chips so he had no recourse but to deposit his CA affirmed the appealed decision. On 27 June
gambling chips at the Grand Boulevard Hotel’s 2003, petitioner moved for reconsideration which
deposit box, every time he departed from Manila.9 was denied on 7 May 2004.

PAGCOR claims that petitioner, who was brought Aggrieved by the CA’s decision and resolution,
into the Philippines by ABS Corporation, is a junket petitioner elevated the case before this Court.
player who played in the dollar pit exclusively leased
by ABS Corporation for its junket players. PAGCOR The Ruling of the Trial Court
alleges that it provided ABS Corporation with distinct
junket chips. ABS Corporation distributed these The trial court ruled that based on PAGCOR’s
chips to its junket players. At the end of each playing charter,15 PAGCOR has no authority to lease any
period, the junket players would surrender the chips portion of the gambling tables to a private party like
to ABS Corporation. Only ABS Corporation would ABS Corporation. Section 13 of Presidential Decree
make an accounting of these chips to PAGCOR’s No. 1869 or the PAGCOR’s charter states:
casino treasury.10
Sec. 13. Exemptions -
As additional information for the junket players
playing in the gaming room leased to ABS xxx
Corporation, PAGCOR posted a notice written in
English and Korean languages which reads:
(4) Utilization of Foreign Currencies – The
Corporation shall have the right and authority, solely
NOTICE and exclusively in connection with the operations of
the casino(s), to purchase, receive, exchange and
This GAMING ROOM is exclusively operated by disburse foreign exchange, subject to the following
ABS under arrangement with PAGCOR, the former terms and conditions:
is solely accountable for all PLAYING CHIPS
wagered on the tables. Any financial (a) A specific area in the casino(s) or gaming
ARRANGEMENT/TRANSACTION between pit shall be put up solely and exclusively for
PLAYERS and ABS shall only be binding upon said players and patrons utilizing foreign
PLAYERS and ABS.11 currencies;
PAGCOR claims that this notice is a standard (b) The Corporation shall appoint and
precautionary measure12 to avoid confusion designate a duly accredited commercial
between junket players of ABS Corporation and bank agent of the Central Bank, to handle,
PAGCOR’s players. administer and manage the use of foreign
currencies in the casino(s);
PAGCOR argues that petitioner is not a PAGCOR
player because under PAGCOR’s gaming rules, (c) The Corporation shall provide an office at
gambling chips cannot be brought outside the casino(s) exclusively for the employees of
casino. The gambling chips must be converted to the designated bank, agent of the Central
cash at the end of every gaming period as they are Bank, where the Corporation shall maintain
inventoried every shift. Under PAGCOR’s rules, it is a dollar account which will be utilized
impossible for PAGCOR players to accumulate two exclusively for the above purpose and the
million dollars worth of gambling chips and to bring casino dollar treasury employees;
the chips out of the casino premises.13
(d) Only persons with foreign passports or
Since PAGCOR disclaimed liability for the winnings certificates of identity (for Hong Kong patron
of players recruited by ABS Corporation and refused
only) duly issued by the government or The trial court pointed out that PAGCOR had taken
country of their residence will be allowed to steps to warn players brought in by all junket
play in the foreign exchange gaming pit; operators, including ABS Corporation, that they
were playing under special rules. Apart from the
(e) Only foreign exchange prescribed to form different kinds of gambling chips used, the junket
part of the Philippine International Reserve players were confined to certain gaming rooms. In
and the following foreign exchange these rooms, notices were posted that gambling
currencies: Australian Dollar, Singapore chips could only be encashed there and nowhere
Dollar, Hong Kong Dollar, shall be used in else. A photograph of one such notice, printed in
this gaming pit; Korean and English, stated that the gaming room
was exclusively operated by ABS Corporation and
(f) The disbursement, administration, that ABS Corporation was solely accountable for all
management and recording of foreign the chips wagered on the gaming tables. Although
exchange currencies used in the casino(s) petitioner denied seeing this notice, this disclaimer
shall be carried out in accordance with has the effect of a negative evidence that can hardly
existing foreign exchange regulations, and prevail against the positive assertions of PAGCOR
periodical reports of the transactions in such officials whose credibility is also not open to doubt.
foreign exchange currencies by the The trial court concluded that petitioner had been
Corporation shall be duly recorded and alerted to the existence of these special gambling
reported to the Central Bank thru the rules, and the mere fact that he continued to play
designated Agent Bank; and under the same restrictions over a period of several
months confirms his acquiescence to them.
(g) The Corporation shall issue the Otherwise, petitioner could have simply chose to
necessary rules and regulations for the stop gambling.18
guidance and information of players qualified
to participate in the foreign exchange gaming In dismissing petitioner’s complaint, the trial court
pit, in order to make certain that the terms concluded that petitioner’s demand against
and conditions as above set forth are strictly PAGCOR for the redemption of the gambling chips
complied with. could not stand. The trial court stated that petitioner,
a stranger to the agreement between PAGCOR and
The trial court held that only PAGCOR could use ABS Corporation, could not under principles of
foreign currency in its gaming tables. When equity be charged with notice other than of the
PAGCOR accepted only a fixed portion of the dollar apparent authority with which PAGCOR had clothed
earnings of ABS Corporation in the concept of a its employees and agents in dealing with petitioner.
lease of facilities, PAGCOR shared its franchise with Since petitioner was made aware of the special rules
ABS Corporation in violation of the PAGCOR’s by which he was playing at the Casino Filipino,
charter. Hence, the Junket Agreement is void. Since petitioner could not now claim that he was not bound
the Junket Agreement is not permitted by by them. The trial court explained that in an unlawful
PAGCOR’s charter, the mutual rights and transaction, the courts will extend equitable relief
obligations of the parties to this case would be only to a party who was unaware of all its dimensions
resolved based on agency and estoppel.16 and whose ignorance of them exposed him to the
risk of being exploited by the other. Where the
The trial court found that the petitioner wanted to parties enter into such a relationship with the
redeem gambling chips that were specifically used opportunity to know all of its ramifications, as in this
by ABS Corporation at its gaming tables. The case, there is no room for equitable considerations
gambling chips come in distinctive orange or yellow to come to the rescue of any party. The trial court
colors with stickers bearing denominations of 10,000 ruled that it would leave the parties where they are.19
or 1,000. The 1,000 gambling chips are smaller in
size and the words "no cash value" marked on them. The Ruling of the Court of Appeals
The 10,000 gambling chips do not reflect the "no
cash value" sign. The senior treasury head of In dismissing the appeal, the appellate court
PAGCOR testified that these were the gambling addressed the four errors assigned by petitioner.
chips used by the previous junket operators and
PAGCOR merely continued using them. However, First, petitioner maintains that he was never a junket
the gambling chips used in the regular casino games player of ABS Corporation. Petitioner also denies
were of a different quality.17 seeing a notice that certain gaming rooms were
exclusively operated by entities under special instead of contracting on behalf of the principal, the
agreement.20 agent acts in his own name.27

The CA ruled that the records do not support The CA concluded that no such legal fiction existed
petitioner’s theory. Petitioner’s own testimony between PAGCOR and ABS Corporation. PAGCOR
reveals that he enjoyed special accommodations at entered into a Junket Agreement to lease to ABS
the Grand Boulevard Hotel. This similar Corporation certain gaming areas. It was never
accommodation was extended to players brought in PAGCOR’s intention to deal with the junket players.
by ABS Corporation and other junket operators. Neither did PAGCOR intend ABS Corporation to
Petitioner cannot disassociate himself from ABS represent PAGCOR in dealing with the junket
Corporation for it is unlikely that an unknown high players. Representation is the basis of agency but
roller would be accorded choice accommodations by unfortunately for petitioner none is found in this
the hotel unless the accommodation was facilitated case.28
by a junket operator who enjoyed such privilege.21
The CA added that the special gaming chips, while
The CA added that the testimonies of PAGCOR’s belonging to PAGCOR, are mere accessories in the
employees affirming that notices were posted in void Junket Agreement with ABS Corporation. In
English and Korean in the gaming areas are credible Article 1883, the phrase "things belonging to the
in the absence of any convincing proof of ill motive. principal" refers only to those things or properties
Further, the specified gaming areas used only subject of a particular transaction authorized by the
special chips that could be bought and exchanged at principal to be entered into by its purported agent.
certain cashier booths in that area.22 Necessarily, the gambling chips being mere
incidents to the void lease agreement cannot fall
Second, petitioner attacks the validity of the contents under this category.29
of the notice. Since the Junket Agreement is void,
the notice, which was issued pursuant to the Junket The CA ruled that Article 215230 of the Civil Code is
Agreement, is also void and cannot affect also not applicable. The circumstances relating
petitioner.23 to negotiorum gestio are non-existent to warrant an
officious manager to take over the management and
The CA reasoned that the trial court never declared administration of PAGCOR.31
the notice valid and neither did it enforce the
contents thereof. The CA emphasized that it was the Fourth, petitioner asks for equitable relief.32
act of cautioning and alerting the players that was
upheld. The trial court ruled that signs and warnings The CA explained that although petitioner was never
were in place to inform the public, petitioner a party to the void Junket Agreement, petitioner
included, that special rules applied to certain gaming cannot deny or feign blindness to the signs and
areas even if the very agreement giving rise to these warnings all around him. The notices, the special
rules is void.24 gambling chips, and the separate gaming areas
were more than enough to alert him that he was
Third, petitioner takes the position that an implied playing under different terms. Petitioner persisted
agency existed between PAGCOR and ABS and continued to play in the casino. Petitioner also
Corporation.25 enjoyed the perks extended to junket players of ABS
Corporation. For failing to heed these signs and
The CA disagreed with petitioner’s view. A void warnings, petitioner can no longer be permitted to
contract has no force and effect from the very claim equitable relief. When parties do not come to
beginning. It produces no effect either against or in court with clean hands, they cannot be allowed to
favor of anyone. Neither can it create, modify or profit from their own wrong doing.33
extinguish the juridical relation to which it refers.
Necessarily, the Junket Agreement, being void from The Issues
the beginning, cannot give rise to an implied agency.
The CA explained that it cannot see how the Petitioners raise three issues in this petition:
principle of implied agency can be applied to this
case. Article 188326of the Civil Code applies only to 1. Whether the CA erred in holding that
a situation where the agent is authorized by the PAGCOR is not liable to petitioner,
principal to enter into a particular transaction, but disregarding the doctrine of implied agency,
or agency by estoppel;
2. Whether the CA erred in using intent of the The Junket Agreement would be valid if under
contracting parties as the test for creation of Section 3(h) of PAGCOR’s charter, PAGCOR could
agency, when such is not relevant since the share its gambling franchise with another entity. In
instant case involves liability of the presumed Senator Jaworski v. Phil. Amusement and Gaming
principal in implied agency to a third party; Corp.,40 the Court discussed the extent of the grant
and of the legislative franchise to PAGCOR on its
authority to operate gambling casinos:
3. Whether the CA erred in failing to consider
that PAGCOR ratified, or at least adopted, A legislative franchise is a special privilege granted
the acts of the agent, ABS Corporation.34 by the state to corporations. It is a privilege of public
concern which cannot be exercised at will and
The Ruling of the Court pleasure, but should be reserved for public control
and administration, either by the government
The petition lacks merit. directly, or by public agents, under such conditions
and regulations as the government may impose on
Courts will not enforce debts arising from illegal them in the interest of the public. It is Congress that
gambling prescribes the conditions on which the grant of the
franchise may be made. Thus the manner of
Gambling is prohibited by the laws of the Philippines granting the franchise, to whom it may be granted,
as specifically provided in Articles 195 to 199 of the the mode of conducting the business, the charter
Revised Penal Code, as amended. Gambling is an and the quality of the service to be rendered and the
act beyond the pale of good morals,35 and is thus duty of the grantee to the public in exercising the
prohibited and punished to repress an evil that franchise are almost always defined in clear and
undermines the social, moral, and economic growth unequivocal language.
of the nation.36 Presidential Decree No. 1602 (PD
1602),37 which modified Articles 195-199 of the After a circumspect consideration of the foregoing
Revised Penal Code and repealed inconsistent discussion and the contending positions of the
provisions,38 prescribed stiffer penalties on illegal parties, we hold that PAGCOR has acted beyond the
gambling.39 limits of its authority when it passed on or shared its
franchise to SAGE.
As a rule, all forms of gambling are illegal. The only
form of gambling allowed by law is that stipulated In the Del Mar case where a similar issue was raised
under Presidential Decree No. 1869, which gave when PAGCOR entered into a joint venture
PAGCOR its franchise to maintain and operate agreement with two other entities in the operation
gambling casinos. The issue then turns on whether and management of jai alai games, the Court, in an
PAGCOR can validly share its franchise with junket En Banc Resolution dated 24 August 2001, partially
operators to operate gambling casinos in the granted the motions for clarification filed by
country. Section 3(h) of PAGCOR’s charter states: respondents therein insofar as it prayed that
PAGCOR has a valid franchise, but only by itself (i.e.
Section 3. Corporate Powers. - The Corporation not in association with any other person or entity), to
shall have the following powers and functions, operate, maintain and/or manage the game of jai-
among others:

xxx In the case at bar, PAGCOR executed an agreement

with SAGE whereby the former grants the latter the
authority to operate and maintain sports betting
h) to enter into, make, perform, and carry out
stations and Internet gaming operations. In essence,
contracts of every kind and for any lawful purpose
the grant of authority gives SAGE the privilege to
pertaining to the business of the Corporation, or in
actively participate, partake and share PAGCOR’s
any manner incident thereto, as principal, agent or
franchise to operate a gambling activity. The grant of
otherwise, with any person, firm, association, or
franchise is a special privilege that constitutes a right
and a duty to be performed by the grantee. The
grantee must not perform its activities arbitrarily and
xxx whimsically but must abide by the limits set by its
franchise and strictly adhere to its terms and
conditionalities. A corporation as a creature of the
State is presumed to exist for the common good. "SEC. 3. Corporate Powers. -
Hence, the special privileges and franchises it
receives are subject to the laws of the State and the "x x x
limitations of its charter. There is therefore a
reserved right of the State to inquire how these "(h) to enter into, make, conclude, perform, and carry
privileges had been employed, and whether they out contracts of every kind and nature and for any
have been abused. (Emphasis supplied) lawful purpose which are necessary, appropriate,
proper or incidental to any business or purpose of
Thus, PAGCOR has the sole and exclusive authority the PAGCOR, including but not limited to investment
to operate a gambling activity. While PAGCOR is agreements, joint venture agreements,
allowed under its charter to enter into operator’s or management agreements, agency agreements,
management contracts, PAGCOR is not allowed whether as principal or as an agent, manpower
under the same charter to relinquish or share its supply agreements, or any other similar agreements
franchise. PAGCOR cannot delegate its power in or arrangements with any person, firm, association
view of the legal principle of delegata potestas or corporation." (Boldfacing supplied)
delegare non potest, inasmuch as there is nothing in
the charter to show that it has been expressly PAGCOR sought the amendment of its charter
authorized to do so.41 precisely to address and remedy the legal
impediment raised in Senator Jaworski v. Phil.
Similarly, in this case, PAGCOR, by taking only a Amusement and Gaming Corp.
percentage of the earnings of ABS Corporation from
its foreign currency collection, allowed ABS Unfortunately for petitioner, RA 9487 cannot be
Corporation to operate gaming tables in the dollar applied to the present case. The Junket Agreement
pit. The Junket Agreement is in direct violation of was entered into between PAGCOR and ABS
PAGCOR’s charter and is therefore void. Corporation on 25 April 1996 when the PAGCOR
charter then prevailing (PD 1869) prohibited
Since the Junket Agreement violates PAGCOR’s PAGCOR from entering into any arrangement with a
charter, gambling between the junket player and the third party that would allow such party to actively
junket operator under such agreement is illegal and participate in the casino operations.
may not be enforced by the courts. Article 201442 of
the Civil Code, which refers to illegal gambling, It is a basic principle that laws should only be applied
states that no action can be maintained by the prospectively unless the legislative intent to give
winner for the collection of what he has won in a them retroactive effect is expressly declared or is
game of chance. necessarily implied from the language used.44 RA
9487 does not provide for any retroactivity of its
Although not raised as an issue by petitioner, we provisions. All laws operate prospectively absent a
deem it necessary to discuss the applicability of clear contrary language in the text,45 and that in
Republic Act No. 948743 (RA 9487) to the present every case of doubt, the doubt will be resolved
case. against the retroactive operation of laws.46

RA 9487 amended the PAGCOR charter, granting Thus, petitioner cannot avail of the provisions of RA
PAGCOR the power to enter into special agreement 9487 as this was not the law when the acts giving
with third parties to share the privileges under its rise to the claimed liabilities took place. This makes
franchise for the operation of gambling casinos: the gambling activity participated in by petitioner
illegal. Petitioner cannot sue PAGCOR to redeem
Section 1. The Philippine Amusement and Gaming the cash value of the gambling chips or recover
Corporation (PAGCOR) franchise granted under damages arising from an illegal activity for two
Presidential Decree No. 1869 otherwise known as reasons. First, petitioner engaged in gambling with
the PAGCOR Charter, is hereby further amended to ABS Corporation and not with PAGCOR. Second,
read as follows: the court cannot assist petitioner in enforcing an
illegal act. Moreover, for a court to grant petitioner’s
xxx prayer would mean enforcing the Junket Agreement,
which is void.
(2) Section 3(h) is hereby amended to read as
follows: Now, to address the issues raised by petitioner in his
petition, petitioner claims that he is a third party
proceeding against the liability of a presumed PAGCOR chips bearing the PAGCOR
principal and claims relief, alternatively, on the basis logo;54
of implied agency or agency by estoppel.
3. PAGCOR controlled the release,
Article 1869 of the Civil Code states that implied withdrawal and return of all the gambling
agency is derived from the acts of the principal, from chips given to ABS Corporation in that part of
his silence or lack of action, or his failure to repudiate the casino and at the end of the day,
the agency, knowing that another person is acting on PAGCOR conducted an inventory of the
his behalf without authority. Implied agency, being gambling chips;55
an actual agency, is a fact to be proved by
deductions or inferences from other facts.47 4. ABS Corporation accounted for all
gambling chips with the Commission on
On the other hand, apparent authority is based on Audit (COA), the official auditor of
estoppel and can arise from two instances. First, the PAGCOR;56
principal may knowingly permit the agent to hold
himself out as having such authority, and the 5. PAGCOR enforced, through its own
principal becomes estopped to claim that the agent manager, all the rules and regulations on the
does not have such authority. Second, the principal operation of the gambling pit used by ABS
may clothe the agent with the indicia of authority as Corporation.57
to lead a reasonably prudent person to believe that
the agent actually has such authority.48 In an agency Petitioner’s argument is clearly misplaced. The basis
by estoppel, there is no agency at all, but the one for agency is representation,58 that is, the agent acts
assuming to act as agent has apparent or ostensible, for and on behalf of the principal on matters within
although not real, authority to represent another.49 the scope of his authority and said acts have the
same legal effect as if they were personally executed
The law makes no presumption of agency and by the principal.59 On the part of the principal, there
proving its existence, nature and extent is incumbent must be an actual intention to appoint or an intention
upon the person alleging it.50 Whether or not an naturally inferable from his words or actions, while
agency has been created is a question to be on the part of the agent, there must be an intention
determined by the fact that one represents and is to accept the appointment and act on it.60 Absent
acting for another. 51 such mutual intent, there is generally no agency.61

Acts and conduct of PAGCOR negates the There is no implied agency in this case because
existence of an implied agency or an agency by PAGCOR did not hold out to the public as the
estoppel principal of ABS Corporation. PAGCOR’s actions did
not mislead the public into believing that an agency
Petitioner alleges that there is an implied agency. can be implied from the arrangement with the junket
Alternatively, petitioner claims that even assuming operators, nor did it hold out ABS Corporation with
that no actual agency existed between PAGCOR any apparent authority to represent it in any
and ABS Corporation, there is still an agency by capacity. The Junket Agreement was merely a
estoppel based on the acts and conduct of PAGCOR contract of lease of facilities and services.
showing apparent authority in favor of ABS
Corporation. Petitioner states that one factor which The players brought in by ABS Corporation were
distinguishes agency from other legal precepts is covered by a different set of rules in acquiring and
control and the following undisputed facts show a encashing chips. The players used a different kind
relationship of implied agency: of chip than what was used in the regular gaming
areas of PAGCOR, and that such junket players
1. Three floors of the Grand Boulevard played specifically only in the third floor area and did
Hotel52 were leased to PAGCOR for not mingle with the regular patrons of PAGCOR.
conducting gambling operations;53 Furthermore, PAGCOR, in posting notices stating
that the players are playing under special rules,
2. Of the three floors, PAGCOR allowed ABS exercised the necessary precaution to warn the
Corporation to use one whole floor for foreign gaming public that no agency relationship
exchange gambling, conducted by PAGCOR exists.1avvphi1
dealers using PAGCOR facilities, operated
by PAGCOR employees and using
For the second assigned error, petitioner claims that
the intention of the parties cannot apply to him as he
is not a party to the contract.

We disagree. The Court of Appeals correctly used

the intent of the contracting parties in determining
whether an agency by estoppel existed in this case.
An agency by estoppel, which is similar to the
doctrine of apparent authority requires proof of
reliance upon the representations, and that, in turn,
needs proof that the representations predated the
action taken in reliance.62

There can be no apparent authority of an agent

without acts or conduct on the part of the principal
and such acts or conduct of the principal must have
been known and relied upon in good faith and as a
result of the exercise of reasonable prudence by a
third person as claimant, and such must have
produced a change of position to its
detriment.63 Such proof is lacking in this case.

In the entire duration that petitioner played in Casino

Filipino, he was dealing only with ABS Corporation,
and availing of the privileges extended only to
players brought in by ABS Corporation. The facts
that he enjoyed special treatment upon his arrival in
Manila and special accommodations in Grand
Boulevard Hotel, and that he was playing in special
gaming rooms are all indications that petitioner
cannot claim good faith that he believed he was
dealing with PAGCOR. Petitioner cannot be
considered as an innocent third party and he cannot
claim entitlement to equitable relief as well.

For his third and final assigned error, petitioner

asserts that PAGCOR ratified the acts of ABS

The trial court has declared, and we affirm, that the

Junket Agreement is void. A void or inexistent
contract is one which has no force and effect from
the very beginning. Hence, it is as if it has never
been entered into and cannot be validated either by
the passage of time or by ratification.64 Article 1409
of the Civil Code provides that contracts expressly
prohibited or declared void by law, such as gambling
contracts, "cannot be ratified."65

WHEREFORE, we DENY the petition. We AFFIRM

the Court of Appeals’ Decision dated 27 May 2003
as well as the Resolution dated 7 May 2004 as
modified by this Decision.

Republic of the Philippines Assistant General Manager Teofilo H. Landicho who
SUPREME COURT sent the following letter dated December 18, 1992:
"This is to acknowledge receipt of your letter dated
SECOND DIVISION 01 October 1992 offering to undertake the
reclamation between the Timber Pier and Pier 2, at
G.R. NO. 170530 July 5, 2010 the Port of San Fernando, La Union as an extra work
to your existing contract.
DEVELOPMENT CORPORATION/PICK & "Your proposal to undertake the project at a total
PHILIPPINE PORTS AUTHORITY, Respondent. (₱36,294,857.03) is not acceptable to PPA. If you
can reduce your offer to THIRTY MILLION SEVEN
MENDOZA, J.: (₱30,794,230.89) we may consider favorably
award of the project in your favor, subject to the
This is a petition for review on certiorari under Rule approval of higher authority.
45 which seeks to annul and set aside the August
22, 2005 Decision1 of the Court of Appeals (CA) in Please signify your agreement to the reduced
CA-G.R. CV No. 63180 and its November 14, 2005 amount of ₱30,794,230.89 by signing in the space
Resolution2 denying petitioner’s motion for the provided below. (emphasis in the original)
reconsideration thereof. The questioned CA
decision reversed the June 8, 1998 Decision3of the On August 26, 1993, a Notice of Award signed by
Regional Trial Court of Manila, Branch 14, in Civil PPA General Manager Rogelio Dayan was sent to
Case No. 97-83916, which granted petitioner’s plaintiff for the phase I Reclamation Contract in the
action for specific performance. amount of ₱30,794,230.89 and instructing it to "enter
into and execute the contract agreement with this
The factual and procedural antecedents have been Office" and to furnish the documents representing
succinctly recited in the subject Court of Appeals performance security and credit line. Defendant
decision in this wise:4 likewise stated [and] made it a condition that
"fendering of Pier No. 2 Port of San Fernando, and
Plaintiff Sargasso Construction and Development the Port of Tabaco is completed before the approval
Corporation, Pick and Shovel, Inc. and Atlantic of the contract for the reclamation project."
Erectors, Inc., a joint venture, was awarded the Installation of the rubber dock fenders in the said
construction of Pier 2 and the rock causeway (R.C. ports was accomplished in the year 1994. PPA
Pier 2) for the port of San Fernando, La Union, after Management further set a condition [that] "the
a public bidding conducted by the defendant PPA. acceptance by the contractor that
Implementation of the project commenced on mobilization/demobilization cost shall not be
August 14, 1990. The port construction was in included in the contract and that escalation shall be
pursuance of the development of the Northwest reckoned upon approval of the Supplemental
Luzon Growth Quadrangle. Adjacent to Pier 2 is an Agreement." The award of the negotiated contract
area of ₱4,280 square meters intended for the as additional or supplemental project in favor of
reclamation project as part of the overall port plaintiff was intended "to save on the
development plan. mobilization/demobilization costs and some items as
provided for in the original contract." Hence, then
General Manager Carlos L. Agustin presented for
In a letter dated October 1, 1992 of Mr. Melecio J.
consideration by the PPA Board of Directors the
Go, Executive Director of the consortium, plaintiff
contract proposal for the reclamation project.
offered to undertake the reclamation between the
Timber Pier and Pier 2 of the Port of San Fernando,
La Union, as an extra work to its existing At its meeting held on September 9, 1994, the Board
construction of R.C. Pier 2 and Rock Causeway for decided not to approve the contract proposal, as
a price of ₱36,294,857.03. Defendant replied thru its reflected in the following excerpt of the minutes
taken during said board meeting:
"After due deliberation, the Board advised alleged Notice of Award has already been properly
Management to bid the project since there is no revoked when the Supplemental Agreement which
strong legal basis for Management to award the should have implemented the award was denied
supplemental contract through negotiation. The approval by defendant’s Board of Directors. As to
Board noted that the Pier 2 Project was basically for plaintiff’s pre-disqualification from participating in the
the construction of a pier while the supplemental bidding for the extension of R.C. Pier No. 2 Project
agreement refers to reclamation. Thus there is no at the Port of San Fernando, La Union, the same is
basis to compare the terms and conditions of the based on factual determination by the defendant that
reclamation project with the original contract (Pier 2 plaintiff lacked IAC Registration and Classification
Project) of Sargasso."5 and equipment for the said project as communicated
in the August 9, 1996 letter. Defendant disclaimed
It appears that PPA did not formally advise the any liability for whatever damages suffered by the
plaintiff of the Board’s action on their contract plaintiff when it "jumped the gun" by committing its
proposal. As plaintiff learned that the Board was not alleged resources for the reclamation project despite
inclined to favor its Supplemental Agreement, Mr. the fact that no Notice to Proceed was issued to
Go wrote General Manager Agustin requesting that plaintiff by the defendant. The cause of action insofar
the same be presented again to the Board meeting as the Extension of R.C. Pier No. 2 of the Port of San
for approval. However, no reply was received by Fernando, La Union, is barred by the statute of
plaintiff from the defendant. limitation since plaintiff filed its request for
reconsideration way beyond the seven (7) day-
On June 30, 1997, plaintiff filed a complaint for period allowed under IB 6-5 of the Implementing
specific performance and damages before the Rules and Regulations of P.D. 1594. Defendant
Regional Trial Court of Manila alleging that clarified that the proposed Reclamation Project and
defendant PPA’s unjustified refusal to comply with Extension of R.C. Pier No. 2 San Fernando, La
its undertaking, unnecessarily leading to the delay in Union, are separate projects of PPA. The Board of
the implementation of the award under the August Directors denied approval of the Supplemental
26, 1993 Notice of Award, has put on hold plaintiff’s Agreement on September 9, 1994 for lack of legal
men and resources earmarked for the project, aside basis to award the supplemental contract through
from effectively tying its hands in undertaking other negotiation which was properly communicated to the
projects for fear that plaintiff’s incapacity to plaintiff as shown by its letter dated September 19,
undertake work might be spread thinly and it might 1994 seeking reconsideration thereof. As advised by
not be able to function efficiently if the PPA project the Board, PPA Management began to make
and other projects should require simultaneous preparations for the public bidding for the proposed
attention. Plaintiff averred that it sought reclamation project. In the meantime, defendant
reconsideration of the August 9, 1996 letter of PPA decided to pursue the extension of R.C. Pier 2, San
informing it that it did not qualify to bid for the Fernando, La Union. xxx It [prayed that the
proposed extension of RC Pier No. 2, Port of San complaint be dismissed]. (Emphasis supplied)
Fernando, La Union for not having IAC Registration
and Classification and not complying with equipment After trial, the lower court rendered a decision in
requirement. In its letter dated September 19, 1996, favor of the plaintiff, the dispositive portion of which
plaintiff pointed out that the disqualification was reads:
clearly unjust and totally without basis considering
that individual contractors of the joint venture have "WHEREFORE, and in view of the foregoing
undertaken separately bigger projects, and have considerations, judgment is hereby rendered
been such individual contractors for almost 16 years. ordering the defendant to execute a contract in favor
It thus prayed that judgment be rendered by the of the plaintiff for the reclamation of the area
court directing the defendant (a) to comply with its between the Timber Pier and Pier 2 located at San
undertaking under the Notice of Award dated August Fernando, La Union for the price of ₱30,794,230.89
26, 1993; and (b) to pay plaintiff actual damages and to pay the costs.
(₱1,000,000.00), exemplary damages
(₱1,000,000.00), attorney’s fees (₱300,000.00) and The counterclaim is dismissed for lack of merit.
expenses of litigation and costs (₱50,000.00).
Defendant PPA thru the Office of the Government
Corporate Counsel (OGCC) filed its Answer with In addressing affirmatively the basic issue of
Compulsory Counterclaim contending that the whether there was a perfected contract between the
parties for the reclamation project, the trial court WHEREFORE, premises considered, the present
ruled that the "higher authority x x adverted to does appeal is hereby GRANTED. The appealed Decision
not necessarily mean the Board of dated June 8, 1998 of the trial court in Civil Case No.
Directors (Board). Under IRR, P.D. 1594 (1)B10.6, 97-83916 is hereby REVERSED and SET ASIDE. A
approval of award and contracts is vested on the new judgment is hereby entered DISMISSING the
head of the infrastructure department or its duly complaint for specific performance and damages
authorized representative. Under Sec. 9 (iii) of P.D. filed by Plaintiff Sargasso Construction and
857 which has amended P.D. 505 that created the Development Corporation/Pick & Shovel,
PPA, one of the particular powers and duties of the Inc./Atlantic Erectors, Inc., (Joint Venture) against
General Manager and Assistant General Manager is the Philippine Ports Authority for lack of merit.
to sign contracts."7 It went on to say that "in the case
of the PPA, the power to enter into contracts is not In setting aside the trial court’s decision, the CA
only vested on the Board of Directors, but also to the ruled that the law itself should serve as the basis of
manager" citing Section 9 (III) of P.D. No. 857.8 the general manager’s authority to bind respondent
corporation and, thus, the trial court erred in merely
The trial court added that the tenor of the Notice of relying on the wordings of the Notice of Award and
Award implied that respondent’s general manager the Minutes of the Board meeting in determining the
had been empowered by its Board of Directors to limits of his authority; that the power of the general
bind respondent by contract. It noted that whereas manager "to sign contracts" is different from the
the letter-reply contained the phrase "approval of the Board’s power "to make or enter (into) contracts";
higher authority," the conspicuous absence of the and that, in the execution of contracts, the general
same in the Notice of Award supported the finding manager only exercised a delegated power, in
that the general manager had been vested with reference to which, evidence was wanting that the
authority to enter into the contract for and in behalf PPA Board delegated to its general manager the
of respondent. To the trial court, the disapproval by authority to enter into a supplementary contract for
the PPA Board of the supplementary contract for the the reclamation project.
reclamation on a ground other than the general
manager’s lack of authority was an explicit The CA also found the disapproval of the contract on
recognition that the latter was so authorized to enter a ground other than the general manager’s lack of
into the purported contract. authority rather inconsequential because Executive
Order 38012 expressly authorized the governing
Respondent moved for a reconsideration of the RTC boards of government-owned or controlled
decision but it was denied for lack of merit. corporations "to enter into negotiated infrastructure
Respondent then filed its Notice of Appeal. contracts involving… not more than fifty million (₱50
Subsequently, petitioner moved to dismiss the million)." The CA further noted that the Notice of
appeal on the ground that respondent failed to Award was only one of those documents that
perfect its appeal seasonably. On June 27, 2000, the comprised the entire contract and, therefore, did not
Court of Appeals issued a Resolution9 dismissing in itself evidence the perfection of a contract.
respondent’s appeal for having been filed out time.
Respondent’s motion for reconsideration of said Hence, this petition.
resolution was also denied.10
The issue to be resolved in this case is whether or
Undaunted, respondent elevated its problem to this not a contract has been perfected between the
Court via a petition for review on certiorari under parties which, in turn, depends on whether or not the
Rule 45 assailing the denial of its appeal. On July general manager of PPA is vested with authority to
30, 2004, the Court rendered an en enter into a contract for and on behalf of PPA.
banc decision11 granting respondent’s petition on a
liberal interpretation of the rules of procedure, and The petition fails.
ordering the CA to conduct further proceedings.
Petitioner contends that the existence of "Notice of
On August 22, 2005, the CA rendered the assailed Award of Contract and Contractor’s Conforme
decision reversing the trial court’s decision and thereto," resulting from its negotiation with
dismissing petitioner’s complaint for specific respondent, proves that a contract has already been
performance and damages. Thus, the dispositive perfected, and that the other documents
portion thereof reads: enumerated under the amended Rules and
Regulations13 implementing P.D. 159414 are mere
physical representations of the parties’ meeting of parties, an object certain which is the subject matter,
the minds; that the "Approval of Award by Approving and cause or consideration of the obligation must
Authority" is only a "supporting document," and not likewise concur. Otherwise, there is no government
an evidence of perfection of contract, and which contract to speak of.20
merely "facilitates the approval of the
contract;"15 that PPA is bound by the acts of its As correctly found by the CA, the issue on the
general manager in issuing the Notice of Award reclamation of the area between Timber Pier and
under the doctrine of apparent authority; and that the Pier 2 of the Port of San Fernando involves a
doctrine of estoppel, being an equitable doctrine, government infrastructure project, and it is beyond
cannot be invoked to perpetuate an injustice against dispute that the applicable laws, rules and
petitioner. regulations on government contracts or projects
At the outset, it must be stated that there are two (2)
separate and distinct, though related, projects On the matter of entering into negotiated contracts
involving the parties herein, viz: (i) the construction by government-owned and controlled corporations,
of Pier 2 and the rock causeway for the port of San the provisions of existing laws are crystal clear in
Fernando, La Union, and (ii) the reclamation of the requiring the governing board’s approval thereof.
area between the Timber Pier and Pier 2 of the same The Court holds that the CA correctly applied the
port. Petitioner’s action for specific performance and pertinent laws, to wit:
damages merely relates to the latter.
Executive Order No. 380… provides for
Every contract has the following essential elements: revised levels of authority on approval of
(i) consent, (ii) object certain and (iii) cause. Consent government contracts. Section 1 thereof
has been defined as the concurrence of the wills of authorizes… GOCCs:
the contracting parties with respect to the object and
cause which shall constitute the contract.16 In 1. To enter into infrastructure contracts
general, contracts undergo three distinct stages, to awarded through public bidding regardless of
wit: negotiation, perfection or birth, and the amount involved;
consummation. Negotiation17 begins from the time
the prospective contracting parties manifest their 2. To enter into negotiated infrastructure
interest in the contract and ends at the moment of contracts involving not more than one
their agreement. Perfection or birth of the contract hundred million pesos (P100 million) in the
takes place when the parties agree upon the case of the Department of Transportation
essential elements of the contract, i.e., consent, and Communications and the Department of
object and price. Consummation occurs when the Public Works and Highways, and not more
parties fulfill or perform the terms agreed upon in the than fifty million pesos (P50 million) in the
contract, culminating in the extinguishment thereof. case of the other Departments and
The birth or the perfection of the contract, which is governments corporations; Provided, That
the crux of the present controversy, refers to that contracts exceeding the said amounts shall
moment in the life of a contract when there is finally only be entered into upon prior authority from
a concurrence of the wills of the contracting parties the Office of the President; and Provided,
with respect to the object and the cause of the Further, That said contracts shall only be
contract.18 awarded in strict compliance with Section 5
of Executive Order No. 164, S. of 1987.
A government or public contract has been defined
as a contract entered into by state officers acting on xxx
behalf of the state, and in which the entire people of
the state are directly interested. It relates wholly to The rule on negotiated contracts, as amended on
matter of public concern, and affects private rights August 12, 2000 (IB 10.6.2) now reads –
only so far as the statute confers such rights when
its provisions are carried out by the officer to whom
1. Negotiated contract may be entered into
it is confided to perform.19
only where any of the following conditions
exists and the implementing
A government contract is essentially similar to a office/agency/corporation is not capable of
private contract contemplated under the Civil Code. undertaking the contract by administration:
The legal requisites of consent of the contracting
a. In times of emergencies arising Petitioner’s argument is untenable. Contracts to
from natural calamities where which the government is a party
immediate action is necessary to are generally subject to the same laws and
prevent imminent loss of life and/or regulations which govern the validity and sufficiency
property or to restore vital public of contracts between private individuals.24 A
services, infrastructure and utilities government contract, however, is perfected25 only
such as… upon approval by a competent authority, where such
approval is required.26
b. Failure to award the contract after
competitive public bidding for valid The contracting officer functions as agent of the
cause or causes Philippine government for the purpose of making the
contract. There arises then, in that regard, a
c. Where the subject project is principal-agent relationship between the
adjacent or contiguous to an on- Government, on one hand, and the contracting
going project and it could be official, on the other. The latter though, in
economically prosecuted by the contemplation of law, possesses only actual agency
same contractor provided that authority. This is to say that his contracting power
subject contract has similar or related exists, where it exists at all, only because and by
scope of works and it is within the virtue of a law, or by authority of law, creating
contracting capacity of the contractor, and conferring it. And it is well settled that he may
in which case, direct negotiation may make only such contracts as he is so authorized
be undertaken with the said to make. Flowing from these basic guiding
contractor… principles is another stating that the government is
bound only to the extent of the power it has actually
xxx given its officers-agents. It goes without saying then
that, conformably to a fundamental principle in
In cases a and b above, bidding may be undertaken agency, the acts of such agents in entering into
through sealed canvass of at least three (3) qualified agreements or contracts beyond the scope of their
contractors… Authority to negotiate contract for actual authority do not bind or obligate the
projects under these exceptional cases shall be Government. The moment this happens, the
subject to prior approval by heads of agencies principal-agent relationship between the
within their limits of approving Government and the contracting officer ceases to
authority." (emphasis in the original) exist.27 (emphasis supplied)

Furthermore, the Revised Administrative It was stressed that

Code22 lays down the same requirement, thus:
…the contracting official who gives his consent as to
Sec. 51. Who May Execute Contracts. Contracts in the subject matter and the consideration ought to be
behalf of the Republic of the Philippines shall be empowered legally to bind the Government and that
executed by the President unless authority therefore his actuations in a particular contractual undertaking
is expressly vested by law or by him in any other on behalf of the government come within the ambit
public officer. of his authority. On top of that, the approval of the
contract by a higher authority is usually required by
Contracts in behalf of the political subdivisions and law or administrative regulation as a requisite for its
corporate agencies or instrumentalities shall be perfection.28
approved by their respective governing boards or
councils and executed by their respective executive Under Article 1881 of the Civil Code, the agent must
heads. act within the scope of his authority to bind his
principal. So long as the agent has authority,
Petitioner neither disputes nor admits the application express or implied, the principal is bound by the acts
of the foregoing statutory provisions but insists, of the agent on his behalf, whether or not the third
nonetheless, that the Notice of Award itself already person dealing with the agent believes that the agent
embodies a perfected contract having passed the has actual authority.29 Thus, all signatories in a
negotiation stage23 despite the clear absence contract should be clothed with authority to bind the
thereon of a condition requiring the prior approval of parties they represent.
respondent’s higher authority.
P.D. 857 likewise states that one of the corporate cases where time is of the essence, or where there
powers of respondent’s Board of Directors is to is lack of qualified bidders or contractors, or where
"reclaim… any part of the lands vested in the there is a conclusive evidence that greater economy
Authority." It also "exercise[s] all the powers of a and efficiency would be achieved through this
corporation under the Corporation Law." On the arrangement, and in accordance with provision of
other hand, the law merely vests the general laws and acts on the matter, subject to the approval
manager the "general power… to sign contracts" of the Ministry of Public Works, Transportation and
and "to perform such other duties as the Board may Communications, the Minister of Public Highways,
assign…" Therefore, unless respondent’s Board or the Minister of Energy, as the case may be, if the
validly authorizes its general manager, the latter project cost is less than ₱1 Million, and of the
cannot bind respondent PPA to a contract. President of the Philippines, upon the
recommendation of the Minister, if the project cost is
The Court completely agrees with the CA that the ₱1 Million or more.
petitioner failed to present competent evidence to
prove that the respondent’s general manager Precisely, the Board of Directors of the respondent
possessed such actual authority delegated either by did not see fit to approve the contract by negotiation
the Board of Directors, or by statutory provision. The after finding that "the Pier 2 Project was basically for
authority of government officials to represent the the construction of a pier while the supplemental
government in any contract must proceed from an agreement refers to reclamation. Thus, there is no
express provision of law or valid delegation of basis to compare the terms and conditions of the
authority.30 Without such actual authority being reclamation project with the original contract (Pier 2
possessed by PPA’s general manager, there could Project) of Sargasso." So even
be no real consent, much less a perfected contract, granting arguendo that the Board’s action or inaction
to speak of. is an "explicit" recognition of the authority of the
general manager, the purported contract cannot
It is of no moment if the phrase "approval of higher possibly be the basis of an action for specific
authority" appears nowhere in the Notice of Award. performance because the negotiated contract itself
It neither justifies petitioner’s presumption that the basically contravenes stringent legal requirements
required approval "had already been granted" nor aimed at protecting the interest of the public. The
supports its conclusion that no other condition (than bottom line here is that the facts do not conform to
the completion of fendering of Pier 2 as stated in the what the law requires.
Notice of Award) ought to be complied with to create
a perfected contract.31 Applicable laws form part of, No wonder petitioner conveniently omitted any
and are read into, the contract without need for any attempt at presenting its case within the statutory
express reference thereto;32 more so, to a purported exceptions, and insisted that respondent’s
government contract, which is imbued with public disapproval of the supplemental agreement was "a
interest. mere afterthought" "perhaps realizing the infirmity of
its excuse" (referring to petitioner’s belated pre-
Adopting the trial court’s ratiocination, petitioner disqualification in the construction project). But the
further argues that had it been true that respondent’s Court, at the very outset, has previously clarified that
general manager was without authority to bind the two projects involved herein are distinct from
respondent by contract, then the former should have each other. Hence, petitioner’s disqualification in the
disapproved the supplemental contract on that construction project due to its lack of certain
ground.33 Petitioner also interprets the Board’s requirements has no significant bearing in this case.
silence on the matter as an explicit recognition of the
latter’s authority to enter into a negotiated contract Lastly, petitioner’s invocation of the doctrine of
involving the reclamation project. This posture, apparent authority36 is misplaced. This doctrine, in
however, does not conform with the basic provisions the realm of government contracts, has been
of the law to which we always go back. Section 4 of restated to mean that the government is NOT bound
P.D. 159434 provides:35 by unauthorized acts of its agents, even though
within the apparent scope of their authority.37 Under
Section 4. Bidding. Construction projects shall the law on agency, however, "apparent authority" is
generally be undertaken by contract after defined as the power to affect the legal relations of
competitive public bidding. Projects may be another person by transactions with third persons
undertaken by administration or force account or by arising from the other’s manifestations to such third
negotiated contract only in exceptional person38 such that the liability of the principal for the
acts and contracts of his agent extends to those
which are within the apparent scope of the authority
conferred on him, although no actual authority to do
such acts or to make such contracts has been

Apparent authority, or what is sometimes referred to

as the "holding out" theory, or doctrine of ostensible
agency, imposes liability, not as the result of the
reality of a contractual relationship, but rather
because of the actions of a principal or an employer
in somehow misleading the public into believing that
the relationship or the authority exists.40 The
existence of apparent authority may be ascertained
through (1) the general manner in which the
corporation holds out an officer or agent as having
the power to act or, in other words, the apparent
authority to act in general, with which it clothes him;
or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge
thereof, whether within or beyond the scope of his
ordinary powers. It requires presentation of evidence
of similar act(s) executed either in its favor or in favor
of other parties.41

Easily discernible from the foregoing is that apparent

authority is determined only by the acts of the
principal and not by the acts of the agent. The
principal is, therefore, not responsible where the
agent’s own conduct and statements have created
the apparent authority.42

In this case, not a single act of respondent, acting

through its Board of Directors, was cited as having
clothed its general manager with apparent authority
to execute the contract with it.

With the foregoing disquisition, the Court finds it

unnecessary to discuss the other arguments posed
by petitioner.

WHEREFORE, the petition is DENIED.

Estrada noted an increase in her blood pressure and
development of leg edema5 indicating
preeclampsia, which is a dangerous complication of

Around midnight of 25 May 1976, Corazon started to

experience mild labor pains prompting Corazon and
Rogelio Nogales ("Spouses Nogales") to see Dr.
THIRD DIVISION Estrada at his home. After examining Corazon, Dr.
Estrada advised her immediate admission to the
G.R. No. 142625 December 19, 2006 Capitol Medical Center ("CMC").

ROGELIO P. NOGALES, for himself and on On 26 May 1976, Corazon was admitted at 2:30 a.m.
behalf of the minors, ROGER ANTHONY, at the CMC after the staff nurse noted the written
ANGELICA, NANCY, and MICHAEL admission request8 of Dr. Estrada. Upon Corazon's
CHRISTOPHER, all surnamed admission at the CMC, Rogelio Nogales ("Rogelio")
NOGALES, petitioners, executed and signed the "Consent on Admission
vs. and Agreement"9 and "Admission
CAPITOL MEDICAL CENTER, DR. OSCAR Agreement." Corazon was then brought to the
DR. NOE ESPINOLA, and NURSE J. Dr. Rosa Uy ("Dr. Uy"), who was then a resident
DUMLAO, respondents. physician of CMC, conducted an internal
examination of Corazon. Dr. Uy then called up Dr.
Estrada to notify him of her findings.

Based on the Doctor's Order Sheet,11 around 3:00

DECISION a.m., Dr. Estrada ordered for 10 mg. of valium to be
administered immediately by intramuscular injection.
Dr. Estrada later ordered the start of intravenous
administration of syntocinon admixed with dextrose,
5%, in lactated Ringers' solution, at the rate of eight
to ten micro-drops per minute.
According to the Nurse's Observation Notes,12 Dr.
The Case Joel Enriquez ("Dr. Enriquez"), an anesthesiologist
at CMC, was notified at 4:15 a.m. of Corazon's
This petition for review1 assails the 6 February 1998 admission. Subsequently, when asked if he needed
Decision2 and 21 March 2000 Resolution3 of the the services of an anesthesiologist, Dr. Estrada
Court of Appeals in CA-G.R. CV No. 45641. The refused. Despite Dr. Estrada's refusal, Dr. Enriquez
Court of Appeals affirmed in toto the 22 November stayed to observe Corazon's condition.
1993 Decision4 of the Regional Trial Court of Manila,
Branch 33, finding Dr. Oscar Estrada solely liable for At 6:00 a.m., Corazon was transferred to Delivery
damages for the death of his patient, Corazon Room No. 1 of the CMC. At 6:10 a.m., Corazon's bag
Nogales, while absolving the remaining respondents of water ruptured spontaneously. At 6:12 a.m.,
of any liability. The Court of Appeals denied Corazon's cervix was fully dilated. At 6:13 a.m.,
petitioners' motion for reconsideration. Corazon started to experience convulsions.
The Facts At 6:15 a.m., Dr. Estrada ordered the injection of ten
grams of magnesium sulfate. However, Dr. Ely
Pregnant with her fourth child, Corazon Nogales Villaflor ("Dr. Villaflor"), who was assisting Dr.
("Corazon"), who was then 37 years old, was under Estrada, administered only 2.5 grams of magnesium
the exclusive prenatal care of Dr. Oscar Estrada sulfate.
("Dr. Estrada") beginning on her fourth month of
pregnancy or as early as December 1975. While At 6:22 a.m., Dr. Estrada, assisted by Dr. Villaflor,
Corazon was on her last trimester of pregnancy, Dr. applied low forceps to extract Corazon's baby. In the
process, a 1.0 x 2.5 cm. piece of cervical tissue was denying and opposing the allegations in the
allegedly torn. The baby came out in an apnic, complaint. Subsequently, trial ensued.
cyanotic, weak and injured condition. Consequently,
the baby had to be intubated and resuscitated by Dr. After more than 11 years of trial, the trial court
Enriquez and Dr. Payumo. rendered judgment on 22 November 1993 finding
Dr. Estrada solely liable for damages. The trial court
At 6:27 a.m., Corazon began to manifest moderate ruled as follows:
vaginal bleeding which rapidly became profuse.
Corazon's blood pressure dropped from 130/80 to The victim was under his pre-natal care,
60/40 within five minutes. There was continuous apparently, his fault began from his incorrect
profuse vaginal bleeding. The assisting nurse and inadequate management and lack of
administered hemacel through a gauge 19 needle as treatment of the pre-eclamptic condition of
a side drip to the ongoing intravenous injection of his patient. It is not disputed that he
dextrose. misapplied the forceps in causing the
delivery because it resulted in a large
At 7:45 a.m., Dr. Estrada ordered blood typing and cervical tear which had caused the profuse
cross matching with bottled blood. It took bleeding which he also failed to control with
approximately 30 minutes for the CMC laboratory, the application of inadequate injection of
headed by Dr. Perpetua Lacson ("Dr. Lacson"), to magnesium sulfate by his assistant Dra. Ely
comply with Dr. Estrada's order and deliver the Villaflor. Dr. Estrada even failed to notice the
blood. erroneous administration by nurse Dumlao of
hemacel by way of side drip, instead of direct
At 8:00 a.m., Dr. Noe Espinola ("Dr. Espinola"), head intravenous injection, and his failure to
of the Obstetrics-Gynecology Department of the consult a senior obstetrician at an early stage
CMC, was apprised of Corazon's condition by of the problem.
telephone. Upon being informed that Corazon was
bleeding profusely, Dr. Espinola ordered immediate On the part however of Dra. Ely Villaflor, Dra.
hysterectomy. Rogelio was made to sign a "Consent Rosa Uy, Dr. Joel Enriquez, Dr. Lacson, Dr.
to Operation."13 Espinola, nurse J. Dumlao and CMC, the
Court finds no legal justification to find them
Due to the inclement weather then, Dr. Espinola, civilly liable.
who was fetched from his residence by an
ambulance, arrived at the CMC about an hour later On the part of Dra. Ely Villaflor, she was only
or at 9:00 a.m. He examined the patient and ordered taking orders from Dr. Estrada, the principal
some resuscitative measures to be administered. physician of Corazon Nogales. She can only
Despite Dr. Espinola's efforts, Corazon died at 9:15 make suggestions in the manner the patient
a.m. The cause of death was "hemorrhage, post maybe treated but she cannot impose her will
partum."14 as to do so would be to substitute her good
judgment to that of Dr. Estrada. If she failed
On 14 May 1980, petitioners filed a complaint for to correctly diagnose the true cause of the
damages15 with the Regional Trial Court16 of Manila bleeding which in this case appears to be a
against CMC, Dr. Estrada, Dr. Villaflor, Dr. Uy, Dr. cervical laceration, it cannot be safely
Enriquez, Dr. Lacson, Dr. Espinola, and a certain concluded by the Court that Dra. Villaflor had
Nurse J. Dumlao for the death of Corazon. the correct diagnosis and she failed to inform
Petitioners mainly contended that defendant Dr. Estrada. No evidence was introduced to
physicians and CMC personnel were negligent in the show that indeed Dra. Villaflor had
treatment and management of Corazon's condition. discovered that there was laceration at the
Petitioners charged CMC with negligence in the cervical area of the patient's internal organ.
selection and supervision of defendant physicians
and hospital staff. On the part of nurse Dumlao, there is no
showing that when she administered the
For failing to file their answer to the complaint hemacel as a side drip, she did it on her own.
despite service of summons, the trial court declared If the correct procedure was directly thru the
Dr. Estrada, Dr. Enriquez, and Nurse Dumlao in veins, it could only be because this was what
default.17 CMC, Dr. Villaflor, Dr. Uy, Dr. Espinola, was probably the orders of Dr. Estrada.
and Dr. Lacson filed their respective answers
While the evidence of the plaintiffs shows adduced to show that Dra. Rosa Uy as a
that Dr. Noe Espinola, who was the Chief of resident physician of Capitol Medical Center,
the Department of Obstetrics and had knowledge of the mismanagement of the
Gynecology who attended to the patient Mrs. patient Corazon Nogales, and that
Nogales, it was only at 9:00 a.m. That he was notwithstanding such knowledge, she
able to reach the hospital because of tolerated the same to happen.
typhoon Didang (Exhibit 2). While he was
able to give prescription in the manner In the pre-trial order, plaintiffs and CMC
Corazon Nogales may be treated, the agreed that defendant CMC did not have any
prescription was based on the information hand or participation in the selection or hiring
given to him by phone and he acted on the of Dr. Estrada or his assistant Dra. Ely
basis of facts as presented to him, believing Villaflor as attending physician[s] of the
in good faith that such is the correct remedy. deceased. In other words, the two (2) doctors
He was not with Dr. Estrada when the patient were not employees of the hospital and
was brought to the hospital at 2:30 o'clock therefore the hospital did not have control
a.m. So, whatever errors that Dr. Estrada over their professional conduct. When Mrs.
committed on the patient before 9:00 o'clock Nogales was brought to the hospital, it was
a.m. are certainly the errors of Dr. Estrada an emergency case and defendant CMC had
and cannot be the mistake of Dr. Noe no choice but to admit her. Such being the
Espinola. His failure to come to the hospital case, there is therefore no legal ground to
on time was due to fortuitous event. apply the provisions of Article 2176 and 2180
of the New Civil Code referring to the
On the part of Dr. Joel Enriquez, while he vicarious liability of an employer for the
was present in the delivery room, it is not negligence of its employees. If ever in this
incumbent upon him to call the attention of case there is fault or negligence in the
Dr. Estrada, Dra. Villaflor and also of Nurse treatment of the deceased on the part of the
Dumlao on the alleged errors committed by attending physicians who were employed by
them. Besides, as anesthesiologist, he has the family of the deceased, such civil liability
no authority to control the actuations of Dr. should be borne by the attending physicians
Estrada and Dra. Villaflor. For the Court to under the principle of "respondeat superior".
assume that there were errors being
committed in the presence of Dr. Enriquez WHEREFORE, premises considered,
would be to dwell on conjectures and judgment is hereby rendered finding
speculations. defendant Dr. Estrada of Number 13 Pitimini
St. San Francisco del Monte, Quezon City
On the civil liability of Dr. Perpetua Lacson, civilly liable to pay plaintiffs: 1) By way of
[s]he is a hematologist and in-charge of the actual damages in the amount
blood bank of the CMC. The Court cannot of P105,000.00; 2) By way of moral damages
accept the theory of the plaintiffs that there in the amount of P700,000.00; 3) Attorney's
was delay in delivering the blood needed by fees in the amount of P100,000.00 and to
the patient. It was testified, that in order that pay the costs of suit.
this blood will be made available, a
laboratory test has to be conducted to For failure of the plaintiffs to adduce
determine the type of blood, cross matching evidence to support its [sic] allegations
and other matters consistent with medical against the other defendants, the complaint
science so, the lapse of 30 minutes maybe is hereby ordered dismissed. While the Court
considered a reasonable time to do all of looks with disfavor the filing of the present
these things, and not a delay as the plaintiffs complaint against the other defendants by
would want the Court to believe. the herein plaintiffs, as in a way it has caused
them personal inconvenience and slight
Admittedly, Dra. Rosa Uy is a resident damage on their name and reputation, the
physician of the Capitol Medical Center. She Court cannot accepts [sic] however, the
was sued because of her alleged failure to theory of the remaining defendants that
notice the incompetence and negligence of plaintiffs were motivated in bad faith in the
Dr. Estrada. However, there is no evidence filing of this complaint. For this reason
to support such theory. No evidence was
defendants' counterclaims are hereby The Court of Appeals' Ruling
ordered dismissed.
In its Decision of 6 February 1998, the Court of
SO ORDERED.18 Appeals upheld the trial court's ruling. The Court of
Appeals rejected petitioners' view that the doctrine
Petitioners appealed the trial court's decision. in Darling v. Charleston Community Memorial
Petitioners claimed that aside from Dr. Estrada, the Hospital27 applies to this case. According to the
remaining respondents should be held equally liable Court of Appeals, the present case differs from
for negligence. Petitioners pointed out the extent of the Darling case since Dr. Estrada is an independent
each respondent's alleged liability. contractor-physician whereas the Darling case
involved a physician and a nurse who were
On 6 February 1998, the Court of Appeals affirmed employees of the hospital.
the decision of the trial court.19 Petitioners filed a
motion for reconsideration which the Court of Citing other American cases, the Court of Appeals
Appeals denied in its Resolution of 21 March 2000.20 further held that the mere fact that a hospital
permitted a physician to practice medicine and use
Hence, this petition. its facilities is not sufficient to render the hospital
liable for the physician's negligence.28 A hospital is
Meanwhile, petitioners filed a Manifestation dated 12 not responsible for the negligence of a physician
April 200221 stating that respondents Dr. Estrada, Dr. who is an independent contractor.29
Enriquez, Dr. Villaflor, and Nurse Dumlao "need no
longer be notified of the petition because they are The Court of Appeals found the cases of Davidson
absolutely not involved in the issue raised before the v. Conole30 and Campbell v. Emma Laing Stevens
[Court], regarding the liability of [CMC]."22 Petitioners Hospital31applicable to this case.
stressed that the subject matter of this petition is the Quoting Campbell, the Court of Appeals stated that
liability of CMC for the negligence of Dr. Estrada.23 where there is no proof that defendant physician was
an employee of defendant hospital or that defendant
The Court issued a Resolution dated 9 September hospital had reason to know that any acts of
200224 dispensing with the requirement to submit the malpractice would take place, defendant hospital
correct and present addresses of respondents Dr. could not be held liable for its failure to intervene in
Estrada, Dr. Enriquez, Dr. Villaflor, and Nurse the relationship of physician-patient between
Dumlao. The Court stated that with the filing of defendant physician and plaintiff.
petitioners' Manifestation, it should be understood
that they are claiming only against respondents On the liability of the other respondents, the Court of
CMC, Dr. Espinola, Dr. Lacson, and Dr. Uy who Appeals applied the "borrowed servant" doctrine
have filed their respective comments. Petitioners are considering that Dr. Estrada was an independent
foregoing further claims against respondents Dr. contractor who was merely exercising hospital
Estrada, Dr. Enriquez, Dr. Villaflor, and Nurse privileges. This doctrine provides that once the
Dumlao. surgeon enters the operating room and takes charge
of the proceedings, the acts or omissions of
The Court noted that Dr. Estrada did not appeal the operating room personnel, and any negligence
decision of the Court of Appeals affirming the associated with such acts or omissions, are
decision of the Regional Trial Court. Accordingly, the imputable to the surgeon.32 While the assisting
decision of the Court of Appeals, affirming the trial physicians and nurses may be employed by the
court's judgment, is already final as against Dr. hospital, or engaged by the patient, they normally
Oscar Estrada. become the temporary servants or agents of the
surgeon in charge while the operation is in progress,
Petitioners filed a motion for reconsideration25 of the and liability may be imposed upon the surgeon for
Court's 9 September 2002 Resolution claiming that their negligent acts under the doctrine of respondeat
Dr. Enriquez, Dr. Villaflor and Nurse Dumlao were superior.33
notified of the petition at their counsels' last known
addresses. Petitioners reiterated their imputation of The Court of Appeals concluded that since Rogelio
negligence on these respondents. The Court denied engaged Dr. Estrada as the attending physician of
petitioners' Motion for Reconsideration in its 18 his wife, any liability for malpractice must be Dr.
February 2004 Resolution.26 Estrada's sole responsibility.
While it found the amount of damages fair and diligence of a good father of a family to
reasonable, the Court of Appeals held that no prevent damage.
interest could be imposed on unliquidated claims or
damages. Art. 2176. Whoever by act or omission
causes damage to another, there being fault
The Issue or negligence, is obliged to pay for the
damage done. Such fault or negligence, if
Basically, the issue in this case is whether CMC is there is no pre-existing contractual relation
vicariously liable for the negligence of Dr. Estrada. between the parties, is called a quasi-delict
The resolution of this issue rests, on the other hand, and is governed by the provisions of this
on the ascertainment of the relationship between Dr. Chapter.
Estrada and CMC. The Court also believes that a
determination of the extent of liability of the other Similarly, in the United States, a hospital which is the
respondents is inevitable to finally and completely employer, master, or principal of a physician
dispose of the present controversy. employee, servant, or agent, may be held liable for
the physician's negligence under the doctrine
The Ruling of the Court of respondeat superior.34

The petition is partly meritorious. In the present case, petitioners maintain that CMC,
in allowing Dr. Estrada to practice and admit patients
On the Liability of CMC at CMC, should be liable for Dr. Estrada's
malpractice. Rogelio claims that he knew Dr.
Dr. Estrada's negligence in handling the treatment Estrada as an accredited physician of CMC, though
and management of Corazon's condition which he discovered later that Dr. Estrada was not a
ultimately resulted in Corazon's death is no longer in salaried employee of the CMC.35 Rogelio further
issue. Dr. Estrada did not appeal the decision of the claims that he was dealing with CMC, whose primary
Court of Appeals which affirmed the ruling of the trial concern was the treatment and management of his
court finding Dr. Estrada solely liable for damages. wife's condition. Dr. Estrada just happened to be the
Accordingly, the finding of the trial court on Dr. specific person he talked to representing
Estrada's negligence is already final. CMC.36 Moreover, the fact that CMC made Rogelio
sign a Consent on Admission and Admission
Petitioners maintain that CMC is vicariously liable for Agreement37 and a Consent to Operation printed on
Dr. Estrada's negligence based on Article 2180 in the letterhead of CMC indicates that CMC
relation to Article 2176 of the Civil Code. These considered Dr. Estrada as a member of its medical
provisions pertinently state: staff.

Art. 2180. The obligation imposed by article On the other hand, CMC disclaims liability by
2176 is demandable not only for one's own asserting that Dr. Estrada was a mere visiting
acts or omissions, but also for those of physician and that it admitted Corazon because her
persons for whom one is responsible. physical condition then was classified an emergency
obstetrics case.38
CMC alleges that Dr. Estrada is an independent
contractor "for whose actuations CMC would be a
Employers shall be liable for the damages
total stranger." CMC maintains that it had no control
caused by their employees and household
or supervision over Dr. Estrada in the exercise of his
helpers acting within the scope of their
medical profession.
assigned tasks, even though the former are
not engaged in any business or industry.
The Court had the occasion to determine the
relationship between a hospital and a consultant or
visiting physician and the liability of such hospital for
that physician's negligence in Ramos v. Court of
The responsibility treated of in this article Appeals,39 to wit:
shall cease when the persons herein
mentioned prove that they observed all the
In the first place, hospitals exercise
significant control in the hiring and firing of
consultants and in the conduct of their work physicians.This being the case, the
within the hospital premises. Doctors who question now arises as to whether or not
apply for "consultant" slots, visiting or respondent hospital is solidarily liable with
attending, are required to submit proof of respondent doctors for petitioner's condition.
completion of residency, their educational
qualifications; generally, evidence of The basis for holding an employer solidarily
accreditation by the appropriate board responsible for the negligence of its
(diplomate), evidence of fellowship in most employee is found in Article 2180 of the Civil
cases, and references. These requirements Code which considers a person accountable
are carefully scrutinized by members of the not only for his own acts but also for those of
hospital administration or by a review others based on the former's responsibility
committee set up by the hospital who either under a relationship of patria potestas. x x
accept or reject the application. This is x40 (Emphasis supplied)
particularly true with respondent hospital.
While the Court in Ramos did not expound on the
After a physician is accepted, either as a control test, such test essentially determines
visiting or attending consultant, he is whether an employment relationship exists between
normally required to attend clinico- a physician and a hospital based on the exercise of
pathological conferences, conduct bedside control over the physician as to details. Specifically,
rounds for clerks, interns and residents, the employer (or the hospital) must have the right to
moderate grand rounds and patient audits control both the means and the details of the process
and perform other tasks and responsibilities, by which the employee (or the physician) is to
for the privilege of being able to maintain a accomplish his task.41
clinic in the hospital, and/or for the privilege
of admitting patients into the hospital. In After a thorough examination of the voluminous
addition to these, the physician's records of this case, the Court finds no single
performance as a specialist is generally evidence pointing to CMC's exercise of control over
evaluated by a peer review committee on the Dr. Estrada's treatment and management of
basis of mortality and morbidity statistics, Corazon's condition. It is undisputed that throughout
and feedback from patients, nurses, interns Corazon's pregnancy, she was under the exclusive
and residents. A consultant remiss in his prenatal care of Dr. Estrada. At the time of Corazon's
duties, or a consultant who regularly falls admission at CMC and during her delivery, it was Dr.
short of the minimum standards acceptable Estrada, assisted by Dr. Villaflor, who attended to
to the hospital or its peer review committee, Corazon. There was no showing that CMC had a
is normally politely terminated. part in diagnosing Corazon's condition. While Dr.
Estrada enjoyed staff privileges at CMC, such fact
In other words, private hospitals, hire, fire alone did not make him an employee of
and exercise real control over their attending CMC.42 CMC merely allowed Dr. Estrada to use its
and visiting "consultant" staff. While facilities43 when Corazon was about to give birth,
"consultants" are not, technically which CMC considered an emergency. Considering
employees, a point which respondent these circumstances, Dr. Estrada is not an
hospital asserts in denying all employee of CMC, but an independent contractor.
responsibility for the patient's condition,
the control exercised, the hiring, and the The question now is whether CMC is automatically
right to terminate consultants all fulfill the exempt from liability considering that Dr. Estrada is
important hallmarks of an employer- an independent contractor-physician.
employee relationship, with the exception
of the payment of wages. In assessing In general, a hospital is not liable for the negligence
whether such a relationship in fact exists, of an independent contractor-physician. There is,
the control test is determining. however, an exception to this principle. The hospital
Accordingly, on the basis of the may be liable if the physician is the "ostensible"
foregoing, we rule that for the purpose of agent of the hospital.44 This exception is also known
allocating responsibility in medical as the "doctrine of apparent authority."45 In Gilbert v.
negligence cases, an employer-employee Sycamore Municipal Hospital,46 the Illinois Supreme
relationship in effect exists between Court explained the doctrine of apparent authority in
hospitals and their attending and visiting this wise:
[U]nder the doctrine of apparent authority a The doctrine of apparent authority is a species of the
hospital can be held vicariously liable for the doctrine of estoppel. Article 1431 of the Civil Code
negligent acts of a physician providing care provides that "[t]hrough estoppel, an admission or
at the hospital, regardless of whether the representation is rendered conclusive upon the
physician is an independent contractor, person making it, and cannot be denied or disproved
unless the patient knows, or should have as against the person relying thereon." Estoppel
known, that the physician is an independent rests on this rule: "Whenever a party has, by his own
contractor. The elements of the action have declaration, act, or omission, intentionally and
been set out as follows: deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any
"For a hospital to be liable under the doctrine litigation arising out of such declaration, act or
of apparent authority, a plaintiff must show omission, be permitted to falsify it."49
that: (1) the hospital, or its agent, acted in a
manner that would lead a reasonable person In the instant case, CMC impliedly held out Dr.
to conclude that the individual who was Estrada as a member of its medical staff. Through
alleged to be negligent was an employee or CMC's acts, CMC clothed Dr. Estrada with apparent
agent of the hospital; (2) where the acts of authority thereby leading the Spouses Nogales to
the agent create the appearance of authority, believe that Dr. Estrada was an employee or agent
the plaintiff must also prove that the hospital of CMC. CMC cannot now repudiate such authority.
had knowledge of and acquiesced in them;
and (3) the plaintiff acted in reliance upon the First, CMC granted staff privileges to Dr. Estrada.
conduct of the hospital or its agent, CMC extended its medical staff and facilities to Dr.
consistent with ordinary care and prudence." Estrada. Upon Dr. Estrada's request for Corazon's
admission, CMC, through its personnel, readily
The element of "holding out" on the part of accommodated Corazon and updated Dr. Estrada of
the hospital does not require an express her condition.
representation by the hospital that the
person alleged to be negligent is an Second, CMC made Rogelio sign consent forms
employee. Rather, the element is satisfied if printed on CMC letterhead. Prior to Corazon's
the hospital holds itself out as a provider of admission and supposed hysterectomy, CMC asked
emergency room care without informing the Rogelio to sign release forms, the contents of which
patient that the care is provided by reinforced Rogelio's belief that Dr. Estrada was a
independent contractors. member of CMC's medical staff.50 The Consent on
Admission and Agreement explicitly provides:
The element of justifiable reliance on the part
of the plaintiff is satisfied if the plaintiff relies KNOW ALL MEN BY THESE PRESENTS:
upon the hospital to provide complete
emergency room care, rather than upon a I, Rogelio Nogales, of legal age, a resident of
specific physician. 1974 M. H. Del Pilar St., Malate Mla., being
The doctrine of apparent authority essentially father/mother/brother/sister/spouse/relative/
involves two factors to determine the liability of an guardian/or person in custody of Ma.
independent-contractor physician. Corazon, and representing his/her family, of
my own volition and free will, do consent and
The first factor focuses on the hospital's submit said Ma. Corazon to Dr. Oscar
manifestations and is sometimes described as an Estrada (hereinafter referred to as Physician)
inquiry whether the hospital acted in a manner which for cure, treatment, retreatment, or
would lead a reasonable person to conclude that the emergency measures, that the Physician,
individual who was alleged to be negligent was an personally or by and through the Capitol
employee or agent of the hospital.47 In this regard, Medical Center and/or its staff, may use,
the hospital need not make express adapt, or employ such means, forms or
representations to the patient that the treating methods of cure, treatment, retreatment,
physician is an employee of the hospital; rather or emergency measures as he may see
a representation may be general and implied.48 best and most expedient; that Ma.
Corazon and I will comply with any and all
rules, regulations, directions, and
instructions of the Physician, the Capitol The second factor focuses on the patient's reliance.
Medical Center and/or its staff; and, that I It is sometimes characterized as an inquiry on
will not hold liable or responsible and hereby whether the plaintiff acted in reliance upon the
waive and forever discharge and hold free conduct of the hospital or its agent, consistent with
the Physician, the Capitol Medical Center ordinary care and prudence.54
and/or its staff, from any and all claims of
whatever kind of nature, arising from directly The records show that the Spouses Nogales relied
or indirectly, or by reason of said cure, upon a perceived employment relationship with
treatment, or retreatment, or emergency CMC in accepting Dr. Estrada's services. Rogelio
measures or intervention of said physician, testified that he and his wife specifically chose Dr.
the Capitol Medical Center and/or its staff. Estrada to handle Corazon's delivery not only
because of their friend's recommendation, but more
x x x x51 (Emphasis supplied) importantly because of Dr. Estrada's "connection
with a reputable hospital, the [CMC]."55 In other
While the Consent to Operation pertinently reads, words, Dr. Estrada's relationship with CMC played a
thus: significant role in the Spouses Nogales' decision in
accepting Dr. Estrada's services as the obstetrician-
I, ROGELIO NOGALES, x x x, of my own gynecologist for Corazon's delivery. Moreover, as
volition and free will, do consent and submit earlier stated, there is no showing that before and
said CORAZON NOGALES to during Corazon's confinement at CMC, the Spouses
Hysterectomy, by the Surgical Staff and Nogales knew or should have known that Dr.
Anesthesiologists of Capitol Medical Estrada was not an employee of CMC.
Center and/or whatever succeeding
operations, treatment, or emergency Further, the Spouses Nogales looked to CMC to
measures as may be necessary and most provide the best medical care and support services
expedient; and, that I will not hold liable or for Corazon's delivery. The Court notes that prior to
responsible and hereby waive and forever Corazon's fourth pregnancy, she used to give birth
discharge and hold free the Surgeon, his inside a clinic. Considering Corazon's age then, the
assistants, anesthesiologists, the Capitol Spouses Nogales decided to have their fourth child
Medical Center and/or its staff, from any and delivered at CMC, which Rogelio regarded one of
all claims of whatever kind of nature, arising the best hospitals at the time.56 This is precisely
from directly or indirectly, or by reason of said because the Spouses Nogales feared that Corazon
operation or operations, treatment, or might experience complications during her delivery
emergency measures, or intervention of the which would be better addressed and treated in a
Surgeon, his assistants, anesthesiologists, modern and big hospital such as CMC. Moreover,
the Capitol Medical Center and/or its Rogelio's consent in Corazon's hysterectomy to be
staff.52 (Emphasis supplied) performed by a different physician, namely Dr.
Espinola, is a clear indication of Rogelio's
Without any indication in these consent forms that confidence in CMC's surgical staff.
Dr. Estrada was an independent contractor-
physician, the Spouses Nogales could not have CMC's defense that all it did was "to extend to
known that Dr. Estrada was an independent [Corazon] its facilities" is untenable. The Court
contractor. Significantly, no one from CMC informed cannot close its eyes to the reality that hospitals,
the Spouses Nogales that Dr. Estrada was an such as CMC, are in the business of treatment. In
independent contractor. On the contrary, Dr. this regard, the Court agrees with the observation
Atencio, who was then a member of CMC Board of made by the Court of Appeals of North Carolina in
Directors, testified that Dr. Estrada was part of Diggs v. Novant Health, Inc.,57 to wit:
CMC's surgical staff.53
"The conception that the hospital does not
Third, Dr. Estrada's referral of Corazon's profuse undertake to treat the patient, does not
vaginal bleeding to Dr. Espinola, who was then the undertake to act through its doctors and
Head of the Obstetrics and Gynecology Department nurses, but undertakes instead simply to
of CMC, gave the impression that Dr. Estrada as a procure them to act upon their own
member of CMC's medical staff was collaborating responsibility, no longer reflects the
with other CMC-employed specialists in treating fact. Present day hospitals, as their
Corazon. manner of operation plainly
demonstrates, do far more than furnish petitioners' Manifestation confined petitioners' claim
facilities for treatment. They regularly only against CMC, Dr. Espinola, Dr. Lacson, and Dr.
employ on a salary basis a large staff of Uy, who have filed their comments, the Court deems
physicians, nurses and internes [sic], as it proper to resolve the individual liability of the
well as administrative and manual remaining respondents to put an end finally to this
workers, and they charge patients for more than two-decade old controversy.
medical care and treatment, collecting for
such services, if necessary, by legal a) Dr. Ely Villaflor
action. Certainly, the person who avails
himself of 'hospital facilities' expects that Petitioners blame Dr. Ely Villaflor for failing to
the hospital will attempt to cure him, not diagnose the cause of Corazon's bleeding and to
that its nurses or other employees will act suggest the correct remedy to Dr.
on their own responsibility." x x x Estrada.60 Petitioners assert that it was Dr. Villaflor's
(Emphasis supplied) duty to correct the error of Nurse Dumlao in the
administration of hemacel.
Likewise unconvincing is CMC's argument that
petitioners are estopped from claiming damages The Court is not persuaded. Dr. Villaflor admitted
based on the Consent on Admission and Consent to administering a lower dosage of magnesium sulfate.
Operation. Both release forms consist of two parts. However, this was after informing Dr. Estrada that
The first part gave CMC permission to administer to Corazon was no longer in convulsion and that her
Corazon any form of recognized medical treatment blood pressure went down to a dangerous level.61 At
which the CMC medical staff deemed advisable. The that moment, Dr. Estrada instructed Dr. Villaflor to
second part of the documents, which may properly reduce the dosage of magnesium sulfate from 10 to
be described as the releasing part, releases CMC 2.5 grams. Since petitioners did not dispute Dr.
and its employees "from any and all claims" arising Villaflor's allegation, Dr. Villaflor's defense remains
from or by reason of the treatment and operation. uncontroverted. Dr. Villaflor's act of administering a
lower dosage of magnesium sulfate was not out of
The documents do not expressly release CMC from her own volition or was in contravention of Dr.
liability for injury to Corazon due to negligence Estrada's order.
during her treatment or operation. Neither do the
consent forms expressly exempt CMC from liability b) Dr. Rosa Uy
for Corazon's death due to negligence during such
treatment or operation. Such release forms, being in Dr. Rosa Uy's alleged negligence consisted of her
the nature of contracts of adhesion, are construed failure (1) to call the attention of Dr. Estrada on the
strictly against hospitals. Besides, a blanket release incorrect dosage of magnesium sulfate administered
in favor of hospitals "from any and all claims," which by Dr. Villaflor; (2) to take corrective measures; and
includes claims due to bad faith or gross negligence, (3) to correct Nurse Dumlao's wrong method of
would be contrary to public policy and thus void. hemacel administration.

Even simple negligence is not subject to blanket The Court believes Dr. Uy's claim that as a second
release in favor of establishments like hospitals but year resident physician then at CMC, she was
may only mitigate liability depending on the merely authorized to take the clinical history and
circumstances.58 When a person needing urgent physical examination of Corazon.62 However, that
medical attention rushes to a hospital, he cannot routine internal examination did not ipso facto make
bargain on equal footing with the hospital on the Dr. Uy liable for the errors committed by Dr. Estrada.
terms of admission and operation. Such a person is Further, petitioners' imputation of negligence rests
literally at the mercy of the hospital. There can be no on their baseless assumption that Dr. Uy was
clearer example of a contract of adhesion than one present at the delivery room. Nothing shows that Dr.
arising from such a dire situation. Thus, the release Uy participated in delivering Corazon's baby.
forms of CMC cannot relieve CMC from liability for Further, it is unexpected from Dr. Uy, a mere
the negligent medical treatment of Corazon. resident physician at that time, to call the attention of
a more experienced specialist, if ever she was
On the Liability of the Other Respondents present at the delivery room.

Despite this Court's pronouncement in its 9 c) Dr. Joel Enriquez

September 200259 Resolution that the filing of
Petitioners fault Dr. Joel Enriquez also for not calling f) Nurse J. Dumlao
the attention of Dr. Estrada, Dr. Villaflor, and Nurse
Dumlao about their errors.63 Petitioners insist that In Moore v. Guthrie Hospital Inc.,67 the US Court of
Dr. Enriquez should have taken, or at least Appeals, Fourth Circuit, held that to recover, a
suggested, corrective measures to rectify such patient complaining of injuries allegedly resulting
errors. when the nurse negligently injected medicine to him
intravenously instead of intramuscularly had to show
The Court is not convinced. Dr. Enriquez is an that (1) an intravenous injection constituted a lack of
anesthesiologist whose field of expertise is definitely reasonable and ordinary care; (2) the nurse injected
not obstetrics and gynecology. As such, Dr. medicine intravenously; and (3) such injection was
Enriquez was not expected to correct Dr. Estrada's the proximate cause of his injury.
errors. Besides, there was no evidence of Dr.
Enriquez's knowledge of any error committed by Dr. In the present case, there is no evidence of Nurse
Estrada and his failure to act upon such observation. Dumlao's alleged failure to follow Dr. Estrada's
specific instructions. Even assuming Nurse Dumlao
d) Dr. Perpetua Lacson defied Dr. Estrada's order, there is no showing that
side-drip administration of hemacel proximately
Petitioners fault Dr. Perpetua Lacson for her caused Corazon's death. No evidence linking
purported delay in the delivery of blood Corazon Corazon's death and the alleged wrongful hemacel
needed.64 Petitioners claim that Dr. Lacson was administration was introduced. Therefore, there is
remiss in her duty of supervising the blood bank no basis to hold Nurse Dumlao liable for negligence.
On the Award of Interest on Damages
As found by the trial court, there was no
unreasonable delay in the delivery of blood from the The award of interest on damages is proper and
time of the request until the transfusion to Corazon. allowed under Article 2211 of the Civil Code, which
Dr. Lacson competently explained the procedure states that in crimes and quasi-delicts, interest as a
before blood could be given to the patient.65 Taking part of the damages may, in a proper case, be
into account the bleeding time, clotting time and adjudicated in the discretion of the court.68
cross-matching, Dr. Lacson stated that it would take
approximately 45-60 minutes before blood could be WHEREFORE, the Court PARTLY GRANTS the
ready for transfusion.66 Further, no evidence exists petition. The Court finds respondent Capitol Medical
that Dr. Lacson neglected her duties as head of the Center vicariously liable for the negligence of Dr.
blood bank. Oscar Estrada. The amounts of P105,000 as actual
damages and P700,000 as moral damages should
e) Dr. Noe Espinola each earn legal interest at the rate of six percent
(6%) per annum computed from the date of the
Petitioners argue that Dr. Espinola should not have judgment of the trial court. The Court affirms the rest
ordered immediate hysterectomy without of the Decision dated 6 February 1998 and
determining the underlying cause of Corazon's Resolution dated 21 March 2000 of the Court of
bleeding. Dr. Espinola should have first considered Appeals in CA-G.R. CV No. 45641.
the possibility of cervical injury, and advised a
thorough examination of the cervix, instead of SO ORDERED.
believing outright Dr. Estrada's diagnosis that the
cause of bleeding was uterine atony.

Dr. Espinola's order to do hysterectomy which was

based on the information he received by phone is
not negligence. The Court agrees with the trial
court's observation that Dr. Espinola, upon hearing
such information about Corazon's condition,
believed in good faith that hysterectomy was the
correct remedy. At any rate, the hysterectomy did
not push through because upon Dr. Espinola's
arrival, it was already too late. At the time, Corazon
was practically dead.
relevant to the case, was its Regional Manager for
Central Luzon area.

"In due time, third-party defendant Austria filed his


"Thereafter the pre-trial conference was set on the

following dates: October 18, 1991, November 12,
FIRST DIVISION 1991, March 29, 1991, December 12, 1991, January
17, 1992, January 29, 1992, February 28, 1992,
G.R. No. 129919 February 6, 2002 March 17, 1992 and April 6, 1992, in all of which
dates no pre-trial conference was held. The record
DOMINION INSURANCE shows that except for the settings on October 18,
CORPORATION, petitioner, 1991, January 17, 1992 and March 17, 1992 which
vs. were cancelled at the instance of defendant, third-
COURT OF APPEALS, RODOLFO S. party defendant and plaintiff, respectively, the rest
GUEVARRA, and FERNANDO were postponed upon joint request of the parties.
AUSTRIA, respondents.
"On May 22, 1992 the case was again called for pre-
DECISION 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
The Case instructed him to request for postponement.
Plaintiff’s counsel objected to the desired
This is an appeal via certiorari1 from the decision of postponement and moved to have defendant
the Court of Appeals2 affirming the decision3 of the declared as in default. This was granted by the trial
Regional Trial Court, Branch 44, San Fernando, court in the following order:
Pampanga, which ordered petitioner Dominion
Insurance Corporation (Dominion) to pay Rodolfo S. "ORDER
Guevarra (Guevarra) the sum of
P156,473.90 representing the total amount
"When this case was called for pre-trial this
advanced by Guevarra in the payment of the claims
afternoon only plaintiff and his counsel Atty. Romeo
of Dominion’s clients.
Maglalang appeared. When shown a note dated
May 21, 1992 addressed to a certain Roy who was
The Facts requested to ask for postponement, Atty. Maglalang
vigorously objected to any postponement on the
The facts, as found by the Court of Appeals, are as ground that the note is but a mere scrap of paper
follows: and moved that the defendant corporation be
declared as in default for its failure to appear in court
"On January 25, 1991, plaintiff Rodolfo S. Guevarra despite due notice.
instituted Civil Case No. 8855 for sum of money
against defendant Dominion Insurance Corporation. "Finding the verbal motion of plaintiff’s counsel to be
Plaintiff sought to recover thereunder the sum of meritorious and considering that the pre-trial
P156,473.90 which he claimed to have advanced in conference has been repeatedly postponed on
his capacity as manager of defendant to satisfy motion of the defendant Corporation, the defendant
certain claims filed by defendant’s clients. Dominion Insurance Corporation is hereby declared
(as) in default and plaintiff is allowed to present his
"In its traverse, defendant denied any liability to evidence on June 16, 1992 at 9:00 o’clock in the
plaintiff and asserted a counterclaim for morning.
P249,672.53, representing premiums that plaintiff
allegedly failed to remit. "The plaintiff and his counsel are notified of this
order in open court.
"On August 8, 1991, defendant filed a third-party
complaint against Fernando Austria, who, at the time "SO ORDERED.
"Plaintiff presented his evidence on June 16, 1992. On July 19, 1996, the Court of Appeals promulgated
This was followed by a written offer of documentary a decision affirming that of the trial court.6 On
exhibits on July 8 and a supplemental offer of September 3, 1996, Dominion filed with the Court of
additional exhibits on July 13, 1992. The exhibits Appeals a motion for reconsideration.7 On July 16,
were admitted in evidence in an order dated July 17, 1997, the Court of Appeals denied the motion.8
Hence, this appeal.9
"On August 7, 1992 defendant corporation filed a
alleged therein that the failure of counsel to attend
the pre-trial conference was ‘due to an unavoidable The issues raised are: (1) whether respondent
circumstance’ and that counsel had sent his Guevarra acted within his authority as agent for
representative on that date to inform the trial court of petitioner, and (2) whether respondent Guevarra is
his inability to appear. The Motion was vehemently entitled to reimbursement of amounts he paid out of
opposed by plaintiff. his personal money in settling the claims of several
"On August 25, 1992 the trial court denied
defendant’s motion for reasons, among others, that The Court's Ruling
it was neither verified nor supported by an affidavit
of merit and that it further failed to allege or specify The petition is without merit.
the facts constituting his meritorious defense.
By the contract of agency, a person binds himself to
"On September 28, 1992 defendant moved for render some service or to do something in
reconsideration of the aforesaid order. For the first representation or on behalf of another, with the
time counsel revealed to the trial court that the consent or authority of the latter.10 The basis for
reason for his nonappearance at the pre-trial agency is representation.11 On the part of the
conference was his illness. An Affidavit of Merit principal, there must be an actual intention to
executed by its Executive Vice-President purporting appoint12 or an intention naturally inferrable from his
to explain its meritorious defense was attached to words or actions;13 and on the part of the agent, there
the said Motion. Just the same, in an Order dated must be an intention to accept the appointment and
November 13, 1992, the trial court denied said act on it,14 and in the absence of such intent, there is
Motion. generally no agency.15

"On November 18, 1992, the court a quo rendered A perusal of the Special Power of Attorney16 would
judgment as follows: show that petitioner (represented by third-party
defendant Austria) and respondent Guevarra
"WHEREFORE, premises considered, judgment is intended to enter into a principal-agent relationship.
hereby rendered ordering: Despite the word "special" in the title of the
document, the contents reveal that what was
"1. The defendant Dominion Insurance constituted was actually a general agency. The
Corporation to pay plaintiff the sum of terms of the agreement read:
P156,473.90 representing the total amount
advanced by plaintiff in the payment of the "That we, FIRST CONTINENTAL ASSURANCE
claims of defendant’s clients; COMPANY, INC.,17 a corporation duly organized
and existing under and by virtue of the laws of the
"2. The defendant to pay plaintiff P10,000.00 Republic of the Philippines, xxx represented by the
as and by way of attorney’s fees; undersigned as Regional Manager, xxx do hereby
appoint RSG Guevarra Insurance Services
"3. The dismissal of the counter-claim of the represented by Mr. Rodolfo Guevarra xxx to be our
defendant and the third-party complaint; Agency Manager in San Fdo., for our place and
stead, to do and perform the following acts and
"4. The defendant to pay the costs of suit."4 things:

On December 14, 1992, Dominion appealed the "1. To conduct, sign, manager (sic), carry on
decision to the Court of Appeals.5 and transact Bonding and Insurance
business as usually pertain to a Agency included among the acts enumerated in the Special
Office, or FIRE, MARINE, MOTOR CAR, Power of Attorney, neither is it of a character similar
PERSONAL ACCIDENT, and to the acts enumerated therein. A special power of
BONDING with the right, upon our prior attorney is required before respondent Guevarra
written consent, to appoint agents and sub- could settle the insurance claims of the insured.
Respondent Guevarra’s authority to settle claims is
"2. To accept, underwrite and subscribed embodied in the Memorandum of Management
(sic) cover notes or Policies of Insurance and Agreement23dated February 18, 1987 which
Bonds for and on our behalf. enumerates the scope of respondent Guevarra’s
duties and responsibilities as agency manager for
"3. To demand, sue, for (sic) collect, deposit, San Fernando, Pampanga, as follows:
enforce payment, deliver and transfer for and
receive and give effectual receipts and "x x x xxx xxx
discharge for all money to which the FIRST
CONTINENTAL ASSURANCE COMPANY, "1. You are hereby given authority to settle
INC.,18 may hereafter become due, owing and dispose of all motor car claims in the
payable or transferable to said Corporation amount of P5,000.00 with prior approval of
by reason of or in connection with the above- the Regional Office.
mentioned appointment.
"2. Full authority is given you on TPPI claims
"4. To receive notices, summons, and legal settlement.
processes for and in behalf of the FIRST
INC., in connection with actions and all legal
proceedings against the said In settling the claims mentioned above, respondent
Corporation."19 [Emphasis supplied] Guevarra’s authority is further limited by the written
standard authority to pay,25 which states that the
The agency comprises all the business of the payment shall come from respondent Guevarra’s
principal,20 but, couched in general terms, it is limited revolving fund or collection. The authority to pay is
only to acts of administration.21 worded as follows:

A general power permits the agent to do all acts for "This is to authorize you to withdraw from your
which the law does not require a special revolving fund/collection the amount of PESOS
power.22 Thus, the acts enumerated in or similar to __________________ (P ) representing the
those enumerated in the Special Power of Attorney payment on the _________________ claim of
do not require a special power of attorney. assured _______________ under Policy No.
______ in that accident of ___________ at
Article 1878, Civil Code, enumerates the instances ____________.
when a special power of attorney is required. The
pertinent portion that applies to this case provides "It is further expected, release papers will be signed
that: and authorized by the concerned and attached to the
corresponding claim folder after effecting payment of
"Article 1878. Special powers of attorney are the claim.
necessary in the following cases:
"(1) To make such payments as are not usually Regional Manager"26
considered as acts of administration;
[Emphasis supplied]
"x x x xxx xxx
The instruction of petitioner as the principal could not
"(15) Any other act of strict dominion." be any clearer.1âwphi1 Respondent Guevarra was
authorized to pay the claim of the insured, but the
The payment of claims is not an act of payment shall come from the revolving fund or
administration. The settlement of claims is not collection in his possession.
Having deviated from the instructions of the Guevarra as reflected in the statement of account
principal, the expenses that respondent Guevarra dated July 11, 1990 would be deducted from the
incurred in the settlement of the claims of the insured above amount.
may not be reimbursed from petitioner Dominion.
This conclusion is in accord with Article 1918, Civil The outstanding balance and the
Code, which states that: production/remittance for the period corresponding
to the claims was P3,604.84. Deducting this from
"The principal is not liable for the expenses incurred P116,276.95, we get P112,672.11. This is the
by the agent in the following cases: amount that may be reimbursed to respondent
"(1) If the agent acted in contravention of the
principal’s instructions, unless the latter The Fallo
should wish to avail himself of the benefits
derived from the contract; IN VIEW WHEREOF, we DENY the Petition.
However, we MODIFY the decision of the Court of
"xxx xxx xxx" Appeals28 and that of the Regional Trial Court,
Branch 44, San Fernando, Pampanga,29 in that
However, while the law on agency prohibits petitioner is ordered to pay respondent Guevarra the
respondent Guevarra from obtaining amount of P112,672.11 representing the total
reimbursement, his right to recover may still be amount advanced by the latter in the payment of the
justified under the general law on obligations and claims of petitioner’s clients.
No costs in this instance.
Article 1236, second paragraph, Civil Code,
provides: SO ORDERED.

"Whoever pays for another may demand from the

debtor what he has paid, except that if he paid
without the knowledge or against the will of the
debtor, he can recover only insofar as the payment
has been beneficial to the debtor."

In this case, when the risk insured against occurred,

petitioner’s liability as insurer arose.1âwphi1 This
obligation was extinguished when respondent
Guevarra paid the claims and obtained Release of
Claim Loss and Subrogation Receipts from the
insured who were paid.

Thus, to the extent that the obligation of the

petitioner has been extinguished, respondent
Guevarra may demand for reimbursement from his
principal. To rule otherwise would result in unjust
enrichment of petitioner.

The extent to which petitioner was benefited by the

settlement of the insurance claims could best be
proven by the Release of Claim Loss and
Subrogation Receipts27 which were attached to the
original complaint as Annexes C-2, D-1, E-1, F-1, G-
1, H-1, I-1 and J-l, in the total amount of

However, the amount of the revolving fund/collection

that was then in the possession of respondent
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
SECOND DIVISION of 25,000 bags."4

G.R. No. 117356 June 19, 2000 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
QUISUMBING, J.: was allowed to withdraw sugar. However, after
2,000 bags had been released, petitioner refused to
Before us is a petition for review on certiorari under allow further withdrawals of sugar against SLDR No.
Rule 45 of the Rules of Court assailing the decision 1214M. CSC then sent petitioner a letter dated
of the Court of Appeals dated February 24, 1994, in January 23, 1990 informing it that SLDR No. 1214M
CA-G.R. CV No. 31717, as well as the respondent had been "sold and endorsed" to it but that it had
court's resolution of September 30, 1994 modifying been refused further withdrawals of sugar from
said decision. Both decision and resolution petitioner's warehouse despite the fact that only
amended the judgment dated February 13, 1991, of 2,000 bags had been withdrawn.5 CSC thus inquired
the Regional Trial Court of Makati City, Branch 147, when it would be allowed to withdraw the remaining
in Civil Case No. 90-118. 23,000 bags.

The facts of this case as found by both the trial and On January 31, 1990, petitioner replied that it could
appellate courts are as follows: not allow any further withdrawals of sugar against
SLDR No. 1214M because STM had already
St. Therese Merchandising (hereafter STM) dwithdrawn all the sugar covered by the cleared
regularly bought sugar from petitioner Victorias checks.6
Milling Co., Inc., (VMC). In the course of their
dealings, petitioner issued several Shipping On March 2, 1990, CSC sent petitioner a letter
List/Delivery Receipts (SLDRs) to STM as proof of demanding the release of the balance of 23,000
purchases. Among these was SLDR No. 1214M, bags.
which gave rise to the instant case. Dated October
16, 1989, SLDR No. 1214M covers 25,000 bags of Seven days later, petitioner reiterated that all the
sugar. Each bag contained 50 kilograms and priced sugar corresponding to the amount of STM's cleared
at P638.00 per bag as "per sales order VMC checks had been fully withdrawn and hence, there
Marketing No. 042 dated October 16, 1989."1 The would be no more deliveries of the commodity to
transaction it covered was a "direct sale."2The SLDR STM's account. Petitioner also noted that CSC had
also contains an additional note which reads: represented itself to be STM's agent as it had
"subject for (sic) availability of a (sic) stock at withdrawn the 2,000 bags against SLDR No. 1214M
NAWACO (warehouse)."3 "for and in behalf" of STM.
On October 25, 1989, STM sold to private On April 27, 1990, CSC filed a complaint for specific
respondent Consolidated Sugar Corporation (CSC) performance, docketed as Civil Case No. 90-1118.
its rights in SLDR No. 1214M for P 14,750,000.00. Defendants were Teresita Ng Sy (doing business
CSC issued one check dated October 25, 1989 and under the name of St. Therese Merchandising) and
three checks postdated November 13, 1989 in herein petitioner. Since the former could not be
served with summons, the case proceeded only "WHEREFORE, in view of the foregoing, the Court
against the latter. During the trial, it was discovered hereby renders judgment in favor of the plaintiff and
that Teresita Ng Go who testified for CSC was the against defendant Victorias Milling Company:
same Teresita Ng Sy who could not be reached
through summons.7 CSC, however, did not bother "1) Ordering defendant Victorias Milling
to pursue its case against her, but instead used her Company to deliver to the plaintiff 23,000
as its witness. bags of refined sugar due under SLDR No.
CSC's complaint alleged that STM had fully paid
petitioner for the sugar covered by SLDR No. "2) Ordering defendant Victorias Milling
1214M. Therefore, the latter had no justification for Company to pay the amount of P920,000.00
refusing delivery of the sugar. CSC prayed that as unrealized profits, the amount of
petitioner be ordered to deliver the 23,000 bags P800,000.00 as exemplary damages and the
covered by SLDR No. 1214M and sought the award amount of P1,357,000.00, which is 10% of
of P1,104,000.00 in unrealized profits, the acquisition value of the undelivered bags
P3,000,000.00 as exemplary damages, of refined sugar in the amount of
P2,200,000.00 as attorney's fees and litigation P13,570,000.00, as attorney's fees, plus the
expenses. costs.

Petitioner's primary defense a quo was that it was an "SO ORDERED."9

unpaid seller for the 23,000 bags.8 Since STM had
already drawn in full all the sugar corresponding to It made the following observations:
the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner "[T]he testimony of plaintiff's witness Teresita Ng Go,
also contended that it had no privity of contract with that she had fully paid the purchase price of
CSC. P15,950,000.00 of the 25,000 bags of sugar bought
by her covered by SLDR No. 1214 as well as the
Petitioner explained that the SLDRs, which it had purchase price of P15,950,000.00 for the 25,000
issued, were not documents of title, but mere bags of sugar bought by her covered by SLDR No.
delivery receipts issued pursuant to a series of 1213 on the same date, October 16, 1989 (date of
transactions entered into between it and STM. The the two SLDRs) is duly supported by Exhibits C to
SLDRs prescribed delivery of the sugar to the party C-15 inclusive which are post-dated checks dated
specified therein and did not authorize the transfer October 27, 1989 issued by St. Therese
of said party's rights and interests. Merchandising in favor of Victorias Milling Company
at the time it purchased the 50,000 bags of sugar
Petitioner also alleged that CSC did not pay for the covered by SLDR No. 1213 and 1214. Said checks
SLDR and was actually STM's co-conspirator to appear to have been honored and duly credited to
defraud it through a misrepresentation that CSC was the account of Victorias Milling Company because
an innocent purchaser for value and in good faith. on October 27, 1989 Victorias Milling Company
Petitioner then prayed that CSC be ordered to pay it issued official receipt no. 34734 in favor of St.
the following sums: P10,000,000.00 as moral Therese Merchandising for the amount of
damages; P10,000,000.00 as exemplary damages; P31,900,000.00 (Exhibits B and B-1). The testimony
and P1,500,000.00 as attorney's fees. Petitioner of Teresita Ng Go is further supported by Exhibit F,
also prayed that cross-defendant STM be ordered to which is a computer printout of defendant Victorias
pay it P10,000,000.00 in exemplary damages, and Milling Company showing the quantity and value of
P1,500,000.00 as attorney's fees. the purchases made by St. Therese Merchandising,
the SLDR no. issued to cover the purchase, the
Since no settlement was reached at pre-trial, the trial official reciept no. and the status of payment. It is
court heard the case on the merits. clear in Exhibit 'F' that with respect to the sugar
covered by SLDR No. 1214 the same has been fully
As earlier stated, the trial court rendered its paid as indicated by the word 'cleared' appearing
judgment favoring private respondent CSC, as 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 "WHEREFORE, the Court hereby MODIFIES the
been fully paid is supported only by the testimony of assailed judgment and orders defendant-appellant
Arnulfo Caintic, witness for defendant Victorias to:
Milling Company. The Court notes that the testimony
of Arnulfo Caintic is merely a sweeping barren "1) Deliver to plaintiff-appellee 12,586 bags
assertion that the purchase price has not been fully of sugar covered by SLDR No. 1214M;
paid and is not corroborated by any positive
evidence. There is an insinuation by Arnulfo Caintic "2) Pay to plaintiff-appellee P792,918.00
in his testimony that the postdated checks issued by which is 10% of the value of the undelivered
the buyer in payment of the purchased price were bags of refined sugar, as attorneys fees;
dishonored. However, said witness failed to present
in Court any dishonored check or any replacement "3) Pay the costs of suit.
check. Said witness likewise failed to present any
bank record showing that the checks issued by the "SO ORDERED."11
buyer, Teresita Ng Go, in payment of the purchase
price of the sugar covered by SLDR No. 1214 were
Both parties then seasonably filed separate motions
for reconsideration.
Petitioner appealed the trial court’s decision to the
In its resolution dated September 30, 1994, the
Court of Appeals.
appellate court modified its decision to read:
On appeal, petitioner averred that the dealings
"WHEREFORE, the Court hereby modifies the
between it and STM were part of a series of
assailed judgment and orders defendant-appellant
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. "(1) Deliver to plaintiff-appellee 23,000 bags
SLDR No. 21214M was only one of 22 SLDRs of refined sugar under SLDR No. 1214M;
issued to STM and since the latter had already
withdrawn its full quota of sugar under the said "(2) Pay costs of suit.
SLDR, CSC was already precluded from seeking
delivery of the 23,000 bags of sugar. "SO ORDERED."12

Private respondent CSC countered that the sugar The appellate court explained the rationale for the
purchases involving SLDR No. 1214M were modification as follows:
separate and independent transactions and that the
details of the series of purchases were contained in "There is merit in plaintiff-appellee's position.
a single statement with a consolidated summary of
cleared check payments and sugar stock "Exhibit ‘F' We relied upon in fixing the number of
withdrawals because this a more convenient system bags of sugar which remained undelivered as
than issuing separate statements for each purchase. 12,586 cannot be made the basis for such a finding.
The rule is explicit that courts should consider the
The appellate court considered the following issues: evidence only for the purpose for which it was
(a) Whether or not the transaction between offered. (People v. Abalos, et al, 1 CA Rep 783). The
petitioner and STM involving SLDR No. 1214M was rationale for this is to afford the party against whom
a separate, independent, and single transaction; (b) the evidence is presented to object thereto if he
Whether or not CSC had the capacity to sue on its deems it necessary. Plaintiff-appellee is, therefore,
own on SLDR No. 1214M; and (c) Whether or not correct in its argument that Exhibit ‘F' which was
CSC as buyer from STM of the rights to 25,000 bags offered to prove that checks in the total amount of
of sugar covered by SLDR No. 1214M could compel P15,950,000.00 had been cleared. (Formal Offer of
petitioner to deliver 23,000 bags allegedly Evidence for Plaintiff, Records p. 58) cannot be used
unwithdrawn. to prove the proposition that 12,586 bags of sugar
remained undelivered.
On February 24, 1994, the Court of Appeals
rendered its decision modifying the trial court's "Testimonial evidence (Testimonies of Teresita Ng
judgment, to wit: [TSN, 10 October 1990, p. 33] and Marianito L.
Santos [TSN, 17 October 1990, pp. 16, 18, and review of its conclusion of facts by this
36]) presented by plaintiff-appellee was to the effect Honorable Court.
that it had withdrawn only 2,000 bags of sugar from
SLDR after which it was not allowed to withdraw "3. The Court of Appeals misapplied the law
anymore. Documentary evidence (Exhibit I, Id., p. on compensation under Arts. 1279, 1285 and
78, Exhibit K, Id., p. 80) show that plaintiff-appellee 1626 of the Civil Code when it ruled that
had sent demand letters to defendant-appellant compensation applied only to credits from
asking the latter to allow it to withdraw the remaining one SLDR or contract and not to those
23,000 bags of sugar from SLDR 1214M. from two or more distinct contracts between
Defendant-appellant, on the other hand, alleged that the same parties; and erred in denying
sugar delivery to the STM corresponded only to the petitioner's right to setoff all its credits arising
value of cleared checks; and that all sugar prior to notice of assignment from other sales
corresponded to cleared checks had been or SLDRs against private respondent's claim
withdrawn. Defendant-appellant did not rebut as assignee under SLDR No. 1214M, so as
plaintiff-appellee's assertions. It did not present to extinguish or reduce its liability to 69 bags,
evidence to show how many bags of sugar had been because the law on compensation applies
withdrawn against SLDR No. 1214M, precisely precisely to two or more distinct contracts
because of its theory that all sales in question were between the same parties (emphasis in the
a series of one single transaction and withdrawal of original).
sugar depended on the clearing of checks paid
therefor. "4. The Court of Appeals erred in concluding
that the settlement or liquidation of accounts
"After a second look at the evidence, We see no in Exh. ‘F’ between petitioner and STM,
reason to overturn the findings of the trial court on respondent's admission of its balance, and
this point."13 STM's acquiescence thereto by silence for
almost one year did not render Exh. `F' an
Hence, the instant petition, positing the following account stated and its balance binding.
errors as grounds for review:
"5. The Court of Appeals erred in not holding
"1. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No.
that STM's and private respondent's 1214, namely, (a) its subject matter being
specially informing petitioner that respondent generic, and (b) the sale of sugar being
was authorized by buyer STM to withdraw subject to its availability at the Nawaco
sugar against SLDR No. 1214M "for and in warehouse, made the sale conditional and
our (STM) behalf," (emphasis in the original) prevented STM or private respondent from
private respondent's withdrawing 2,000 bags acquiring title to the sugar; and the non-
of sugar for STM, and STM's empowering availability of sugar freed petitioner from
other persons as its agents to withdraw sugar further obligation.
against the same SLDR No. 1214M,
rendered respondent like the other persons, "6. The Court of Appeals erred in not holding
an agent of STM as held in Rallos v. Felix Go that the "clean hands" doctrine precluded
Chan & Realty Corp., 81 SCRA 252, and respondent from seeking judicial reliefs (sic)
precluded it from subsequently claiming and from petitioner, its only remedy being against
proving being an assignee of SLDR No. its assignor."14
1214M and from suing by itself for its
enforcement because it was conclusively Simply stated, the issues now to be resolved are:
presumed to be an agent (Sec. 2, Rule 131,
Rules of Court) and estopped from doing so. (1)....Whether or not the Court of Appeals
(Art. 1431, Civil Code). erred in not ruling that CSC was an agent of
STM and hence, estopped to sue upon
"2. The Court of Appeals erred in manifestly SLDR No. 1214M as an assignee.
and arbitrarily ignoring and disregarding
certain relevant and undisputed facts which, (2)....Whether or not the Court of Appeals
had they been considered, would have erred in applying the law on compensation to
shown that petitioner was not liable, except the transaction under SLDR No. 1214M so
for 69 bags of sugar, and which would justify
as to preclude petitioner from offsetting its control; one person - the agent - agrees to act under
credits on the other SLDRs. the control or direction of another - the principal.
Indeed, the very word "agency" has come to connote
(3)....Whether or not the Court of Appeals control by the principal.22 The control factor, more
erred in not ruling that the sale of sugar under than any other, has caused the courts to put
SLDR No. 1214M was a conditional sale or a contracts between principal and agent in a separate
contract to sell and hence freed petitioner category.23 The Court of Appeals, in finding that
from further obligations. CSC, was not an agent of STM, opined:

(4)....Whether or not the Court of Appeals "This Court has ruled that where the relation of
committed an error of law in not applying the agency is dependent upon the acts of the parties,
"clean hands doctrine" to preclude CSC from the law makes no presumption of agency, and it is
seeking judicial relief. always a fact to be proved, with the burden of proof
resting upon the persons alleging the agency, to
The issues will be discussed in seriatim. show not only the fact of its existence, but also its
nature and extent (Antonio vs. Enriquez [CA], 51
Anent the first issue, we find from the records that O.G. 3536]. Here, defendant-appellant failed to
petitioner raised this issue for the first time on sufficiently establish the existence of an agency
appeal.1avvphi1 It is settled that an issue which was relation between plaintiff-appellee and STM. The
not raised during the trial in the court below could not fact alone that it (STM) had authorized withdrawal of
be raised for the first time on appeal as to do so sugar by plaintiff-appellee "for and in our (STM's)
would be offensive to the basic rules of fair play, behalf" should not be eyed as pointing to the
justice, and due process.15 Nonetheless, the Court of existence of an agency relation ...It should be viewed
Appeals opted to address this issue, hence, now a in the context of all the circumstances obtaining.
matter for our consideration. Although it would seem STM represented plaintiff-
appellee as being its agent by the use of the phrase
Petitioner heavily relies upon STM's letter of "for and in our (STM's) behalf" the matter was
authority allowing CSC to withdraw sugar against cleared when on 23 January 1990, plaintiff-appellee
SLDR No. 1214M to show that the latter was STM's informed defendant-appellant that SLDFR No.
agent. The pertinent portion of said letter reads: 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
"This is to authorize Consolidated Sugar Corporation
by the SLDR No. 1214M were sold and transferred
or its representative to withdraw for and in our
by STM to it ...A conclusion that there was a valid
behalf (stress supplied) the refined sugar covered by
sale and transfer to plaintiff-appellee may, therefore,
Shipping List/Delivery Receipt = Refined Sugar
be made thus capacitating plaintiff-appellee to sue in
(SDR) No. 1214 dated October 16, 1989 in the total
its own name, without need of joining its imputed
quantity of 25, 000 bags."16
principal STM as co-plaintiff."24
The Civil Code defines a contract of agency as
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
"Art. 1868. By the contract of agency a person binds was not subject to STM's control. The question of
himself to render some service or to do something in whether a contract is one of sale or agency depends
representation or on behalf of another, with the on the intention of the parties as gathered from the
consent or authority of the latter." whole scope and effect of the language
employed.25 That the authorization given to CSC
It is clear from Article 1868 that the basis of agency contained the phrase "for and in our (STM's) behalf"
is representation.17 On the part of the principal, there did not establish an agency. Ultimately, what is
must be an actual intention to appoint18 or an decisive is the intention of the parties.26 That no
intention naturally inferable from his words or agency was meant to be established by the CSC and
actions;19 and on the part of the agent, there must be STM is clearly shown by CSC's communication to
an intention to accept the appointment and act on petitioner that SLDR No. 1214M had been "sold and
it,20 and in the absence of such intent, there is endorsed" to it.27 The use of the words "sold and
generally no agency.21 One factor which most clearly endorsed" means that STM and CSC intended a
distinguishes agency from other legal concepts is contract of sale, and not an agency. Hence, on this
score, no error was committed by the respondent As to the fourth issue, petitioner submits that STM
appellate court when it held that CSC was not STM's and private respondent CSC have entered into a
agent and could independently sue petitioner. conspiracy to defraud it of its sugar. This conspiracy
is allegedly evidenced by: (a) the fact that STM's
On the second issue, proceeding from the theory selling price to CSC was below its purchasing price;
that the transactions entered into between petitioner (b) CSC's refusal to pursue its case against Teresita
and STM are but serial parts of one account, Ng Go; and (c) the authority given by the latter to
petitioner insists that its debt has been offset by its other persons to withdraw sugar against SLDR No.
claim for STM's unpaid purchases, pursuant to 1214M after she had sold her rights under said
Article 1279 of the Civil Code.28 However, the trial SLDR to CSC. Petitioner prays that the doctrine of
court found, and the Court of Appeals concurred, "clean hands" should be applied to preclude CSC
that the purchase of sugar covered by SLDR No. from seeking judicial relief. However, despite careful
1214M was a separate and independent transaction; scrutiny, we find here the records bare of convincing
it was not a serial part of a single transaction or of evidence whatsoever to support the petitioner's
one account contrary to petitioner's insistence. allegations of fraud. We are now constrained to
Evidence on record shows, without being rebutted, deem this matter purely speculative, bereft of
that petitioner had been paid for the sugar concrete proof.
purchased under SLDR No. 1214M. Petitioner
clearly had the obligation to deliver said commodity WHEREFORE, the instant petition is DENIED for
to STM or its assignee. Since said sugar had been lack of merit. Costs against petitioner.
fully paid for, petitioner and CSC, as assignee of
STM, were not mutually creditors and debtors of SO ORDERED.
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

"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

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.
LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta.
Cruz, Manila, to be my lawful representative in the
withdrawal of the scrap/unserviceable rails awarded
to me.

For this reason, I have given her the original copy of

the award, dated May 5, 1980 and O.R. No. 8706855
dated May 20, 1980 which will indicate my waiver of
SECOND DIVISION rights, interests and participation in favor of LIZETTE
G.R. No. 150128 August 31, 2006
Thank you for your cooperation.
vs. Very truly yours,
RODOLFO FLORES, 1Respondents. (Sgd.) Gaudencio Romualdez

DECISION The Lizette R. Wijanco mentioned in the letter was

Lizette Wijanco- Angeles, petitioner's now deceased
GARCIA, J.: wife. That very same day – May 26, 1980 – Lizette
requested the PNR to transfer the location of
Under consideration is this petition for review under withdrawal for the reason that the
Rule 45 of the Rules of Court assailing and seeking scrap/unserviceable rails located in Del Carmen and
to set aside the following issuances of the Court of Lubao, Pampanga were not ready for hauling. The
Appeals (CA) in CA-G.R. CV No. 54062, to wit: PNR granted said request and allowed Lizette to
withdraw scrap/unserviceable rails in Murcia, Capas
and San Miguel, Tarlac instead. However, the PNR
1. Decision 2 dated June 4, 2001, affirming an earlier
subsequently suspended the withdrawal in view of
decision of the Regional Trial Court (RTC) of
what it considered as documentary discrepancies
Quezon City, Branch 79, which dismissed the
coupled by reported pilferages of over P500,000.00
complaint for specific performance and damages
worth of PNR scrap properties in Tarlac.
thereat commenced by the petitioner against the
herein respondents; and
Consequently, the spouses Angeles demanded the
refund of the amount of P96,000.00. The PNR,
2. Resolution 3 dated September 17, 2001, denying
however, refused to pay, alleging that as per delivery
the petitioner's motion for reconsideration.
receipt duly signed by Lizette, 54.658 metric tons of
unserviceable rails had already been withdrawn
The facts: which, at P2,100.00 per metric ton, were
worth P114,781.80, an amount that exceeds the
On May 5, 1980, the respondent Philippine National claim for refund.
Railways (PNR) informed a certain Gaudencio
Romualdez (Romualdez, hereinafter) that it has On August 10, 1988, the spouses Angeles filed suit
accepted the latter’s offer to buy, on an "AS IS, against the PNR and its corporate secretary,
WHERE IS" basis, the PNR’s scrap/unserviceable Rodolfo Flores, among others, for specific
rails located in Del Carmen and Lubao, Pampanga performance and damages before the Regional Trial
at P1,300.00 and P2,100.00 per metric ton, Court of Quezon City. In it, they prayed that PNR be
respectively, for the total amount of P96,600.00. directed to deliver 46 metric tons of
After paying the stated purchase price, Romualdez scrap/unserviceable rails and to pay them damages
addressed a letter to Atty. Cipriano Dizon, PNR’s and attorney's fees.
Acting Purchasing Agent. Bearing date May 26,
1980, the letter reads:
Issues having been joined following the filing by
PNR, et al., of their answer, trial ensued. Meanwhile,
Dear Atty. Dizon: Lizette W. Angeles passed away and was
substituted by her heirs, among whom is her
This is to inform you as President of San Juanico husband, herein petitioner Laureno T. Angeles.
Enterprises, that I have authorized the bearer,
On April 16, 1996, the trial court, on the postulate requiring every action to be prosecuted in the name
that the spouses Angeles are not the real parties-in- of the real party-in-interest recognizes the
interest, rendered judgment dismissing their assignment of rights of action and also recognizes
complaint for lack of cause of action. As held by the
court, Lizette was merely a representative of that when one has a right assigned to him, he is then
Romualdez in the withdrawal of scrap or the real party-in-interest and may maintain an action
unserviceable rails awarded to him and not an upon such claim or right. 4
assignee to the latter's rights with respect to the
award. Upon scrutiny of the subject Romualdez's letter to
Atty. Cipriano Dizon dated May 26, 1980, it is at once
Aggrieved, the petitioner interposed an appeal with apparent that Lizette was to act just as a
the CA, which, as stated at the threshold hereof, in "representative" of Romualdez in the "withdrawal of
its decision of June 4, 2001, dismissed the appeal rails," and not an assignee. For perspective, we
and affirmed that of the trial court. The affirmatory reproduce the contents of said letter:
decision was reiterated by the CA in its resolution of
September 17, 2001, denying the petitioner’s motion This is to inform you as President of San Juanico
for reconsideration. Enterprises, that I have authorized the bearer,
LIZETTE R. WIJANCO x x x to be my lawful
Hence, the petitioner’s present recourse on the representative in the withdrawal of the
submission that the CA erred in affirming the trial scrap/unserviceable rails awarded to me.
court's holding that petitioner and his spouse, as
plaintiffs a quo, had no cause of action as they were For this reason, I have given her the original copy
not the real parties-in-interest in this case. of the award, dated May 5, 1980 and O.R. No.
8706855 dated May 20, 1980 which will indicate my
We DENY the petition. waiver of rights, interests and participation in favor
of LIZETTE R. WIJANCO. (Emphasis added)
At the crux of the issue is the matter of how the
aforequoted May 26, 1980 letter of Romualdez to If Lizette was without legal standing to sue and
Atty. Dizon of the PNR should be taken: was it meant appear in this case, there is more reason to hold that
to designate, or has it the effect of designating, her petitioner husband, either as her conjugal
Lizette W. Angeles as a mere agent or as an partner or her heir, is also without such standing.
assignee of his (Romualdez's) interest in the scrap
rails awarded to San Juanico Enterprises? The CA’s Petitioner makes much of the fact that the terms
conclusion, affirmatory of that of the trial court, is that "agent" or "attorney-in-fact" were not used in the
Lizette was not an assignee, but merely an agent Romualdez letter aforestated. It bears to stress,
whose authority was limited to the withdrawal of the however, that the words "principal" and "agent," are
scrap rails, hence, without personality to sue. not the only terms used to designate the parties in
an agency relation. The agent may also be called an
Where agency exists, the third party's (in this case, attorney, proxy, delegate or, as here, representative.
PNR's) liability on a contract is to the principal and
not to the agent and the relationship of the third party It cannot be over emphasized that Romualdez's use
to the principal is the same as that in a contract in of the active verb "authorized," instead of
which there is no agent. Normally, the agent has "assigned," indicated an intent on his part to keep
neither rights nor liabilities as against the third party. and retain his interest in the subject matter. Stated a
He cannot thus sue or be sued on the contract. Since bit differently, he intended to limit Lizette’s role in the
a contract may be violated only by the parties thereto scrap transaction to being the representative of his
as against each other, the real party-in-interest, interest therein.
either as plaintiff or defendant in an action upon that
contract must, generally, be a contracting party. Petitioner submits that the second paragraph of the
Romualdez letter, stating - "I have given [Lizette] the
The legal situation is, however, different where an original copy of the award x x x which will indicate
agent is constituted as an assignee. In such a case, my waiver of rights, interests and participation in
the agent may, in his own behalf, sue on a contract favor of Lizette R. Wijanco" - clarifies that Lizette was
made for his principal, as an assignee of such intended to be an assignee, and not a mere agent.
contract. The rule
We are not persuaded. As it were, the petitioner urged by the petitioner cannot, accordingly, be
conveniently omitted an important phrase preceding granted. For, factual findings of the trial court,
the paragraph which would have put the whole adopted and confirmed by the CA, are, as a rule,
matter in context. The phrase is "For this reason," final and conclusive and may not be disturbed on
and the antecedent thereof is his (Romualdez) appeal. 6 So it must be here.
having appointed Lizette as his representative in the
matter of the withdrawal of the scrap items. In fine, Petitioner maintains that the Romualdez letter in
the key phrase clearly conveys the idea that Lizette question was not in the form of a special power of
was given the original copy of the contract award to attorney, implying that the latter had not intended to
enable her to withdraw the rails as Romualdez’s merely authorize his wife, Lizette, to perform an act
authorized representative. for him (Romualdez). The contention is specious. In
the absence of statute, no form or method of
Article 1374 of the Civil Code provides that the execution is required for a valid power of attorney; it
various stipulations of a contract shall be read and may be in any form clearly showing on its face the
interpreted together, attributing to the doubtful ones agent’s authority. 7
that sense which may result from all of them taken
jointly. In fine, the real intention of the parties is A power of attorney is only but an instrument in
primarily to be determined from the language used writing by which a person, as principal, appoints
and gathered from the whole instrument. When put another as his agent and confers upon him the
into the context of the letter as a whole, it is authority to perform certain specified acts on behalf
abundantly clear that the rights which Romualdez of the principal. The written authorization itself is the
waived or ceded in favor of Lizette were those in power of attorney, and this is clearly indicated by the
furtherance of the agency relation that he had fact that it has also been called a "letter of attorney."
established for the withdrawal of the rails. Its primary purpose is not to define the authority of
the agent as between himself and his principal but to
At any rate, any doubt as to the intent of Romualdez evidence the authority of the agent to third parties
generated by the way his letter was couched could with whom the agent deals. 8 The letter under
be clarified by the acts of the main players consideration is sufficient to constitute a power of
themselves. Article 1371 of the Civil Code provides attorney. Except as may be required by statute, a
that to judge the intention of the contracting parties, power of attorney is valid although no notary public
their contemporaneous and subsequent acts shall intervened in its execution. 9
be principally considered. In other words, in case of
doubt, resort may be made to the situation, A power of attorney must be strictly construed and
surroundings, and relations of the parties. pursued. The instrument will be held to grant only
those powers which are specified therein, and the
The fact of agency was, as the trial court aptly agent may neither go beyond nor deviate from the
observed, 5 confirmed in subsequent letters from the power of attorney. 10Contextually, all that Lizette was
Angeles spouses in which they themselves refer to authorized to do was to withdraw the
Lizette as "authorized representative" of San unserviceable/scrap railings. Allowing her authority
Juanico Enterprises. Mention may also be made that to sue therefor, especially in her own name, would
the withdrawal receipt which Lizette had signed be to read something not intended, let alone written
indicated that she was doing so in a representative in the Romualdez letter.
capacity. One professing to act as agent for another
is estopped to deny his agency both as against his Finally, the petitioner's claim that Lizette paid the
asserted principal and third persons interested in the amount of P96,000.00 to the PNR appears to be a
transaction which he engaged in. mere afterthought; it ought to be dismissed outright
under the estoppel principle. In earlier proceedings,
Whether or not an agency has been created is a petitioner himself admitted in his complaint that it
question to be determined by the fact that one was Romualdez who paid this amount.
represents and is acting for another. The appellate
court, and before it, the trial court, had peremptorily WHEREFORE, the petition is DENIED and the
determined that Lizette, with respect to the assailed decision of the CA is AFFIRMED.
withdrawal of the scrap in question, was acting for
Romualdez. And with the view we take of this case, Costs against the petitioner.
there were substantial pieces of evidence adduced
to support this determination. The desired reversal SO ORDERED.
Republic of the Philippines it. He alleged that he was in possession of
SUPREME COURT the title but when his wife, Irma, left for
Manila abroad, he found out that his copy was
missing. He then verified with the Registry of
SECOND DIVISION Deeds of Manila and there he discovered
that his title was already cancelled in favor of
defendant Aglaloma Escario. The transfer of
property was supported by a General Power
G.R. No. 102737 August 21, 1996 of Attorney6 dated November 29, 1985 and
Deed of Absolute Sale, dated November 2,
FRANCISCO A. VELOSO, petitioner, 1987, executed by Irma Veloso, wife of the
vs. petitioner and appearing as his attorney-in-
COURT OF APPEALS, AGLALOMA B. fact, and defendant Aglaloma
ESCARIO, assisted by her husband GREGORIO Escario.7 Petitioner Veloso, however, denied
L. ESCARIO, the REGISTER OF DEEDS FOR having executed the power of attorney and
THE CITY OF MANILA, respondents. alleged that his signature was falsified. He
also denied having seen or even known
Rosemarie Reyes and Imelda Santos, the
supposed witnesses in the execution of the
power of attorney. He vehemently denied
TORRES, JR., J.:p having met or transacted with the defendant.
Thus, he contended that the sale of the
This petition for review assails the decision property, and the subsequent transfer
of the Court of Appeals, dated July 29, 1991, thereof, were null and void. Petitioner
the dispositive portion of which reads: Veloso, therefore, prayed that a temporary
restraining order be issued to prevent the
WHEREFORE, the decision transfer of the subject property; that the
appealed from is hereby AFFIRMED General Power of Attorney, the Deed of
IN TOTO. Costs against appellant.1 Absolute Sale and the Transfer Certificate of
Title No. 180685 be annulled; and the
The following are the antecedent facts: subject property be reconveyed to him.

Petitioner Francisco Veloso was the owner of Defendant Aglaloma Escario in her answer
a parcel of land situated in the district of alleged that she was a buyer in good faith
Tondo, Manila, with an area of one hundred and denied any knowledge of the alleged
seventy seven (177) square meters and irregularity. She allegedly relied on the
covered by Transfer Certificate of Title No. general power of attorney of Irma Veloso
49138 issued by the Registry of Deeds of which was sufficient in form and substance
Manila.2 The title was registered in the name and was duly notarized. She contended that
of Francisco A. Veloso, single,3 on October plaintiff (herein petitioner), had no cause of
4, 1957.4 The said title was subsequently action against her. In seeking for the
cancelled and a new one, Transfer declaration of nullity of the documents, the
Certificate of Title No. 180685, was issued in real party in interest was Irma Veloso, the
the name of Aglaloma B. Escario, married to wife of the plaintiff. She should have been
Gregorio L. Escario, on May 24, 1988.5 impleaded in the case. In fact, Plaintiff's
cause of action should have been against his
On August 24, 1988, petitioner Veloso filed wife, Irma. Consequently, defendant Escario
an action for annulment of documents, prayed for the dismissal of the complaint and
reconveyance of property with damages and the payment to her of damages.8
preliminary injunction and/or restraining
order. The complaint, docketed as Civil Case Pre-trial was conducted. The sole issue to be
No. 88-45926, was raffled to the Regional resolved by the trial court was whether or not
Trial Court, Branch 45, Manila. Petitioner there was a valid sale of the subject
alleged therein that he was the absolute property.9
owner of the subject property and he never
authorized anybody, not even his wife, to sell
During the trial, plaintiff (herein petitioner) b. denying all other
Francisco Veloso testified that he acquired claims of the parties
the subject property from the Philippine for want of legal and
Building Corporation, as evidenced by a factual basis.
Deed of Sale dated October 1, 1957.10 He
married Irma Lazatin on January 20, Without
1962.11 Hence, the property did not belong to pronouncement as to
their conjugal partnership. Plaintiff further costs.
asserted that he did not sign the power of
attorney and as proof that his signature was SO ORDERED.
falsified, he presented Allied Bank Checks
Nos. 16634640, 16634641 and 16634643, Not satisfied with the decision, petitioner
which allegedly bore his genuine signature. Veloso filed his appeal with the Court of
Appeals. The respondent court affirmed in
Witness for the plaintiff Atty. Julian G. Tubig toto the findings of the trial court.
denied any participation in the execution of
the general power of attorney. He attested Hence, this petition for review before Us.
that he did not sign thereon, and the same
was never entered in his Notarial Register on This petition for review was initially
November 29, 1985. dismissed for failure to submit an affidavit of
service of a copy of the petition on the
In the decision of the trial court dated March counsel for private respondent.13 A motion
9, 1990,12 defendant Aglaloma Escario was for reconsideration of the resolution was filed
adjudged the lawful owner of the property as but it was denied in are resolution dated
she was deemed an innocent purchaser for March 30, 1992.14 A second motion for
value. The assailed general power of reconsideration was filed and in a resolution
attorney was held to be valid and sufficient dated Aug. 3, 1992, the motion was granted
for the purpose. The trial court ruled that and the petition for review was reinstated.15
there was no need for a special power of
attorney when the special power was already A supplemental petition was filed on October
mentioned in the general one. It also 9, 1992 with the following assignment of
declared that plaintiff failed to substantiate errors:
his allegation of fraud. The court also
stressed that plaintiff was not entirely
blameless for although he admitted to be the
only person who had access to the title and
other important documents, his wife was still The Court of Appeals committed a
able to possess the copy. Citing Section 55 grave error in not finding that the
of Act 496, the court held that Irma's forgery of the power of attorney (Exh
possession and production of the certificate . "C") had been adequately proven,
of title was deemed a conclusive authority despite the preponderant evidence,
from the plaintiff to the Register of Deeds to and in doing so, it has so far departed
enter a new certificate. Then applying the from the applicable provisions of law
principle of equitable estoppel, plaintiff was and the decisions of this Honorable
held to bear the loss for it was he who made Court, as to warrant the grant of this
the wrong possible. Thus: petition for review on certiorari.

WHEREFORE, the Court finds for the II

defendants and against plaintiff —
There are principles of justice and
a. declaring that there equity that warrant a review of the
was a valid sale of the decision.
subject property in
favor of the defendant; III
The Court of Appeals erred in terms, then such power cannot go
affirming the decision of the trial court beyond acts of administration.
which misapplied the principle of However, where the power to sell is
equitable estoppel since the specific, it not being merely implied,
petitioner did not fail in his duty of much less couched in general terms,
observing due diligence in the there can not be any doubt that the
safekeeping of the title to the attorney in fact may execute a valid
property. sale. An instrument may be
captioned as "special power of
We find petitioner's contentions not attorney" but if the powers granted
meritorious. are couched in general terms without
mentioning any specific power to sell
An examination of the records showed that or mortgage or to do other specific
the assailed power of attorney was valid and acts of strict dominion, then in that
regular on its face. It was notarized and as case only acts of administration may
such, it carries the evidentiary weight be deemed conferred.
conferred upon it with respect to its due
execution. While it is true that it was Petitioner contends that his signature on the
denominated as a general power of attorney, power of attorney was falsified. He also
a perusal thereof revealed that it stated an alleges that the same was not duly notarized
authority to sell, to wit: for as testified by Atty. Tubig himself, he did
not sign thereon nor was it ever recorded in
2. To buy or sell, hire or lease, his notarial register. To bolster his argument,
mortgage or otherwise hypothecate petitioner had presented checks, marriage
lands, tenements and hereditaments certificate and his residence certificate to
or other forms of real property, more prove his alleged genuine signature which
specifically TCT No. 49138, upon when compared to the signature in the power
such terms and conditions and under of attorney, showed some difference.
such covenants as my said attorney
shall deem fit and proper.16 We found, however, that the basis presented
by the petitioner was inadequate to sustain
Thus, there was no need to execute a his allegation of forgery. Mere variance of the
separate and special power of attorney since signatures cannot be considered as
the general power of attorney had expressly conclusive proof that the same were forged.
authorized the agent or attorney in fact the Forgery cannot be presumed17 Petitioner,
power to sell the subject property. The however, failed to prove his allegation and
special power of attorney can be included in simply relied on the apparent difference of
the general power when it is specified therein the signatures. His denial had not
the act or transaction for which the special established that the signature on the power
power is required. of attorney was not his.

The general power of attorney was accepted We agree with the conclusion of the lower
by the Register of Deeds when the title to the court that private respondent was an
subject property was cancelled and innocent purchaser for value. Respondent
transferred in the name of private Aglaloma relied on the power of attorney
respondent. In LRC Consulta No. 123, presented by petitioner's wife, Irma. Being
Register of Deeds of Albay, Nov. 10, 1956, it the wife of the owner and having with her the
stated that: title of the property, there was no reason for
the private respondent not to believe in her
Whether the instrument be authority. Moreover, the power of attorney
denominated as "general power of was notarized and as such, carried with it the
attorney" or "special power of presumption of its due execution. Thus,
attorney", what matters is the extent having had no inkling on any irregularity and
of the power or powers contemplated having no participation thereof, private
upon the agent or attorney in fact. If respondent was a buyer in good faith. It has
the power is couched in general been consistently held that a purchaser in
good faith is one who buys property of issued in favor of private respondent
another, without notice that some other Aglaloma. In Tenio-Obsequio vs. Court of
person has a right to, or interest in such Appeals,20 it was held, viz:
property and pays a full and fair price for the
same, at the time of such purchase, or before The right of an innocent purchaser for
he has notice of the claim or interest of some value must be respected and
other person in the property.18 protected, even if the seller obtained
his title through fraud. The remedy of
Documents acknowledged before a notary the person prejudiced is to bring an
public have the evidentiary weight with action for damages against those
respect to their due execution. The who caused or employed the fraud,
questioned power of attorney and deed of and if the latter are insolvent, an
sale, were notarized and therefore, action against the Treasurer of the
presumed to be valid and duly executed. Philippines may be filed for recovery
Atty. Tubig denied having notarized the said of damages against the Assurance
documents and alleged that his signature Fund.
had also been falsified. He presented
samples of his signature to prove his Finally; the trial court did not err in applying
contention. Forgery should be proved by equitable estoppel in this case. The principle
clear and convincing evidence and whoever of equitable estoppel states that where one
alleges it has the burden of proving the or two innocent persons must suffer a loss,
same. Just like the petitioner, witness Atty. he who by his conduct made the loss
Tubig merely pointed out that his signature possible must bear it. From the evidence
was different from that in the power of adduced, it should be the petitioner who
attorney and deed of sale. There had never should bear the loss. As the court a
been an accurate examination of the quo found:
signature, even that of the petitioner. To
determine forgery, it was held in Cesar Besides, the records of this case
vs. Sandiganbayan19 (quoting Osborn, The disclosed that the plaintiff is not
Problem of Proof) that: entirely free from blame. He admitted
that he is the sole person who has
The process of identification, access to TCT No. 49138 and other
therefore, must include the documents appertaining thereto
determination of the extent, kind, and (TSN, May 23, 1989, pp. 7-12)
significance of this resemblance as However, the fact remains that the
well as of the variation. It then Certificate of Title, as well as other
becomes necessary to determine documents necessary for the transfer
whether the variation is due to the of title were in the possession of
operation of a different personality, or plaintiff's wife, Irma L. Veloso,
is only the expected and inevitable consequently leaving no doubt or any
variation found in the genuine writing suspicion on the part of the defendant
of the same writer. It is also as to her authority. Under Section 55
necessary to decide whether the of Act 496, as amended, Irma's
resemblance is the result of a more or possession and production of the
less skillful imitation, or is the habitual Certificate of Title to defendant
and characteristic resemblance operated as "conclusive authority
which naturally appears in a genuine from the plaintiff to the Register of
writing. When these two questions Deeds to enter a new certificate."21
are correctly answered the whole
problem of identification is solved. Considering the foregoing premises, we
found no error in the appreciation of facts and
Even granting for the sake of argument, that application of law by the lower court which
the petitioner's signature was falsified and will warrant the reversal or modification of the
consequently, the power of attorney and the appealed decision.
deed of sale were null and void, such fact
would not revoke the title subsequently
ACCORDINGLY, the petition for review is
hereby DENIED for lack of merit.

Republic of the Philippines 1. To act in my behalf, to sell, alienate,
SUPREME COURT mortgage, lease and deal otherwise over the
Manila different parcels of land described
hereinafter, to wit:
a) Calapan, Oriental Mindoro
G.R. No. 171460 July 24, 2007 Properties covered by Transfer
Certificates of Title Nos. T-53618 -
LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, 3,522 Square Meters, T-46810 –
and JULIAN MERCADO, JR., represented by 3,953 Square Meters, T-53140 – 177
their Attorney-In-Fact, ALFREDO M. Square Meters, T-21403 – 263
PEREZ, Petitioners, square Meters, T- 46807 – 39 Square
vs. Meters of the Registry of Deeds of
ALLIED BANKING CORPORATION, Respondent. Oriental Mindoro;

DECISION b) Susana Heights, Muntinlupa

covered by Transfer Certificates of
CHICO-NAZARIO, J.: Title Nos. T-108954 – 600 Square
Meters and RT-106338 – 805 Square
Before this Court is a Petition for Review Meters of the Registry of Deeds of
on Certiorari under Rule 45 of the Revised Rules of Pasig (now Makati);
Court, filed by petitioners Lillian N. Mercado, Cynthia
M. Fekaris and Julian Mercado, Jr., represented by c) Personal property – 1983 Car with
their Attorney-In-Fact, Alfredo M. Perez, seeking to Vehicle Registration No. R-16381;
reverse and set aside the Decision1 of the Court of Model 1983; Make – Toyota; Engine
Appeals dated 12 October 2005, and its No. T- 2464
Resolution2 dated 15 February 2006 in CA-G.R. CV
No. 82636. The Court of Appeals, in its assailed 2. To sign for and in my behalf any act of
Decision and Resolution, reversed the Decision3 of strict dominion or ownership any sale,
the Regional Trial Court (RTC) of Quezon City, disposition, mortgage, lease or any other
Branch 220 dated 23 September 2003, declaring the transactions including quit-claims, waiver
deeds of real estate mortgage constituted on TCT and relinquishment of rights in and over the
No. RT-18206 (106338) null and void. The parcels of land situated in General Trias,
dispositive portion of the assailed Court of Appeals Cavite, covered by Transfer Certificates of
Decision thus reads: Title Nos. T-112254 and T-112255 of the
Registry of Deeds of Cavite, in conjunction
WHEREFORE, the appealed decision is with his co-owner and in the person ATTY.
is hereby entered dismissing the [petitioners]
complaint.4 3. To exercise any or all acts of strict
dominion or ownership over the above-
Petitioners are heirs of Perla N. Mercado (Perla). mentioned properties, rights and interest
Perla, during her lifetime, owned several pieces of therein. (Emphasis supplied.)
real property situated in different provinces of the
Philippines. On the strength of the aforesaid SPA, Julian, on 12
December 1996, obtained a loan from the
Respondent, on the other hand, is a banking respondent in the amount of ₱3,000,000.00,
institution duly authorized as such under the secured by real estate mortgage constituted on TCT
Philippine laws. No. RT-18206 (106338) which covers a parcel of
land with an area of 805 square meters, registered
On 28 May 1992, Perla executed a Special Power of with the Registry of Deeds of Quezon City (subject
Attorney (SPA) in favor of her husband, Julian D. property).5
Mercado (Julian) over several pieces of real property
registered under her name, authorizing the latter to Still using the subject property as security, Julian
perform the following acts: obtained an additional loan from the respondent in
the sum of ₱5,000,000.00, evidenced by a
Promissory Note6 he executed on 5 February 1997 Deeds of Pasig (now Makati). Respondent explained
as another real estate mortgage (REM). that the discrepancy in the designation of the
Registry of Deeds in the SPA was merely an error
It appears, however, that there was no property that must not prevail over the clear intention of Perla
identified in the SPA as TCT No. RT – 18206 to include the subject property in the said SPA. In
(106338) and registered with the Registry of Deeds sum, the property referred to in the SPA Perla
of Quezon City. What was identified in the SPA executed in favor of Julian as covered by TCT No.
instead was the property covered by TCT No. RT- 106338 of the Registry of Deeds of Pasig (now
106338 registered with the Registry of Deeds of Makati) and the subject property in the case at bar,
Pasig. covered by RT – 18206 (106338) of the Registry of
Deeds of Quezon City, are one and the same.
Subsequently, Julian defaulted on the payment of
his loan obligations. Thus, respondent initiated On 23 September 2003, the RTC rendered a
extra-judicial foreclosure proceedings over the Decision declaring the REM constituted over the
subject property which was subsequently sold at subject property null and void, for Julian was not
public auction wherein the respondent was declared authorized by the terms of the SPA to mortgage the
as the highest bidder as shown in the Sheriff’s same. The court a quo likewise ordered that the
Certificate of Sale dated 15 January 1998.7 foreclosure proceedings and the auction sale
conducted pursuant to the void REM, be nullified.
On 23 March 1999, petitioners initiated with the RTC The dispositive portion of the Decision reads:
an action for the annulment of REM constituted over
the subject property on the ground that the same WHEREFORE, premises considered, judgment is
was not covered by the SPA and that the said SPA, hereby rendered in favor of the [herein petitioners]
at the time the loan obligations were contracted, no and against the [herein respondent] Bank:
longer had force and effect since it was previously
revoked by Perla on 10 March 1993, as evidenced 1. Declaring the Real Estate Mortgages
by the Revocation of SPA signed by the latter.8 constituted and registered under Entry Nos.
PE-4543/RT-18206 and 2012/RT-18206
Petitioners likewise alleged that together with the annotated on TCT No. RT-18206 (106338) of
copy of the Revocation of SPA, Perla, in a Letter the Registry of Deeds of Quezon City as
dated 23 January 1996, notified the Registry of NULL and VOID;
Deeds of Quezon City that any attempt to mortgage
or sell the subject property must be with her full 2. Declaring the Sheriff’s Sale and Certificate
consent documented in the form of an SPA duly of Sale under FRE No. 2217 dated January
authenticated before the Philippine Consulate 15, 1998 over the property covered by TCT
General in New York. 9 No. RT-18206 (106338) of the Registry of
Deeds of Quezon City as NULL and VOID;
In the absence of authority to do so, the REM
constituted by Julian over the subject property was 3. Ordering the defendant Registry of Deeds
null and void; thus, petitioners likewise prayed that of Quezon City to cancel the annotation of
the subsequent extra-judicial foreclosure Real Estate Mortgages appearing on Entry
proceedings and the auction sale of the subject Nos. PE-4543/RT-18206 and 2012/RT-
property be also nullified. 18206 on TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City;
In its Answer with Compulsory
Counterclaim,10 respondent averred that, contrary to 4. Ordering the [respondent] Bank to
petitioner’s allegations, the SPA in favor of Julian deliver/return to the [petitioners] represented
included the subject property, covered by one of the by their attorney-in-fact Alfredo M. Perez, the
titles specified in paragraph 1(b) thereof, TCT No. original Owner’s Duplicate Copy of TCT No.
RT- 106338 registered with the Registry of Deeds of RT-18206 (106338) free from the
Pasig (now Makati). The subject property was encumbrances referred to above; and
purportedly registered previously under TCT No. T-
106338, and was only subsequently reconstituted as 5. Ordering the [respondent] Bank to pay the
TCT RT-18206 (106338). Moreover, TCT No. T- [petitioners] the amount of ₱100,000.00 as
106338 was actually registered with the Registry of for attorney’s fees plus cost of the suit.
Deeds of Quezon City and not before the Registry of
The other claim for damages and counterclaim are Third persons who are not parties to the principal
hereby DENIED for lack of merit.11 obligation may secure the latter by pledging or
mortgaging their own property.
Aggrieved, respondent appealed the adverse
Decision before the Court of Appeals. In the case at bar, it was Julian who obtained the
loan obligations from respondent which he secured
In a Decision dated 12 October 2005, the Court of with the mortgage of the subject property. The
Appeals reversed the RTC Decision and upheld the property mortgaged was owned by his wife, Perla,
validity of the REM constituted over the subject considered a third party to the loan obligations
property on the strength of the SPA. The appellate between Julian and respondent. It was, thus, a
court declared that Perla intended the subject situation recognized by the last paragraph of Article
property to be included in the SPA she executed in 2085 of the Civil Code afore-quoted. However, since
favor of Julian, and that her subsequent revocation it was not Perla who personally mortgaged her own
of the said SPA, not being contained in a public property to secure Julian’s loan obligations with
instrument, cannot bind third persons. respondent, we proceed to determining if she duly
authorized Julian to do so on her behalf.
The Motion for Reconsideration interposed by the
petitioners was denied by the Court of Appeals in its Under Article 1878 of the Civil Code, a special power
Resolution dated 15 February 2006. of attorney is necessary in cases where real rights
over immovable property are created or
Petitioners are now before us assailing the Decision conveyed.12 In the SPA executed by Perla in favor of
and Resolution rendered by the Court of Appeals Julian on 28 May 1992, the latter was conferred with
raising several issues, which are summarized as the authority to "sell, alienate, mortgage, lease and
follows: deal otherwise" the different pieces of real and
personal property registered in Perla’s name. The
I WHETHER OR NOT THERE WAS A VALID SPA likewise authorized Julian "[t]o exercise any
MORTGAGE CONSTITUTED OVER or all acts of strict dominion or ownership" over
SUBJECT PROPERTY. the identified properties, and rights and interest
therein. The existence and due execution of this
II WHETHER OR NOT THERE WAS A SPA by Perla was not denied or challenged by

III WHETHER OR NOT THE RESPONDENT There is no question therefore that Julian was vested
WAS A MORTGAGEE-IN- GOOD FAITH. 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
For a mortgage to be valid, Article 2085 of the Civil
SPA, so as to render Julian’s mortgage of the same
Code enumerates the following essential requisites:
valid, is a question we still must resolve.
Art. 2085. The following requisites are essential to
Petitioners insist that the subject property was not
the contracts of pledge and mortgage:
included in the SPA, considering that it contained an
exclusive enumeration of the pieces of property over
(1) That they be constituted to secure the which Julian had authority, and these include only:
fulfillment of a principal obligation; (1) TCT No. T-53618, with an area of 3,522 square
meters, located at Calapan, Oriental Mindoro, and
(2) That the pledgor or mortgagor be the registered with the Registry of Deeds of Oriental
absolute owner of the thing pledged or Mindoro; (2) TCT No. T-46810, with an area of 3,953
mortgaged; square meters, located at Calapan, Oriental
Mindoro, and registered with the Registry of Deeds
(3) That the persons constituting the pledge of Oriental Mindoro; (3) TCT No. T-53140, with an
or mortgage have the free disposal of their area of 177 square meters, located at Calapan,
property, and in the absence thereof, that Oriental Mindoro, and registered with the Registry of
they be legally authorized for the purpose. 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 In cases where the terms of the contract are clear as
at Calapan, Oriental Mindoro, and registered with to leave no room for interpretation, resort to
the Registry of Deeds of Oriental Mindoro; (6) TCT circumstantial evidence to ascertain the true intent
No. T-108954, with an area of 690 square meters of the parties, is not countenanced. As aptly stated
and located at Susana Heights, Muntinlupa; (7) RT- in the case of JMA House, Incorporated v. Sta.
106338 – 805 Square Meters registered with the Monica Industrial and Development
Registry of Deeds of Pasig (now Makati); and (8) Corporation,13 thus:
Personal Property consisting of a 1983 Car with
Vehicle Registration No. R-16381, Model – 1983, [T]he law is that if the terms of a contract are clear
Make – Toyota, and Engine No. T- 2464. Nowhere and leave no doubt upon the intention of the
is it stated in the SPA that Julian’s authority extends contracting parties, the literal meaning of its
to the subject property covered by TCT No. RT – stipulation shall control. When the language of the
18206 (106338) registered with the Registry of contract is explicit, leaving no doubt as to the
Deeds of Quezon City. Consequently, the act of intention of the drafters, the courts may not read into
Julian of constituting a mortgage over the subject it [in] any other intention that would contradict its
property is unenforceable for having been done main import. The clear terms of the contract should
without authority. never be the subject matter of interpretation. Neither
abstract justice nor the rule on liberal interpretation
Respondent, on the other hand, mainly hinges its justifies the creation of a contract for the parties
argument on the declarations made by the Court of which they did not make themselves or the
Appeals that there was no property covered by TCT imposition upon one party to a contract or obligation
No. 106338 registered with the Registry of Deeds of not assumed simply or merely to avoid seeming
Pasig (now Makati); but there exists a property, the hardships. The true meaning must be enforced, as it
subject property herein, covered by TCT No. RT- is to be presumed that the contracting parties know
18206 (106338) registered with the Registry of their scope and effects.14
Deeds of Quezon City. Further verification would
reveal that TCT No. RT-18206 is merely a Equally relevant is the rule that a power of attorney
reconstitution of TCT No. 106338, and the property must be strictly construed and pursued. The
covered by both certificates of title is actually instrument will be held to grant only those powers
situated in Quezon City and not Pasig. From the which are specified therein, and the agent may
foregoing circumstances, respondent argues that neither go beyond nor deviate from the power of
Perla intended to include the subject property in the attorney.15 Where powers and duties are specified
SPA, and the failure of the instrument to reflect the and defined in an instrument, all such powers and
recent TCT Number or the exact designation of the duties are limited and are confined to those which
Registry of Deeds, should not defeat Perla’s clear are specified and defined, and all other powers and
intention. duties are excluded.16 This is but in accord with the
disinclination of courts to enlarge the authority
After an examination of the literal terms of the SPA, granted beyond the powers expressly given and
we find that the subject property was not among those which incidentally flow or derive therefrom as
those enumerated therein. There is no obvious being usual and reasonably necessary and proper
reference to the subject property covered by TCT for the performance of such express powers.17
No. RT-18206 (106338) registered with the Registry
of Deeds of Quezon City. Even the commentaries of renowned Civilist
Manresa18 supports a strict and limited construction
There was also nothing in the language of the SPA of the terms of a power of attorney:
from which we could deduce the intention of Perla to
include the subject property therein. We cannot The law, which must look after the interests of all,
attribute such alleged intention to Perla who cannot permit a man to express himself in a vague
executed the SPA when the language of the and general way with reference to the right he
instrument is bare of any indication suggestive of confers upon another for the purpose of alienation or
such intention. Contrariwise, to adopt the intent hypothecation, whereby he might be despoiled of all
theory advanced by the respondent, in the absence he possessed and be brought to ruin, such
of clear and convincing evidence to that effect, would excessive authority must be set down in the most
run afoul of the express tenor of the SPA and thus formal and explicit terms, and when this is not done,
defeat Perla’s true intention. the law reasonably presumes that the principal did
not mean to confer it.
In this case, we are not convinced that the property authenticated at the Philippine Consulate General,
covered by TCT No. 106338 registered with the New York City, N.Y., U.S.A.
Registry of Deeds of Pasig (now Makati) is the same
as the subject property covered by TCT No. RT- The non-annotation of the revocation of the Special
18206 (106338) registered with the Registry of Power of Attorney on TCT No. RT-18206 is of no
Deeds of Quezon City. The records of the case are consequence as far as the revocation’s existence
stripped of supporting proofs to verify the and legal effect is concerned since actual notice is
respondent’s claim that the two titles cover the same always superior to constructive notice. The actual
property. It failed to present any certification from the notice of the revocation relayed to defendant
Registries of Deeds concerned to support its Registry of Deeds of Quezon City is not denied by
assertion. Neither did respondent take the effort of either the Registry of Deeds of Quezon City or the
submitting and making part of the records of this defendant Bank. In which case, there appears no
case copies of TCTs No. RT-106338 of the Registry reason why Section 52 of the Property Registration
of Deeds of Pasig (now Makati) and RT-18206 Decree (P.D. No. 1529) should not apply to the
(106338) of the Registry of Deeds of Quezon City, situation. Said Section 52 of P.D. No. 1529 provides:
and closely comparing the technical descriptions of
the properties covered by the said TCTs. The bare "Section 52. Constructive notice upon registration. –
and sweeping statement of respondent that the Every conveyance, mortgage, lease, lien,
properties covered by the two certificates of title are attachment, order, judgment, instrument or entry
one and the same contains nothing but empty affecting registered land shall, if registered, filed or
imputation of a fact that could hardly be given any entered in the Office of the Register of Deeds for the
evidentiary weight by this Court. province or city where the land to which it relates
lies, be constructive notice to all persons from the
Having arrived at the conclusion that Julian was not time of such registering, filing or entering. (Pres.
conferred by Perla with the authority to mortgage the Decree No. 1529, Section 53) (emphasis ours)
subject property under the terms of the SPA, the real
estate mortgages Julian executed over the said It thus developed that at the time the first loan
property are therefore unenforceable. transaction with defendant Bank was effected on
December 12, 1996, there was on record at the
Assuming arguendo that the subject property was Office of the Register of Deeds of Quezon City that
indeed included in the SPA executed by Perla in the special power of attorney granted Julian, Sr. by
favor of Julian, the said SPA was revoked by virtue Perla had been revoked. That notice, works as
of a public instrument executed by Perla on 10 constructive notice to third parties of its being filed,
March 1993. To address respondent’s assertion that effectively rendering Julian, Sr. without authority to
the said revocation was unenforceable against it as act for and in behalf of Perla as of the date the
a third party to the SPA and as one who relied on the revocation letter was received by the Register of
same in good faith, we quote with approval the Deeds of Quezon City on February 7, 1996.19
following ruling of the RTC on this matter:
Given that Perla revoked the SPA as early as 10
Moreover, an agency is extinguished, among others, March 1993, and that she informed the Registry of
by its revocation (Article 1999, New Civil Code of the Deeds of Quezon City of such revocation in a letter
Philippines). The principal may revoke the agency at dated 23 January 1996 and received by the latter on
will, and compel the agent to return the document 7 February 1996, then third parties to the SPA are
evidencing the agency. Such revocation may be constructively notified that the same had been
express or implied (Article 1920, supra). revoked and Julian no longer had any authority to
mortgage the subject property. Although the
In this case, the revocation of the agency or Special revocation may not be annotated on TCT No. RT-
Power of Attorney is expressed and by a public 18206 (106338), as the RTC pointed out, neither the
document executed on March 10, 1993. Registry of Deeds of Quezon City nor respondent
denied that Perla’s 23 January 1996 letter was
The Register of Deeds of Quezon City was even received by and filed with the Registry of Deeds of
notified that any attempt to mortgage or sell the Quezon City. Respondent would have undoubtedly
property covered by TCT No. [RT-18206] 106338 come across said letter if it indeed diligently
located at No. 21 Hillside Drive, Blue Ridge, Quezon investigated the subject property and the
City must have the full consent documented in the circumstances surrounding its mortgage.
form of a special power of attorney duly
The final issue to be threshed out by this Court is innocent purchaser for value, if it afterwards
whether the respondent is a mortgagee-in-good develops that the title was in fact defective, and it
faith. Respondent fervently asserts that it exercised appears that he had such notice of the defect as
reasonable diligence required of a prudent man in would have led to its discovery had he acted with the
dealing with the subject property. measure of precaution which may be required of a
prudent man in a like situation.
Elaborating, respondent claims to have carefully
verified Julian’s authority over the subject property By putting blinders on its eyes, and by refusing to
which was validly contained in the SPA. It stresses see the patent defect in the scope of Julian’s
that the SPA was annotated at the back of the TCT authority, easily discernable from the plain terms of
of the subject property. Finally, after conducting an the SPA, respondent cannot now claim to be an
investigation, it found that the property covered by innocent mortgagee.
TCT No. 106338, registered with the Registry of
Deeds of Pasig (now Makati) referred to in the SPA, Further, in the case of Abad v. Guimba,21 we laid
and the subject property, covered by TCT No. 18206 down the principle that where the mortgagee does
(106338) registered with the Registry of Deeds of not directly deal with the registered owner of real
Quezon City, are one and the same property. From property, the law requires that a higher degree of
the foregoing, respondent concluded that Julian was prudence be exercised by the mortgagee, thus:
indeed authorized to constitute a mortgage over the
subject property. While [the] one who buys from the registered owner
does not need to look behind the certificate of title,
We are unconvinced. The property listed in the real one who buys from [the] one who is not [the]
estate mortgages Julian executed in favor of PNB is registered owner is expected to examine not only the
the one covered by "TCT#RT-18206(106338)." On certificate of title but all factual circumstances
the other hand, the Special Power of Attorney necessary for [one] to determine if there are any
referred to TCT No. "RT-106338 – 805 Square flaws in the title of the transferor, or in [the] capacity
Meters of the Registry of Deeds of Pasig now to transfer the land. Although the instant case does
Makati." The palpable difference between the TCT not involve a sale but only a mortgage, the same rule
numbers referred to in the real estate mortgages and applies inasmuch as the law itself includes a
Julian’s SPA, coupled with the fact that the said mortgagee in the term "purchaser."22
TCTs are registered in the Registries of Deeds of
different cities, should have put respondent on This principle is applied more strenuously when the
guard. Respondent’s claim of prudence is debunked mortgagee is a bank or a banking institution. Thus,
by the fact that it had conveniently or otherwise in the case of Cruz v. Bancom
overlooked the inconsistent details appearing on the Finance Corporation,23 we ruled:
face of the documents, which it was relying on for its
rights as mortgagee, and which significantly affected Respondent, however, is not an ordinary mortgagee;
the identification of the property being mortgaged. it is a mortgagee-bank. As such, unlike private
In Arrofo v. Quiño,20 we have elucidated that: individuals, it is expected to exercise greater care
and prudence in its dealings, including those
[Settled is the rule that] a person dealing with involving registered lands. A banking institution is
registered lands [is not required] to inquire further expected to exercise due diligence before entering
than what the Torrens title on its face indicates. This into a mortgage contract. The ascertainment of the
rule, however, is not absolute but admits of status or condition of a property offered to it as
exceptions. Thus, while its is true, x x x that a security for a loan must be a standard and
person dealing with registered lands need not go indispensable part of its operations.24
beyond the certificate of title, it is likewise a well-
settled rule that a purchaser or mortgagee Hence, considering that the property being
cannot close his eyes to facts which should put mortgaged by Julian was not his, and there are
a reasonable man on his guard, and then claim additional doubts or suspicions as to the real identity
that he acted in good faith under the belief that of the same, the respondent bank should have
there was no defect in the title of the vendor or proceeded with its transactions with Julian only with
mortgagor. His mere refusal to face up the fact that utmost caution. As a bank, respondent must subject
such defect exists, or his willful closing of his eyes to all its transactions to the most rigid scrutiny, since its
the possibility of the existence of a defect in the business is impressed with public interest and its
vendor’s or mortgagor’s title, will not make him an fiduciary character requires high standards of
integrity and performance.25 Where respondent however, is without prejudice to the right of the
acted in undue haste in granting the mortgage loans respondent to proceed against Julian, in his
in favor of Julian and disregarding the apparent personal capacity, for the amount of the loans.
defects in the latter’s authority as agent, it failed to
discharge the degree of diligence required of it as a WHEREFORE, IN VIEW OF THE FOREGOING, the
banking corporation.1awphil instant petition is GRANTED. The Decision dated 12
October 2005 and its Resolution dated 15 February
Thus, even granting for the sake of argument that 2006 rendered by the Court of Appeals in CA-G.R.
the subject property and the one identified in the CV No. 82636, are hereby REVERSED. The
SPA are one and the same, it would not elevate Decision dated 23 September 2003 of the Regional
respondent’s status to that of an innocent Trial Court of Quezon City, Branch 220, in Civil Case
mortgagee. As a banking institution, jurisprudence No. Q-99-37145, is hereby REINSTATED and
stringently requires that respondent should take AFFIRMED with modification that the real estate
more precautions than an ordinary prudent man mortgages constituted over TCT No. RT – 18206
should, to ascertain the status and condition of the (106338) are not null and void but
properties offered as collateral and to verify the UNENFORCEABLE. No costs.
scope of the authority of the agents dealing with
these. Had respondent acted with the required SO ORDERED.
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,
Republic of the Philippines Guerrero ("Elizabeth"), Edward Bravo ("Edward"),
SUPREME COURT Roland Bravo, Jr. ("Roland Jr."), Senia Bravo,
Benjamin Mauricio Bravo, and their half-sister,
FIRST DIVISION Ofelia Bravo ("Ofelia").

G.R. No. 152658. July 29, 2005 Simona executed a General Power of Attorney
("GPA") on 17 June 1966 appointing Mauricio as her
LILY ELIZABETH BRAVO-GUERRERO, BEN attorney-in-fact. In the GPA, Simona authorized
MAURICIO P. BRAVO,1 ROLAND P. BRAVO, JR., Mauricio to "mortgage or otherwise hypothecate,
OFELIA BRAVO-QUIESTAS, HEIRS OF sell, assign and dispose of any and all of my
CORPUSINIA BRAVO-NIOR namely: GERSON property, real, personal or mixed, of any kind
U. NIOR, MARK GERRY B. NIOR, CLIFF whatsoever and wheresoever situated, or any
RICHARD B. NIOR, BRYAN B. NIOR, WIDMARK interest therein xxx."6 Mauricio subsequently
B. NIOR, SHERRY ANNE B. NIOR, represented mortgaged the Properties to the Philippine National
by LILY ELIZABETH BRAVO-GUERRERO as Bank (PNB) and Development Bank of the
their attorney-in-fact, and HONORABLE Philippines (DBP) for ₱10,000 and ₱5,000,
FLORENTINO A. TUASON, JR., Presiding respectively.7
Judge, Regional Trial Court, Branch 139, Makati
City, Petitioners, On 25 October 1970, Mauricio executed a Deed of
vs. Sale with Assumption of Real Estate Mortgage
EDWARD P. BRAVO, represented by his ("Deed of Sale") conveying the Properties to "Roland
attorney-in-fact FATIMA C. BRAVO, respondent, A. Bravo, Ofelia A. Bravo and Elizabeth
and DAVID B. DIAZ, JR., intervenor-respondent. Bravo"8 ("vendees"). The sale was conditioned on
the payment of ₱1,000 and on the assumption by the
DECISION vendees of the PNB and DBP mortgages over the
As certified by the Clerk of Court of the Regional
The Case Trial Court of Manila, the Deed of Sale was notarized
by Atty. Victorio Q. Guzman on 28 October 1970 and
Before the Court is a petition for review2 assailing the entered in his Notarial Register.9 However, the Deed
Decision3 of 21 December 2001 of the Court of of Sale was not annotated on TCT Nos. 58999 and
Appeals in CA-G.R. CV No. 67794. The Court of 59000. Neither was it presented to PNB and DBP.
Appeals reversed the Decision4 of 11 May 2000 of The mortage loans and the receipts for loan
the Regional Trial Court of Makati, Branch No. 139, payments issued by PNB and DBP continued to be
in Civil Case No. 97-1379 denying respondents’ in Mauricio’s name even after his death on 20
prayer to partition the subject properties. November 1973. Simona died in 1977.

Antecedent Facts On 23 June 1997, Edward, represented by his wife,

Fatima Bravo, filed an action for the judicial partition
of the Properties. Edward claimed that he and the
Spouses Mauricio Bravo ("Mauricio") and
other grandchildren of Mauricio and Simona are co-
Simona5 Andaya Bravo ("Simona") owned two
owners of the Properties by succession. Despite
parcels of land ("Properties") measuring 287 and
this, petitioners refused to share with him the
291 square meters and located along Evangelista
possession and rental income of the Properties.
Street, Makati City, Metro Manila. The Properties are
Edward later amended his complaint to include a
registered under TCT Nos. 58999 and 59000 issued
prayer to annul the Deed of Sale, which he claimed
by the Register of Deeds of Rizal on 23 May 1958.
was merely simulated to prejudice the other heirs.
The Properties contain a large residential dwelling,
a smaller house and other improvements.
In 1999, David Jr., whose parents died in 1944 and
who was subsequently raised by Simona, moved to
Mauricio and Simona had three children - Roland,
intervene in the case. David Jr. filed a complaint-in-
Cesar and Lily, all surnamed Bravo. Cesar died
intervention impugning the validity of the Deed of
without issue. Lily Bravo married David Diaz, and
Sale and praying for the partition of the Properties
had a son, David B. Diaz, Jr. ("David Jr."). Roland
among the surviving heirs of Mauricio and Simona.
had six children, namely, Lily Elizabeth Bravo-
The trial court allowed the intervention in its Order WHEREFORE, the decision of the Regional Trial
dated 5 May 1999.10 Court of Makati City, Metro-Manila, Branch 13[9]
dated 11 May 2000[,] review of which is sought in
The Ruling of the Trial Court these proceedings[,] is REVERSED.

The trial court upheld Mauricio’s sale of the 1. The Deed of Sale with Assumption of Real Estate
Properties to the vendees. The trial court ruled that Mortgage (Exh. 4) dated 28 October 1970 is hereby
the sale did not prejudice the compulsory heirs, as declared null and void;
the Properties were conveyed for valuable
consideration. The trial court also noted that the 2. Judicial Partition on the questioned properties is
Deed of Sale was duly notarized and was in hereby GRANTED in the following manner:
existence for many years without question about its
validity. A. In representation of his deceased mother, LILY
BRAVO-DIAZ, intervenor DAVID DIAZ, JR., is
The dispositive portion of the trial court’s Decision of entitled to one-half (1/2) interest of the subject
11 May 2000 reads: properties;

WHEREFORE, premises considered, the Court B. Plaintiff-appellant EDWARD BRAVO and the rest
hereby DENIES the JUDICIAL PARTITION of the of the five siblings, namely: LILY ELIZABETH,
properties covered by TCT Nos. 58999 and 59000 EDWARD, ROLAND, JR., SENIA, BENJAMIN and
registered with the Office of the Register of Deeds of OFELIA are entitled to one-sixth (1/6) representing
Rizal. the other half portion of the subject properties;

SO ORDERED.11 C. Plaintiff-appellant Edward Bravo, intervenor

Dissatisfied, Edward and David Jr. ("respondents") reimburse the defendant-appellees LILY
filed a joint appeal to the Court of Appeals. ELIZABETH, OFELIA and ROLAND the sum of One
Thousand (P1,000.00) PESOS representing the
The Ruling of the Court of Appeals consideration paid on the questioned deed of sale
with assumption of mortgage with interest of six (6)
Citing Article 166 of the Civil Code ("Article 166"), the percent per annum effective 28 October 1970 until
Court of Appeals declared the Deed of Sale void for fully paid.
lack of Simona’s consent. The appellate court held
that the GPA executed by Simona in 1966 was not SO ORDERED.12
sufficient to authorize Mauricio to sell the Properties
because Article 1878 of the Civil Code ("Article The Issues
1878") requires a special power of attorney for such
transactions. The appellate court reasoned that the Petitioners seek a reversal of the Decision of the
GPA was executed merely to enable Mauricio to Court of Appeals, raising these issues:
mortgage the Properties, not to sell them.
The Court of Appeals also found that there was IN NOT UPHOLDING THE VALIDITY AND
insufficient proof that the vendees made the ENFORCEMENT OF THE DEED OF SALE WITH
mortgage payments on the Properties, since the ASSUMPTION OF MORTGAGE.
PNB and DBP receipts were issued in Mauricio’s
name. The appellate court opined that the rental 2. WHETHER THE COURT OF APPEALS ERRED
income of the Properties, which the vendees never IN ORDERING THE PARTITION OF THE
shared with respondents, was sufficient to cover the PROPERTY IN QUESTION.13
mortgage payments to PNB and DBP.
At the least, petitioners argue that the subject sale is
The Court of Appeals declared the Deed of Sale void valid as to Mauricio’s share in the Properties.
and ordered the partition of the Properties in its
Decision of 21 December 2001 ("CA Decision"), as On the other hand, respondents maintain that they
follows: are co-owners of the Properties by succession.
Respondents argue that the sale of the conjugal
Properties is void because: (1) Mauricio executed Article 166 expressly applies only to properties
the Deed of Sale without Simona’s consent; and (2) acquired by the conjugal partnership after the
the sale was merely simulated, as shown by the effectivity of the Civil Code of the Philippines ("Civil
grossly inadequate consideration Mauricio received Code"). The Civil Code came into force on 30 August
for the Properties. 1950.16 Although there is no dispute that the
Properties were conjugal properties of Mauricio and
While this case was pending, Leonida Andaya Simona, the records do not show, and the parties did
Lolong ("Leonida"), David Jr.’s aunt, and Atty. not stipulate, when the Properties were
Cendaña, respondents’ counsel, informed the Court acquired.17 Under Article 1413 of the old Spanish
that David Jr. died on 14 September 2004. Civil Code, the husband could alienate conjugal
Afterwards, Leonida and Elizabeth wrote separate partnership property for valuable consideration
letters asking for the resolution of this case. Atty. without the wife’s consent.18
Cendaña later filed an urgent motion to annotate
attorney’s lien on TCT Nos. 58999 and 59000. In its Even under the present Civil Code, however, the
Resolution dated 10 November 2004,14 the Court Deed of Sale is not void. It is well-settled that
noted the notice of David Jr.’s death, the letters contracts alienating conjugal real property without
written by Leonida and Elizabeth, and granted the the wife’s consent are merely voidable under the
motion to annotate attorney’s lien on TCT Nos. Civil Code – that is, binding on the parties unless
58999 and 59000. annulled by a competent court – and not void ab
The Ruling of the Court
Article 166 must be read in conjunction with Article
The petition is partly meritorious. 173 of the Civil Code ("Article 173"). The latter
prescribes certain conditions before a sale of
The questions of whether Simona consented to the conjugal property can be annulled for lack of the
Deed of Sale and whether the subject sale was wife’s consent, as follows:
simulated are factual in nature. The rule is factual
findings of the Court of Appeals are binding on this Art. 173. The wife may, during the marriage and
Court. However, there are exceptions, such as when within ten years from the transaction questioned,
the factual findings of the Court of Appeals and the ask the courts for the annulment of any contract of
trial court are contradictory, or when the evidence on the husband entered into without her consent, when
record does not support the factual such consent is required, or any act or contract of
findings. Because these exceptions obtain in the the husband which tends to defraud her or impair her
present case, the Court will consider these issues. interest in the conjugal partnership property. Should
the wife fail to exercise this right, she or her heirs
On the Requirement of the Wife’s Consent after the dissolution of the marriage, may
demand the value of property fraudulently
We hold that the Court of Appeals erred when it alienated by the husband. (Emphasis supplied)
declared the Deed of Sale void based on Article 166,
which states: Under the Civil Code, only the wife can ask to annul
a contract that disposes of conjugal real property
Art. 166. Unless the wife has been declared a non without her consent. The wife must file the action for
compos mentis or a spendthrift, or is under civil annulment during the marriage and within ten years
interdiction or is confined in a leprosarium, the from the questioned transaction. Article 173 is
husband cannot alienate or encumber any real explicit on the remedies available if the wife fails to
property of the conjugal partnership without the exercise this right within the specified period. In such
wife’s consent. If she refuses unreasonably to give case, the wife or her heirs can only demand the
her consent, the court may compel her to grant the value of the property provided they prove that the
same. husband fraudulently alienated the property. Fraud
is never presumed, but must be established by clear
This article shall not apply to property acquired by and convincing evidence.20
the conjugal partnerships before the effective date of
this Code. Respondents’ action to annul the Deed of Sale
based on Article 166 must fail for having been filed
out of time. The marriage of Mauricio and Simona
was dissolved when Mauricio died in 1973. More
than ten years have passed since the execution of Thus, there was no need to execute a separate and
the Deed of Sale. special power of attorney since the general power of
attorney had expressly authorized the agent or
Further, respondents, who are Simona’s heirs, are attorney in fact the power to sell the subject
not the parties who can invoke Article 166. Article property. The special power of attorney can be
173 reserves that remedy to the wife alone. Only included in the general power when it is
Simona had the right to have the sale of the specified therein the act or transaction for which
Properties annulled on the ground that Mauricio sold the special power is required. (Emphasis
the Properties without her consent. supplied)

Simona, however, did not assail the Deed of Sale In this case, Simona expressly authorized Mauricio
during her marriage or even after Mauricio’s death. in the GPA to "sell, assign and dispose of any and
The records are bereft of any indication that Simona all of my property, real, personal or mixed, of any
questioned the sale of the Properties at any time. kind whatsoever and wheresoever situated, or any
Simona did not even attempt to take possession of interest therein xxx" as well as to "act as my general
or reside on the Properties after Mauricio’s death. representative and agent, with full authority to buy,
David Jr., who was raised by Simona, testified that sell, negotiate and contract for me and in my
he and Simona continued to live in Pasay City after behalf."25 Taken together, these provisions
Mauricio’s death, while her children and other constitute a clear and specific mandate to Mauricio
grandchildren resided on the Properties.21 to sell the Properties. Even if it is called a "general
power of attorney," the specific provisions in the
We also agree with the trial court that Simona GPA are sufficient for the purposes of Article 1878.
authorized Mauricio to dispose of the Properties These provisions in the GPA likewise indicate that
when she executed the GPA. True, Article 1878 Simona consented to the sale of the Properties.
requires a special power of attorney for an agent to
execute a contract that transfers the ownership of an Whether the Sale of the Properties was Simulated
immovable. However, the Court has clarified that
Article 1878 refers to the nature of the authorization, or is Void for Gross Inadequacy of Price
not to its form.22 Even if a document is titled as a
general power of attorney, the requirement of a We point out that the law on legitime does not bar
special power of attorney is met if there is a clear the disposition of property for valuable consideration
mandate from the principal specifically authorizing to descendants or compulsory heirs. In a sale, cash
the performance of the act.23 of equivalent value replaces the property taken from
the estate.26There is no diminution of the estate but
In Veloso v. Court of Appeals,24 the Court merely a substitution in values. Donations and other
explained that a general power of attorney could dispositions by gratuitous title, on the other hand,
contain a special power to sell that satisfies the must be included in the computation of legitimes.27
requirement of Article 1878, thus:
Respondents, however, contend that the sale of the
An examination of the records showed that the Properties was merely simulated. As proof,
assailed power of attorney was valid and regular on respondents point to the consideration of ₱1,000 in
its face. It was notarized and as such, it carries the the Deed of Sale, which respondents claim is grossly
evidentiary weight conferred upon it with respect to inadequate compared to the actual value of the
its due execution. While it is true that it was Properties.
denominated as a general power of attorney, a
perusal thereof revealed that it stated an authority to Simulation of contract and gross inadequacy of price
sell, to wit: are distinct legal concepts, with different effects.
When the parties to an alleged contract do not really
"2. To buy or sell, hire or lease, mortgage or intend to be bound by it, the contract is simulated
otherwise hypothecate lands, tenements and and void.28 A simulated or fictitious contract has no
hereditaments or other forms of real property, more legal effect whatsoever29 because there is no real
specifically TCT No. 49138, upon such terms and agreement between the parties.
conditions and under such covenants as my said
attorney shall deem fit and proper." In contrast, a contract with inadequate consideration
may nevertheless embody a true agreement
between the parties. A contract of sale is a
consensual contract, which becomes valid and ₱16,160. Compared to this, the price of ₱16,000
binding upon the meeting of minds of the parties on cannot be considered grossly inadequate, much less
the price and the object of the sale.30 The concept of so shocking to the conscience40 as to justify the
a simulated sale is thus incompatible with setting aside of the Deed of Sale.
inadequacy of price. When the parties agree on a
price as the actual consideration, the sale is not Respondents next contend that the vendees did not
simulated despite the inadequacy of the price.31 make the mortgage payments on the Properties.
Respondents allege that the rents paid by the
Gross inadequacy of price by itself will not result in tenants leasing portions of the Properties were
a void contract. Gross inadequacy of price does not sufficient to cover the mortgage payments to DBP
even affect the validity of a contract of sale, unless it and PNB.
signifies a defect in the consent or that the parties
actually intended a donation or some other Again, this argument does not help respondents’
contract.32 Inadequacy of cause will not invalidate a cause. Assuming that the vendees failed to pay the
contract unless there has been fraud, mistake or full price stated in the Deed of Sale, such partial
undue influence.33 In this case, respondents have failure would not render the sale void.
not proved any of the instances that would invalidate In Buenaventura v. Court of Appeals,41 the Court
the Deed of Sale. held:

Respondents even failed to establish that the xxx If there is a meeting of the minds of the parties
consideration paid by the vendees for the Properties as to the price, the contract of sale is valid,
was grossly inadequate. As the trial court pointed despite the manner of payment, or even the breach
out, the Deed of Sale stipulates that, in addition to of that manner of payment. xxx
the payment of ₱1,000, the vendees should assume
the mortgage loans from PNB and DBP. The It is not the act of payment of price that determines
consideration for the sale of the Properties was thus the validity of a contract of sale. Payment of the price
₱1,000 in cash and the assumption of the ₱15,000 has nothing to do with the perfection of the contract.
mortgage. Payment of the price goes into the performance of
the contract. Failure to pay the consideration is
Respondents argue that ₱16,000 is still far below the different from lack of consideration. The former
actual value of the Properties. To bolster their claim, results in a right to demand the fulfillment or
respondents presented the following: (1) Tax cancellation of the obligation under an existing valid
Declarations No. A-001-0090534 and A-001- contract while the latter prevents the existence of a
0090635 for the year 1979, which placed the valid contract. (Emphasis supplied.)
assessed value of the Properties at ₱70,020 and
their approximate market value at ₱244,290; and (2) Neither was it shown that the rentals from tenants
a certified copy of the Department of Finance’s were sufficient to cover the mortgage payments. The
Department Order No. 62-9736 dated 6 June 1997 parties to this case stipulated to only one tenant, a
and attached guidelines37 which established the certain Federico M. Puno, who supposedly leased a
zonal value of the properties along Evangelista room on the Properties for ₱300 per month from
Street at ₱15,000 per square meter. 1992 to 1994.42 This is hardly significant, when we
consider that the mortgage was fully paid by 1974.
The subject Deed of Sale, however, was executed in Indeed, the fact that the Properties were mortgaged
1970. The valuation of the Properties in 1979 or to DBP and PNB indicates that the conjugal
1997 is of little relevance to the issue of whether partnership, or at least Mauricio, was short of funds.
₱16,000 was a grossly inadequate price to pay for
the Properties in 1970. Certainly, there is nothing Petitioners point out that they were duly employed
surprising in the sharp increase in the value of the and had the financial capacity to buy the Properties
Properties nine or twenty-seven years after the sale, in 1970. Respondents did not refute this. Petitioners
particularly when we consider that the Properties are presented 72 receipts43 showing the mortgage
located in the City of Makati. payments made to PNB and DBP, and the Release
of the Real Estate Mortgage44 ("Mortgage Release")
More pertinent are Tax Declarations No. dated 5 April 1974. True, these documents all bear
1581238 and No. 15813,39 both issued in 1967, Mauricio’s name. However, this tends to support,
presented by petitioners. These tax declarations rather than detract from, petitioner-vendees’
placed the assessed value of both Properties at explanation that they initially gave the mortgage
payments directly to Mauricio, and then later directly As such, Edward can rightfully ask for the partition of
to the banks, without formally advising the bank of the Properties. Any co-owner may demand at any
the sale. The last 3 mortgage receipts and the time the partition of the common property unless a
Mortgage Release were all issued in Mauricio’s co-owner has repudiated the co-ownership.51 This
name even after his death in 1970. Obviously, action for partition does not prescribe and is not
Mauricio could not have secured the Mortgage subject to laches.52
Release and made these last payments.
WHEREFORE, we REVERSE the Decision of 21
Presumption of Regularity and Burden of Proof December 2001 of the Court of Appeals in CA-G.R.
CV No. 67794. We REINSTATE the Decision of 11
The Deed of Sale was notarized and, as certified by May 2000 of the Regional Trial Court of Makati,
the Regional Trial Court of Manila, entered in the Branch No. 139, in Civil Case No. 97-137, declaring
notarial books submitted to that court. As a VALID the Deed of Sale with Assumption of
document acknowledged before a notary public, the Mortgage dated 28 October 1970, with the following
Deed of Sale enjoys the presumption of MODIFICATIONS:
regularity45 and due execution.46 Absent evidence
that is clear, convincing and more than merely 1. We GRANT judicial partition of the subject
preponderant, the presumption must be upheld.47 Properties in the following manner:

Respondents’ evidence in this case is not even a. Petitioner LILY ELIZABETH BRAVO-
preponderant. Respondents’ allegations, testimony GUERRERO is entitled to one-third (1/3) of the
and bare denials cannot prevail over the Properties;
documentary evidence presented by petitioners.
These documents – the Deed of Sale and the GPA b. Petitioner OFELIA BRAVO-QUIESTAS is entitled
which are both notarized, the receipts, the Mortgage to one-third (1/3) of the Properties; and
Release and the 1967 tax declarations over the
Properties – support petitioners’ account of the sale. c. The remaining one-third (1/3) portion of the
Properties should be divided equally between the
As the parties challenging the regularity of the Deed children of ROLAND BRAVO.
of Sale and alleging its simulation, respondents had
the burden of proving these charges.48 Respondents 2. The other heirs of ROLAND BRAVO must
failed to discharge this burden. Consequentially, the reimburse ROLAND BRAVO, JR. for whatever
Deed of Sale stands. expenses the latter incurred in paying for and
securing the release of the mortgage on the
On the Partition of the Property Properties.

Nevertheless, this Court finds it proper to grant the SO ORDERED.

partition of the Properties, subject to modification.

Petitioners have consistently claimed that their

father is one of the vendees who bought the
Properties. Vendees Elizabeth and Ofelia both
testified that the "Roland A. Bravo" in the Deed of
Sale is their father,49 although their brother, Roland
Bravo, Jr., made some of the mortgage payments.
Petitioners’ counsel, Atty. Paggao, made the same
clarification before the trial court.50

As Roland Bravo, Sr. is also the father of respondent

Edward Bravo, Edward is thus a compulsory heir of
Roland Bravo, and entitled to a share, along with his
brothers and sisters, in his father’s portion of the
Properties. In short, Edward and petitioners are co-
owners of the Properties.
Republic of the Philippines until 8 May 1971, the date written under the printed
SUPREME COURT words "Non valuable apres de (meaning, "not valid
Manila after the").

FIRST DIVISION The GANAS did not depart on 8 May 1970.

G.R. No. L-57339 December 29, 1983 Sometime in January, 1971, Jose Gana sought the
assistance of Teresita Manucdoc, a Secretary of the
AIR FRANCE, petitioner, Sta. Clara Lumber Company where Jose Gana was
vs. the Director and Treasurer, for the extension of the
HONORABLE COURT OF APPEALS, JOSE G. validity of their tickets, which were due to expire on
GANA (Deceased), CLARA A. GANA, RAMON 8 May 1971. Teresita enlisted the help of Lee Ella
GANA, MANUEL GANA, MARIA TERESA GANA, Manager of the Philippine Travel Bureau, who used
ROBERTO GANA, JAIME JAVIER GANA, to handle travel arrangements for the personnel of
CLOTILDE VDA. DE AREVALO, and EMILY SAN the Sta. Clara Lumber Company. Ella sent the
JUAN, respondents. tickets to Cesar Rillo, Office Manager of AIR
FRANCE. The tickets were returned to Ella who was
Benjamin S. Valte for petitioner. informed that extension was not possible unless the
fare differentials resulting from the increase in fares
Napoleon Garcia for private respondents. triggered by an increase of the exchange rate of the
US dollar to the Philippine peso and the increased
travel tax were first paid. Ella then returned the
tickets to Teresita and informed her of the
impossibility of extension.
In the meantime, the GANAS had scheduled their
In this petition for review on certiorari, petitioner AIR
departure on 7 May 1971 or one day before the
FRANCE assails the Decision of then respondent
expiry date. In the morning of the very day of their
Court of Appeals 1 promulgated on 15 December
scheduled departure on the first leg of their trip,
1980 in CA-G.R. No. 58164-R, entitled "Jose G.
Teresita requested travel agent Ella to arrange the
Gana, et al. vs. Sociedad Nacionale Air France",
revalidation of the tickets. Ella gave the same
which reversed the Trial Court's judgment
negative answer and warned her that although the
dismissing the Complaint of private respondents for
tickets could be used by the GANAS if they left on 7
damages arising from breach of contract of carriage,
May 1971, the tickets would no longer be valid for
and awarding instead P90,000.00 as moral
the rest of their trip because the tickets would then
have expired on 8 May 1971. Teresita replied that it
will be up to the GANAS to make the arrangements.
Sometime in February, 1970, the late Jose G. Gana With that assurance, Ella on his own, attached to the
and his family, numbering nine (the GANAS), tickets validating stickers for the Osaka/Tokyo flight,
purchased from AIR FRANCE through Imperial one a JAL. sticker and the other an SAS
Travels, Incorporated, a duly authorized travel (Scandinavian Airways System) sticker. The SAS
agent, nine (9) "open-dated" air passage tickets for sticker indicates thereon that it was "Reevaluated
the Manila/Osaka/Tokyo/Manila route. The GANAS by: the Philippine Travel Bureau, Branch No. 2" (as
paid a total of US$2,528.85 for their economy and shown by a circular rubber stamp) and signed
first class fares. Said tickets were bought at the then "Ador", and the date is handwritten in the center of
prevailing exchange rate of P3.90 per US$1.00. The the circle. Then appear under printed headings the
GANAS also paid travel taxes of P100.00 for each notations: JL. 108 (Flight), 16 May (Date), 1040
passenger. (Time), OK (status). Apparently, Ella made no more
attempt to contact AIR FRANCE as there was no
On 24 April 1970, AIR FRANCE exchanged or more time.
substituted the aforementioned tickets with other
tickets for the same route. At this time, the GANAS Notwithstanding the warnings, the GANAS departed
were booked for the Manila/Osaka segment on AIR from Manila in the afternoon of 7 May 1971 on board
FRANCE Flight 184 for 8 May 1970, and for the AIR FRANCE Flight 184 for Osaka, Japan. There is
Tokyo/Manila return trip on AIR FRANCE Flight 187 no question with respect to this leg of the trip.
on 22 May 1970. The aforesaid tickets were valid
However, for the Osaka/Tokyo flight on 17 May The crucial issue is whether or not, under the
1971, Japan Airlines refused to honor the tickets environmental milieu the GANAS have made out a
because of their expiration, and the GANAS had to case for breach of contract of carriage entitling them
purchase new tickets. They encountered the same to an award of damages.
difficulty with respect to their return trip to Manila as
AIR FRANCE also refused to honor their tickets. We are constrained to reverse respondent Appellate
They were able to return only after pre-payment in Court's affirmative ruling thereon.
Manila, through their relatives, of the readjusted
rates. They finally flew back to Manila on separate Pursuant to tariff rules and regulations of the
Air France Frights on 19 May 1971 for Jose Gana International Air Transportation Association (IATA),
and 26 May 1971 for the rest of the family. included in paragraphs 9, 10, and 11 of the
Stipulations of Fact between the parties in the Trial
On 25 August 1971, the GANAS commenced before Court, dated 31 March 1973, an airplane ticket is
the then Court of First Instance of Manila, Branch III, valid for one year. "The passenger must undertake
Civil Case No. 84111 for damages arising from the final portion of his journey by departing from the
breach of contract of carriage. last point at which he has made a voluntary stop
before the expiry of this limit (parag. 3.1.2. ) ... That
AIR FRANCE traversed the material allegations of is the time allowed a passenger to begin and to
the Complaint and alleged that the GANAS brought complete his trip (parags. 3.2 and 3.3.). ... A ticket
upon themselves the predicament they found can no longer be used for travel if its validity has
themselves in and assumed the consequential risks; expired before the passenger completes his trip
that travel agent Ella's affixing of validating stickers (parag. 3.5.1.) ... To complete the trip, the passenger
on the tickets without the knowledge and consent of must purchase a new ticket for the remaining portion
AIR FRANCE, violated airline tariff rules and of the journey" (ibid.) 3
regulations and was beyond the scope of his
authority as a travel agent; and that AIR FRANCE From the foregoing rules, it is clear that AIR
was not guilty of any fraudulent conduct or bad faith. FRANCE cannot be faulted for breach of contract
when it dishonored the tickets of the GANAS after 8
On 29 May 1975, the Trial Court dismissed the May 1971 since those tickets expired on said date;
Complaint based on Partial and Additional nor when it required the GANAS to buy new tickets
Stipulations of Fact as wen as on the documentary or have their tickets re-issued for the Tokyo/Manila
and testimonial evidence. segment of their trip. Neither can it be said that,
when upon sale of the new tickets, it imposed
The GANAS appealed to respondent Appellate additional charges representing fare differentials, it
Court. During the pendency of the appeal, Jose was motivated by self-interest or unjust enrichment
Gana, the principal plaintiff, died. considering that an increase of fares took effect, as
authorized by the Civil Aeronautics Board (CAB) in
On 15 December 1980, respondent Appellate Court April, 1971. This procedure is well in accord with the
set aside and reversed the Trial Court's judgment in IATA tariff rules which provide:
a Decision, which decreed:
WHEREFORE, the decision
appealed from is set aside. Air 7. APPLICABLE FARE ON THE
France is hereby ordered to pay DATE OF DEPARTURE
appellants moral damages in the total
sum of NINETY THOUSAND PESOS 3.1 General Rule.
(P90,000.00) plus costs.
All journeys must be charged for at
SO ORDERED. 2 the fare (or charge) in effect on the
date on which transportation
Reconsideration sought by AIR FRANCE was commences from the point of origin.
denied, hence, petitioner's recourse before this Any ticket sold prior to a change of
instance, to which we gave due course. fare or charge (increase or decrease)
occurring between the date of
commencement of the journey, is
subject to the above general rule and
must be adjusted accordingly. A new The SAS validating sticker for the Osaka/Tokyo flight
ticket must be issued and the affixed by Era showing reservations for JAL. Flight
difference is to be collected or 108 for 16 May 1971, without clearing the same with
refunded as the case may be. No AIR FRANCE allegedly because of the imminent
adjustment is necessary if the departure of the GANAS on the same day so that he
increase or decrease in fare (or could not get in touch with Air France 6 was certainly
charge) occurs when the journey is in contravention of IATA rules although as he had
already commenced. 4 explained, he did so upon Teresita's assurance that
for the onward flight from Osaka and return, the
The GANAS cannot defend by contending lack of GANAS would make other arrangements.
knowledge of those rules since the evidence bears
out that Teresita, who handled travel arrangements Q Referring you to
for the GANAS, was duly informed by travel agent page 33 of the
Ella of the advice of Reno, the Office Manager of Air transcript of the last
France, that the tickets in question could not be session, I had this
extended beyond the period of their validity without question which reads
paying the fare differentials and additional travel as follows: 'But did
taxes brought about by the increased fare rate and she say anything to
travel taxes. you when you said
that the tickets were
ATTY. VALTE about to expire?' Your
answer was: 'I am the
Q What did you tell one who asked her. At
Mrs. Manucdoc, in that time I told her if
turn after being told the tickets being used
this by Mr. Rillo? ... I was telling her
what about their
A I told her, because bookings on the
that is the reason why return. What about
they accepted again their travel on the
the tickets when we return? She told me it
returned the tickets is up for the Ganas to
spin, that they could make the
not be extended. They arrangement.' May I
could be extended by know from you what
paying the additional did you mean by this
fare, additional tax testimony of yours?
and additional
exchange during that A That was on the day
time. when they were
asking me on May 7,
Q You said so to Mrs. 1971 when they were
Manucdoc? checking the tickets. I
told Mrs. Manucdoc
A Yes, sir." ... 5 that I was going to get
the tickets. I asked her
what about the tickets
The ruling relied on by respondent Appellate Court,
onward from the
therefore, in KLM. vs. Court of Appeals, 65 SCRA
return from Tokyo,
237 (1975), holding that it would be unfair to charge
and her answer was it
respondents therein with automatic knowledge or
is up for the Ganas to
notice of conditions in contracts of adhesion, is
make the
inapplicable. To all legal intents and purposes,
Teresita was the agent of the GANAS and notice to
because I told her that
her of the rejection of the request for extension of the
they could leave on
validity of the tickets was notice to the GANAS, her
the seventh, but they
could take care of that remaining segments. Besides, the validating stickers
when they arrived in that Ella affixed on his own merely reflect the status
Osaka. of reservations on the specified flight and could not
legally serve to extend the validity of a ticket or
Q What do you mean? revive an expired one.

A The Ganas will The conclusion is inevitable that the GANAS brought
make the upon themselves the predicament they were in for
arrangement from having insisted on using tickets that were due to
Osaka, Tokyo and expire in an effort, perhaps, to beat the deadline and
Manila. in the thought that by commencing the trip the day
before the expiry date, they could complete the trip
Q What arrangement? even thereafter. It should be recalled that AIR
FRANCE was even unaware of the validating SAS
A The arrangement and JAL. stickers that Ella had affixed spuriously.
for the airline because Consequently, Japan Air Lines and AIR FRANCE
the tickets would merely acted within their contractual rights when
expire on May 7, and they dishonored the tickets on the remaining
they insisted on segments of the trip and when AIR FRANCE
leaving. I asked Mrs. demanded payment of the adjusted fare rates and
Manucdoc what about travel taxes for the Tokyo/Manila flight.
the return onward
portion because they WHEREFORE, the judgment under review is hereby
would be travelling to reversed and set aside, and the Amended Complaint
Osaka, and her filed by private respondents hereby dismissed.
answer was, it is up to
for the Ganas to make No costs.
the arrangement.
Q Exactly what were
the words of Mrs.
Manucdoc when you
told her that? If you
can remember, what
were her exact

A Her words only, it is

up for the Ganas to
make the

Q This was in Tagalog

or in English?

A I think it was in
English. ... 7

The circumstances that AIR FRANCE personnel at

the ticket counter in the airport allowed the GANAS
to leave is not tantamount to an implied ratification
of travel agent Ella's irregular actuations. It should
be recalled that the GANAS left in Manila the day
before the expiry date of their tickets and that "other
arrangements" were to be made with respect to the
Republic of the Philippines Isabelita on the basis of a special power of attorney
SUPREME COURT executed on September 28, 1991,7 and also for
Manila Milagros, Minerva, and Zenaida but without their
apparent written authority.8 The deed of sale was
THIRD DIVISION also not notarized.9

G.R. No. 160346 August 25, 2009 On July 21, 1992, the Pahuds paid ₱35,792.31 to
the Los Baños Rural Bank where the subject
PURITA PAHUD, SOLEDAD PAHUD, and IAN property was mortgaged.10 The bank issued a
LEE CASTILLA (represented by Mother and release of mortgage and turned over the owner’s
Attorney-in-Fact VIRGINIA copy of the OCT to the Pahuds.11 Over the following
CASTILLA), Petitioners, months, the Pahuds made more payments to
vs. Eufemia and her siblings totaling to
COURT OF APPEALS, SPOUSES ISAGANI ₱350,000.00. They agreed to use the remaining

BELARMINO and LETICIA OCAMPO, EUFEMIA ₱87,500.0013 to defray the payment for taxes and
SAN AGUSTIN-MAGSINO, ZENAIDA SAN the expenses in transferring the title of the
AGUSTIN-McCRAE, MILAGROS SAN AGUSTIN- property.14 When Eufemia and her co-heirs drafted
FORTMAN, MINERVA SAN AGUSTIN- an extra-judicial settlement of estate to facilitate the
ATKINSON, FERDINAND SAN AGUSTIN, RAUL transfer of the title to the Pahuds, Virgilio refused to
AGUSTIN, Respondents. On July 8, 1993, Virgilio’s co-heirs filed a
complaint16 for judicial partition of the subject
DECISION property before the RTC of Calamba, Laguna. On
November 28, 1994, in the course of the
NACHURA, J.: proceedings for judicial partition, a Compromise
Agreement17 was signed with seven (7) of the co-
For our resolution is a petition for review on certiorari heirs agreeing to sell their undivided shares to
assailing the April 23, 2003 Decision1 and October Virgilio for ₱700,000.00. The compromise
8, 2003 Resolution2 of the Court of Appeals (CA) in agreement was, however, not approved by the trial
CA-G.R. CV No. 59426. The appellate court, in the court because Atty. Dimetrio Hilbero, lawyer for
said decision and resolution, reversed and set aside Eufemia and her six (6) co-heirs, refused to sign the
the January 14, 1998 Decision3 of the Regional Trial agreement because he knew of the previous sale
Court (RTC), which ruled in favor of petitioners. made to the

The dispute stemmed from the following facts. On December 1, 1994, Eufemia acknowledged
having received ₱700,000.00 from Virgilio.19 Virgilio
then sold the entire property to spouses Isagani
During their lifetime, spouses Pedro San Agustin
Belarmino and Leticia Ocampo (Belarminos)
and Agatona Genil were able to acquire a 246-
sometime in 1994. The Belarminos immediately
square meter parcel of land situated in Barangay
constructed a building on the subject property.
Anos, Los Baños, Laguna and covered by Original
Certificate of Title (OCT) No. O-(1655) 0-
15.4 Agatona Genil died on September 13, 1990 Alarmed and bewildered by the ongoing construction
while Pedro San Agustin died on September 14, on the lot they purchased, the Pahuds immediately
1991. Both died intestate, survived by their eight (8) confronted Eufemia who confirmed to them that
children: respondents Eufemia, Raul, Ferdinand, Virgilio had sold the property to the
Zenaida, Milagros, Minerva, Isabelita and Virgilio. Belarminos.20 Aggrieved, the Pahuds filed a
complaint in intervention21 in the pending case for
judicial partition.1avvphil
Sometime in 1992, Eufemia, Ferdinand and Raul
executed a Deed of Absolute Sale of Undivided
Shares5conveying in favor of petitioners (the After trial, the RTC upheld the validity of the sale to
Pahuds, for brevity) their respective shares from the petitioners. The dispositive portion of the decision
lot they inherited from their deceased parents for reads:
₱525,000.00.6 Eufemia also signed the deed on
behalf of her four (4) other co-heirs, namely: WHEREFORE, the foregoing considered, the Court
1. the sale of the 7/8 portion of the property inexistent for want of a written authority from her co-
covered by OCT No. O (1655) O-15 by the heirs. The CA yielded and set aside the findings of
plaintiffs as heirs of deceased Sps. Pedro the trial court. In disposing the issue, the CA ruled:
San Agustin and Agatona Genil in favor of
the Intervenors-Third Party plaintiffs as valid WHEREFORE, in view of the foregoing, the
and enforceable, but obligating the Decision dated January 14, 1998, rendered by the
Intervenors-Third Party plaintiffs to complete Regional Trial Court of Calamba, Laguna, Branch 92
the payment of the purchase price of in Civil Case No. 2011-93-C for Judicial Partition is
₱437,500.00 by paying the balance of hereby REVERSED and SET ASIDE, and a new one
₱87,500.00 to defendant Fe (sic) San entered, as follows:
Agustin Magsino. Upon receipt of the
balance, the plaintiff shall formalize the sale (1) The case for partition among the
of the 7/8 portion in favor of the Intervenor[s]- plaintiffs-appellees and appellant Virgilio is
Third Party plaintiffs; now considered closed and terminated;

2. declaring the document entitled "Salaysay (2) Ordering plaintiffs-appellees to return to

sa Pagsang-ayon sa Bilihan" (Exh. "2-a") intervenors-appellees the total amount they
signed by plaintiff Eufemia San Agustin received from the latter, plus an interest of
attached to the unapproved Compromise 12% per annum from the time the complaint
Agreement (Exh. "2") as not a valid sale in [in] intervention was filed on April 12, 1995
favor of defendant Virgilio San Agustin; until actual payment of the same;

3. declaring the sale (Exh. "4") made by (3) Declaring the sale of appellant Virgilio
defendant Virgilio San Agustin of the San Agustin to appellants spouses, Isagani
property covered by OCT No. O (1655)-O-15 and Leticia Belarmino[,] as valid and binding;
registered in the names of Spouses Pedro
San Agustin and Agatona Genil in favor of (4) Declaring appellants-spouses as buyers
Third-party defendant Spouses Isagani and in good faith and for value and are the
Leticia Belarmino as not a valid sale and as owners of the subject property.
No pronouncement as to costs.
4. declaring the defendant Virgilio San
Agustin and the Third-Party defendants SO ORDERED.23
spouses Isagani and Leticia Belarmino as in
bad faith in buying the portion of the property
Petitioners now come to this Court raising the
already sold by the plaintiffs in favor of the
following arguments:
Intervenors-Third Party Plaintiffs and the
Third-Party Defendant Sps. Isagani and
Leticia Belarmino in constructing the two- I. The Court of Appeals committed grave and
[storey] building in (sic) the property subject reversible error when it did not apply the
of this case; and second paragraph of Article 1317 of the New
Civil Code insofar as ratification is concerned
to the sale of the 4/8 portion of the subject
5. declaring the parties as not entitled to any
property executed by respondents San
damages, with the parties shouldering their
Agustin in favor of petitioners;
respective responsibilities regarding the
payment of attorney[’]s fees to their
respective lawyers. II. The Court of Appeals committed grave
and reversible error in holding that
respondents spouses Belarminos are in
No pronouncement as to costs.
good faith when they bought the subject
property from respondent Virgilio San
SO ORDERED.22 Agustin despite the findings of fact by the
court a quo that they were in bad faith which
Not satisfied, respondents appealed the decision to clearly contravenes the presence of long line
the CA arguing, in the main, that the sale made by of case laws upholding the task of giving
Eufemia for and on behalf of her other co-heirs to the utmost weight and value to the factual
Pahuds should have been declared void and
findings of the trial court during appeals; of an unsuspecting owner from being prejudiced by
[and] the unwarranted act of another.

III. The Court of Appeals committed grave Based on the foregoing, it is not difficult to conclude,
and reversible error in holding that in principle, that the sale made by Eufemia, Isabelita
respondents spouses Belarminos have and her two brothers to the Pahuds sometime in
superior rights over the property in question 1992 should be valid only with respect to the 4/8
than petitioners despite the fact that the latter portion of the subject property. The sale with respect
were prior in possession thereby misapplying to the 3/8 portion, representing the shares of
the provisions of Article 1544 of the New Civil Zenaida, Milagros, and Minerva, is void because
Code.24 Eufemia could not dispose of the interest of her co-
heirs in the said lot absent any written authority from
The focal issue to be resolved is the status of the the latter, as explicitly required by law. This was, in
sale of the subject property by Eufemia and her co- fact, the ruling of the CA.
heirs to the Pahuds. We find the transaction to be
valid and enforceable. Still, in their petition, the Pahuds argue that the sale
with respect to the 3/8 portion of the land should
Article 1874 of the Civil Code plainly provides: have been deemed ratified when the three co-heirs,
namely: Milagros, Minerva, and Zenaida, executed
Art. 1874. When a sale of a piece of land or any their respective special power of
interest therein is through an agent, the authority of attorneys29 authorizing Eufemia to represent them in
the latter shall be in writing; otherwise, the sale shall the sale of their shares in the subject property.30
be void.
While the sale with respect to the 3/8 portion is void
Also, under Article 1878, a special power of by express provision of law and not susceptible to
attorney is necessary for an agent to enter into a ratification,31we nevertheless uphold its validity on
contract by which the ownership of an immovable the basis of the common law principle of estoppel.
property is transmitted or acquired, either
gratuitously or for a valuable consideration. Such Article 1431 of the Civil Code provides:
stringent statutory requirement has been explained
in Cosmic Lumber Corporation v. Court of Appeals:26 Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the
[T]he authority of an agent to execute a contract [of] person making it, and cannot be denied or disproved
sale of real estate must be conferred in writing and as against the person relying thereon.
must give him specific authority, either to conduct
the general business of the principal or to execute a True, at the time of the sale to the Pahuds, Eufemia
binding contract containing terms and conditions was not armed with the requisite special power of
which are in the contract he did execute. A special attorney to dispose of the 3/8 portion of the property.
power of attorney is necessary to enter into any Initially, in their answer to the complaint in
contract by which the ownership of an immovable is intervention,32 Eufemia and her other co-heirs
transmitted or acquired either gratuitously or for a denied having sold their shares to the Pahuds.
valuable consideration. The express mandate During the pre-trial conference, however, they
required by law to enable an appointee of an agency admitted that they had indeed sold 7/8 of the
(couched) in general terms to sell must be one that property to the Pahuds sometime in 1992.33 Thus,
expressly mentions a sale or that includes a sale as the previous denial was superseded, if not
a necessary ingredient of the act mentioned. For the accordingly amended, by their subsequent
principal to confer the right upon an agent to sell real admission.34 Moreover, in their Comment,35 the said
estate, a power of attorney must so express the co-heirs again admitted the sale made to
powers of the agent in clear and unmistakable petitioners.36
language. When there is any reasonable doubt that
the language so used conveys such power, no such Interestingly, in no instance did the three (3) heirs
construction shall be given the document.27 concerned assail the validity of the transaction made
by Eufemia to the Pahuds on the basis of want of
In several cases, we have repeatedly held that the written authority to sell. They could have easily filed
absence of a written authority to sell a piece of land a case for annulment of the sale of their respective
is, ipso jure, void,28 precisely to protect the interest shares against Eufemia and the Pahuds. Instead,
they opted to remain silent and left the task of raising bought the property at his own risk, and any injury or
the validity of the sale as an issue to their co-heir, prejudice occasioned by such transaction must be
Virgilio, who is not privy to the said transaction. They borne by him.41
cannot be allowed to rely on Eufemia, their attorney-
in-fact, to impugn the validity of the first transaction In the case at bar, the Belarminos were fully aware
because to allow them to do so would be tantamount that the property was registered not in the name of
to giving premium to their sister’s dishonest and the immediate transferor, Virgilio, but remained in
fraudulent deed. Undeniably, therefore, the silence the name of Pedro San Agustin and Agatona
and passivity of the three co-heirs on the issue bar Genil.42 This fact alone is sufficient impetus to make
them from making a contrary claim. further inquiry and, thus, negate their claim that they
are purchasers for value in good faith.43 They knew
It is a basic rule in the law of agency that a principal that the property was still subject of partition
is subject to liability for loss caused to another by the proceedings before the trial court, and that the
latter’s reliance upon a deceitful representation by compromise agreement signed by the heirs was not
an agent in the course of his employment (1) if the approved by the RTC following the opposition of the
representation is authorized; (2) if it is within the counsel for Eufemia and her six other co-heirs.44 The
implied authority of the agent to make for the Belarminos, being transferees pendente lite, are
principal; or (3) if it is apparently authorized, deemed buyers in mala fide, and they stand exactly
regardless of whether the agent was authorized by in the shoes of the transferor and are bound by any
him or not to make the representation.37 judgment or decree which may be rendered for or
against the transferor.45 Furthermore, had they
By their continued silence, Zenaida, Milagros and verified the status of the property by asking the
Minerva have caused the Pahuds to believe that neighboring residents, they would have been able to
they have indeed clothed Eufemia with the authority talk to the Pahuds who occupy an adjoining business
to transact on their behalf. Clearly, the three co-heirs establishment46 and would have known that a
are now estopped from impugning the validity of the portion of the property had already been sold. All
sale from assailing the authority of Eufemia to enter these existing and readily verifiable facts are
into such transaction. sufficient to suggest that the Belarminos knew that
they were buying the property at their own risk.
Accordingly, the subsequent sale made by the
seven co-heirs to Virgilio was void because they no WHEREFORE, premises considered, the April 23,
longer had any interest over the subject property 2003 Decision of the Court of Appeals as well as its
which they could alienate at the time of the second October 8, 2003 Resolution in CA-G.R. CV No.
transaction.38 Nemo dat quod non habet. Virgilio, 59426, are REVERSED and SET ASIDE.
however, could still alienate his 1/8 undivided share Accordingly, the January 14, 1998 Decision of
to the Belarminos. Branch 92 of the Regional Trial Court of Calamba,
The Belarminos, for their part, cannot argue that they that the sale made by respondent Virgilio San
purchased the property from Virgilio in good faith. As Agustin to respondent spouses Isagani Belarmino
a general rule, a purchaser of a real property is not and Leticia Ocampo is valid only with respect to the
required to make any further inquiry beyond what the 1/8 portion of the subject property. The trial court is
certificate of title indicates on its face.39 But the rule ordered to proceed with the partition of the property
excludes those who purchase with knowledge of the with dispatch.
defect in the title of the vendor or of facts sufficient
to induce a reasonable and prudent person to inquire SO ORDERED.
into the status of the property.40Such purchaser
cannot close his eyes to facts which should put a
reasonable man on guard, and later claim that he
acted in good faith on the belief that there was no
defect in the title of the vendor. His mere refusal to
believe that such defect exists, or his obvious
neglect by closing his eyes to the possibility of the
existence of a defect in the vendor’s title, will not
make him an innocent purchaser for value, if
afterwards it turns out that the title was, in fact,
defective. In such a case, he is deemed to have
Republic of the Philippines WHEREAS, the ASSIGNOR has agreed to
SUPREME COURT transfer and consequently record said
Manila transfer of the said BMW trademark and
device in favor of the ASSIGNEE herein with
SECOND DIVISION the Philippines Patent Office;

NOW THEREFORE, in view of the foregoing

and in consideration of the stipulations
G.R. No. 113074 January 22, 1997 hereunder stated, the ASSIGNOR hereby
affirms the said assignment and transfer in
ALFRED HAHN, petitioner, favor of the ASSIGNEE under the following
vs. terms and conditions:
(BMW), respondents. steps against any user other than
ASSIGNOR or infringer of the BMW
trademark in the Philippines; for such
purpose, the ASSIGNOR shall inform the
MENDOZA, J.: ASSIGNEE immediately of any such use or
infringement of the said trademark which
comes to his knowledge and upon such
This is a petition for review of the decision1 of the
information the ASSIGNOR shall
Court of Appeals dismissing a complaint for specific
automatically act as Attorney-In-Fact of the
performance which petitioner had filed against
ASSIGNEE for such case, with full power,
private respondent on the ground that the Regional
authority and responsibility to prosecute
Trial Court of Quezon City did not acquire jurisdiction
unilaterally or in concert with ASSIGNEE,
over private respondent, a nonresident foreign
any such infringer of the subject mark and for
corporation, and of the appellate court's order
purposes hereof the ASSIGNOR is hereby
denying petitioner's motion for reconsideration.
named and constituted as ASSIGNEE's
Attorney-In-Fact, but any such suit without
The following are the facts: ASSIGNEE's consent will exclusively be the
responsibility and for the account of the
Petitioner Alfred Hahn is a Filipino citizen doing ASSIGNOR,
business under the name and style "Hahn-Manila."
On the other hand, private respondent Bayerische 2. That the ASSIGNOR and the ASSIGNEE
Motoren Werke Aktiengesellschaft (BMW) is a shall continue business relations as has
nonresident foreign corporation existing under the been usual in the past without a formal
laws of the former Federal Republic of Germany, contract, and for that purpose, the dealership
with principal office at Munich, Germany. of ASSIGNOR shall cover the ASSIGNEE's
complete production program with the only
On March 7, 1967, petitioner executed in favor of limitation that, for the present, in view of
private respondent a "Deed of Assignment with ASSIGNEE's limited production, the latter
Special Power of Attorney," which reads in full as shall not be able to supply automobiles to
follows: ASSIGNOR.

WHEREAS, the ASSIGNOR is the present Per the agreement, the parties "continue[d] business
owner and holder of the BMW trademark and relations as has been usual in the past without a
device in the Philippines which ASSIGNOR formal contract." But on February 16, 1993, in a
uses and has been using on the products meeting with a BMW representative and the
manufactured by ASSIGNEE, and for which president of Columbia Motors Corporation (CMC),
ASSIGNOR is the authorized exclusive Jose Alvarez, petitioner was informed that BMW was
Dealer of the ASSIGNEE in the Philippines, arranging to grant the exclusive dealership of BMW
the same being evidenced by certificate of cars and products to CMC, which had expressed
registration issued by the Director of Patents interest in acquiring the same. On February 24,
on 12 December 1963 and is referred to as 1993, petitioner received confirmation of the
Trademark No. 10625; information from BMW which, in a letter, expressed
dissatisfaction with various aspects of petitioner's xxx xxx xxx
business, mentioning among other things, decline in
sales, deteriorating services, and inadequate 5. On March 7, 1967, Plaintiff executed in
showroom and warehouse facilities, and petitioner's favor of defendant BMW a Deed of
alleged failure to comply with the standards for an Assignment with Special Power of Attorney
exclusive BMW dealer.2 Nonetheless, BMW covering the trademark and in consideration
expressed willingness to continue business relations thereof, under its first whereas clause,
with the petitioner on the basis of a "standard BMW Plaintiff was duly acknowledged as the
importer" contract, otherwise, it said, if this was not "exclusive Dealer of the Assignee in the
acceptable to petitioner, BMW would have no Philippines. . . .
alternative but to terminate petitioner's exclusive
dealership effective June 30, 1993. xxx xxx xxx

Petitioner protested, claiming that the termination of 8. From the time the trademark "BMW &
his exclusive dealership would be a breach of the DEVICE" was first used by the Plaintiff in the
Deed of Assignment.3 Hahn insisted that as long as Philippines up to the present, Plaintiff,
the assignment of its trademark and device through its firm name "HAHN MANILA" and
subsisted, he remained BMW's exclusive dealer in without any monetary contribution from
the Philippines because the assignment was made defendant BMW, established BMW's
in consideration of the exclusive dealership. In the goodwill and market presence in the
same letter petitioner explained that the decline in Philippines. Pursuant thereto, Plaintiff has
sales was due to lower prices offered for BMW cars invested a lot of money and resources in
in the United States and the fact that few customers order to single-handedly compete against
returned for repairs and servicing because of the other motorcycle and car companies. . . .
durability of BMW parts and the efficiency of Moreover, Plaintiff has built buildings and
petitioner's service. other infrastructures such as service centers
and showrooms to maintain and promote the
Because of Hahn's insistence on the former car and products of defendant BMW.
business relation, BMW withdrew on March 26, 1993
its offer of a "standard importer contract" and xxx xxx xxx
terminated the exclusive dealer relationship effective
June 30, 1993. 4 At a conference of BMW Regional 10. In a letter dated February 24, 1993,
Importers held on April 26, 1993 in Singapore, Hahn defendant BMW advised Plaintiff that it was
was surprised to find Alvarez among those invited willing to maintain with Plaintiff a relationship
from the Asian region. On April 29, 1993, BMW but only "on the basis of a standard BMW
proposed that Hahn and CMC jointly import and importer contract as adjusted to reflect the
distribute BMW cars and parts. particular situation in the Philippines" subject
to certain conditions, otherwise, defendant
Hahn found the proposal unacceptable. On May 14, BMW would terminate Plaintiffs exclusive
1993, he filed a complaint for specific performance dealership and any relationship for cause
and damages against BMW to compel it to continue effective June 30, 1993. . . .
the exclusive dealership. Later he filed an amended
complaint to include an application for temporary xxx xxx xxx
restraining order and for writs of preliminary,
mandatory and prohibitory injunction to enjoin BMW 15. The actuations of defendant BMW are in
from terminating his exclusive dealership. Hahn's breach of the assignment agreement
amended complaint alleged in pertinent parts: between itself and plaintiff since the
consideration for the assignment of the BMW
2. Defendant [BMW] is a foreign corporation trademark is the continuance of the exclusive
doing business in the Philippines with dealership agreement. It thus, follows that
principal offices at Munich, Germany. It may the exclusive dealership should continue for
be served with summons and other court so long as defendant BMW enjoys the use
processes through the Secretary of the and ownership of the trademark assigned to
Department of Trade and Industry of the it by Plaintiff.
Philippines. . . .
The case was docketed as Civil Case No. Q-93- Without seeking reconsideration of the
15933 and raffled to Branch 104 of the Quezon City aforementioned order, BMW filed a petition
Regional Trial Court, which on June 14, 1993 issued for certiorari with the Court of Appeals alleging that:
a temporary restraining order. Summons and copies
of the complaint and amended complaint were I. THE RESPONDENT JUDGE ACTED
thereafter served on the private respondent through WITH UNDUE HASTE OR OTHERWISE
the Department of Trade and Industry, pursuant to INJUDICIOUSLY IN PROCEEDINGS
Rule 14, §14 of the Rules of Court. The order, LEADING TOWARD THE ISSUANCE OF
summons and copies of the complaint and amended THE WRIT OF PRELIMINARY
complaint were later sent by the DTI to BMW via INJUNCTION, AND IN PRESCRIBING THE
registered mail on June 15, 19935 and received by TERMS FOR THE ISSUANCE THEREOF.
the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, ERRED IN DEFERRING RESOLUTION OF
the hearing on the application for the writ of THE MOTION TO DISMISS ON THE
preliminary injunction proceeded ex parte, with GROUND OF LACK OF JURISDICTION,
petitioner Hahn testifying. On June 30, 1993, the trial AND THEREBY FAILING TO
court issued an order granting the writ of preliminary IMMEDIATELY DISMISS THE CASE A
injunction upon the filing of a bond of P100,000.00. QUO.
On July 13, 1993, following the posting of the
required bond, a writ of preliminary injunction was BMW asked for the immediate issuance of a
issued. temporary restraining order and, after hearing, for a
writ of preliminary injunction, to enjoin the trial court
On July 1, 1993, BMW moved to dismiss the case, from proceeding further in Civil Case No. Q-93-
contending that the trial court did not acquire 15933. Private respondent pointed out that, unless
jurisdiction over it through the service of summons the trial court's order was set aside, it would be
on the Department of Trade and Industry, because it forced to submit to the jurisdiction of the court by
(BMW) was a foreign corporation and it was not filing its answer or to accept judgment in default,
doing business in the Philippines. It contended that when the very question was whether the court had
the execution of the Deed of Assignment was an jurisdiction over it.
isolated transaction; that Hahn was not its agent
because the latter undertook to assemble and sell The Court of Appeals enjoined the trial court from
BMW cars and products without the participation of hearing petitioner's complaint. On December 20,
BMW and sold other products; and that Hahn was 1993, it rendered judgment finding the trial court
an indentor or middleman transacting business in his guilty of grave abuse of discretion in deferring
own name and for his own account. resolution of the motion to dismiss. It stated:

Petitioner Alfred Hahn opposed the motion. He Going by the pleadings already filed with the
argued that BMW was doing business in the respondent court before it came out with its
Philippines through him as its agent, as shown by questioned order of July 26, 1993, we rule
the fact that BMW invoices and order forms were and so hold that petitioner's (BMW) motion to
used to document his transactions; that he gave dismiss could be resolved then and there,
warranties as exclusive BMW dealer; that BMW and that the respondent judge's deferment of
officials periodically inspected standards of service his action thereon until after trial on the merit
rendered by him; and that he was described in constitutes, to our mind, grave abuse of
service booklets and international publications of discretion.
BMW as a "BMW Importer" or "BMW Trading
Company" in the Philippines. xxx xxx xxx

The trial court6 deferred resolution of the motion to . . . [T]here is not much appreciable
dismiss until after trial on the merits for the reason disagreement as regards the factual matters
that the grounds advanced by BMW in its motion did relating to the motion to dismiss. What truly
not seem to be indubitable. divide (sic) the parties and to which they
greatly differ is the legal conclusions they
respectively draw from such facts, (sic) with
Hahn maintaining that on the basis thereof,
BMW is doing business in the Philippines for a period or periods totalling one hundred
while the latter asserts that it is not. eighty (180) days or more; participating in the
management, supervision or control of any
Then, after stating that any ruling which the trial court domestic business, firm, entity or corporation
might make on the motion to dismiss would anyway in the Philippines; and any other act or acts
be elevated to it on appeal, the Court of Appeals that imply a continuity of commercial
itself resolved the motion. It ruled that BMW was not dealings or arrangements, and contemplate
doing business in the country and, therefore, to that extent the performance of acts or
jurisdiction over it could not be acquired through works, or the exercise of some of the
service of summons on the DTI pursuant to Rule 14, functions normally incident to, and in
§14. 'The court upheld private respondent's progressive prosecution of, commercial gain
contention that Hahn acted in his own name and for or of the purpose and object of the business
his own account and independently of BMW, based organization: Provided, however, That the
on Alfred Hahn's allegations that he had invested his phrase "doing business" shall not be deemed
own money and resources in establishing BMW's to include mere investment as a shareholder
goodwill in the Philippines and on BMW's claim that by a foreign entity in domestic corporations
Hahn sold products other than those of BMW. It held duly registered to do business, and/or the
that petitioner was a mere indentor or broker and not exercise of rights as such investor; nor
an agent through whom private respondent BMW having a nominee director or officer to
transacted business in the Philippines. represent its interests in such
Consequently, the Court of Appeals dismissed corporation; nor appointing a representative
petitioner's complaint against BMW. or distributor domiciled in the Philippines
which transacts business in its own name
Hence, this appeal. Petitioner contends that the and for its own account. (Emphasis supplied)
Court of Appeals erred (1) in finding that the trial
court gravely abused its discretion in deferring action Thus, the phrase includes "appointing
on the motion to dismiss and (2) in finding that representatives or distributors in the Philippines" but
private respondent BMW is not doing business in the not when the representative or distributor "transacts
Philippines and, for this reason, dismissing business in its name and for its own account." In
petitioner's case. addition, §1(f)(1) of the Rules and Regulations
implementing (IRR) the Omnibus Investment Code
Petitioner's appeal is well taken. Rule 14, §14 of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or
§14. Service upon private foreign combination of acts, enumerated in Article 44
corporations. — If the defendant is a foreign of the Code. In particular, "doing business"
corporation, or a nonresident joint stock includes:
company or association, doing business in
the Philippines, service may be made on its (1) . . . A foreign firm which does business
resident agent designated in accordance through middlemen acting in their own
with law for that purpose, or, if there be no names, such as indentors, commercial
such agent, on the government official brokers or commission merchants, shall not
designated by law to that effect, or on any of be deemed doing business in the
its officers or agents within the Philippines. Philippines. But such indentors, commercial
(Emphasis added). brokers or commission merchants shall be
the ones deemed to be doing business in the
What acts are considered "doing business in the Philippines.
Philippines" are enumerated in §3(d) of the Foreign
Investments Act of 1991 (R.A. No. 7042) as follows:7 The question is whether petitioner Alfred Hahn is the
agent or distributor in the Philippines of private
d) the phrase "doing business" shall include respondent BMW. If he is, BMW may be considered
soliciting orders, service contracts, opening doing business in the Philippines and the trial court
offices, whether called "liaison" offices or acquired jurisdiction over it (BMW) by virtue of the
branches; appointing representatives or service of summons on the Department of Trade and
distributors domiciled in the Philippines or Industry. Otherwise, if Hahn is not the agent of BMW
who in any calendar year stay in the country but an independent dealer, albeit of BMW cars and
products, BMW, a foreign corporation, is not warranty services, for which he received
considered doing business in the Philippines within reimbursement from BMW. All orders were on
the meaning of the Foreign Investments Act of 1991 invoices and forms of BMW.8
and the IRR, and the trial court did not acquire
jurisdiction over it (BMW). These allegations were substantially admitted by
BMW which, in its petition for certiorari before the
The Court of Appeals held that petitioner Alfred Court of Appeals, stated:9
Hahn acted in his own name and for his own account
and not as agent or distributor in the Philippines of 9.4. As soon as the vehicles are fully
BMW on the ground that "he alone had contacts with manufactured and full payment of the
individuals or entities interested in acquiring BMW purchase prices are made, the vehicles are
vehicles. Independence characterizes Hahn's shipped to the Philippines. (The payments
undertakings, for which reason he is to be may be made by the purchasers or third-
considered, under governing statutes, as doing persons or even by Hahn.) The bills of lading
business." (p. 13) In support of this conclusion, the are made up in the name of the purchasers,
appellate court cited the following allegations in but Hahn-Manila is therein indicated as the
Hahn's amended complaint: person to be notified.

8. From the time the trademark "BMW & 9.5. It is Hahn who picks up the vehicles from
DEVICE" was first used by the Plaintiff in the the Philippine ports, for purposes of
Philippines up to the present, Plaintiff, conducting pre-delivery inspections.
through its firm name "HAHN MANILA" and Thereafter, he delivers the vehicles to the
without any monetary contributions from purchasers.
defendant BMW, established BMW's
goodwill and market presence in the 9.6. As soon as BMW invoices the vehicle
Philippines. Pursuant thereto, Plaintiff ordered, Hahn is credited with a commission
invested a lot of money and resources in of fourteen percent (14%) of the full purchase
order to single-handedly compete against price thereof, and as soon as he confirms in
other motorcycle and car companies. . . . writing that the vehicles have been
Moreover, Plaintiff has built buildings and registered in the Philippines and have been
other infrastructures such as service centers serviced by him, he will receive an additional
and showrooms to maintain and promote the three percent (3%) of the full purchase prices
car and products of defendant BMW. as commission.

As the above quoted allegations of the amended Contrary to the appellate court's conclusion, this
complaint show, however, there is nothing to support arrangement shows an agency. An agent receives a
the appellate court's finding that Hahn solicited commission upon the successful conclusion of a
orders alone and for his own account and without sale. On the other hand, a broker earns his pay
"interference from, let alone direction of, BMW." (p. merely by bringing the buyer and the seller together,
13) To the contrary, Hahn claimed he took orders for even if no sale is eventually made.
BMW cars and transmitted them to BMW. Upon
receipt of the orders, BMW fixed the downpayment As to the service centers and showrooms which he
and pricing charges, notified Hahn of the scheduled said he had put up at his own expense, Hahn said
production month for the orders, and reconfirmed that he had to follow BMW specifications as
the orders by signing and returning to Hahn the exclusive dealer of BMW in the Philippines.
acceptance sheets. Payment was made by the According to Hahn, BMW periodically inspected the
buyer directly to BMW. Title to cars purchased service centers to see to it that BMW standards were
passed directly to the buyer and Hahn never paid for maintained. Indeed, it would seem from BMW's letter
the purchase price of BMW cars sold in the to Hahn that it was for Hahn's alleged failure to
Philippines. Hahn was credited with a commission maintain BMW standards that BMW was terminating
equal to 14% of the purchase price upon the Hahn's dealership.
invoicing of a vehicle order by BMW. Upon
confirmation in writing that the vehicles had been The fact that Hahn invested his own money to put up
registered in the Philippines and serviced by him, these service centers and showrooms does not
Hahn received an additional 3% of the full purchase necessarily prove that he is not an agent of BMW.
price. Hahn performed after-sale services, including For as already noted, there are facts in the record
which suggest that BMW exercised control over Philippine buyers. 16 This was denied by BMW,
Hahn's activities as a dealer and made regular which claimed that Hahn was not its agent and that,
inspections of Hahn's premises to enforce while it was true that it had sold cars to Philippine
compliance with BMW standards and buyers, this was done without solicitation on its
specifications.10 For example, in its letter to Hahn part.17
dated February 23, 1996, BMW stated:
It is not true then that the question whether BMW is
In the last years we have pointed out to you doing business could have been resolved simply by
in several discussions and letters that we considering the parties' pleadings. There are
have to tackle the Philippine market more genuine issues of facts which can only be
professionally and that we are through your determined on the basis of evidence duly presented.
present activities not adequately prepared to BMW cannot short circuit the process on the plea
cope with the forthcoming challenges.11 that to compel it to go to trial would be to deny its
right not to submit to the jurisdiction of the trial court
In effect, BMW was holding Hahn accountable to it which precisely it denies. Rule 16, §3 authorizes
under the 1967 Agreement. courts to defer the resolution of a motion to dismiss
until after the trial if the ground on which the motion
This case fits into the mould of Communications is based does not appear to be indubitable. Here the
Materials, Inc. v. Court of Appeals,12 in which the record of the case bristles with factual issues and it
foreign corporation entered into a "Representative is not at all clear whether some allegations
Agreement" and a "Licensing Agreement" with a correspond to the proof.
domestic corporation, by virtue of which the latter
was appointed "exclusive representative" in the Anyway, private respondent need not apprehend
Philippines for a stipulated commission. Pursuant to that by responding to the summons it would be
these contracts, the domestic corporation sold waiving its objection to the trial court's jurisdiction. It
products exported by the foreign corporation and put is now settled that, for purposes of having summons
up a service center for the products sold locally. This served on a foreign corporation in accordance with
Court held that these acts constituted doing Rule 14, §14, it is sufficient that it be alleged in the
business in the Philippines. The arrangement complaint that the foreign corporation is doing
showed that the foreign corporation's purpose was business in the Philippines. The court need not go
to penetrate the Philippine market and establish its beyond the allegations of the complaint in order to
presence in the Philippines. determine whether it has Jurisdiction.18 A
determination that the foreign corporation is doing
In addition, BMW held out private respondent Hahn business is only tentative and is made only for the
as its exclusive distributor in the Philippines, even as purpose of enabling the local court to acquire
it announced in the Asian region that Hahn was the jurisdiction over the foreign corporation through
"official BMW agent" in the Philippines.13 service of summons pursuant to Rule 14, §14. Such
determination does not foreclose a contrary finding
The Court of Appeals also found that petitioner should evidence later show that it is not transacting
Alfred Hahn dealt in other products, and not business in the country. As this Court has explained:
exclusively in BMW products, and, on this basis,
ruled that Hahn was not an agent of BMW. (p. 14) This is not to say, however, that the
This finding is based entirely on allegations of BMW petitioner's right to question the jurisdiction of
in its motion to dismiss filed in the trial court and in the court over its person is now to be deemed
its petition for certiorari before the Court of a foreclosed matter. If it is true, as Signetics
Appeals.14 But this allegation was denied by claims, that its only involvement in the
Hahn15 and therefore the Court of Appeals should Philippines was through a passive
not have cited it as if it were the fact. investment in Sigfil, which it even later
disposed of, and that TEAM Pacific is not its
Indeed this is not the only factual issue raised, which agent, then it cannot really be said to be
should have indicated to the Court of Appeals the doing business in the Philippines. It is a
necessity of affirming the trial court's order deferring defense, however, that requires the
resolution of BMW's motion to dismiss. Petitioner contravention of the allegations of the
alleged that whether or not he is considered an complaint, as well as a full ventilation, in
agent of BMW, the fact is that BMW did business in effect, of the main merits of the case, which
the Philippines because it sold cars directly to should not thus be within the province of a
mere motion to dismiss. So, also, the issue
posed by the petitioner as to whether a
foreign corporation which has done business
in the country, but which has ceased to do
business at the time of the filing of a
complaint, can still be made to answer for a
cause of action which accrued while it was
doing business, is another matter that would
yet have to await the reception and
admission of evidence. Since these points
have seasonably been raised by the
petitioner, there should be no real cause for
what may understandably be its
apprehension, i.e., that by its participation
during the trial on the merits, it may, absent
an invocation of separate or independent
reliefs of its own, be considered to have
voluntarily submitted itself to the court's

Far from committing an abuse of discretion, the trial

court properly deferred resolution of the motion to
dismiss and thus avoided prematurely deciding a
question which requires a factual basis, with the
same result if it had denied the motion and
conditionally assumed jurisdiction. It is the Court of
Appeals which, by ruling that BMW is not doing
business on the basis merely of uncertain
allegations in the pleadings, disposed of the whole
case with finality and thereby deprived petitioner of
his right to be heard on his cause of action. Nor was
there justification for nullifying the writ of preliminary
injunction issued by the trial court. Although the
injunction was issued ex parte, the fact is that BMW
was subsequently heard on its defense by filing a
motion to dismiss.

WHEREFORE, the decision of the Court of Appeals

is REVERSED and the case is REMANDED to the
trial court for further proceedings.

had already seen and inspected the land, found the
same suitable for their purpose and expressed their
desire to buy it.8 However, they requested that the
selling price be reduced to Five Hundred Thirty
Pesos (P530.00) per square meter instead of Five
Hundred Fifty Pesos (P550.00) per square meter.
Private respondent Eduardo Gullas referred the
prospective buyers to his wife.
It was the first time that the buyers came to know
G.R. No. 143978 December 3, 2002 that private respondent Eduardo Gullas was the
owner of the property. On July 3, 1992, private
respondents agreed to sell the property to the
Sisters of Mary, and subsequently executed a
special power of attorney9 in favor of Eufemia
Cañete, giving her the special authority to sell,
transfer and convey the land at a fixed price of Two
GULLAS, respondents.
Hundred Pesos (P200.00) per square meter.
On July 17, 1992, attorney-in-fact Eufemia Cañete
executed a deed of sale in favor of the Sisters of
YNARES-SANTIAGO, J.: Mary for the price of Twenty Million Eight Hundred
Twenty Two Thousand Eight Hundred Pesos
This is a petition for review seeking to set aside the (P20,822.800.00), or at the rate of Two Hundred
decision1 of the Court of Appeals2 in CA-G.R. CV No. Pesos (P200.00) per square meter.10 The buyers
46539, which reversed and set aside the decision3 of subsequently paid the corresponding
the Regional Trial Court of Cebu City, Branch 22 in taxes.11Thereafter, the Register of Deeds of Cebu
Civil Case No. CEB-12740. Province issued TCT No. 75981 in the name of the
Sisters of Mary of Banneaux, Inc.12
The records show that private respondents,
Spouses Eduardo R. Gullas and Norma S. Gullas, Earlier, on July 3, 1992, in the afternoon, petitioners
were the registered owners of a parcel of land in the went to see private respondent Eduardo Gullas to
Municipality of Minglanilla, Province of Cebu, claim their commission, but the latter told them that
measuring 104,114 sq. m., with Transfer Certificate he and his wife have already agreed to sell the
of Title No. 31465.4 On June 29, 1992, they property to the Sisters of Mary. Private respondents
executed a special power of attorney5 authorizing refused to pay the broker’s fee and alleged that
petitioners Manuel B. Tan, a licensed real estate another group of agents was responsible for the sale
broker,6 and his associates Gregg M. Tecson and of land to the Sisters of Mary.
Alexander Saldaña, to negotiate for the sale of the
land at Five Hundred Fifty Pesos (P550.00) per On August 28, 1992, petitioners filed a
square meter, at a commission of 3% of the gross complaint13 against the defendants for recovery of
price. The power of attorney was non-exclusive and their broker’s fee in the sum of One Million Six
effective for one month from June 29, 1992.7 Hundred Fifty Five Thousand Four Hundred Twelve
and 60/100 Pesos (P1,655,412.60), as well as moral
On the same date, petitioner Tan contacted and exemplary damages and attorney’s fees. They
Engineer Edsel Ledesma, construction manager of alleged that they were the efficient procuring cause
the Sisters of Mary of Banneaux, Inc. (hereafter, in bringing about the sale of the property to the
Sisters of Mary), a religious organization interested Sisters of Mary, but that their efforts in
in acquiring a property in the Minglanilla area. consummating the sale were frustrated by the
private respondents who, in evident bad faith, malice
In the morning of July 1, 1992, petitioner Tan visited and in order to evade payment of broker’s fee, dealt
the property with Engineer Ledesma. Thereafter, the directly with the buyer whom petitioners introduced
two men accompanied Sisters Michaela Kim and to them. They further pointed out that the deed of
Azucena Gaviola, representing the Sisters of Mary, sale was undervalued obviously to evade payment
to see private respondent Eduardo Gullas in his of the correct amount of capital gains tax,
office at the University of Visayas. The Sisters, who
documentary stamps and other internal revenue negotiations between private respondent Norma
taxes. Gullas and the Sisters of Mary and Pacana. They
further alleged that the lower court had no basis for
In their answer, private respondents countered that, awarding broker’s fee, attorney’s fees and the costs
contrary to petitioners’ claim, they were not the of litigation to petitioners.17
efficient procuring cause in bringing about the
consummation of the sale because another broker, Petitioners, for their part, assailed the lower court’s
Roberto Pacana, introduced the property to the basis of the award of broker’s fee given to them.
Sisters of Mary ahead of the petitioners.14 Private They contended that their 3% commission for the
respondents maintained that when petitioners sale of the property should be based on the price of
introduced the buyers to private respondent P55,180.420.00, or at P530.00 per square meter as
Eduardo Gullas, the former were already decided in agreed upon and not on the alleged actual selling
buying the property through Pacana, who had been price of P20,822,800.00 or at P200.00 per square
paid his commission. Private respondent Eduardo meter, since the actual purchase price was
Gullas admitted that petitioners were in his office on undervalued for taxation purposes. They also
July 3, 1992, but only to ask for the reimbursement claimed that the lower court erred in not awarding
of their cellular phone expenses. moral and exemplary damages in spite of its finding
of bad faith; and that the amount of P50,000.00 as
In their reply and answer to attorney’s fees awarded to them is insufficient.
counterclaim,15 petitioners alleged that although the Finally, petitioners argued that the legal interest
Sisters of Mary knew that the subject land was for imposed on their claim should have been pegged at
sale through various agents, it was petitioners who 12% per annum instead of the 6% fixed by the
introduced them to the owners thereof. court.18

After trial, the lower court rendered judgment in favor The Court of Appeals reversed and set aside the
of petitioners, the dispositive portion of which reads: lower court’s decision and rendered another
judgment dismissing the complaint.19
FOREGOING, judgment is hereby rendered for the Hence, this appeal.
plaintiffs and against the defendants. By virtue
hereof, defendants Eduardo and Norma Gullas are Petitioners raise following issues for resolution:
hereby ordered to pay jointly and severally plaintiffs
Manuel Tan, Gregg Tecson and Alexander Saldaña; I.

broker’s fee with legal interest at the rate of COMMISSION.
6% per annum from the date of filing of the
complaint; and II.


(P50,000.00) as attorney’s fees and costs of APPELLATE COURT HAS DEPRIVED THE
For lack of merit, defendants’ counterclaim is hereby IN THE FOREBEARANCE OF MONEY.
The petition is impressed with merit.
The records show that petitioner Manuel B. Tan is a
Both parties appealed to the Court of Appeals. licensed real estate broker, and petitioners Gregg M.
Private respondents argued that the lower court Tecson and Alexander Saldaña are his associates.
committed errors of fact and law in holding that it was In Schmid and Oberly v. RJL Martinez Fishing
petitioners’ efforts which brought about the sale of Corporation,20 we defined a "broker" as "one who is
the property and disregarding the previous engaged, for others, on a commission, negotiating
contracts relative to property with the custody of invalid, it should be borne in mind that the contract
which he has no concern; the negotiator between involves a considerable amount of money. Hence, it
other parties, never acting in his own name but in the is inconsistent with sound business practice that the
name of those who employed him. x x x a broker is authority to sell is contained in an undated and
one whose occupation is to bring the parties unnotarized Special Power of Attorney. Petitioners,
together, in matters of trade, commerce or on the other hand, were given the written authority
navigation." (Emphasis supplied) to sell by the private respondents.

During the trial, it was established that petitioners, The trial court’s evaluation of the witnesses is
as brokers, were authorized by private respondents accorded great respect and finality in the absence of
to negotiate for the sale of their land within a period any indication that it overlooked certain facts or
of one month reckoned from June 29, 1992. The circumstances of weight and influence, which if
authority given to petitioners was non-exclusive, reconsidered, would alter the result of the case.21
which meant that private respondents were not
precluded from granting the same authority to other Indeed, it is readily apparent that private
agents with respect to the sale of the same property. respondents are trying to evade payment of the
In fact, private respondent authorized another agent commission which rightfully belong to petitioners as
in the person of Mr. Bobby Pacana to sell the same brokers with respect to the sale. There was no
property. There was nothing illegal or amiss in this dispute as to the role that petitioners played in the
arrangement, per se, considering the non-exclusivity transaction. At the very least, petitioners set the sale
of petitioners’ authority to sell. The problem arose in motion. They were not able to participate in its
when it eventually turned out that these agents were consummation only because they were prevented
entertaining one and the same buyer, the Sisters of from doing so by the acts of the private respondents.
Mary. In the case of Alfred Hahn v. Court of Appeals and
Bayerische Motoren Werke Aktiengesellschaft
As correctly observed by the trial court, the argument (BMW)22 we ruled that, "An agent receives a
of the private respondents that Pacana was the one commission upon the successful conclusion of a
entitled to the stipulated 3% commission is sale. On the other hand, a broker earns his
untenable, considering that it was the petitioners pay merely by bringing the buyer and the seller
who were responsible for the introduction of the together, even if no sale is eventually made."
representatives of the Sisters of Mary to private (Underscoring ours). Clearly, therefore, petitioners,
respondent Eduardo Gullas. Private respondents, as brokers, should be entitled to the commission
however, maintain that they were not aware that whether or not the sale of the property subject matter
their respective agents were negotiating to sell said of the contract was concluded through their efforts.
property to the same buyer.
Having ruled that petitioners are entitled to the
Private respondents failed to prove their contention brokers’ commission, we should now resolve how
that Pacana began negotiations with private much commission are petitioners entitled to?
respondent Norma Gullas way ahead of petitioners.
They failed to present witnesses to substantiate this Following the stipulation in the Special Power of
claim. It is curious that Mrs. Gullas herself was not Attorney, petitioners are entitled to 3% commission
presented in court to testify about her dealings with for the sale of the land in question. Petitioners
Pacana. Neither was Atty. Nachura who was maintain that their commission should be based on
supposedly the one actively negotiating on behalf of the price at which the land was offered for sale, i.e.,
the Sisters of Mary, ever presented in court. P530.00 per square meter. However, the actual
purchase price for which the land was sold was only
Private respondents’ contention that Pacana was P200.00 per square meter. Therefore, equity
the one responsible for the sale of the land is also considerations dictate that petitioners’ commission
unsubstantiated. There was nothing on record which must be based on this price. To rule otherwise would
established the existence of a previous negotiation constitute unjust enrichment on the part of
among Pacana, Mrs. Gullas and the Sisters of Mary. petitioners as brokers.
The only piece of evidence that the private
respondents were able to present is an undated and In the matter of attorney’s fees and expenses of
unnotarized Special Power of Attorney in favor of litigation, we affirm the amount of P50,000.00
Pacana. While the lack of a date and an oath do not awarded by the trial court to the petitioners.
necessarily render said Special Power of Attorney
WHEREFORE, in view of the foregoing, the petition
is GRANTED. The May 29, 2000 decision of the
Court of Appeals is REVERSED and SET ASIDE.
The decision of the Regional Trial Court of Cebu
City, Branch 22, in Civil Case No. CEB-12740
ordering private respondents Eduardo Gullas and
Norma S. Gullas to pay jointly and severally
petitioners Manuel B. Tan, Gregg Tecson and
Alexander Saldaña the sum of Six Hundred Twenty-
Four Thousand and Six Hundred Eighty-Four Pesos
(P624,684.00) as broker’s fee with legal interest at
the rate of 6% per annum from the filing of the
complaint; and the sum of Fifty Thousand Pesos
(P50,000.00) as attorney’s fees and costs of
litigation, is REINSTATED.

Republic of the Philippines In consideration of the performance
SUPREME COURT of your functions and duties as
Manila specified in this letter-agreement,
[Maxicare] shall pay you a
THIRD DIVISION commission equivalent to 15 to 18%
from individual, family, group
G.R. No. 171052 January 28, 2008 accounts; 2.5 to 10% on tailored fit
plans; and 10% on standard plans of
(MAXICARE), petitioner, corporate accounts from all
vs. membership dues collected and
CARMELA ESTRADA/CARA HEALTH remitted by you to [Maxicare].
SERVICES, respondent.
[Maxicare] alleged that it followed a
DECISION "franchising system" in dealing with its
agents whereby an agent had to first secure
NACHURA, J.: permission from [Maxicare] to list a
prospective company as client. [Estrada]
alleged that it did apply with [Maxicare] for
This petition for review on certiorari assails the
the MERALCO account and other accounts,
Decision1 dated June 16, 2005 of the Court of
and in fact, its franchise to solicit corporate
Appeals (CA) in CA-G.R. CV No. 66040 which
accounts, MERALCO account included, was
affirmed in toto the Decision2 dated October 8, 1999
renewed on February 11, 1991.
of the Regional Trial Court (RTC), Branch 135, of
Makati City in an action for breach of contract and
damages filed by respondent Carmela Estrada, sole Plaintiff-appellee [Estrada] submitted
proprietor of Cara Health Services, against proposals and made representations to the
Philippine Health-Care Providers, Inc. (Maxicare). officers of MERALCO regarding the
decided to subscribe to the MAXICARE Plan,
The facts, as found by the CA and adopted by
[Maxicare] directly negotiated with
Maxicare in its petition, follow:
MERALCO regarding the terms and
conditions of the agreement and left plaintiff-
[Maxicare] is a domestic corporation appellee [Estrada] out of the discussions on
engaged in selling health insurance plans the terms and conditions.
whose Chairman Dr. Roberto K. Macasaet,
Chief Operating Officer Virgilio del Valle, and
On November 28, 1991, MERALCO
Sales/Marketing Manager Josephine
eventually subscribed to the MAXICARE
Cabrera were impleaded as defendants-
Plan and signed a Service Agreement
directly with [Maxicare] for medical coverage
of its qualified members, i.e.: 1) the enrolled
On September 15, 1990, [Maxicare] dependent/s of regular MERALCO
allegedly engaged the services of Carmela executives; 2) retired executives and their
Estrada who was doing business under the dependents who have opted to enroll and/or
name of CARA HEALTH [SERVICES] to continue their MAXICARE membership up to
promote and sell the prepaid group practice age 65; and 3) regular MERALCO female
health care delivery program called executives (exclusively for maternity
MAXICARE Plan with the position of benefits). Its duration was for one (1) year
Independent Account Executive. [Maxicare] from December 1, 1991 to November 30,
formally appointed [Estrada] as its "General 1992. The contract was renewed twice for a
Agent," evidenced by a letter-agreement term of three (3) years each, the first started
dated February 16, 1991. The letter on December 1, 1992 while the second took
agreement provided for plaintiff-appellee’s effect on December 1, 1995.
[Estrada’s] compensation in the form of
commission, viz.:
The premium amounts paid by MERALCO to
[Maxicare] were alleged to be the following:
Commission a) P215,788.00 in December 1991;
b) P3,450,564.00 in 1992; c) P4,223,710.00 officers claimed P100,000.00 in moral
in 1993; d) P4,782,873.00 in 1994; damages for each of the officers of
e) P5,102,108.00 in 1995; [Maxicare] impleaded as
and P2,394,292.00 in May 1996. As of May defendant, P100,000.00 in exemplary
1996, the total amount of premium paid by damages, P100,000.00 in attorney’s fees,
MERALCO to [Maxicare] and P10,000.00 in litigation expenses.3
was P20,169,335.00.
After trial, the RTC found Maxicare liable for breach
On March 24, 1992, plaintiff-appellee of contract and ordered it to pay Estrada actual
[Estrada], through counsel, demanded from damages in the amount equivalent to 10%
[Maxicare] that it be paid commissions for the of P20,169,335.00, representing her commission for
MERALCO account and nine (9) other the total premiums paid by Meralco to Maxicare from
accounts. In reply, [Maxicare], through the year 1991 to 1996, plus legal interest computed
counsel, denied [Estrada’s] claims for from the filing of the complaint on March 18, 1993,
commission for the MERALCO and other and attorney’s fees in the amount of P100,000.00.
accounts because [Maxicare] directly
negotiated with MERALCO and the other On appeal, the CA affirmed in toto the RTC’s
accounts(,) and that no agent was given the decision. In ruling for Estrada, both the trial and
go signal to intervene in the negotiations for appellate courts held that Estrada was the "efficient
the terms and conditions and the signing of procuring cause" in the execution of the service
the service agreement with MERALCO and agreement between Meralco and Maxicare
the other accounts so that if ever [Maxicare] consistent with our ruling in Manotok Brothers, Inc.
was indebted to [Estrada], it was only v. Court of Appeals.4
for P1,555.00 and P43.l2 as commissions on
the accounts of Overseas Freighters Co. and Undaunted, Maxicare comes to this Court and
Mr. Enrique Acosta, respectively. insists on the reversal of the RTC Decision as
affirmed by the CA, raising the following issues, to
[Estrada] filed a complaint on March 18, 1993 wit:
against [Maxicare] and its officers with the
Regional Trial Court (RTC) of Makati City, 1. Whether the Court of Appeals committed
docketed as Civil Case No. 93-935, raffled to serious error in affirming Estrada’s
Branch 135. entitlement to commissions for the execution
of the service agreement between Meralco
Defendants-appellants [Maxicare] and its and Maxicare.
officers filed their Answer with Counterclaim
on September 13, 1993 and their Amended 2. Corollarily, whether Estrada is entitled to
Answer with Counterclaim on September 28, commissions for the two (2) consecutive
1993, alleging that: plaintiff-appellee renewals of the service agreement effective
[Estrada] had no cause of action; the cause on December 1, 19925 and December 1,
of action, if any, should be is against 1995.6
[Maxicare] only and not against its officers;
CARA HEALTH’s appointment as agent We are in complete accord with the trial and
under the February 16, 1991 letter- appellate courts’ ruling. Estrada is entitled to
agreement to promote the MAXICARE Plan commissions for the premiums paid under the
was for a period of one (1) year only; said service agreement between Meralco and Maxicare
agency was not renewed after the expiration from 1991 to 1996.
of the one (1) year period; [Estrada] did not
intervene in the negotiations of the contract Well-entrenched in jurisprudence is the rule that
with MERALCO which was directly factual findings of the trial court, especially when
negotiated by MERALCO with [Maxicare]; affirmed by the appellate court, are accorded the
and [Estrada’s] alleged other highest degree of respect and are considered
clients/accounts were not accredited with conclusive between the parties.7 A review of such
[Maxicare] as required, since the agency findings by this Court is not warranted except upon
contract on the MAXICARE health plans a showing of highly meritorious circumstances, such
were not renewed. By way of counterclaim, as: (1) when the findings of a trial court are grounded
defendants-appellants [Maxicare] and its entirely on speculation, surmises or conjectures; (2)
when a lower court’s inference from its factual Manpower Planning and Research Staff
findings is manifestly mistaken, absurd or Head Ruben A. Sapitula on September 5,
impossible; (3) when there is grave abuse of 1991, to wit:
discretion in the appreciation of facts; (4) when the
findings of the appellate court go beyond the issues "This is to certify that Ms. Carmela
of the case, or fail to notice certain relevant facts Estrada has initiated talks with us
which, if properly considered, will justify a different since November 1990 with regards
conclusion; (5) when there is a misappreciation of (sic) to the HMO requirements of both
facts; (6) when the findings of fact are conclusions our rank and file employees,
without mention of the specific evidence on which managers and executives, and that it
they are based, are premised on the absence of was favorably recommended and the
evidence, or are contradicted by evidence on same be approved by the Meralco
record.8 None of the foregoing exceptions which Management Committee."
would warrant a reversal of the assailed decision
obtains in this instance. xxxx

Maxicare urges us that both the RTC and CA failed This Court finds that plaintiff-appellee
to take into account the stipulations contained in the [Estrada’s] efforts were instrumental in
February 19, 1991 letter agreement authorizing the introducing the Meralco account to
payment of commissions only upon satisfaction of [Maxicare] in regard to the latter’s Maxicare
twin conditions, i.e., collection and health insurance plans. Plaintiff-appellee
contemporaneous remittance of premium dues by [Estrada] was the efficient "intervening
Estrada to Maxicare. Allegedly, the lower courts cause" in bringing about the service
disregarded Estrada’s admission that the agreement with Meralco. As pointed out by
negotiations with Meralco failed. Thus, the flawed the trial court in its October 8, 1999 Decision,
application of the "efficient procuring cause" doctrine to wit:
enunciated in Manotok Brothers, Inc. v. Court of
Appeals,9 and the erroneous conclusion upholding "xxx Had not [Estrada]
Estrada’s entitlement to commissions on contracts introduced Maxicare Plans to her
completed without her participation. bosom friends, Messrs. Lopez and
Guingona of Meralco, PHPI would
We are not persuaded. still be an anonymity. xxx"10

Contrary to Maxicare’s assertion, the trial and the Under the foregoing circumstances, we are hard
appellate courts carefully considered the factual pressed to disturb the findings of the RTC, which the
backdrop of the case as borne out by the records. CA affirmed.
Both courts were one in the conclusion that Maxicare
successfully landed the Meralco account for the sale We cannot overemphasize the principle that in
of healthcare plans only by virtue of Estrada’s petitions for review on certiorari under Rules 45 of
involvement and participation in the negotiations. the Rules of Court, only questions of law may be put
The assailed Decision aptly states: into issue. Questions of fact are not cognizable by
this Court. The finding of "efficient procuring cause"
There is no dispute as to the role that by the CA is a question of fact which we desist from
plaintiff-appellee [Estrada] played in selling passing upon as it would entail delving into factual
[Maxicare’s] health insurance plan to matters on which such finding was based. To
Meralco. Plaintiff-appellee [Estrada’s] efforts reiterate, the rule is that factual findings of the trial
consisted in being the first to offer the court, especially those affirmed by the CA, are
Maxicare plan to Meralco, using her conclusive on this Court when supported by the
connections with some of Meralco evidence on record.11
Executives, inviting said executives to dinner
meetings, making submissions and The jettisoning of the petition is inevitable even upon
representations regarding the health plan, a close perusal of the merits of the case.
sending follow-up letters, etc.
First. Maxicare’s contention that Estrada may only
These efforts were recognized by Meralco as claim commissions from membership dues which
shown by the certification issued by its she has collected and remitted to Maxicare as
expressly provided for in the letter-agreement does In relation thereto, we have held that the term
not convince us. It is readily apparent that Maxicare "procuring cause" in describing a broker’s activity,
is attempting to evade payment of the commission refers to a cause originating a series of events
which rightfully belongs to Estrada as the broker who which, without break in their continuity, result in the
brought the parties together. In fact, Maxicare’s accomplishment of the prime objective of the
former Chairman Roberto K. Macasaet testified that employment of the broker—producing a purchaser
Maxicare had been trying to land the Meralco ready, willing and able to buy on the owner’s
account for two (2) years prior to Estrada’s entry in terms.17 To be regarded as the "procuring cause" of
1990.12 Even without that admission, we note that a sale as to be entitled to a commission, a broker’s
Meralco’s Assistant Vice-President, Donatila San efforts must have been the foundation on which the
Juan, in a letter13 dated January 21, 1992 to then negotiations resulting in a sale began.18 Verily,
Maxicare President Pedro R. Sen, categorically Estrada was instrumental in the sale of the Maxicare
acknowledged Estrada’s efforts relative to the sale health plans to Meralco. Without her intervention, no
of Maxicare health plans to Meralco, thus: sale could have been consummated.

Sometime in 1989, Meralco received a Second. Maxicare next contends that Estrada
proposal from Philippine Health-Care herself admitted that her negotiations with Meralco
Providers, Inc. (Maxicare) through the failed as shown in Annex "F" of the Complaint.
initiative and efforts of Ms. Carmela Estrada,
who introduced Maxicare to Meralco. Prior to The chicanery and disingenuousness of Maxicare’s
this time, we did not know that Maxicare is a counsel is not lost on this Court. We observe that
major health care provider in the country. We this Annex "F" is, in fact, Maxicare’s counsel’s letter
have since negotiated and signed up with dated April 10, 1992 addressed to Estrada. The
Maxicare to provide a health maintenance letter contains a unilateral declaration by Maxicare
plan for dependents of Meralco executives, that the efforts initiated and negotiations undertaken
effective December 1, 1991 to November 30, by Estrada failed, such that the service agreement
1992. with Meralco was supposedly directly negotiated by
Maxicare. Thus, the latter effectively declares that
At the very least, Estrada penetrated the Meralco Estrada is not the "efficient procuring cause" of the
market, initially closed to Maxicare, and laid the sale, and as such, is not entitled to commissions.
groundwork for a business relationship. The only
reason Estrada was not able to participate in the Our holding in Atillo III v. Court of
collection and remittance of premium dues to Appeals,19 ironically the case cited by Maxicare to
Maxicare was because she was prevented from bolster its position that the statement in Annex "F"
doing so by the acts of Maxicare, its officers, and amounted to an admission, provides a contrary
employees. answer to Maxicare’s ridiculous contention. We
intoned therein that in spite of the presence of
In Tan v. Gullas,14 we had occasion to define a judicial admissions in a party’s pleading, the trial
broker and distinguish it from an agent, thus: court is still given leeway to consider other evidence
presented.20 We ruled, thus:
[O]ne who is engaged, for others, on a
commission, negotiating contracts relative to As provided for in Section 4 of Rule 129 of
property with the custody of which he has no the Rules of Court, the general rule that a
concern; the negotiator between the other judicial admission is conclusive upon the
parties, never acting in his own name but in party making it and does not require proof
the name of those who employed him. [A] admits of two exceptions: 1) when it is shown
broker is one whose occupation is to bring that the admission was made through
the parties together, in matter of trade, palpable mistake, and 2) when it is shown
commerce or navigation.15 that no such admission was in fact made.
The latter exception allows one to contradict
An agent receives a commission upon the an admission by denying that he made such
successful conclusion of a sale. On the other an admission.
hand, a broker earns his pay merely by
bringing the buyer and the seller together, For instance, if a party invokes an
even if no sale is eventually made.16 "admission" by an adverse party, but
cites the admission "out of context,"
then the one making the admission paper, the language or the argument of
may show that he made no "such" opposing counsel, or the text of a decision or
admission, or that his admission was authority, or knowingly cite as law a provision
taken out of context. already rendered inoperative by repeal or
amendment, or assert as a fact that which
This may be interpreted as to mean has not been proved.
"not in the sense in which the
admission is made to appear." That is Third. Finally, we likewise affirm the uniform ruling of
the reason for the modifier "such."21 the RTC and CA that Estrada is entitled to 10% of
the total amount of premiums paid25 by Meralco to
In this case, the letter, although part of Estrada’s Maxicare as of May 1996. Maxicare’s argument that
Complaint, is not, ipso facto, an admission of the assuming Estrada is entitled to commissions, such
statements contained therein, especially since the entitlement only covers the initial year of the service
bone of contention relates to Estrada’s entitlement agreement and should not include the premiums
to commissions for the sale of health plans she paid for the succeeding renewals thereof, fails to
claims to have brokered. It is more than obvious from impress. Considering that we have sustained the
the entirety of the records that Estrada has lower courts’ factual finding of Estrada’s close,
unequivocally and consistently declared that her proximate and causal connection to the sale of
involvement as broker is the proximate cause which health plans, we are not wont to disturb Estrada’s
consummated the sale between Meralco and complete entitlement to commission for the total
Maxicare. premiums paid until May 1996 in the amount
of P20,169,335.00.
Moreover, Section 34,22 Rule 132 of the Rules of
Court requires the purpose for which the evidence is WHEREFORE, premises considered and finding no
offered to be specified. Undeniably, the letter was reversible error committed by the Court of Appeals,
attached to the Complaint, and offered in evidence, the petition is hereby DENIED. Costs against the
to demonstrate Maxicare’s bad faith and ill will petitioner.
towards Estrada.23
Even a cursory reading of the Complaint and all the
pleadings filed thereafter before the RTC, CA, and
this Court, readily show that Estrada does not
concede, at any point, that her negotiations with
Meralco failed. Clearly, Maxicare’s assertion that
Estrada herself does not pretend to be the "efficient
procuring cause" in the execution of the service
agreement between Meralco and Maxicare is
baseless and an outright falsehood.

After muddling the issues and representing that

Estrada made an admission that her negotiations
with Meralco failed, Maxicare’s counsel then
proceeds to cite a case which does not, by any
stretch of the imagination, bolster the flawed

We, therefore, ADMONISH Maxicare’s counsel,

and, in turn, remind every member of the Bar that
the practice of law carries with it responsibilities
which are not to be trifled with. Maxicare’s counsel
ought to be reacquainted with Canon 1024 of the
Code of Professional Responsibility, specifically,
Rule 10.02, to wit:

Rule 10.02 – A lawyer shall not knowingly

misquote or misrepresent the contents of a
part-time sales agent for LMICE entitled to a
percentage commission from the sales of fire

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
SECOND DIVISION 50% of the gross sales he had made on behalf of
LMICE,6 while petitioners maintained that he should
G.R. No. 141485 June 30, 2005 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
HUERTAZUELA, petitioners,.
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
CHICO-NAZARIO, J.: transaction as sales agent of LMICE involved two
fire extinguishers sold to Landbank of the Philippines
In this Petition for Review on Certiorari under Rule (Landbank), Puerto Princesa City Branch, for the
45 of the Rules of Court, petitioners pray for the price of ₱7,200.00. Landbank issued a check, dated
reversal of the Decision of the Court of Appeals in 08 November 1993, pay to the order of "L.M.
CA-G.R. CR No. 21134, dated 31 May Industrial Comm’l. Enterprises c/o Chito Federico,"
1999,1 affirming with modification the Judgment of for the amount of ₱5,936.40,8 after deducting from
the Regional Trial Court (RTC) of Puerto Princesa the original sales price the 15% discount granted by
City, Palawan, in Criminal Case No. 11943, dated 05 private complainant Federico to Landbank and the
May 1997,2 finding petitioners guilty beyond 3% withholding tax. Private complainant Federico
reasonable doubt of the crime of estafa under Article encashed the check at Landbank and remitted only
315(1)(b) of the Revised Penal Code. ₱2,436.40 to LMICE, while he kept ₱3,500.00 for
himself as his commission from the sale.9
Petitioner Pablito Murao is the sole owner of Lorna
Murao Industrial Commercial Enterprises (LMICE), a Petitioners alleged that it was contrary to the
company engaged in the business of selling and standard operating procedure of LMICE that private
refilling fire extinguishers, with branches in Palawan, complainant Federico was named payee of the
Naga, Legaspi, Mindoro, Aurora, Quezon, Isabela, Landbank check on behalf of LMICE, and that
and Laguna. Petitioner Nelio Huertazuela is the private complainant Federico was not authorized to
Branch Manager of LMICE in Puerto Princesa City, encash the said check. Despite the supposed
Palawan.3 irregularities committed by private complainant
Federico in the collection of the payment from
On 01 September 1994, petitioner Murao and Landbank and in the premature withholding of his
private complainant Chito Federico entered into a commission from the said payment, petitioners
Dealership Agreement for the marketing, forgave private complainant Federico because the
distribution, and refilling of fire extinguishers within latter promised to make-up for his misdeeds in the
Puerto Princesa City.4 According to the Dealership next transaction.10
Agreement, private complainant Federico, as a
dealer for LMICE, could obtain fire extinguishers Private complainant Federico, on behalf of LMICE,
from LMICE at a 50% discount, provided that he sets subsequently facilitated a transaction with the City
up his own sales force, acquires and issues his own Government of Puerto Princesa for the refill of 202
sales invoice, and posts a bond with LMICE as fire extinguishers. Because of the considerable cost,
security for the credit line extended to him by LMICE. the City Government of Puerto Princesa requested
Failing to comply with the conditions under the said that the transaction be split into two purchase orders,
Dealership Agreement, private complainant and the City Government of Puerto Princesa shall
Federico, nonetheless, was still allowed to act as a pay for each of the purchase orders
separately.11 Pursuant to the two purchase orders, mutually helping one another, after having received
LMICE refilled and delivered all 202 fire the amount of ₱309,000.00 as payment of the 99
extinguishers to the City Government of Puerto tanks of refilled fire extinguisher (sic) from the City
Princesa: 154 units on 06 January 1994, 43 more Government of Puerto Princesa, through deceit,
units on 12 January 1994, and the last five units on fraud and misrepresentation, did then and there
13 January 1994.12 willfully, unlawfully and feloniously defraud one Chito
Federico in the following manner, to wit: said
The subject of this Petition is limited to the first accused, well knowing that Chito Federico agent of
purchase order, Purchase Order No. GSO-856, LM Industrial Commercial Enterprises is entitled to
dated 03 January 1994, for the refill of 99 fire 50% commission of the gross sales as per their
extinguishers, with a total cost of ₱309,000.00.13 On Dealership Contract or the amount of ₱154,500.00
16 June 1994, the City Government of Puerto as his commission for his sale of 99 refilled fire
Princesa issued Check No. 611437 to LMICE to pay extinguishers worth ₱309,000.00, and accused once
for Purchase Order No. GSO-856, in the amount of in possession of said amount of ₱309,000.00
₱300,572.73, net of the 3% withholding tax.14 Within misappropriate, misapply and convert the amount of
the same day, petitioner Huertazuela claimed Check ₱154,500.00 for their own personal use and benefit
No. 611437 from the City Government of Puerto and despite repeated demands made upon them by
Princesa and deposited it under the current account complainant to deliver the amount of ₱154,500.00,
of LMICE with PCIBank.15 accused failed and refused and still fails and refuses
to do so, to the damage and prejudice of said Chito
On 17 June 1994, private complainant Federico Federico in the amount of ₱154,500.00, Philippine
went to see petitioner Huertazuela at the LMICE Currency.20
branch office in Puerto Princesa City to demand for
the amount of ₱154,500.00 as his commission from After holding trial, the RTC rendered its Judgment on
the payment of Purchase Order No. GSO-856 by the 05 May 1997 finding petitioners guilty beyond
City Government of Puerto Princesa. Petitioner reasonable doubt as co-principals of the crime of
Huertazuela, however, refused to pay private estafa defined and penalized in Article 315(1)(b) of
complainant Federico his commission since the two the Revised Penal Code. Estafa, under the said
of them could not agree on the proper amount provision, is committed by –
ART. 315. Swindling (estafa). – Any person who
Also on 17 June 1994, private complainant Federico shall defraud another by any of the means
went to the police station to file an Affidavit- mentioned hereinbelow . . .
Complaint for estafa against
petitioners. Petitioners submitted their Joint 1. With unfaithfulness or abuse of confidence,
Counter-Affidavit on 12 July 1994.18 The City namely:
Prosecution Office of Puerto Princesa City issued a
Resolution, dated 15 August 1994, finding that (a) …
a prima faciecase for estafa existed against the
petitioners and recommending the filing of an (b) By misappropriating or converting, to the
information for estafa against both of them.19 prejudice of another, money, goods, or any
other personal property received by the
The Information, docketed as Criminal Case No. offender in trust or on commission, or for
11943 and raffled to the RTC of Puerto Princesa administration, or under any other obligation
City, Palawan, Branch 52, reads as follows – involving the duty to make delivery of or to
return the same, even though such obligation
INFORMATION be totally or partially guaranteed by a bond;
or by denying having received such money,
The undersigned accuses PABLITO MURAO and goods, or other property; . . .
committed as follows: In the same Judgment, the RTC expounded on its
finding of guilt, thus –
That on or about the 16th day of June, 1994, at
Puerto Princesa City, Philippines, and within the For the afore-quoted provision of the Revised Penal
jurisdiction of this Honorable Court, the said Code to be committed, the following requisites must
accused, conspiring and confederating together and concur:
1. That money, goods or other personal accused should have paid Chito Federico 30%. If he
property be received by the offender in trust, refused, they could have it deposited in his name. In
or on commission, or for administration, or that way they may not be said to have
under any other obligation involving the duty misappropriated for themselves what pertained to
to make delivery of, or to return, the same; their Agent by way of commission.

2. That there be misappropriation or …

conversion of such money or property by the
offender, or denial on his part of such receipt; WHEREFORE, premises considered judgment is
hereby rendered finding the accused PABLITO
3. That such misappropriation or conversion MURAO and NELIO HUERTAZUELA guilty beyond
or denial is to the prejudice of another; and reasonable doubt as co-principals, of the crime of
estafa defined and penalized in Article 315 par. 1(b)
4. That there is demand made by the of the Revised Penal Code, and applying the
offended party to the offender. (Reyes, provisions of the Indeterminate Sentence Law, both
Revised Penal Code of the Philippines, p. accused are hereby sentenced to an indeterminate
716; Manuel Manahan, Jr. vs. Court of penalty ranging from a minimum of TWO (2) YEARS,
Appeals, Et Al., G.R. No. 111656, March 20, FOUR (4) MONTHS and ONE (1) DAY of prision
1996) correccional in its medium period, to a maximum of
TWENTY (20) YEARS of reclusion temporal in its
All the foregoing elements are present in this case. maximum period; to pay Chito Federico, jointly and
The aborted testimony of Mrs. Norma Dacuan, severally:
Cashier III of the Treasurer’s Office of the City of
Puerto Princesa established the fact that indeed, on a. Sales Commission equivalent to
June 16, 1994, co-accused Nelio Huertazuela took
delivery of Check No. 611437 with face value of 50% of ₱309,000.00 or -------------------
₱300,572.73, representing payment for the refill of ₱154,500.00
99 cylinders of fire extinguishers. Although the
relationship between complaining witness Chito with legal interest thereon from
Federico and LMIC is not fiduciary in nature, still the
clause "any other obligation involving the duty to June 17, 1994 until fully paid;
make delivery of or to return" personal property is
broad enough to include a "civil obligation" b. Attorney’s fees ---------------------------- ₱
(Manahan vs. C.A., Et. Al., Mar. 20, 1996). 30,0000.00.21

The second element cannot be gainsaid. Both Resolving the appeal filed by the petitioners before
Pablito Murao and Nelio Huertazuela categorically it, the Court of Appeals, in its Decision, dated 31 May
admitted that they did not give to Chito Federico his 1999, affirmed the aforementioned RTC Judgment,
commission. Instead, they deposited the full amount finding petitioners guilty of estafa, but modifying the
of the consideration, with the PCIBank in the Current sentence imposed on the petitioners. The dispositive
Account of LMIC. portion of the Decision of the Court of Appeals reads

WHEREFORE, the appealed decision is hereby
The refusal by the accused to give Chito Federico AFFIRMED with the MODIFICATION that appellants
what ever percentage his commission necessarily PABLITO MURAO and NELIO HUERTAZUELA are
caused him prejudice which constitute the third hereby each sentenced to an indeterminate penalty
element of estafa. Demand for payment, although of eight (8) years and One (1) day of prision mayor,
not an essential element of estafa was nonetheless as minimum, to Twenty (20) years of reclusion
made by the complainant but was rebuffed by the temporal, as maximum. The award for attorney’s fee
accused. The fraudulent intent by the accused is of ₱30,000.00 is deleted because the prosecution of
indubitably indicated by their refusal to pay Chito criminal action is the task of the State prosecutors.
Federico any percentage of the gross sales as All other aspects of the appealed decision are
commission. If it were true that what the dealer/sales maintained.22
Agent is entitled to by way of commission is only
30% of the gross sales, then by all means the
When the Court of Appeals, in its Resolution, dated complainant Federico. Article 1868 of the Civil Code
19 January 2000,23 denied their Motion for defines agency as a special contract whereby "a
Reconsideration, petitioners filed the present person binds himself to render some service or to do
Petition for Review24 before this Court, raising the something in representation or on behalf of another,
following errors allegedly committed by the Court of with the consent or authority of the latter." Although
Appeals in its Decision, dated 31 May 1999 – private complainant Federico never had the
opportunity to operate as a dealer for LMICE under
I the terms of the Dealership Agreement, he was
allowed to act as a sales agent for LMICE. He can
WITH DUE RESPECT, THE HONORABLE COURT negotiate for and on behalf of LMICE for the refill and
OF APPEALS GRAVELY ERRED WHEN IT RULED delivery of fire extinguishers, which he, in fact, did on
THAT PETITIONERS ARE LIABLE FOR ESTAFA two occasions – with Landbank and with the City
UNDER ARTICLE 315 1(B) OF THE REVISED Government of Puerto Princesa. Unlike the
PENAL CODE UNDER THE FOREGOING SET OF Dealership Agreement, however, the agreement that
FACTS, WHEN IT IS CLEAR FROM THE SAID private complainant Federico may act as sales agent
UNDISPUTED FACTS THAT THE LIABILITY IS of LMICE was based on an oral agreement.26
As a sales agent, private complainant Federico
II entered into negotiations with prospective clients for
and on behalf of his principal, LMICE. When
WITH DUE RESPECT, THE HONORABLE COURT negotiations for the sale or refill of fire extinguishers
ERRED WHEN IT UPHOLD (sic) PRIVATE were successful, private complainant Federico
COMPLAINANT’S CLAIM THAT HE IS ENTITLED prepared the necessary documentation. Purchase
TO A FIFTY (50%) PERCENT COMMISSION orders, invoices, and receipts were all in the name
WITHOUT EVIDENCE TO SUPPORT SUCH of LMICE. It was LMICE who had the primary duty of
CLAIM. picking up the empty fire extinguishers, filling them
up, and delivering the refilled tanks to the clients,
This Court finds the instant Petition impressed with even though private complainant Federico
merit. Absent herein are two essential elements of personally helped in hauling and carrying the fire
the crime of estafa by misappropriation or extinguishers during pick-up from and delivery to
conversion under Article 315(1)(b) of the Revised clients.
Penal Code, namely: (1) That money, goods or other
personal property be received by the offender in All profits made and any advantage gained by an
trust, or on commission, or for administration, or agent in the execution of his agency should belong
under any other obligation involving the duty to make to the principal.27 In the instant case, whether the
delivery of, or to return, the same; and (2) That there transactions negotiated by the sales agent were for
be a misappropriation or conversion of such money the sale of brand new fire extinguishers or for the
or property by the offender. refill of empty tanks, evidently, the business
belonged to LMICE. Consequently, payments made
The findings of the RTC and the Court of Appeals by clients for the fire extinguishers pertained to
that petitioners committed estafa rest on the LMICE. When petitioner Huertazuela, as the Branch
erroneous belief that private complainant Federico, Manager of LMICE in Puerto Princesa City, with the
due to his right to commission, already owned 50% permission of petitioner Murao, the sole proprietor of
of the amount paid by the City Government of Puerto LMICE, personally picked up Check No. 611437
Princesa to LMICE by virtue of Check No. 611437, from the City Government of Puerto Princesa, and
so that the collection and deposit of the said check deposited the same under the Current Account of
by petitioners under the account of LMICE LMICE with PCIBank, he was merely collecting what
constituted misappropriation or conversion of private rightfully belonged to LMICE. Indeed, Check No.
complainant Federico’s commission. 611437 named LMICE as the lone payee. Private
complainant Federico may claim commission,
allegedly equivalent to 50% of the payment received
However, his right to a commission does not
by LMICE from the City Government of Puerto
make private complainant Federico a joint owner
Princesa, based on his right to just compensation
of the moneypaid to LMICE by the City Government
under his agency contract with LMICE,28 but not as
of Puerto Princesa, but merely establishes the
the automatic owner of the 50% portion of the said
relation of agent and principal.25 It is unequivocal
that an agency existed between LMICE and private
Since LMICE is the lawful owner of the entire owner, but rather from the duty of a principal to give
proceeds of the check payment from the City just compensation to its agent for the services
Government of Puerto Princesa, then the petitioners rendered by the latter.
who collected the payment on behalf of LMICE did
not receive the same or any part thereof in trust, or Furthermore, the Court of Appeals, in its Decision,
on commission, or for administration, or under any dated 31 May 1999, defined the words "convert" and
other obligation involving the duty to make delivery "misappropriate" in the following manner –
of, or to return, the same to private complainant
Federico, thus, the RTC correctly found that no The High Court in Saddul v. Court of Appeals [192
fiduciary relationship existed between petitioners SCRA 277] enunciated that the words "convert" and
and private complainant Federico. A fiduciary "misappropriate" in the crime of estafa punished
relationship between the complainant and the under Art. 315, par. 1(b) connote an act of using or
accused is an essential element of estafa by disposing of another’s property as if it were one’s
misappropriation or conversion, without which the own, or if devoting it to a purpose or use different
accused could not have committed estafa.29 from that agreed upon. To misappropriate to one’s
use includes, not only conversion to one’s personal
The RTC used the case of Manahan, Jr. v. Court of advantage, but also every attempt to dispose of the
Appeals30 to support its position that even in the property of another without right.32
absence of a fiduciary relationship, the petitioners
still had the civil obligation to return and deliver to Based on the very same definition, this Court finds
private complainant Federico his commission. The that petitioners did not convert nor misappropriate
RTC failed to discern the substantial differences in the proceeds from Check No. 611437 because the
the factual background of the Manahan case from same belonged to LMICE, and was not "another’s
the present Petition. The Manahan case involved the property." Petitioners collected the said check from
lease of a dump truck. Although a contract of lease the City Government of Puerto Princesa and
may not be fiduciary in character, the lessee clearly deposited the same under the Current Account of
had the civil obligation to return the truck to the LMICE with PCIBank. Since the money was already
lessor at the end of the lease period; and failure of with its owner, LMICE, it could not be said that the
the lessee to return the truck as provided for in the same had been converted or misappropriated for
contract may constitute estafa. The phrase "or any one could not very well fraudulently appropriate to
other obligation involving the duty to make delivery himself money that is his own.33
of, or to return the same" refers to contracts of
bailment, such as, contract of lease of personal Although petitioners’ refusal to pay private
property, contract of deposit, and commodatum, complainant Federico his commission caused
wherein juridical possession of the thing was prejudice or damage to the latter, said act does not
transferred to the lessee, depositary or borrower, constitute a crime, particularly estafa by conversion
and wherein the latter is obligated to return the same or misappropriation punishable under Article
thing.31 315(1)(b) of the Revised Penal Code. Without the
essential elements for the commission thereof,
In contrast, the current Petition concerns an agency petitioners cannot be deemed to have committed the
contract whereby the principal already received crime.
payment from the client but refused to give the sales
agent, who negotiated the sale, his commission. As While petitioners may have no criminal liability,
has been established by this Court in the foregoing petitioners themselves admit their civil liability to the
paragraphs, LMICE had a right to the full amount private complainant Federico for the latter’s
paid by the City Government of Puerto Princesa. commission from the sale, whether it be 30% of the
Since LMICE, through petitioners, directly collected net sales or 50% of the gross sales. However, this
the payment, then it was already in possession of Court is precluded from making a determination and
the amount, and no transfer of juridical possession an award of the civil liability for the reason that the
thereof was involved herein. Given that private said civil liability of petitioners to pay private
complainant Federico could not claim ownership complainant Federico his commission arises from a
over the said payment or any portion thereof, LMICE violation of the agency contract and not from a
had nothing at all to deliver and return to him. The criminal act.34 It would be improper and unwarranted
obligation of LMICE to pay private complainant for this Court to impose in a criminal action the civil
Federico his commission does not arise from any liability arising from a civil contract, which should
duty to deliver or return the money to its supposed
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.

Republic of the Philippines On August 20, 1987, the MRI premium of Dans, less
SUPREME COURT the DBP service fee of 10 percent, was credited by
Manila DBP to the savings account of the DBP MRI Pool.
Accordingly, the DBP MRI Pool was advised of the

On September 3, 1987, Dans died of cardiac arrest.

The DBP, upon notice, relayed this information to the
G.R. No. L-109937 March 21, 1994 DBP MRI Pool. On September 23, 1987, the DBP
MRI Pool notified DBP that Dans was not eligible for
DEVELOPMENT BANK OF THE MRI coverage, being over the acceptance age limit
PHILIPPINES, petitioner, of 60 years at the time of application.
COURT OF APPEALS and the ESTATE OF THE On October 21, 1987, DBP apprised Candida Dans
LATE JUAN B. DANS, represented by CANDIDA of the disapproval of her late husband's MRI
G. DANS, and the DBP MORTGAGE application. The DBP offered to refund the premium
REDEMPTION INSURANCE POOL, respondents. of P1,476.00 which the deceased had paid, but
Candida Dans refused to accept the same,
Office of the Legal Counsel for petitioner. demanding payment of the face value of the MRI or
an amount equivalent to the loan. She, likewise,
Reyes, Santayana, Molo & Alegre for DBP refused to accept an ex gratia settlement of
Mortgage Redemption Insurance Pool. P30,000.00, which the DBP later offered.

On February 10, 1989, respondent Estate, through

Candida Dans as administratrix, filed a complaint
with the Regional Trial Court, Branch I, Basilan,
against DBP and the insurance pool for "Collection
of Sum of Money with Damages." Respondent
This is a petition for review on certiorari under Rule Estate alleged that Dans became insured by the
45 of the Revised Rules of Court to reverse and set DBP MRI Pool when DBP, with full knowledge of
aside the decision of the Court of Appeals in CA-G.R Dans' age at the time of application, required him to
CV No. 26434 and its resolution denying apply for MRI, and later collected the insurance
reconsideration thereof. premium thereon. Respondent Estate therefore
prayed: (1) that the sum of P139,500.00, which it
We affirm the decision of the Court of Appeals with paid under protest for the loan, be reimbursed; (2)
modification. that the mortgage debt of the deceased be declared
fully paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed
In May 1987, Juan B. Dans, together with his wife their answers, with the former asserting a cross-
Candida, his son and daughter-in-law, applied for a claim against the latter.
loan of P500,000.00 with the Development Bank of
the Philippines (DBP), Basilan Branch. As the At the pre-trial, DBP and the DBP MRI Pool admitted
principal mortgagor, Dans, then 76 years of age, was all the documents and exhibits submitted by
advised by DBP to obtain a mortgage redemption respondent Estate. As a result of these admissions,
insurance (MRI) with the DBP Mortgage the trial court narrowed down the issues and, without
Redemption Insurance Pool (DBP MRI Pool). opposition from the parties, found the case ripe for
summary judgment. Consequently, the trial court
A loan, in the reduced amount of P300,000.00, was ordered the parties to submit their respective
approved by DBP on August 4, 1987 and released position papers and documentary evidence, which
on August 11, 1987. From the proceeds of the loan, may serve as basis for the judgment.
DBP deducted the amount of P1,476.00 as payment
for the MRI premium. On August 15, 1987, Dans On March 10, 1990, the trial court rendered a
accomplished and submitted the "MRI Application decision in favor of respondent Estate and against
for Insurance" and the "Health Statement for DBP DBP. The DBP MRI Pool, however, was absolved
MRI Pool." from liability, after the trial court found no privity of
contract between it and the deceased. The trial court I hereby declare and agree that all the
declared DBP in estoppel for having led Dans into statements and answers contained
applying for MRI and actually collecting the premium herein are true, complete and correct
and the service fee, despite knowledge of his age to the best of my knowledge and
ineligibility. The dispositive portion of the decision belief and form part of my application
read as follows: for insurance. It is understood and
agreed that no insurance coverage
WHEREFORE, in view of the shall be effected unless and until this
foregoing consideration and in the application is approved and the full
furtherance of justice and equity, the premium is paid during my continued
Court finds judgment for the plaintiff good health (Records, p. 40).
and against Defendant DBP, ordering
the latter: Under the aforementioned provisions, the MRI
coverage shall take effect: (1) when the application
1. To return and reimburse plaintiff shall be approved by the insurance pool; and (2)
the amount of P139,500.00 plus legal when the full premium is paid during the continued
rate of interest as amortization good health of the applicant. These two conditions,
payment paid under protest; being joined conjunctively, must concur.

2. To consider the mortgage loan of Undisputably, the power to approve MRI

P300,000.00 including all interest applications is lodged with the DBP MRI Pool. The
accumulated or otherwise to have pool, however, did not approve the application of
been settled, satisfied or set-off by Dans. There is also no showing that it accepted the
virtue of the insurance coverage of sum of P1,476.00, which DBP credited to its account
the late Juan B. Dans; with full knowledge that it was payment for Dan's
premium. There was, as a result, no perfected
3. To pay plaintiff the amount of contract of insurance; hence, the DBP MRI Pool
P10,000.00 as attorney's fees; cannot be held liable on a contract that does not
4. To pay plaintiff in the amount of
P10,000.00 as costs of litigation and The liability of DBP is another matter.
other expenses, and other relief just
and equitable. It was DBP, as a matter of policy and practice, that
required Dans, the borrower, to secure MRI
The Counterclaims of Defendants coverage. Instead of allowing Dans to look for his
DBP and DBP MRI POOL are hereby own insurance carrier or some other form of
dismissed. The Cross-claim of insurance policy, DBP compelled him to apply with
Defendant DBP is likewise dismissed the DBP MRI Pool for MRI coverage. When Dan's
(Rollo, p. 79) loan was released on August 11, 1987, DBP already
deducted from the proceeds thereof the MRI
The DBP appealed to the Court of Appeals. In a premium. Four days latter, DBP made Dans fill up
decision dated September 7, 1992, the appellate and sign his application for MRI, as well as his health
court affirmed in toto the decision of the trial court. statement. The DBP later submitted both the
The DBP's motion for reconsideration was denied in application form and health statement to the DBP
a resolution dated April 20, 1993. MRI Pool at the DBP Main Building, Makati Metro
Manila. As service fee, DBP deducted 10 percent of
Hence, this recourse. the premium collected by it from Dans.

II In dealing with Dans, DBP was wearing two legal

hats: the first as a lender, and the second as an
insurance agent.
When Dans applied for MRI, he filled up and
personally signed a "Health Statement for DBP MRI
Pool" (Exh. "5-Bank") with the following declaration: As an insurance agent, DBP made Dans go through
the motion of applying for said insurance, thereby
leading him and his family to believe that they had
already fulfilled all the requirements for the MRI and
that the issuance of their policy was forthcoming. everyone his due and observe
Apparently, DBP had full knowledge that Dan's honesty and good faith.
application was never going to be approved. The
maximum age for MRI acceptance is 60 years as Article 20 provides:
clearly and specifically provided in Article 1 of the
Group Mortgage Redemption Insurance Policy Every person who, contrary to law,
signed in 1984 by all the insurance companies willfully or negligently causes
concerned (Exh. "1-Pool"). damage to another, shall indemnify
the latter for the same.
Under Article 1987 of the Civil Code of the
Philippines, "the agent who acts as such is not Article 21 provides:
personally liable to the party with whom he contracts,
unless he expressly binds himself or exceeds the Any person, who willfully causes loss
limits of his authority without giving such party or injury to another in a manner that
sufficient notice of his powers." is contrary to morals, good customs
or public policy shall compensate the
The DBP is not authorized to accept applications for latter for the damage.
MRI when its clients are more than 60 years of age
(Exh. "1-Pool"). Knowing all the while that Dans was The DBP's liability, however, cannot be for the entire
ineligible for MRI coverage because of his advanced value of the insurance policy. To assume that were
age, DBP exceeded the scope of its authority when it not for DBP's concealment of the limits of its
it accepted Dan's application for MRI by collecting authority, Dans would have secured an MRI from
the insurance premium, and deducting its agent's another insurance company, and therefore would
commission and service fee. have been fully insured by the time he died, is highly
speculative. Considering his advanced age, there is
The liability of an agent who exceeds the scope of no absolute certainty that Dans could obtain an
his authority depends upon whether the third person insurance coverage from another company. It must
is aware of the limits of the agent's powers. There is also be noted that Dans died almost immediately,
no showing that Dans knew of the limitation on i.e., on the nineteenth day after applying for the MRI,
DBP's authority to solicit applications for MRI. and on the twenty-third day from the date of release
of his loan.
If the third person dealing with an agent is unaware
of the limits of the authority conferred by the principal One is entitled to an adequate compensation only for
on the agent and he (third person) has been such pecuniary loss suffered by him as he has duly
deceived by the non-disclosure thereof by the agent, proved (Civil Code of the Philippines, Art. 2199).
then the latter is liable for damages to him (V Damages, to be recoverable, must not only be
Tolentino, Commentaries and Jurisprudence on the capable of proof, but must be actually proved with a
Civil Code of the Philippines, p. 422 [1992], citing reasonable degree of certainty (Refractories
Sentencia [Cuba] of September 25, 1907). The rule Corporation v. Intermediate Appellate Court, 176
that the agent is liable when he acts without authority SCRA 539 [1989]; Choa Tek Hee v. Philippine
is founded upon the supposition that there has been Publishing Co., 34 Phil. 447 [1916]). Speculative
some wrong or omission on his part either in damages are too remote to be included in an
misrepresenting, or in affirming, or concealing the accurate estimate of damages (Sun Life Assurance
authority under which he assumes to act (Francisco, v. Rueda Hermanos, 37 Phil. 844 [1918]).
V., Agency 307 [1952], citing Hall v. Lauderdale, 46
N.Y. 70, 75). Inasmuch as the non-disclosure of the While Dans is not entitled to compensatory
limits of the agency carries with it the implication that damages, he is entitled to moral damages. No proof
a deception was perpetrated on the unsuspecting of pecuniary loss is required in the assessment of
client, the provisions of Articles 19, 20 and 21 of the said kind of damages (Civil Code of Philippines, Art.
Civil Code of the Philippines come into play. 2216). The same may be recovered in acts referred
to in Article 2219 of the Civil Code.
Article 19 provides:
The assessment of moral damages is left to the
Every person must, in the exercise of discretion of the court according to the
his rights and in the performance of circumstances of each case (Civil Code of the
his duties, act with justice give Philippines, Art. 2216). Considering that DBP had
offered to pay P30,000.00 to respondent Estate in ex
gratia settlement of its claim and that DBP's non-
disclosure of the limits of its authority amounted to a
deception to its client, an award of moral damages
in the amount of P50,000.00 would be reasonable.

The award of attorney's fees is also just and

equitable under the circumstances (Civil Code of the
Philippines, Article 2208 [11]).

WHEREFORE, the decision of the Court of Appeals

in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is
ORDERED: (1) to REIMBURSE respondent Estate
of Juan B. Dans the amount of P1,476.00 with legal
interest from the date of the filing of the complaint
until fully paid; and (2) to PAY said Estate the
amount of Fifty Thousand Pesos (P50,000.00) as
moral damages and the amount of Ten Thousand
Pesos (P10,000.00) as attorney's fees. With costs
against petitioner.

Republic of the Philippines there was such a promotion. She was even told she
SUPREME COURT could "push through with the check" she issued.
Manila From the records, the check, with the endorsement
of Alcantara at the back, was deposited in the
SECOND DIVISION account of Filipinas Life with the Commercial Bank
and Trust Company (CBTC), Escolta Branch.
G.R. No. 159489 February 4, 2008
Relying on the representations made by the
FILIPINAS LIFE ASSURANCE COMPANY (now petitioner’s duly authorized representatives Apetrior
AYALA LIFE ASSURANCE, INC.), petitioner, and Alcantara, as well as having known agent Valle
vs. for quite some time, Pedroso waited for the maturity
CLEMENTE N. PEDROSO, TERESITA O. of her initial investment. A month after, her
PEDROSO and JENNIFER N. PALACIO thru her investment of P10,000 was returned to her after she
Attorney-in-Fact PONCIANO C. made a written request for its refund. The formal
MARQUEZ, respondents. written request, dated February 3, 1977, was written
on an inter-office memorandum form of Filipinas Life
DECISION prepared by Alcantara.7 To collect the amount,
Pedroso personally went to the Escolta branch
QUISUMBING, J.: 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
This petition for review on certiorari seeks the
but at a lower rate of 5%8 prepaid interest a month.
reversal of the Decision1 and Resolution,2 dated
Upon maturity of Pedroso’s subsequent
November 29, 2002 and August 5, 2003,
investments, Valle would take back from Pedroso
respectively, of the Court of Appeals in CA-G.R. CV
the corresponding yellow-colored agent’s receipt he
No. 33568. The appellate court had affirmed the
issued to the latter.
Decision3 dated October 10, 1989 of the Regional
Trial Court (RTC) of Manila, Branch 3, finding
petitioner as defendant and the co-defendants below Pedroso told respondent Jennifer N. Palacio, also a
jointly and severally liable to the plaintiffs, now Filipinas Life insurance policyholder, about the
herein respondents. investment plan. Palacio made a total investment
of P49,5509 but at only 5% prepaid interest.
However, when Pedroso tried to withdraw her
The antecedent facts are as follows:
investment, Valle did not want to return
some P17,000 worth of it. Palacio also tried to
Respondent Teresita O. Pedroso is a policyholder of withdraw hers, but Filipinas Life, despite demands,
a 20-year endowment life insurance issued by refused to return her money. With the assistance of
petitioner Filipinas Life Assurance Company their lawyer, they went to Filipinas Life Escolta Office
(Filipinas Life). Pedroso claims Renato Valle was to collect their respective investments, and to inquire
her insurance agent since 1972 and Valle collected why they had not seen Valle for quite some time. But
her monthly premiums. In the first week of January their attempts were futile. Hence, respondents filed
1977, Valle told her that the Filipinas Life Escolta an action for the recovery of a sum of money.
Office was holding a promotional investment
program for policyholders. It was offering 8%
After trial, the RTC, Branch 3, Manila, held Filipinas
prepaid interest a month for certain amounts
Life and its co-defendants Valle, Apetrior and
deposited on a monthly basis. Enticed, she initially
Alcantara jointly and solidarily liable to the
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 On appeal, the Court of Appeals affirmed the trial
Receipt" No. 807838.6 court’s ruling and subsequently denied the motion
for reconsideration.
Subsequently, she called the Escolta office and
talked to Francisco Alcantara, the administrative Petitioner now comes before us raising a single
assistant, who referred her to the branch manager, issue:
Angel Apetrior. Pedroso inquired about the
promotional investment and Apetrior confirmed that WHETHER OR NOT THE COURT OF
ERROR AND GRAVELY ABUSED ITS confirming the validity of the representations made
HOLDING FLAC [FILIPINAS LIFE] TO BE Filipinas Life, as the principal, is liable for obligations
JOINTLY AND SEVERALLY LIABLE WITH contracted by its agent Valle. By the contract of
ITS CO-DEFENDANTS ON THE CLAIM OF agency, a person binds himself to render some
RESPONDENTS INSTEAD OF HOLDING service or to do something in representation or on
ITS AGENT, RENATO VALLE, SOLELY behalf of another, with the consent or authority of the
LIABLE TO THE RESPONDENTS.10 latter.12 The general rule is that the principal is
responsible for the acts of its agent done within the
Simply put, did the Court of Appeals err in holding scope of its authority, and should bear the damage
petitioner and its co-defendants jointly and severally caused to third persons.13 When the agent exceeds
liable to the herein respondents? his authority, the agent becomes personally liable for
the damage.14 But even when the agent exceeds his
Filipinas Life does not dispute that Valle was its authority, the principal is still solidarily liable together
agent, but claims that it was only a life insurance with the agent if the principal allowed the agent to
company and was not engaged in the business of act as though the agent had full powers.15 In other
collecting investment money. It contends that the words, the acts of an agent beyond the scope of his
investment scheme offered to respondents by Valle, authority do not bind the principal, unless the
Apetrior and Alcantara was outside the scope of their principal ratifies them, expressly or
authority as agents of Filipinas Life such that, it impliedly. Ratification in agency is the adoption or
cannot be held liable to the respondents.11 confirmation by one person of an act performed on
his behalf by another without authority.17
On the other hand, respondents contend that
Filipinas Life authorized Valle to solicit investments Filipinas Life cannot profess ignorance of Valle’s
from them. In fact, Filipinas Life’s official documents acts. Even if Valle’s representations were beyond
and facilities were used in consummating the his authority as a debit/insurance agent, Filipinas
transactions. These transactions, according to Life thru Alcantara and Apetrior expressly and
respondents, were confirmed by its officers Apetrior knowingly ratified Valle’s acts. It cannot even be
and Alcantara. Respondents assert they exercised denied that Filipinas Life benefited from the
all the diligence required of them in ascertaining the investments deposited by Valle in the account of
authority of petitioner’s agents; and it is Filipinas Life Filipinas Life. In our considered view, Filipinas Life
that failed in its duty to ensure that its agents act had clothed Valle with apparent authority; hence, it
within the scope of their authority. is now estopped to deny said authority. Innocent
third persons should not be prejudiced if the principal
Considering the issue raised in the light of the failed to adopt the needed measures to prevent
submissions of the parties, we find that the petition misrepresentation, much more so if the principal
lacks merit. The Court of Appeals committed no ratified his agent’s acts beyond the latter’s authority.
reversible error nor abused gravely its discretion in The act of the agent is considered that of the
rendering the assailed decision and resolution. principal itself. Qui per alium facit per seipsum facere
videtur. "He who does a thing by an agent is
It appears indisputable that respondents Pedroso considered as doing it himself."18
and Palacio had invested P47,000 and P49,550,
respectively. These were received by Valle and WHEREFORE, the petition is DENIED for lack of
remitted to Filipinas Life, using Filipinas Life’s official merit. The Decision and Resolution, dated
receipts, whose authenticity were not disputed. November 29, 2002 and August 5, 2003,
Valle’s authority to solicit and receive investments respectively, of the Court of Appeals in CA-G.R. CV
was also established by the parties. When No. 33568 are AFFIRMED.
respondents sought confirmation, Alcantara, holding
a supervisory position, and Apetrior, the branch Costs against the petitioner.
manager, confirmed that Valle had authority. While
it is true that a person dealing with an agent is put SO ORDERED.
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
Republic of the Philippines "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
G.R. No. 156262 July 14, 2005
The Facts
MELECIO P. TUAZON, Spouses ANASTACIO The facts are narrated by the CA as follows:
and MARY T. BUENAVENTURA, Petitioners,
vs. "[Respondents] alleged that between the period of
HEIRS OF BARTOLOME RAMOS, Respondents. May 2, 1988 and June 5, 1988, spouses Leonilo and
Maria Tuazon purchased a total of 8,326 cavans of
DECISION rice from [the deceased Bartolome] Ramos
[predecessor-in-interest of respondents]. That of this
PANGANIBAN, J.: [quantity,] x x x only 4,437 cavans [have been paid
for so far], leaving unpaid 3,889 cavans valued at
Stripped of nonessentials, the present case involves ₱1,211,919.00. In payment therefor, the spouses
the collection of a sum of money. Specifically, this Tuazon issued x x x [several] Traders Royal Bank
case arose from the failure of petitioners to pay checks.
respondents’ predecessor-in-interest. This fact was
shown by the non-encashment of checks issued by xxxxxxxxx
a third person, but indorsed by herein Petitioner
Maria Tuazon in favor of the said predecessor. [B]ut when these [checks] were encashed, all of the
Under these circumstances, to enable respondents checks bounced due to insufficiency of funds.
to collect on the indebtedness, the check drawer [Respondents] advanced that before issuing said
need not be impleaded in the Complaint. Thus, the checks[,] spouses Tuazon already knew that they
suit is directed, not against the drawer, but against had no available fund to support the checks, and
the debtor who indorsed the checks in payment of they failed to provide for the payment of these
the obligation. despite repeated demands made on them.

The Case "[Respondents] averred that because spouses

Tuazon anticipated that they would be sued, they
Before us is a Petition for Review1 under Rule 45 of conspired with the other [defendants] to defraud
the Rules of Court, challenging the July 31, 2002 them as creditors by executing x x x fictitious sales
Decision2 of the Court of Appeals (CA) in CA-GR CV of their properties. They executed x x x simulated
No. 46535. The decretal portion of the assailed sale[s] [of three lots] in favor of the x x x spouses
Decision reads: Buenaventura x x x[,] as well as their residential lot
and the house thereon[,] all located at Nueva Ecija,
"WHEREFORE, the appeal is DISMISSED and the and another simulated deed of sale dated July 12,
appealed decision is AFFIRMED." 1988 of a Stake Toyota registered with the Land
Transportation Office of Cabanatuan City on
On the other hand, the affirmed Decision3 of Branch September 7, 1988. [Co-petitioner] Melecio Tuazon,
34 of the Regional Trial Court (RTC) of Gapan, a son of spouses Tuazon, registered a fictitious
Nueva Ecija, disposed as follows: Deed of Sale on July 19, 1988 x x x over a residential
lot located at Nueva Ecija. Another simulated sale of
"WHEREFORE, judgment is hereby rendered in a Toyota Willys was executed on January 25, 1988
favor of the plaintiffs and against the defendants, in favor of their other son, [co-petitioner] Alejandro
ordering the defendants spouses Leonilo Tuazon Tuazon x x x. As a result of the said sales, the titles
and Maria Tuazon to pay the plaintiffs, as follows: of these properties issued in the names of spouses
Tuazon were cancelled and new ones were issued
"1. The sum of ₱1,750,050.00, with interests from in favor of the [co-]defendants spouses
the filing of the second amended complaint; Buenaventura, Alejandro Tuazon and Melecio
Tuazon. Resultantly, by the said ante-dated and
simulated sales and the corresponding transfers
"2. The sum of ₱50,000.00, as attorney’s fees;
there was no more property left registered in the
names of spouses Tuazon answerable to creditors, respondents and Spouses Tuazon. The appellate
to the damage and prejudice of [respondents]. court disbelieved petitioners’ contention that
Evangeline Santos should have been impleaded as
"For their part, defendants denied having purchased an indispensable party. Inasmuch as all the checks
x x x rice from [Bartolome] Ramos. They alleged that had been indorsed by Maria Tuazon, who thereby
it was Magdalena Ramos, wife of said deceased, became liable to subsequent holders for the
who owned and traded the merchandise and Maria amounts stated in those checks, there was no need
Tuazon was merely her agent. They argued that it to implead Santos.
was Evangeline Santos who was the buyer of the
rice and issued the checks to Maria Tuazon as Hence, this Petition.6
payments therefor. In good faith[,] the checks were
received [by petitioner] from Evangeline Santos and Issues
turned over to Ramos without knowing that these
were not funded. And it is for this reason that Petitioners raise the following issues for our
[petitioners] have been insisting on the inclusion of consideration:
Evangeline Santos as an indispensable party, and
her non-inclusion was a fatal error. Refuting that the "1. Whether or not the Honorable Court of Appeals
sale of several properties were fictitious or erred in ruling that petitioners are not agents of the
simulated, spouses Tuazon contended that these respondents.
were sold because they were then meeting financial
difficulties but the disposals were made for value and "2. Whether or not the Honorable Court of Appeals
in good faith and done before the filing of the instant erred in rendering judgment against the petitioners
suit. To dispute the contention of plaintiffs that they despite x x x the failure of the respondents to include
were the buyers of the rice, they argued that there in their action Evangeline Santos, an indispensable
was no sales invoice, official receipts or like party to the suit."7
evidence to prove this. They assert that they were
merely agents and should not be held answerable."5
The Court’s Ruling
The corresponding civil and criminal cases were
The Petition is unmeritorious.
filed by respondents against Spouses Tuazon.
Those cases were later consolidated and amended
to include Spouses Anastacio and Mary First Issue:
Buenaventura, with Alejandro Tuazon and Melecio
Tuazon as additional defendants. Having passed Agency
away before the pretrial, Bartolome Ramos was
substituted by his heirs, herein respondents. Well-entrenched is the rule that the Supreme Court’s
role in a petition under Rule 45 is limited to reviewing
Contending that Evangeline Santos was an errors of law allegedly committed by the Court of
indispensable party in the case, petitioners moved to Appeals. Factual findings of the trial court, especially
file a third-party complaint against her. Allegedly, when affirmed by the CA, are conclusive on the
she was primarily liable to respondents, because parties and this Court.8 Petitioners have not given us
she was the one who had purchased the sufficient reasons to deviate from this rule.
merchandise from their predecessor, as evidenced
by the fact that the checks had been drawn in her In a contract of agency, one binds oneself to render
name. The RTC, however, denied petitioners’ some service or to do something in representation
Motion. or on behalf of another, with the latter’s consent or
authority.9 The following are the elements of agency:
Since the trial court acquitted petitioners in all three (1) the parties’ consent, express or implied, to
of the consolidated criminal cases, they appealed establish the relationship; (2) the object, which is the
only its decision finding them civilly liable to execution of a juridical act in relation to a third
respondents. person; (3) the representation, by which the one who
acts as an agent does so, not for oneself, but as a
Ruling of the Court of Appeals 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
Sustaining the RTC, the CA held that petitioners had
part of the principal, an actual intention to appoint,
failed to prove the existence of an agency between
an intention naturally inferable from the principal’s As indorser, Petitioner Maria Tuazon warranted that
words or actions. In the same manner, there must be upon due presentment, the checks were to be
an intention on the part of the agent to accept the accepted or paid, or both, according to their
appointment and act upon it. Absent such mutual tenor; and that in case they were dishonored, she
intent, there is generally no agency.11 would pay the corresponding amount.17After an
instrument is dishonored by nonpayment, indorsers
This Court finds no reversible error in the findings of cease to be merely secondarily liable; they become
the courts a quo that petitioners were the rice buyers principal debtors whose liability becomes identical to
themselves; they were not mere agents of that of the original obligor. The holder of a negotiable
respondents in their rice dealership. The question of instrument need not even proceed against the
whether a contract is one of sale or of agency maker before suing the indorser.18 Clearly,
depends on the intention of the parties.12 Evangeline Santos -- as the drawer of the checks --
is not an indispensable party in an action against
The declarations of agents alone are generally Maria Tuazon, the indorser of the checks.
insufficient to establish the fact or extent of their
authority.13 The law makes no presumption of Indispensable parties are defined as "parties in
agency; proving its existence, nature and extent is interest without whom no final determination can be
incumbent upon the person alleging it.14 In the had."19 The instant case was originally one for the
present case, petitioners raise the fact of agency as collection of the purchase price of the rice bought by
an affirmative defense, yet fail to prove its existence. Maria Tuazon from respondents’ predecessor. In
this case, it is clear that there is no privity of contract
The Court notes that petitioners, on their own behalf, between respondents and Santos. Hence, a final
sued Evangeline Santos for collection of the determination of the rights and interest of the parties
amounts represented by the bounced checks, in a may be made without any need to implead her.
separate civil case that they sought to be
consolidated with the current one. If, as they claim, WHEREFORE, the Petition is DENIED and the
they were mere agents of respondents, petitioners assailed Decision AFFIRMED. Costs against
should have brought the suit against Santos for and petitioners.
on behalf of their alleged principal, in accordance
with Section 2 of Rule 3 of the Rules on Civil SO ORDERED.
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.