G.R. No.

94050 November 21, 1991

SYLVIA H. BEDIA and HONTIVEROS & ASSOCIATED PRODUCERS PHILS.

YIELDS, INC., petitioners,
vs.
EMILY A. WHITE and HOLMAN T. WHITE, respondents.

Ramon A. Gonzales for petitioner of the Court.

Renato S. Corpuz for private respondents.

CRUZ, J.:

The basic issue before us is the capacity in which petitioner Sylvia H. Bedia entered
into the subject contract with private respondent Emily A. White. Both the trial court
and the respondent court held she was acting in her own personal behalf. She faults
this finding as reversible error and insists that she was merely acting as an agent.

The case arose when Bedia and White entered into a Participation Contract 1 reading
in full as follows:

THE STATE FAIR OF TEXAS '80

PARTICIPATION CONTRACT

PARTICIPANT (COMPANY NAME) EMILY WHITE

ENTERPRISES

I/We, the abovementioned company hereby agrees to participate in the 1980

Dallas State Fair to be held in Dallas, Texas on October 3, to October 19,1980.
I/We request for a 15 square meter booth space worth $2,250.00 U.S. Dollars.

I/We further understand that this participation contract shall be deemed non-
cancellable after payment of the said down payment, and that any intention on
our part to cancel the same shall render whatever amount we have paid forfeited
in favor of HONTIVEROS & ASSOCIATED PRODUCERS PHILIPPINE YIELDS,
INC.

FOR THE ABOVE CONSIDERATION, I/We understand the HONTIVEROS &

ASSOCIATED PRODUCERS PHIL. YIELDS, INC. shall: Reserve said booth for
our exclusive perusal; We also understand that the above cost includes overall
exterior booth decoration and materials but does not include interior designs
which will be per our specifications and expenses.
 PARTICIPANT'S PARTICIPATION
AUTHORIZED SIGNATURE: ACCEPTED BY:

(SGD.) EMILY WHITE (SGD.) SYLVIA H. BEDIA

DATE: 8/13/80 DATE: Aug. 1, 1980

On August 10, 1986, White and her husband filed a complaint in the Regional Trial
Court of Pasay City for damages against Bedia and Hontiveros & Associated
Producers Phil. Yields, Inc. for damages caused by their fraudulent violation of their
agreement. She averred that Bedia had approached her and persuaded her to
participate in the State of Texas Fair, and that she made a down payment of $500.00
to Bedia on the agreed display space. In due time, she enplaned for Dallas with her
merchandise but was dismayed to learn later that the defendants had not paid for or
registered any display space in her name, nor were they authorized by the state fair
director to recruit participants. She said she incurred losses as a result for which the
defendants should be held solidarily liable. 2

In their joint answer, the defendants denied the plaintiff's allegation that they had
deceived her and explained that no display space was registered in her name as she
was only supposed to share the space leased by Hontiveros in its name. She was not
allowed to display her goods in that space because she had not paid her balance of
$1,750.00, in violation of their contract. Bedia also made the particular averment that
she did not sign the Participation Contract on her own behalf but as an agent of
Hontiveros and that she had later returned the advance payment of $500.00 to the
plaintiff. The defendants filed their own counterclaim and complained of malice on the
part of the plaintiffs. 3
In the course of the trial, the complaint against Hontiveros was dismissed on motion of the plaintiffs. 4

In his decision dated May 29, 1986, Judge Fermin Martin, Jr. found Bedia liable for fraud and awarded the plaintiffs actual and moral
damages plus attorney's fees and the costs. The court said:

In claiming to be a mere agent of Hontiveros & Associated Producers Phil. Yields, Inc., defendant Sylvia H. Bedia evidently
attempted to escape liability for herself. Unfortunately for her, the "Participation Contract" is not actually in representation or in
the name of said corporation. It is a covenant entered into by her in her personal capacity, for no one may contract in the name
of another without being authorized by the latter, or unless she has by law a right to represent her. (Art. 1347, new Civil Code)

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

declared in its decision dated March 30, 1990:

The evidence, on the whole, shows that she definitely acted on her own. She
represented herself as authorized by the State of Texas to solicit and assign
booths at the Texas fair; she assured the appellee that she could give her booth.
 Under Article 1883 of the New Civil Code, if the agent acts in his own name, the
principal has no right of action against the persons with whom the agent had
contracted.

We do not share these views.

It is noteworthy that in her letter to the Minister of Trade dated December 23,1984,
Emily White began:

I am a local exporter who was recruited by Hontiveros & Associated Producers

Phil. Yields, Inc. to participate in the State Fair of Dallas, Texas which was held
last Oct. 3 to 19, 1980. Hontiveros & Associated charged me US$150.00 per
square meter for display booth of said fair. I have paid an advance of US$500.00
as partial payment for the total space of 15 square meter of which is $2,250.00
(Two Thousand Two Hundred Fifty Dollars). 6

As the Participation Contract was signed by Bedia, the above statement was an acknowledgment by White that Bedia was only acting
for Hontiveros when it recruited her as a participant in the Texas State Fair and charged her a partial payment of $500.00. This amount
was to be fortified to Hontiveros in case of cancellation by her of the agreement. The fact that the contract was typewritten on the
letterhead stationery of Hontiveros bolsters this conclusion in the absence of any showing that said stationery had been illegally used
by Bedia.

Significantly, Hontiveros itself has not repudiated Bedia's agency as it would have if she had really not signed in its name. In the answer
it filed with Bedia, it did not deny the latter's allegation in Paragraph 4 thereof that she was only acting as its agent when she solicited
White's participation. In fact, by filing the answer jointly with Bedia through their common counsel, Hontiveros affirmed this allegation.

If the plaintiffs had any doubt about the capacity in which Bedia was acting, what they should have done was verify the matter with
Hontiveros. They did not. Instead, they simply accepted Bedia's representation that she was an agent of Hontiveros and dealt with her
as such. Under Article 1910 of the Civil Code, "the principal must comply with all the obligations which the agent may have contracted
within the scope of his authority." Hence, the private respondents cannot now hold Bedia liable for the acts performed by her for, and
imputable to, Hontiveros as her principal.

The plaintiffs' position became all the more untenable when they moved on June 5, 1984, for the dismissal of the complaint against
Hontiveros, 7
leaving Bedia as the sole defendant. Hontiveros had admitted as early as
when it filed its answer that Bedia was acting as its agent. The effect of the motion was
to leave the plaintiffs without a cause of action against Bedia for the obligation, if any,
of Hontiveros.

Our conclusion is that since it has not been found that Bedia was acting beyond the
scope of her authority when she entered into the Participation Contract on behalf of
Hontiveros, it is the latter that should be held answerable for any obligation arising from
that agreement. By moving to dismiss the complaint against Hontiveros, the plaintiffs
virtually disarmed themselves and forfeited whatever claims they might have proved
against the latter under the contract signed for it by Bedia. It should be obvious that
having waived these claims against the principal, they cannot now assert them against
the agent.

WHEREFORE, the appealed decision dated March 30, 1990, of the respondent court
is REVERSED and a new judgment is rendered dismissing Civil Case No. 9246-P in
the Regional Trial Court of Pasay City.

SO ORDERED.

G.R. No. 95641 September 22, 1994

SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants,

vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE,
INC., respondents-appellees.

Gutierrez, Cortes & Gonzales for petitioners.

Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.

ROMERO, J.:

On June 29, 1985, seven months after the issuance of petitioner Santos Areola's
Personal Accident Insurance Policy No. PA-20015, respondent insurance company
unilaterally cancelled the same since company records revealed that petitioner-insured
failed to pay his premiums.

On August 3, 1985, respondent insurance company offered to reinstate same policy it

had previously cancelled and even proposed to extend its lifetime to December 17,
1985, upon a finding that the cancellation was erroneous and that the premiums were
paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit,
respondent insurance company's branch manager.

These, in brief, are the material facts that gave rise to the action for damages due to
breach of contract instituted by petitioner-insured before
Branch 40 RTC, Dagupan City against respondent insurance company.

There are two issues for resolution in this case:

(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-
insured to payment of damages?
(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by
respondent insurance company, in an effort to rectify such error, obliterate whatever
liability for damages it may have to bear, thus absolving it therefrom?

From the factual findings of the trial court, it appears that petitioner-insured, Santos
Areola, a lawyer from Dagupan City, bought, through
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter
referred to as Prudential), a personal accident insurance policy covering the one-year
period between noon of November 28, 1984 and noon of November 28, 1985. 1 Under
the terms of the statement of account issued by respondent insurance company,
petitioner-insured was supposed to pay the total amount of P1,609.65 which included
the premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of
P29.40. 2 At the lower left-hand corner of the statement of account, the following is
legibly printed:

This Statement of Account must not be considered a receipt. Official

Receipt will be issued to you upon payment of this account.

If payment is made to our representative, demand for a Provisional Receipt

and if our Official Receipts is (sic) not received by you within 7 days please
notify us.

If payment is made to our office, demand for an OFFICIAL RECEIPT.

On December 17, 1984, respondent insurance company issued collector's provisional

receipt No. 9300 to petitioner-insured for the amount of P1,609.65 3 On the lower
portion of the receipt the following is written in capital letters:

Note: This collector's provisional receipt will be confirmed by our official

receipt. If our official receipt is not received by you within 7 days, please
notify us. 4

On June 29, 1985, respondent insurance company, through its Baguio City manager,
Teofilo M. Malapit, sent petitioner-insured Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of
premium effective as of inception dated." 5 The same endorsement also credited "a
return premium of P1,609.65 plus documentary stamps and premium tax" to the
account of the insured.

Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang,

agent of respondent insurance company, and demanded the issuance of an official
receipt. Ang told petitioner-insured that the cancellation of the policy was a mistake but
he would personally see to its rectification. However, petitioner-insured failed to receive
any official receipt from Prudential.
Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a
letter demanding that he be insured under the same terms and conditions as those
contained in Policy No. PA-BG-20015 commencing upon its receipt of his letter, or that
the current commercial rate of increase on the payment he had made under provisional
receipt No. 9300 be returned within five days. 6 Areola also warned that should his
demands be unsatisfied, he would sue for damages.

On July 17, 1985, he received a letter from production manager Malapit informing him
that the "partial payment" of P1,000.00 he had made on the policy had been
"exhausted pursuant to the provisions of the Short Period Rate Scale" printed at the
back of the policy. Malapit warned Areola that should be fail to pay the balance, the
company's liability would cease to operate. 7

In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance

company, through its Assistant Vice-President Mariano M. Ampil III, wrote Areola a
letter dated July 25, 1985 stating that the company was verifying whether the payment
had in fact been issued therefor. Ampil emphasized that the official receipt should have
been issued seven days from the issuance of the provisional receipt but because no
official receipt had been issued in Areola's name, there was reason to believe that no
payment had been made. Apologizing for the inconvenience, Ampil expressed the
company's concern by agreeing "to hold you cover (sic) under the terms of the
referenced policy until such time that this matter is cleared." 8

On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of
P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential
on December 17, 1984. Hence, Ampil informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to
December 17, 1985 or one year from the date when payment was received."
Apologizing again for the inconvenience caused Areola, Ampil exhorted him to indicate
his conformity to the proposal by signing on the space provided for in the letter. 9

The letter was personally delivered by Carlito Ang to Areola on

August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6,
1985 had filed a complaint for breach of contract with damages before the lower court.

In its Answer, respondent insurance company admitted that the cancellation of

petitioner-insured's policy was due to the failure of Malapit to turn over the premiums
collected, for which reason no official receipt was issued to him. However, it argued
that, by acknowledging the inconvenience caused on petitioner-insured and after
taking steps to rectify its omission by reinstating the cancelled policy prior to the filing
of the complaint, respondent insurance company had complied with its obligation under
the contract. Hence, it concluded that petitioner-insured no longer has a cause of
action against it. It insists that it cannot be held liable for damages arising from breach
of contract, having demonstrated fully well its fulfillment of its obligation.
The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured,
ordering respondent insurance company to pay the former the following:

a) P1,703.65 as actual damages;

b) P200,000.00 as moral damages; and

c) P50,000.00 as exemplary damages;

2. To pay to the plaintiff, as and for attorney's fees the amount of

P10,000.00; and

3. To pay the costs.

In its decision, the court below declared that respondent insurance company acted in
bad faith in unilaterally cancelling subject insurance policy, having done so only after
seven months from the time that it had taken force and effect and despite the fact of
full payment of premiums and other charges on the issued insurance policy.
Cancellation from the date of the policy's inception, explained the lower court, meant
that the protection sought by petitioner-insured from the risks insured against was
never extended by respondent insurance company. Had the insured met an accident at
the time, the insurance company would certainly have disclaimed any liability because
technically, the petitioner could not have been considered insured. Consequently, the
trial court held that there was breach of contract on the part of respondent insurance
company, entitling petitioner-insured to an award of the damages prayed for.

This ruling was challenged on appeal by respondent insurance company, denying bad
faith on its part in unilaterally cancelling subject insurance policy.

After consideration of the appeal, the appellate court issued a reversal of the decision
of the trial court, convinced that the latter had erred in finding respondent insurance
company in bad faith for the cancellation of petitioner-insured's policy. According to the
Court of Appeals, respondent insurance company was not motivated by negligence,
malice or bad faith in cancelling subject policy. Rather, the cancellation of the
insurance policy was based on what the existing records showed, i.e., absence of an
official receipt issued to petitioner-insured confirming payment of premiums. Bad faith,
said the Court of Appeals, is some motive of self-interest or ill-will; a furtive design of
ulterior purpose, proof of which must be established convincingly. On the contrary, it
further observed, the following acts indicate that respondent insurance company did
not act precipitately or willfully to inflict a wrong on petitioner-insured:
(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had
indeed paid the premium; (b) the letter of August 3, 1985 confirming that the premium
had been paid on December 17, 1984; (c) the reinstatement of the policy with a
proposal to extend its effective period to December 17, 1985; and (d) respondent
insurance company's apologies for the "inconvenience" caused upon petitioner-
insured. The appellate court added that respondent insurance company even relieved
Malapit, its Baguio City manager, of his job by forcing him to resign.

Petitioner-insured moved for the reconsideration of the said decision which the Court of
Appeals denied. Hence, this petition for review on certiorari anchored on these
arguments:

Respondent Court of Appeals is guilty of grave abuse of discretion and

committed a serious and reversible error in not holding Respondent
Prudential liable for the cancellation of the insurance contract which was
admittedly caused by the fraudulent acts and bad faith of its own officers.

II

Respondent Court of Appeals committed serious and reversible error and

abused its discretion in ruling that the defenses of good faith and honest
mistake can co-exist with the admitted fraudulent acts and evident bad
faith.

III

Respondent Court of Appeals committed a reversible error in not finding

that even without considering the fraudulent acts of its own officer in
misappropriating the premium payment, the act itself in cancelling the
insurance policy was done with bad faith and/or gross negligence and
wanton attitude amounting to bad faith, because among others, it was
Mr. Malapit — the person who committed the fraud — who sent and signed
the notice of cancellation.

IV

Respondent Court of Appeals has decided a question of substance

contrary to law and applicable decision of the Supreme Court when it
refused to award damages in favor of herein Petitioner-Appellants.

It is petitioner-insured's submission that the fraudulent act of Malapit, manager of

respondent insurance company's branch office in Baguio, in misappropriating his
premium payments is the proximate cause of the cancellation of the insurance policy.
Petitioner-insured theorized that Malapit's act of signing and even sending the notice of
cancellation himself, notwithstanding his personal knowledge of petitioner-insured's full
payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act
committed by Malapit, argued petitioner-insured, is attributable to respondent
insurance company, an artificial corporate being which can act only through its officers
or employees. Malapit's actuation, concludes petitioner-insured, is therefore not
separate and distinct from that of respondent-insurance company, contrary to the view
held by the Court of Appeals. It must, therefore, bear the consequences of the
erroneous cancellation of subject insurance policy caused by the non-remittance by its
own employee of the premiums paid. Subsequent reinstatement, according to
petitioner-insured, could not possibly absolve respondent insurance company from
liability, there being an obvious breach of contract. After all, reasoned out petitioner-
insured, damage had already been inflicted on him and no amount of rectification could
remedy the same.

Respondent insurance company, on the other hand, argues that where reinstatement,
the equitable relief sought by petitioner-insured was granted at an opportune moment,
i.e. prior to the filing of the complaint, petitioner-insured is left without a cause of action
on which to predicate his claim for damages. Reinstatement, it further explained,
effectively restored petitioner-insured to all his rights under the policy. Hence, whatever
cause of action there might have been against it, no longer exists and the consequent
award of damages ordered by the lower court in unsustainable.

We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating

the premiums paid by petitioner-insured is beyond doubt directly imputable to
respondent insurance company. A corporation, such as respondent insurance
company, acts solely thru its employees. The latters' acts are considered as its own for
which it can be held to account. 11 The facts are clear as to the relationship between
private respondent insurance company and Malapit. As admitted by private respondent
insurance company in its answer, 12 Malapit was the manager of its Baguio branch. It is
beyond doubt that he represented its interest and acted in its behalf. His act of
receiving the premiums collected is well within the province of his authority. Thus, his
receipt of said premiums is receipt by private respondent insurance company who, by
provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts
of its agent.

Article 1910 thus reads:

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

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

Malapit's failure to remit the premiums he received cannot constitute a defense for
private respondent insurance company; no exoneration from liability could result
therefrom. The fact that private respondent insurance company was itself defrauded
due to the anomalies that took place in its Baguio branch office, such as the non-
accrual of said premiums to its account, does not free the same from its obligation to
petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling
in McIntosh v. Dakota Trust Co.: 14
 A bank is liable for wrongful acts of its officers done in the interests of the
bank or in the course of dealings of the officers in their representative
capacity but not for acts outside the scope of their authority. A bank holding
out its officers and agent as worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled to perpetrate in the apparent
scope of their employment; nor will it be permitted to shirk its responsibility
for such frauds, even though no benefit may accrue to the bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons where
the representation is made in the course of its business by an agent acting
within the general scope of his authority even though, in the particular case,
the agent is secretly abusing his authority and attempting to perpetrate a
fraud upon his principal or some other person, for his own ultimate benefit.

Consequently, respondent insurance company is liable by way of damages for the

fraudulent acts committed by Malapit that gave occasion to the erroneous cancellation
of subject insurance policy. Its earlier act of reinstating the insurance policy can not
obliterate the injury inflicted on petitioner-insured. Respondent company should be
reminded that a contract of insurance creates reciprocal obligations for both insurer
and insured. Reciprocal obligations are those which arise from the same cause and in
which each party is both a debtor and a creditor of the other, such that the obligation of
one is dependent upon the obligation of the other. 15

Under the circumstances of instant case, the relationship as creditor and debtor
between the parties arose from a common cause: i.e., by reason of their agreement to
enter into a contract of insurance under whose terms, respondent insurance company
promised to extend protection to petitioner-insured against the risk insured for a
consideration in the form of premiums to be paid by the latter. Under the law governing
reciprocal obligations, particularly the second paragraph of Article 1191, 16 the injured
party, petitioner-insured in this case, is given a choice between fulfillment or rescission
of the obligation in case one of the obligors, such as respondent insurance company,
fails to comply with what is incumbent upon him. However, said article entitles the
injured party to payment of damages, regardless of whether he demands fulfillment or
rescission of the obligation. Untenable then is reinstatement insurance company's
argument, namely, that reinstatement being equivalent to fulfillment of its obligation,
divests petitioner-insured of a rightful claim for payment of damages. Such a claim
finds no support in our laws on obligations and contracts.

The nature of damages to be awarded, however, would be in the form of nominal

damages 17 contrary to that granted by the court below. Although the erroneous
cancellation of the insurance policy constituted a breach of contract, private
respondent insurance company, within a reasonable time took steps to rectify the
wrong committed by reinstating the insurance policy of petitioner. Moreover, no actual
or substantial damage or injury was inflicted on petitioner Areola at the time the
insurance policy was cancelled. Nominal damages are "recoverable where a legal right
is technically violated and must be vindicated against an invasion that has produced no
actual present loss of any kind, or where there has been a breach of contract and no
substantial injury or actual damages whatsoever have been or can be shown. 18

WHEREFORE, the petition for review on certiorari is hereby GRANTED and the
decision of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED.
The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered on
June 30, 1987 is hereby REINSTATED subject to the following modifications: (a) that
nominal damages amounting to P30,000.00 be awarded petitioner in lieu of the
damages adjudicated by court a quo; and (b) that in the satisfaction of the damages
awarded therein, respondent insurance company is ORDERED to pay the legal rate of
interest computed from date of filing of complaint until final payment thereof.

SO ORDERED.

[G.R. No. 82978. November 22, 1990.]

THE MANILA REMNANT CO., INC., Petitioner, v. THE HONORABLE COURT OF

APPEALS and OSCAR VENTANILLA, JR. and CARMEN GLORIA
DIAZ, Respondents.

CIVIL LAW; AGENCY; FAILURE OF THE PRINCIPAL TO CORRECT AN

IRREGULARITY DESPITE KOWLEDGE THEREOF, DEEMED A RATIFICATION OF
THE ACT OF THE AGENT. — In the case at bar, the Valencia realty firm had clearly
overstepped the bounds of its authority as agent — and for that matter, even the law —
when it undertook the double sale of the disputed lots. Such being the case, the
principal, Manila Remnant, would have been in the clear pursuant to Article 1897 of the
Civil Code which states that" (t)he agent who acts as such is not personally liable to
that party with whom he contracts, unless he expressly binds himself or exceeds the
limits of his authority without giving such party sufficient notice of his powers."
However, the unique relationship existing between the principal and the agent at the
time of the dual sale must be underscored. Bear in mind that the president then of both
firms was Artemio U. Valencia, the individual directly responsible for the sale scam.
Hence, despite the fact that the double sale was beyond the power of the agent,
Manila Remnant as principal was chargeable with the knowledge or constructive notice
of that fact and not having done anything to correct such an irregularity was deemed to
have ratified the same. (See Art. 1910, Civil Code.)

2. ID.; ID.; PRINCIPLE OF ESTOPPEL; REASON AND EFFECT THEREOF; CASE AT

BAR. — More in point, we find that by the principle of estoppel, Manila Remnant is
deemed to have allowed its agent to act as though it had plenary powers. Article 1911
of the Civil Code provides: "Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the latter to act as
though he had full powers." The above-quoted article is new. It is intended to protect
the rights of innocent persons. In such a situation, both the principal and the agent may
be considered as joint feasors whose liability is joint and solidary (Verzosa v. Lim, 45
Phil. 416). Authority by estoppel has arisen in the instant case because by its
negligence, the principal, Manila Remnant, has permitted its agent, A.U. Valencia and
Co., to exercise powers not granted to it. That the principal might not have had actual
knowledge of the agent’s misdeed is of no moment.

DECISION

FERNAN, J.:

Like any other couple, Oscar Ventanilla and his wife Carmen, both faculty members of
the University of the Philippines and renting a faculty unit, dreamed of someday owning
a house and lot. Instead of attaining this dream, they became innocent victims of deceit
and found themselves in the midst of an ensuing squabble between a subdivision
owner and its real estate agent.

The facts as found by the trial court and adopted by the Appellate Court are as
follows:chanrob1es virtual 1aw library

Petitioner Manila Remnant Co., Inc. is the owner of the parcels of land situated in
Quezon City covered by Transfer Certificates of Title Nos. 26400, 26401, 30783 and
31986 and constituting the subdivision known as Capital Homes Subdivision Nos. I and
II. On July 25, 1972, Manila Remnant and A.U. Valencia & Co. Inc. entered into a
written agreement entitled "Confirmation of Land Development and Sales Contract" to
formalize an earlier verbal agreement whereby for a consideration of 17 and 1/2% fee,
including sales commission and management fee, A.U. Valencia and Co., Inc. was to
develop the aforesaid subdivision with authority to manage the sales thereof, execute
contracts to sell to lot buyers and issue official receipts. 1

At that time the President of both A.U. Valencia and Co. Inc. and Manila Remnant Co.,
Inc. was Artemio U. Valencia.cralawnad

On March 3, 1970, Manila Remnant thru A.U. Valencia and Co. executed two
"contracts to sell" covering Lots 1 and 2 of Block 17 in favor of Oscar C. Ventanilla and
Carmen Gloria Diaz for the combined contract price of P66,571.00 payable monthly for
ten years. 2 As thus agreed in the contracts to sell, the Ventanillas paid the down
payments on the two lots even before the formal contract was signed on March 3,
1970.

Ten (10) days after the signing of the contracts with the Ventanillas or on March 13,
1970, Artemio U. Valencia, as President of Manila Remnant, and without the
knowledge of the Ventanilla couple, sold Lots 1 and 2 of Block 17 again, this time in
favor of Carlos Crisostomo, one of his sales agents without any consideration. 3
Artemio Valencia then transmitted the fictitious Crisostomo contracts to Manila
Remnant while he kept in his files the contracts to sell in favor of the Ventanillas. All
the amounts paid by the Ventanillas were deposited in Valencia’s bank account.

Beginning March 13, 1970, upon orders of Artemio Valencia, the monthly payments of
the Ventanillas were remitted to Manila Remnant as payments of Crisostomo for which
the former issued receipts in favor of Crisostomo. Since Valencia kept the receipts in
his files and never transmitted the same to Crisostomo, the latter and the Ventanillas
remained ignorant of Valencia’s scheme. Thus, the Ventanillas continued paying their
monthly installments.chanrobles virtual lawlibrary

Subsequently, the harmonious business relationship between Artemio Valencia and

Manila Remnant ended. On May 30, 1973, Manila Remnant, through its General
Manager Karl Landahl, wrote Artemio Valencia informing him that Manila Remnant was
terminating its existing collection agreement with his firm on account of the
considerable amount of discrepancies and irregularities discovered in its collections
and remittances by virtue of confirmations received from lot buyers. 4 As a
consequence, on June 6, 1973, Artemio Valencia was removed as President by the
Board of Directors of Manila Remnant. Therefore, from May of 1973, Valencia stopped
transmitting Ventanilla’s monthly installments which at that time had already amounted
to P17,925.40 for Lot 1 and P18,141.95 for Lot 2, (which appeared in Manila
Remnant’s record as credited in the name of Crisostomo). 5

On June 8, 1973, A.U. Valencia and Co. sued Manila Remnant before Branch 19 of the
then Court of First Instance of Manila 6 to impugn the abrogation of their agency
agreement. On June 10 and July 10, 1973, said court ordered all lot buyers to deposit
their monthly amortizations with the court. 7 But on July 17, 1973, A.U. Valencia and
Co. wrote the Ventanillas that it was still authorized by the court to collect the monthly
amortizations and requested them to continue remitting their amortizations with the
assurance that said payments would be deposited later in court. 8 On May 22, 1974,
the trial court issued an order prohibiting A.U. Valencia and Co. from collecting the
monthly installments. 9 On July 22, 1974 and February 6, 1976 the same court ordered
the Valencia firm to furnish the court with a complete list of all lot buyers who had
already made down payments to Manila Remnant before December 1972. 10 Valencia
complied with the court’s order on August 6, 1974 by submitting a list which excluded
the name of the Ventanillas. 11

Since A.U. Valencia and Co. failed to forward its collections after May 1973, Manila
Remnant caused on August 20, 1976 the publication in the Times Journal of a notice
cancelling the contracts to sell of some lot buyers including that of Carlos Crisostomo
in whose name the payments of the Ventanillas had been credited. 12

To prevent the effective cancellation of their contracts, Artemio Valencia instigated on

September 22, 1976 the filing by Carlos Crisostomo and seventeen (17) other lot
vendees of a complaint for specific performance with damages against Manila
Remnant before the Court of First Instance of Quezon City. The complaint alleged that
Crisostomo had already paid a total of P17,922.40 and P18,136.85 on Lots 1 and 2,
respectively. 13

It was not until March 1978 when the Ventanillas, after learning of the termination of
the agency agreement between Manila Remnant and A.U. Valencia & Co., decided to
stop paying their amortizations to the latter. The Ventanillas, believing that they had
already remitted P37,007.00 for Lot 1 and P36,911.00 for Lot 2 or a grand total,
inclusive of interest, of P73,122.35 for the two lots, thereby leaving a balance of
P13,531.58 for Lot 1 and P13,540.22 for Lot 2, went directly to Manila Remnant and
offered to pay the entire outstanding balance of the purchase price. 14 To their shock
and utter consternation, they discovered from Gloria Caballes, an accountant of Manila
Remnant, that their names did not appear in the records of A.U. Valencia and Co. as
lot buyers. Caballes showed the Ventanillas copies of the contracts to sell in favor of
Carlos Crisostomo, duly signed by Artemio U. Valencia as President of Manila
Remnant. 15 Whereupon, Manila Remnant refused the offer of the Ventanillas to pay
for the remainder of the contract price because they did not have the personality to do
so. Furthermore, they were shown the published Notice of Cancellation in the January
29, 1978 issue of the Times Journal rescinding the contracts of delinquent buyers
including Crisostomo.

Thus, on November 21, 1978, the Ventanillas commenced an action for specific
performance, annulment of deeds and damages against Manila Remnant, A.U.
Valencia and Co. and Carlos Crisostomo before the Court of First Instance of Quezon
City, Branch 17-B. 16 Crisostomo was declared in default for failure to file an
answer.chanrobles.com:cralaw:red

On November 17, 1980, the trial court rendered a decision 1) declaring the contracts to
sell issued in favor of the Ventanillas valid and subsisting and annulling the contracts to
sell in Crisostomo’s favor; 2) ordering Manila Remnant to execute in favor of the
Ventanillas an Absolute Deed of Sale free from all liens and encumbrances; and 3)
condemning defendants A.U. Valencia and Co. Inc., Manila Remnant and Carlos
Crisostomo jointly and severally to pay the Ventanillas the amount of P100,000.00 as
moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney’s
fees. The lower court also added that if, for any legal reason, the transfer of the lots
could no longer be effected, the defendants should reimburse jointly and severally to
the Ventanillas the total amount of P73,122.35 representing the total amount paid for
the two lots plus legal interest thereon from March 1970 plus damages as aforestated.
With regard to the cross claim of Manila Remnant against Valencia, the court found
that Manila Remnant could have not been dragged into this suit without the fraudulent
manipulations of Valencia. Hence, it adjudged A.U. Valencia and Co. to pay the Manila
Remnant P5,000.00 as moral damages and exemplary damages and P5,000.00 as
attorney’s fees. 17

Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the lower court’s
decision to the Court of Appeals through separate appeals. On October 13, 1987, the
Appellate Court affirmed in toto the decision of the lower court. Reconsideration sought
by petitioner Manila Remnant was denied, hence the instant petition.

There is no question that the contracts to sell in favor of the Ventanilla spouses are
valid and subsisting. The only issue remaining is whether or not petitioner Manila
Remnant should be held solidarily liable together with A.U. Valencia and Co. and
Carlos Crisostomo for the payment of moral, exemplary damages and attorney’s fees
in favor of the Ventanillas. 18

While petitioner Manila Remnant has not refuted the legality of the award of damages
per se, it believes that it cannot be made jointly and severally liable with its agent A.U.
Valencia and Co. since it was not aware of the illegal acts perpetrated nor did it
consent or ratify said acts of its agent.

The argument is devoid of merit.

In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its
authority as agent — and for that matter, even the law — when it undertook the double
sale of the disputed lots. Such being the case, the principal, Manila Remnant, would
have been in the clear pursuant to Article 1897 of the Civil Code which states that"
(t)he agent who acts as such is not personally liable to that party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers." chanrobles.com.ph : virtual
law library

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

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

"Even when the agent has exceeded his authority, the principal is solidarily liable with
the agent if the former allowed the latter to act as though he had full powers."
(Emphasis supplied)
The above-quoted article is new. It is intended to protect the rights of innocent persons.
In such a situation, both the principal and the agent may be considered as joint feasors
whose liability is joint and solidary. 20

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

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

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

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

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

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

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

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

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

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

SO ORDERED.

G.R. No. 116211 March 7, 1997

MEYNARDO POLICARPIO, Petitioner, v. COURT OF APPEALS and ROSITO

PUECHI S. UY, Respondents.

PANGANIBAN, J.:

The Court finds occasion to apply the general principles of constructive trust as
authorized by the Civil Code in granting this petition and in compelling private
respondent to implement his trust relationship with petitioner.

This is a petition under Rule 45 of the Rules of Court to reverse the Decision 1 of public
respondent 2 in CA-G.R. CV No. 32821 promulgated on March 21, 1994, and the
Resolution 3 promulgated on July 5, 1994, denying petitioner's motion for
reconsideration.
The dispositive portion of the assailed Decision reads: 4

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

1. REVERSING and SETTING ASIDE the appealed decision dated 10 September

1990;

2. DISMISSING the Complaint; and

3. Without pronouncement as to costs.

The Facts

The facts of the case, as culled from the challenged Decision, are simple. Petitioner
(along with his co-plaintiffs in the antecedent cases, namely, Rodolfo Gayatin, Jose
Villacin and Jocelyn Montinola 5) and private respondent were former tenants of the 30-
door Barretto Apartments formerly owned by Serapia Realty, Inc.. Sometime in April
1984, private respondent was elected President of the Barretto Tenants Association
(hereafter referred to as the "Association") which was formed, among others, "to
promote, safeguard and protect the general interest and welfare of its members." 6

In a letter dated July 30, 1984, private respondent as president of the Association
sought the assistance of the then Minister of Human Settlements to cause the
expropriation of the subject property under the Urban Land Reform Program for
subsequent resale to its tenants. The matter was endorsed to the Human Settlements
Regulatory Commission, which in a letter dated November 5, 1984, signed by
Commissioner and Chief Executive Officer Ernesto C. Mendiola, rejected the tenant's
request for expropriation. The letter stated in part: 7

At the moment, the effects of the provisions of PD 1517, otherwise known as the Urban
Land Reform Decree, are limited only to the proclaimed 245 APD's and/or ULRZ's. Be
informed further that, pursuant to Rule VIII & IX of the Rules and Regulations of the
abovementioned Decree, expropriation will be availed of only as a last resort as there
are various modes of Land Acquisition/Disposition techniques which the Ministry can
avail of to help bonafide (sic) tenants/residents of a certain area.

Failing to get the assistance of the government, the tenants undertook to negotiate
directly with the owners of the Barretto Apartments. Initially, Private Respondent Rosito
Uy orally expressed to Mrs. Rosita Barretto Ochoa the tenants' desire to purchase their
respective units. Later, in a letter dated May 29, 1985, signed by thirty (30) tenants of
the commercial and residential units, the tenants formally expressed to Mrs. Ochoa
their intent to purchase.

On July 27, 1985, Serapia Real Estate, Inc., sent to Rosito Uy, in his capacity as
president of the Association, the following letter: 8
Sir:

This is in response to your letter regarding your intent to buy our property together with
its improvements located at corners Haig and Romualdez Streets and along Gen.
Kalentong Street, Mandaluyong, Metro Manila. We would like to inform you that we are
offering to sell the said property at a price of FOUR MILLION FIVE HUNDRED
THOUSAND (P4,500,000.00) PESOS ONLY, under the following Terms and
Conditions:

AREA: 2,237 square meters

Manner of Payment: An earnest money of P100,000.00 within 30 days.

Full payment payable within 60 days.

This offer is on a "FIRST COME FIRST SERVED BASIS" and our price is good only
within 60 days or until September 30, 1985 only.

Thank You.

In addition, Serapia Realty, Inc., sent to spouses Gayatin a mimeographed letter

stating: 9

November 15, 1985

Mr./Mrs. Gayatin

SIR/MADAM:

Please be informed that we are intending to sell the unit you are now occupying.

We are therefore giving you the first priority to purchase the same, if you desire.

We are giving you a period of ten (10) days from receipt hereof to see us(,) otherwise,
we will consider your inaction a waiver in (sic) your part to purchase the same.

Very truly yours,

SERAFIA REALTY INC.

By: S/ Mrs. Rosa B. Ochoa

T/ Mrs. Rosa B. Ochoa
Kalentong Mandaluyong, Metro Manila
(Authorize (sic) representative)
On November 20, 1985, Rodolfo Gayatin acknowledged receipt of the said letter with a
request that he be furnished with the following information: 10

a. Consideration of the sale;

b. Terms and conditions of the sale; and

c. Plan indicating the areas and boundaries of each unit.

Letters acknowledging receipt of Mrs. Ochoa's letter of intent to sell the apartment unit
occupied by the tenants were sent by Dionisio Enriquez and Elena J. Bañares. The
tenants designated and appointed private respondent as their president to negotiate
with Serapia Realty, Inc.. But the negotiations apparently did not ripen into a perfected
sale.

One and a half years later, on March 12, 1987, petitioner and his co-plaintiffs were
notified that private respondent was the new owner of the apartment units occupied by
them. Believing that they had been betrayed by their Association president, petitioner
sued for "Redemption and Damages with Prayer For Preliminary Injunction."

Private respondent counter-sued for Damages and Accion Publiciana with Preliminary
Attachment. Joint trial of the two cases ensued. The trial court found that private
respondent had been designated and entrusted by plaintiffs to negotiate with the
Barretto family for the sale of the units. It also found that a constructive trust was
created between the private respondent as "the cestui que trust [should be trustee] and
plaintiffs as beneficiaries [or cestuis que trust] vis-a-vis the subject units." 11 The
dispositive portion of the trial court decision
reads: 12

WHEREFORE, judgment is hereby rendered in the above-entitled cases in favor of

plaintiffs Rodolfo Gayatin, Jose Villacin, Jocelyn Montinola and Meynardo Policarpio,
and against defendant, Rosito Puechi S. Uy, -

1. Ordering said defendant to execute the corresponding deeds of conveyance in favor

of plaintiffs Meynardo Policarpio, Jocelyn Montinola, Jose Villacin and Rodolfo Gayatin
covering Door 8, Lot 14; Door 3, Lot 9; Door 2, Lot 9; and Door 1, Lot 9, upon refund
by the plaintiffs to the defendant of the sums of P35,200.00; P35,520.00; P35,600.00
and P47,200.00 respectively, without any interest.

Should defendant Uy fail to so execute the deeds of conveyance herein ordered within
fifteen (15) days from finality of judgment, the Clerk of this Court will execute the same
and the Register of Deeds will be ordered to nullify the certificates of title in the name
of said defendant and to issue other certificates of title in favor of the four above-
named plaintiffs, respectively; and to pay to the plaintiffs the following sums:

a) P15,000.00 as attorney's fees;

b) P40,000.00 as moral damages; and

c) P20,000.00 as exemplary damages,

all with interest at 12% per annum from date of this decision;

2. Dismissing the Complaint in Civil Case No. 54444 as far as defendant Serapia Real
Estate Inc. is concerned;

3. Dismissing defendants' counterclaims in Civil Case No. 54444; and

4. Dismissing Rosito Puechi Uy's complaint in Civil Case No. 55739.

Costs against defendant Uy.

Private respondent appealed the decision to public respondent which as earlier stated
reversed the decision and denied the subsequent motion for reconsideration. Hence,
this petition only by Meynardo Policarpio. His co-plaintiff in the antecedent case, Jose
Villacin, filed a Petition for Intervention 13 on March 28, 1995, which the First Division of
this Court in a Resolution dated June 26, 1995, denied for lack of merit, because
Villacin's earlier petition docketed as G.R. No. 116137 (Jose Villacin vs. Court of
Appeals, et al.) had already been dismissed for failure to attach an affidavit of
service. 14

The Issue

The sole issue raised by petitioner in this appeal is: 15

The respondent Court erred in reversing the finding of the trial court that a constructive
trust existed between the plaintiffs and the defendant.
16
Public respondent, in finding that a constructive trust had not been created, ruled:

The contemporary and subsequent acts of the parties herein fail to convince Us that a
constructive trust exists for the benefit of the appellees (tenants). A reading of the
Articles of Incorporation of Barretto Apartment Tenants Association, Inc. (Exh. "J")
shows that the purpose for its formation is couched in general terms without
specifically stipulating the proposed purchase and sale of the apartment units. While it
may be conceded that the sale to the tenants was a general concern that would have
redounded to their benefit, still it cannot be denied that the transaction could not have
been effected unless the tenants and the owners came to terms regarding the sale.
The record reveals that appellant (herein private respondent) did in fact send several
communications, first to the Ministry of Human Settlements and when this avenue did
not prosper, to the Barretto family in an effort to pursue their common desire to own
their respective unit(s). The letter to the Minister of Human Settlements is dated July
30, 1984 (Exh. "J") about a year before the execution of the Articles of Incorporation on
06 August 1985. Incidentally, no evidence appears on record to show that the
Association filed the requisite documents for incorporation with the Securities and
Exchange Commission.

The Deeds of Absolute Sale in favor of appellant over appellees' unit appear to have
been executed on 05 August 1986 (Exhs. "B" to "F") or about two (2) years after
appellant was designated President of the Association and approximately one (1) year
after the Articles of Incorporation were drawn up and signed by the parties. (Exhibit
"S")

Public respondent contended that plaintiffs were informed of the negotiations for the
purchase and sale of property. Further, public respondent said:

it appears incumbent upon the tenants to verify from time to time on (sic) the progress
of the negotiations not only from Mrs. Ochoa but also from appellant who live (sic) in
the same apartment complex. Their inaction leads to the impression that they lacked
interest to pursue their original plan to purchase the property or they could not agree
on the terms and conditions for the sale. 17

Before us, petitioner argues that public respondent erred in stating that "there was no
common interest on the pan of the members of the association to purchase units they
were occupying." 18 He also maintains that it is immaterial whether the intent to buy the
units was specifically stated in the purposes of the Association. What is important is
that the "contemporary and subsequent acts of parties indicated such a purpose."
Petitioner insists that the tenants had authorized and private respondent had agreed to
negotiate with the owners regarding the terms of the sale, precisely to conform to the
desire of the owners to deal with only one person. Petitioner vehemently denies that
the co-tenants of private respondent "had revoked or withdrawn the authority and trust
reposed on the private respondent to act as negotiator in their behalf." 19

Private respondent rebuts by saying that the entire property consisting of thirty (30)
doors was not sold on one particular date. Rather, there were actually two batches of
sale. He asserts that petitioner, in feigning ignorance of the two batches of sale and
siting private respondent, had created an alibi to suspend payment of rental for
years. 20

It should also be considered, states private respondent, that upon denial of the tenants'
request for expropriation by the Ministry of Human Settlements, and the revelation that
Barretto's apartments were heavily encumbered, tenants "completely abandoned the
plan to organize a formal association." Assuming for the sake of argument, adds
private respondent, that the informal Association created a relationship among the
parties, "the same ceased and expired by virtue of the act of the owners of the
apartment who directly deal with the tenants" under Article 1924 21 of the Civil Code. 22

The Court's Ruling

We find for petitioner.

As a rule, the jurisdiction of this Court in cases brought before it from the Court of
Appeals is limited to the review and revision of errors of law allegedly committed by the
appellate court. However, when there is conflict between the factual findings of the
Court of Appeals and the trial court, 23 the Court may review such findings and
conclusions, as we now do.

We hold that an implied trust was created by the agreement between petitioner (and
the other tenants) and private respondent. Implied trusts are those which, without
being expressed, are deducible from the nature of the transaction by operation of law
as matters of equity, independently of the particular intention of the
parties. 24 Constructive trusts are created in order to satisfy the demands of justice and
prevent unjust enrichment. They arise against one who, by fraud, duress or abuse of
confidence, obtains or holds the legal right to property which he ought not, in equity
and good conscience, to hold. 25 It is not necessary that the intention of the tenants to
purchase their apartments units be categorically stated in the purposes of their
Association. A constructive trust as invoked by petitioner can be implied from the
nature of the transaction as a matter of equity, regardless of the absence of such
intention in the purposes of their Association. During his negotiations with Serapia
Realty, Inc., private respondent admitted that he was not only representing himself but
also the other tenants as president of the Association. This admission recognized the
confidence reposed in him by his co-tenants. He testified: 26

Q Apart from the Regulatory Commission, and from the First Lady Imelda Marcos, you
did not make any communication to any person or body in your capacity as President
of the Association anymore?

A We also tried to negotiate with Mr. Ochoa.

Q What was your purpose of attempting to communicate with Mr. Ochoa?

A So that those who cannot afford to pay in cash can be allowed to pay in installment.

Q You used the word "we", to whom are you referring to?

A My co-tenants in the apartment.

Q And when you made representations with the owner of the apartment, you were
doing this in your capacity as President?

A Both as individual member and as President.

Q In your capacity as both individual member and President?

A Yes, sir.
Alfonso Barretto, president of Serapia Real Estate Corporation, testified that the
owners wanted to deal with one "spokesman." 27 Hence, the tenants authorized private
respondent to negotiate on their behalf. Unfortunately, private respondent negotiated
for himself only, and successfully purchased eight (8) apartment units and secured an
authority to sell the remaining twenty-two (22) units.

Private respondent alleges that, after being informed by the owner, petitioner, together
with the latter's co-plaintiffs in the action for redemption, did not want to contribute
funds to redeem the encumbered apartment. (Such redemption was required before
the units could be sold.) The trial court debunked this allegation thus: 28

. . . . It taxes the mind no end to accept defendant's claim that when the units which the
tenants have for years been dreaming of owning one day were ready to be sold to
them, all of them would suddenly become "reluctant," to quote his word, to buy them.
Considering the virtually (sic) give-away considerations (P42,200.00, P35,600.00,
P35,520.00 and P35,200.00) for the subject units all of which were uniformly two-
storey apartments with "2 bedrooms, living and dining rooms and kitchen" (citing TSN,
January 12, 1990, p. 7) situated in a strategic and prime area, it is unbelievable and
inconsistent with the ordinary imperatives of human experience for the plaintiffs to
suddenly show reluctance towards the opportunity they have been expecting and
preparing for all along.

If only the tenants had been informed by private respondent of this predicament of the
owners, surely they would have raised the required amount to redeem the property
and, in turn, acquired the units being rented by them. The incriminating admission of
private respondent that he had not informed the plaintiffs in the redemption case of the
prices at which the apartment units were sold demonstrated beyond cavil his betrayal
of their trust: 29

Q Did you inform vergally (sic) these 4 plaintiffs that their apartments were being
bought at P47,200.00, P35,600, P35,520 and P35,200?

A I did not.

Q As President of the association who got the trust and confidence of the members
including the 4 plaintiffs, did you not consider it in keeping with trust and confidence to
officially inform them that these apartments is (sic) being sold at that (sic) prices and if
you could buy this (sic), you pay this (sic) amount. You did not inform them, is it not?

ATTY. BALLELOS (counsel for private respondent):

Already answered. He did not inform them but as far as the amount is concerned as a
matter of discretion.
The ability of the tenants to pay the purchase price for their units was clearly found by
trial court to be sufficient; and this finding was not contested by private respondent, to
wit: 30

The ability of the plaintiffs to pay for their respective apartment units in question is
demonstrated when they promptly complied with the Court's Order of March 15, 1990
"to pay to the Branch Clerk of this Court all the rentals due on their respective units
from the time they stopped paying up to this month of March, which amounts were
ordered to be deposited "with the Philippine National Bank, Pasig Branch, Shaw Blvd.,
Pasig, in self-renewing 120-day time deposits," which now stands at P126,434.84
(including "the monthly rentals in the same amount that they were last paying to
defendant Serapia Real Estate, Inc.," from the month of April 1990 to July 1990) per
PNB Certificates of Time Deposit Nos. 713637-C, 713638-C, 713639-C, 713640-C and
6713641-C, all dated August 30, 1990, now in the possession of the Branch Clerk of
this Court.

The tenants could not be faulted for not inquiring into the status of private respondent's
negotiation with the owners of the apartments. They had a right to expect private
respondent to be true to his duty as their representative and to take the initiative of
informing them of the progress of his negotiations.

The sale of the apartments in favor of private respondent was on August 6, 1986. Yet,
it was only on March 27, 1987, that he informed the tenants of such sale. If he was in
good faith, why the delay? Obviously, he hid the perfection of the sale from them. Why
did he not inform the tenants that he was the owner as soon as the sale was
consummated if, according to him, his co-tenants were unwilling to share the expenses
of redemption? His co-tenants could not have blamed him for acquiring the entire
property; after all, they supposedly did not have the money to contribute. Truly, the
actuations of private respondent show nothing but greed on his part; he purchased the
units for himself at bargain prices so he could resell them at a profit at the expense of
the tenants. This violation of the trust reposed in him warrants the sanction provided by
the equitable rule on which constructive trust is founded. Unfortunately, however, not
all the plaintiffs in the original redemption case will be able to avail of this award
because a party who has not appealed from the decision may not obtain any
affirmative relief from the appellate court other than what he had obtained from the
lower court, if any, whose decision is brought up on appeal. 31

The conclusion we thus reach in this case, finding constructive trust under Article
1447 32 of the New Civil Code, rests on the general principles on trust which, by Article
1442, have been adopted or incorporated into our civil law, to the extent that such
principles are not inconsistent with the Civil Code, other statutes and the Rules of
Court.

This Court has ruled in the case of Sumaoang vs. Judge, RTC, Br. XXXI, Guimba,
Nueva Ecija 33 that:
A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust
de son tort, an involuntary trust, or an implied trust, is a trust by operation of law which
arises contrary to intention and in invitum, against one who, by fraud, actual or
constructive, by duress or abuse of confidence, by commission of wrong, or by any
form of unconscionable conduct, artifice, concealment, or questionable means, or who
in any way against equity and good conscience, either has obtained or holds the legal
right to property which he ought not, in equity and good conscience, hold and enjoy. It
is raised by equity to satisfy the demands of justice. However, a constructive trust does
not arise on every moral wrong in acquiring or holding property or on every abuse of
confidence in business or other affairs; ordinarily such a trust arises and will be
declared only on wrongful acquisitions or retentions of property of which equity, in
accordance with its fundamental principles and the traditional exercise of its jurisdiction
or in accordance with statutory provision, takes cognizance. It has been broadly ruled
that a breach of confidence, although in business or social relations, rendering an
acquisition or retention of property by one person unconscionable against another,
raises a constructive trust.

And specifically applicable to the case at bar is the doctrine that "A constructive trust is
substantially an appropriate remedy against unjust enrichment. It is raised by equity in
respect of property, which has been acquired by fraud, or where although acquired
originally without fraud, it is against equity that it should be retained by the person
holding it."

The above principle is not in conflict with the New Civil Code, Codes of Commerce,
Rules of Court and special laws. And since We are a court of law and of equity, the
case at bar must be resolved on the general principles of law on constructive trust
which basically rest on equitable considerations in order to satisfy the demands of
justice, morality, conscience and fair dealing and thus protect the innocent against
fraud. As the respondent court said, "It behooves upon the courts to shield fiduciary
relations against every manner of chicanery or detestable design cloaked by legal
technicalities."

Although the citations in the said case originated from American jurisprudence, they
may well be applied in our jurisdiction. "(S)ince the law of trust has been more
frequently applied in England and in the United States than it has been in Spain, we
may draw freely upon American precedents in determining the effects of trusts,
especially so because the trusts known to American and English equity jurisprudence
are derived from the fidei commissa of the Roman Law and are based entirely upon
civil law principles." 34

Having concluded that private respondent willfully violated the trust reposed in him by
his co-tenants, we consider it a serious matter of "justice, morality, conscience and fair
dealing" that he should not be allowed to profit from his breach of trust. "Every person
who through an act of performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without just or legal ground,
shall return the same to him." 35 Thus, petitioner is granted the opportunity to purchase
the property which should have been his long ago had private respondent been faithful
to his trust.

We only regret that we cannot grant the same opportunity to the other beneficiaries
or cestuis que trust for their failure to perfect their petitions for review of the respondent
Court's Decision.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision and

Resolution are hereby REVERSED and SET ASIDE. Consistent with the trial court's
decision, Private Respondent Rosito Puechi S. Uy is ORDERED to EXECUTE a deed
of conveyance covering Door 8, Lot 14, in favor of Petitioner Meynardo Policarpio upon
the latter's payment of P35,200.00 without any interest.

No costs.

SO ORDERED.

G.R. No. 163720 December 16, 2004

GENEVIEVE LIM, petitioner,

vs.
FLORENCIO SABAN, respondents.

DECISION

TINGA, J.:

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

The late Eduardo Ybañez (Ybañez), the owner of a 1,000-square meter lot in Cebu
City (the "lot"), entered into an Agreement and Authority to Negotiate and Sell (Agency
Agreement) with respondent Florencio Saban (Saban) on February 8, 1994. Under the
Agency Agreement, Ybañez authorized Saban to look for a buyer of the lot for Two
Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to include
the amounts needed for payment of taxes, transfer of title and other expenses incident
to the sale, as well as Saban’s commission for the sale.3
Through Saban’s efforts, Ybañez and his wife were able to sell the lot to the petitioner
Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim)
on March 10, 1994. The price of the lot as indicated in the Deed of Absolute Sale is
Two Hundred Thousand Pesos (P200,000.00).4 It appears, however, that the vendees
agreed to purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00),
inclusive of taxes and other incidental expenses of the sale. After the sale, Lim
remitted to Saban the amounts of One Hundred Thirteen Thousand Two Hundred Fifty
Seven Pesos (P113,257.00) for payment of taxes due on the transaction as well as
Fifty Thousand Pesos (P50,000.00) as broker’s commission.5 Lim also issued in the
name of Saban four postdated checks in the aggregate amount of Two Hundred Thirty
Six Thousand Seven Hundred Forty Three Pesos (P236,743.00). These checks were
Bank of the Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994
for P25,000.00; BPI Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI
Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank
Check No. 021491B dated June 20, 1994 for P168,000.00.

Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to Lim. In the letter
Ybañez asked Lim to cancel all the checks issued by her in Saban’s favor and to
"extend another partial payment" for the lot in his (Ybañez’s) favor.6

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

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

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

Saban further averred that Ybañez and Lim connived to deprive him of his sales
commission by withholding payment of the first three checks. He also claimed that Lim
failed to make good the fourth check which was dishonored because the account
against which it was drawn was closed.
In his Answer, Ybañez claimed that Saban was not entitled to any commission
because he concealed the actual selling price from him and because he was not a
licensed real estate broker.

Lim, for her part, argued that she was not privy to the agreement between Ybañez and
Saban, and that she issued stop payment orders for the three checks because Ybañez
requested her to pay the purchase price directly to him, instead of coursing it through
Saban. She also alleged that she agreed with Ybañez that the purchase price of the lot
was only P200,000.00.

Ybañez died during the pendency of the case before the RTC. Upon motion of his
counsel, the trial court dismissed the case only against him without any objection from
the other parties.10

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

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

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

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

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

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

Not satisfied with the decision of the Court of Appeals, Lim filed the present petition.
Lim argues that the appellate court ignored the fact that after paying her agent and
remitting to Saban the amounts due for taxes and transfer of title, she paid the balance
of the purchase price directly to Ybañez.17

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

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

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

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

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

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

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

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

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

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

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

Saban’s entitlement to his commission having been settled, the Court must now
determine whether Lim is the proper party against whom Saban should address his
claim.

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

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

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

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the
facts therein are similar to the circumstances of the present case. In that case, Consejo
Infante asked Jose Cunanan and Juan Mijares to find a buyer for her two lots and the
house built thereon for Thirty Thousand Pesos (P30,000.00) . She promised to pay
them five percent (5%) of the purchase price plus whatever overprice they may obtain
for the property. Cunanan and Mijares offered the properties to Pio Noche who in turn
expressed willingness to purchase the properties. Cunanan and Mijares thereafter
introduced Noche to Infante. However, the latter told Cunanan and Mijares that she
was no longer interested in selling the property and asked them to sign a document
stating that their written authority to act as her agents for the sale of the properties was
already cancelled. Subsequently, Infante sold the properties directly to Noche for Thirty
One Thousand Pesos (P31,000.00). The Court upheld the right of Cunanan and
Mijares to their commission, explaining that—
 …[Infante] had changed her mind even if respondent had found a buyer who was
willing to close the deal, is a matter that would not give rise to a legal
consequence if [Cunanan and Mijares] agreed to call off the transaction in
deference to the request of [Infante]. But the situation varies if one of the parties
takes advantage of the benevolence of the other and acts in a manner that would
promote his own selfish interest. This act is unfair as would amount to bad faith.
This act cannot be sanctioned without according the party prejudiced the reward
which is due him. This is the situation in which [Cunanan and Mijares] were
placed by [Infante]. [Infante] took advantage of the services rendered by
[Cunanan and Mijares], but believing that she could evade payment of their
commission, she made use of a ruse by inducing them to sign the deed of
cancellation….This act of subversion cannot be sanctioned and cannot serve as
basis for [Infante] to escape payment of the commission agreed upon.31

The appellate court therefore had sufficient basis for concluding that Ybañez and Lim
connived to deprive Saban of his commission by dealing with each other directly and
reducing the purchase price of the lot and leaving nothing to compensate Saban for his
efforts.

Considering the circumstances surrounding the case, and the undisputed fact that Lim
had not yet paid the balance of P200,000.00 of the purchase price of P600,000.00, it is
just and proper for her to pay Saban the balance of P200,000.00.

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

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

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

As gleaned from the text of Section 29 of the Negotiable Instruments Law, the
accommodation party is one who meets all these three requisites, viz: (1) he signed
the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value for
the signature; and (3) he signed for the purpose of lending his name to some other
person. In the case at bar, while Lim signed as drawer of the checks she did not satisfy
the two other remaining requisites.
The absence of the second requisite becomes pellucid when it is noted at the outset
that Lim issued the checks in question on account of her transaction, along with the
other purchasers, with Ybañez which was a sale and, therefore, a reciprocal contract.
Specifically, she drew the checks in payment of the balance of the purchase price of
the lot subject of the transaction. And she had to pay the agreed purchase price in
consideration for the sale of the lot to her and her co-vendees. In other words, the
amounts covered by the checks form part of the cause or consideration from Ybañez’s
end, as vendor, while the lot represented the cause or consideration on the side of Lim,
as vendee.35 Ergo, Lim received value for her signature on the checks.

Neither is there any indication that Lim issued the checks for the purpose of enabling
Ybañez, or any other person for that matter, to obtain credit or to raise money, thereby
totally debunking the presence of the third requisite of an accommodation party.

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

SO ORDERED.