G.R. NO.

167552, April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., PETITIONER,
VS. EDWIN CUIZON AND ERWIN CUIZON, RESPONDENTS.
DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision[1] of the Court of
Appeals dated 10 August 2004 and its Resolution[2] dated 17 March 2005 in CA-G.R.
SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T.
Echavez." The assailed Decision and Resolution affirmed the Order[3] dated 29 January
2002 rendered by Judge Antonio T. Echavez ordering the dropping of respondent
EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.

The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of various European

industrial equipment for customers here in the Philippines. It has as one of its customers
Impact Systems Sales ("Impact Systems") which is a sole proprietorship owned by
respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales manager of
Impact Systems and was impleaded in the court a quo in said capacity.

From January to April 1995, petitioner sold to Impact Systems various products
allegedly amounting to ninety-one thousand three hundred thirty-eight (P91,338.00)
pesos. Subsequently, respondents sought to buy from petitioner one unit of sludge pump
valued at P250,000.00 with respondents making a down payment of fifty thousand pesos
(P50,000.00).[4] When the sludge pump arrived from the United Kingdom, petitioner
refused to deliver the same to respondents without their having fully settled their
indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de
Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in
favor of petitioner, the pertinent part of which states:

1.) That ASSIGNOR[5] has an outstanding receivables from Toledo Power Corporation
in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00)
PESOS as payment for the purchase of one unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE[6] the said receivables from Toledo Power Corporation in the amount of
THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which
receivables the ASSIGNOR is the lawful recipient;

1
 3.) That the ASSIGNEE does hereby accept this assignment.[7]
Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge
pump as shown by Invoice No. 12034 dated 30 June 1995.[8]

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment,
proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check
Voucher No. 0933[9] prepared by said power company and an official receipt dated 15 August 1995
issued by Impact Systems.[10] Alarmed by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were able to make partial payments to
petitioner. On 7 October 1996, petitioner's counsel sent respondents a final demand letter wherein it was
stated that as of 11 June 1996, respondents' total obligations stood at P295,000.00 excluding interests
and attorney's fees.[11] Because of respondents' failure to abide by said final demand letter, petitioner
instituted a complaint for sum of money, damages, with application for preliminary attachment against
herein respondents before the Regional Trial Court of Cebu City.[12]

On 8 January 1997, the trial court granted petitioner's prayer for the issuance of writ of preliminary
attachment.[13]

On 25 June 1997, respondent EDWIN filed his Answer[14] wherein he admitted petitioner's allegations
with respect to the sale transactions entered into by Impact Systems and petitioner between January and
April 1995.[15] He, however, disputed the total amount of Impact Systems' indebtedness to petitioner
which, according to him, amounted to only P220,000.00.[16]

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in
interest in this case. According to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. In
support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioner's Complaint stating —
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is
the proprietor of a single proprietorship business known as Impact Systems Sales
("Impact Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City,
where he may be served summons and other processes of the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu
City. He is the Sales Manager of Impact Systems and is sued in this action in such
capacity.[17]
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for
Summary Judgment. The trial court granted petitioner's motion to declare respondent ERWIN in default
"for his failure to answer within the prescribed period despite the opportunity granted"[18] but it denied
petitioner's motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of
the case on 16 October 2001.[19] However, the conduct of the pre-trial conference was deferred pending
the resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN.[20]

After the filing of respondent EDWIN's Memorandum[21] in support of his special and affirmative
defenses and petitioner's opposition[22] thereto, the trial court rendered its assailed Order dated 29

2
January 2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court
—
A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant
Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact]
Systems Sale is a single proprietorship entity and the complaint shows that defendant
Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by its general
manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of Annex
"H" to the complaint reveals that [Impact] Systems Sales which is owned solely by
defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex "H" is
dated June 30, 1995 or two days after the execution of Annex "G", thereby showing that
[Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show that
plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B.
Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff, therefore,
cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant case
the principal has ratified the act of its agent and plaintiff knew about said ratification.
Plaintiff could not say that the subject contract was entered into by Edwin B. Cuizon in
excess of his powers since [Impact] Systems Sales made a down payment of P50,000.00
two days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped
as party defendant.[23]
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals
which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the
now assailed Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions
reached by the public respondent in his Order dated January 29, 2002, it is hereby
AFFIRMED.[24]
Petitioner's motion for reconsideration was denied by the appellate court in its Resolution promulgated
on 17 March 2005. Hence, the present petition raising, as sole ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT
RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT
SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE
HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE
PARTICIPATE IN THE PERPETUATION OF A FRAUD.[25]
To support its argument, petitioner points to Article 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority without
giving such party sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN's act of
collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the
Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not
revoke the agency relations of respondents, petitioner insists that ERWIN's action repudiated EDWIN's
power to sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his
powers as an agent, petitioner claims that he should be made personally liable for the obligations of his

3
principal.[26]

Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into
selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner
directs the attention of this Court to the fact that respondents are bound not only by their principal and
agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the
obvious signs of conspiracy to defraud petitioner.[27]

In his Comment,[28] respondent EDWIN again posits the argument that he is not a real party in interest
in this case and it was proper for the trial court to have him dropped as a defendant. He insists that he
was a mere agent of Impact Systems which is owned by ERWIN and that his status as such is known
even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales
manager of the said business venture. Likewise, respondent EDWIN points to the Deed of Assignment
which clearly states that he was acting as a representative of Impact Systems in said transaction.

We do not find merit in the petition.

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

representation or on behalf of another with the latter's consent.[29] The underlying principle of the
contract of agency is to accomplish results by using the services of others — to do a great variety of
things like selling, buying, manufacturing, and transporting.[30] Its purpose is to extend the personality
of the principal or the party for whom another acts and from whom he or she derives the authority to
act.[31] It is said that the basis of agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the same legal effect as if they
were personally executed by the principal.[32] By this legal fiction, the actual or real absence of the
principal is converted into his legal or juridical presence — qui facit per alium facit per se.[33]

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

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

We disagree.

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

4
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of
Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a general agent
or manager; such a position presupposes a degree of confidence reposed and investiture
with liberal powers for the exercise of judgment and discretion in transactions and
concerns which are incidental or appurtenant to the business entrusted to his care and
management. In the absence of an agreement to the contrary, a managing agent may
enter into any contracts that he deems reasonably necessary or requisite for the protection
of the interests of his principal entrusted to his management. x x x.[35]
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge
pump unless it received, in full, the payment for Impact Systems' indebtedness.[36] We may very well
assume that Impact Systems desperately needed the sludge pump for its business since after it paid the
amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,[37] it still persisted in
negotiating with petitioner which culminated in the execution of the Deed of Assignment of its
receivables from Toledo Power Company on 28 June 1995.[38] The significant amount of time spent on
the negotiation for the sale of the sludge pump underscores Impact Systems' perseverance to get hold of
the said equipment. There is, therefore, no doubt in our mind that respondent EDWIN's participation in
the Deed of Assignment was "reasonably necessary" or was required in order for him to protect the
business of his principal. Had he not acted in the way he did, the business of his principal would have
been adversely affected and he would have violated his fiduciary relation with his principal.

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

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

WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10
August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397,
affirming the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is
AFFIRMED.

5
Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the
continuation of the proceedings against respondent Erwin Cuizon.

SO ORDERED.

6
 G.R. No. 76931, May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
PETITIONER, VS. COURT OF APPEALS AND AMERICAN
AIRLINES INCORPORATED, RESPONDENTS.
[G.R. NO. 76933. MAY 29, 1991]
AMERICAN AIRLINES, INCORPORATED, PETITIONER, VS.
COURT OF APPEALS AND ORIENT AIR SERVICES & HOTEL
REPRESENTATIVES,INCORPORATED RESPONDENTS.
DECISION

PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a decision[1] of the Court of
Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel
Representa­tives, Inc." which affirmed, with modification, the decision[2] of the Regional Trial Court
of Manila, Branch IV, which dismissed the complaint and granted therein defendant's counterclaim for
agent's overriding commission and damages.

The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (herein­after referred to as American Air), an air carrier
offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its
exclusive general sales agent within the Philippines for the sale of air passenger transportation.
Pertinent provisions of the agreement are reproduced, to wit:

"WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto agree as follows:

1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the
Philippines, including any United States military installation therein which are not serviced by an Air
Carrier Representation Office (ACRO), for the sale of air passenger transportation. The services to be
performed by Orient Air Services shall include:

7
(a)
soliciting and promoting passenger traffic for the services of American and, if necessary, employing
staff competent and sufficient to do so;

(b)
providing and maintaining a suit­able area in its place of business to be used exclusively for the
transaction of the business of American;

(c)
arranging for distribution of American's timetables, tariffs and promotional material to sales agents and
the general public in the assigned territory;

(d)
servicing and supervising of sales agents (including such sub-agents as may be appointed by Orient Air
Services with the prior written consent of American) in the assigned territory including if required by
American the control of remittances and commissions retained; and

(e)
holding out a passenger reservation facility to sales agents and the general public in the assigned
territory.

In connection with scheduled or non-scheduled air passenger transportation within the United States,
neither Orient Air Services nor its sub-agents will perform services for any other air carrier similar to
those to be performed hereunder for American without the prior written consent of American. Subject
to periodic instructions and continued consent from American, Orient Air Services may sell air
passenger transportation to be performed within the United States by other scheduled air carriers
provided American does not provide substantially equivalent schedules between the points involved.

. . . . . .
. . . 4.Remittances

Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders,
less commissions to which Orient Air Services is entitled hereunder, not less frequently than
semi-monthly, on the 15th and last days of each month for sales made during the preceding half month.

All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock
or on exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder,
are the property of American and shall be held in trust by Orient Air Services until satisfactorily
accounted for to American.

5.Commissions

8
American will pay Orient Air Services commission on transportation sold hereunder by Orient Air
Services or its sub-agents as follows:

(a)
Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of transportation by
Orient Air Services or its sub-agents over American's services and any connecting through air
transpor­tation, when made on American's ticket stock, equal to the following percent­ages of the tariff
fares and charges:

(i)

For transportation solely between points within the United States and between such points and Canada:
7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.

(ii)

For transportation included in a through ticket covering transportation between points other than those
described above: 8% or such other rate(s) as may be prescribed by the International Air Transport
Association.

(b)
Overriding commission

In addition to the above commission American will pay Orient Air Services an overriding commission
of 3% of the tariff fares and charges for all sales of transportation over American's service by Orient Air
Service or its sub-agents.

. . . . . .
. . . 10.Default

If Orient Air Services shall at any time default in observing or performing any of the provisions of this
Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any
agreement or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in
execution, or if it ceases to be in business, this Agreement may, at the option of American, be
terminated forthwith and American may, without prejudice to any of its rights under this Agreement,
take possession of any ticket forms, exchange orders, traffic material or other property or funds
belonging to American.

11.IATA and ATC Rules

9
The provisions of this Agreement are subject to any applicable rules or resolutions of the International
Air Transport Association and the Air Traffic Conference of America, and such rules or resolutions
shall control in the event of any conflict with the provisions hereof.

. . . . . .
...
13.Termination

American may terminate the Agreement on two days' notice in the event Orient Air Services is unable
to transfer to the United States the funds payable by Orient Air Services to American under this
Agreement. Either party may terminate the Agreement without cause by giving the other 30 days'
notice by letter, telegram or cable.

. . . . . .
. . ."[3]
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing
to promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of
US $254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold
originally by Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13
thereof (Termi­nation). Four (4) days later, or on 15 May 1981, American Air instituted suit against
Orient Air with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary
Attachment or Garnishment, Mandatory Injunction and Restraining Order,[4] averring the aforesaid
basis for the termination of the Agreement as well as therein defendant's previous record of failures "to
promptly settle past outstanding refunds of which, there were available funds in the possession of the
defendant, x x x to the damage and prejudice of plaintiff."[5]

In its Answer[6] with counterclaim dated 9 July 1981, defendant Orient Air denied the material
allegations of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts,
contending that after application thereof to the commissions due it under the Agreement, plain­tiff in
fact still owed Orient Air a balance in unpaid overriding commissions. Further, the defendant
contended that the actions taken by American Air in the course of terminating the Agreement as well as
the termination itself were untenable, Orient Air claiming that American Air's precipitous conduct had
occassioned prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the defendant, the trial court
ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:

"WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of
defendant and against plaintiff dismissing the complaint and holding the termination made by the latter
as affecting the GSA agreement illegal and improper and order the plaintiff to reinstate defendant as its
general sales agent for passenger transportation in the Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay defendant the balance of the overriding commission on total flown
revenue covering the period from March 16, 1977 to December 31, 1980 in the amount of
US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3% overriding commission
per month commencing from January 1, 1981 until such reinstatment or said amounts in its Philippine
peso equivalent legally prevailing at the time of payment plus legal interest to commence from the filing

10
of the counterclaim up to the time of payment. Further, plaintiff is directed to pay defendant the
amount of One Million Five Hundred Thousand (P1,500,000.­00) pesos as and for exemplary
damages; and the amount of Three Hundred Thousand (P300,000.00) pesos as and by way of attorney's
fees.

Costs against plaintiff."[7]

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The dispositive portion of the appellate
court's decision is as follows:

"WHEREFORE, with the following modifications -

1) American is ordered to pay Orient the sum of US$53,491.11 repre­senting the balance of the
latter's overriding commission covering the period March 16, 1977 to December 31, 1980, or its
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on
July 10, 1981, the date the counterclaim was filed;

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission
per month starting January 1, 1981 until date of termination, May 9, 1981, or its Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date
the counterclaim was filed;

3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the
answer with counterclaim was filed, until full payment;

4) American is ordered to pay Orient exemplary damages of P200,000.00;

5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.

the rest of the appealed decision is affirmed.

Costs against American."[8]American Air moved for reconsideration of the afore­mentioned decision,
assailing the substance thereof and arguing for its reversal. The appellate court's decision was also the
subject of a Motion for Partial Reconsideration by Orient Air which prayed for the restoration of the
trial court's ruling with respect to the monetary awards. The Court of Appeals, by resolution
promulgated on 17 December 1986, denied American Air's motion and with respect to that of Orient
Air, ruled thus:

"Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial
court’s award of exemplary damages and attorney's fees, but granted insofar as the rate of exchange is
concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive
part so that the payment of the sums mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the date of actual payment."[9]
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution[10] of
this Court dated 25 March 1987, both petitions were consolidated, hence, the case at bar.

11
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding
commis­sion. It is the stand of American Air that such commission is based only on sales of its
services actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales." As
basis thereof, primary reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is
quoted as follows:

"5. Commissions

a) . . .

b) Overriding Commission

In addition to the above commission, American will pay Orient Air Services an overriding commission
of 3% of the tariff fees and charges for all sales of transportation over American's services by Orient Air
Services or its sub-agents." (underscoring supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having
opted to appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to
the disputed overriding commission based only on ticketed sales. This is supposed to be the clear
meaning of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding
commission, the sale must be made by Orient Air and the sale must be done with the use of American
Air's ticket stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission
covers the total revenue of American Air and not merely that derived from ticketed sales undertaken by
Orient Air. The latter, in justification of its submission, invokes its designation as the exclusive
General Sales Agent of American Air, with the corresponding obligations arising from such agency,
such as, the promotion and solicitation for the services of its principal. In effect, by virtue of such
exclusivity, "all sales of transportation over American Air's services are necessarily by Orient Air." [11]

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be
taken into consideration to ascertain the meaning of its provisions.[12] The various stipulations in the
contract must be read together to give effect to all.[13] After a careful examination of the records, the
Court finds merit in the contention of Orient Air that the Agreement, when interpreted in accordance
with the foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as
referred to by the parties, "total flown revenue."

As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the
promotion and marketing of American Air's services for air passenger transportation, and the
solicitation of sales therefor. In return for such efforts and services, Orient Air was to be paid
commissions of two (2) kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and
charges from sales by Orient Air when made on American Air ticket stock; and second, an overriding
commission of 3% of tariff fares and charges for all sales of passenger transportation over American Air
services. It is immediately observed that the precondition attached to the first type of commission does
not obtain for the second type of commissions. The latter type of commissions would accrue for sales

12
of American Air services made not on its ticket stock but on the ticket stock of other air carriers sold by
such carriers or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the
basis of such overriding commissions to sales from American Air ticket stock would erase any
distinction between the two (2) types of commissions and would lead to the absurd conclusion that the
parties had entered into a contract with meaningless provisions. Such an interpretation must at all
times be avoided with every effort exerted to harmonize the entire Agreement.

An additional point before finally disposing of this issue. It is clear from the records that American
Air was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in
this "contract of adhesion" is to be taken "contra proferentem", i.e., construed against the party who
caused the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article
1377 of the Civil Code provides that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.[14] To put it differently, when several interpretations
of a provision are other­wise equally proper, that interpretation or construction is to be adopted which is
most favorable to the party in whose favor the provision was made and who did not cause the
ambiguity.[15] We therefore agree with the respondent appellate court's declaration that:

"Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read
against the party who drafted it."[16]
We now turn to the propriety of American Air's termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:

"It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of
the Agreement, Exh. F, which provides for remittances to American less commissions to which Orient
is entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount of its
commissions. Since, as stated ante, Orient is entitled to the 3% override, American's premise,
therefore, for the cancellation of the Agreement did not exist. . . .."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was
entitled to an overriding commission based on total flown revenue. American Air's perception that
Orient Air was remiss or in default of its obligations under the Agreement was, in fact, a situation where
the latter acted in accordance with the Agreement – that of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the latter was still obligated to
Orient Air by way of such commissions. Orient Air was clearly justified in retaining and refusing to
remit the sums claimed by American Air. The latter's termination of the Agreement was, therefore,
without cause and basis, for which it should be held liable to Orient Air.

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

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

13
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to
extend its personality to Orient Air. Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds himself to render some service or to do something
in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE
LATTER."[17] (emphasis supplied) In an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have him do. Such a relationship can
only be effected with the consent of the principal, which must not, in any way, be compelled by law or
by any court. The Agreement itself between the parties states that "either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis
supplied) We, therefore, set aside the portion of the ruling of the respondent appellate court reinstating
Orient Air as general sales agent of American Air.

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

SO ORDERED.

14
 G.R. No. 179446, January 09, 2011
LOADMASTERS CUSTOMS SERVICES, INC., PETITIONER, VS.
GLODEL BROKERAGE CORPORATION AND R&B INSURANCE
CORPORATION, RESPONDENTS.
DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
assailing the August 24, 2007 Decision [1] of the Court of Appeals (CA) in CA-G.R. CV
No. 82822, entitled "R&B Insurance Corporation v. Glodel Brokerage Corporation and
Loadmasters Customs Services, Inc.," which held petitioner Loadmasters Customs
Services, Inc. (Loadmasters) liable to respondent Glodel Brokerage Corporation (Glodel)
in the amount of P1,896,789.62 representing the insurance indemnity which R&B
Insurance Corporation (R&B Insurance) paid to the insured-consignee, Columbia Wire
and Cable Corporation (Columbia).

THE FACTS:

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 copper cathodes
against All Risks. On August 28, 2001, the cargoes were shipped on board the vessel
"Richard Rey" from Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on
the same date.

Columbia engaged the services of Glodel for the release and withdrawal of the cargoes
from the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn,
engaged the services of Loadmasters for the use of its delivery trucks to transport the
cargoes to Columbia's warehouses/plants in Bulacan and Valenzuela City.

The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by
its employed drivers and accompanied by its employed truck helpers. Six (6) truckloads
of copper cathodes were to be delivered to Balagtas, Bulacan, while the other six (6)
truckloads were destined for Lawang Bato, Valenzuela City. The cargoes in six
truckloads for Lawang Bato were duly delivered in Columbia's warehouses there. Of
the six (6) trucks en route to Balagtas, Bulacan, however, only five (5) reached the
destination. One (1) truck, loaded with 11 bundles or 232 pieces of copper cathodes,
failed to deliver its cargo.

Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without
the copper cathodes. Because of this incident, Columbia filed with R&B Insurance a

15
 claim for insurance indemnity in the amount of P1,903,335.39. After the requisite
investigation and adjustment, R&B Insurance paid Columbia the amount of
P1,896,789.62 as insurance indemnity.

R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and
Glodel before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil
Case No. 02-103040. It sought reimbursement of the amount it had paid to Columbia
for the loss of the subject cargo. It claimed that it had been subrogated "to the right of
the consignee to recover from the party/parties who may be held legally liable for the
loss." [2]

On November 19, 2003, the RTC rendered a decision [3] holding Glodel liable for
damages for the loss of the subject cargo and dismissing Loadmasters' counterclaim for
damages and attorney's fees against R&B Insurance. The dispositive portion of the
decision reads:

WHEREFORE, all premises considered, the plaintiff having established by

preponderance of evidence its claims against defendant Glodel Brokerage Corporation,
judgment is hereby rendered ordering the latter:

1. To pay plaintiff R&B Insurance Corporation the sum of P1,896,789.62 as actual

and compensatory damages, with interest from the date of complaint until fully
paid;

2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the
principal amount recovered as and for attorney's fees plus P1,500.00 per
appearance in Court;

3. To pay plaintiff R&B Insurance Corporation the sum of P22,427.18 as litigation

expenses.

WHEREAS, the defendant Loadmasters Customs Services, Inc.'s counterclaim for

damages and attorney's fees against plaintiff are hereby dismissed.

With costs against defendant Glodel Brokerage Corporation.

SO ORDERED. [4]

Both R&B Insurance and Glodel appealed the RTC decision to the CA.

On August 24, 2007, the CA rendered the assailed decision which reads in part:

16
 Considering that appellee is an agent of appellant Glodel, whatever liability the latter
owes to appellant R&B Insurance Corporation as insurance indemnity must likewise be
the amount it shall be paid by appellee Loadmasters.

WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the
appellee Loadmasters is likewise held liable to appellant Glodel in the amount of
P1,896,789.62 representing the insurance indemnity appellant Glodel has been held
liable to appellant R&B Insurance Corporation.

Appellant Glodel's appeal to absolve it from any liability is herein DISMISSED.

SO ORDERED. [5]

Hence, Loadmasters filed the present petition for review on certiorari before this Court presenting the
following

ISSUES

1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of

the fact that the latter respondent Glodel did not file a cross-claim against it
(Loadmasters)?

2. Under the set of facts established and undisputed in the case, can petitioner
Loadmasters be legally considered as an Agent of respondent Glodel? [6]

To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it cannot be
considered an agent of Glodel because it never represented the latter in its dealings with the consignee.
At any rate, it further contends that Glodel has no recourse against it for its (Glodel's) failure to file a
cross-claim pursuant to Section 2, Rule 9 of the 1997 Rules of Civil Procedure.

Glodel, in its Comment, [7] counters that Loadmasters is liable to it under its cross-claim because the
latter was grossly negligent in the transportation of the subject cargo. With respect to Loadmasters'
claim that it is already estopped from filing a cross-claim, Glodel insists that it can still do so even for
the first time on appeal because there is no rule that provides otherwise. Finally, Glodel argues that its
relationship with Loadmasters is that of Charter wherein the transporter (Loadmasters) is only hired for
the specific job of delivering the merchandise. Thus, the diligence required in this case is merely
ordinary diligence or that of a good father of the family, not the extraordinary diligence required of
common carriers.

R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim against
Loadmasters because it was not prevented from presenting evidence to prove its position even without
amending its Answer. As to the relationship between Loadmasters and Glodel, it contends that a
contract of agency existed between the two corporations. [8]

Subrogation is the substitution of one person in the place of another with reference to a lawful claim or

17
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. [9] Doubtless, R&B Insurance is subrogated to the rights of the
insured to the extent of the amount it paid the consignee under the marine insurance, as provided under
Article 2207 of the Civil Code, which reads:

ART. 2207. If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrong-doer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the loss or
injury.

As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek
reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort.

The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for the amount
of the indemnity it paid Columbia.

At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common carriers to
determine their liability for the loss of the subject cargo. Under Article 1732 of the Civil Code,
common carriers are persons, corporations, firms, or associations engaged in the business of carrying or
transporting passenger or goods, or both by land, water or air for compensation, offering their services
to the public.

Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in the
business of transporting goods by land, through its trucking service. It is a common carrier as
distinguished from a private carrier wherein the carriage is generally undertaken by special agreement
and it does not hold itself out to carry goods for the general public. [10] The distinction is significant in
the sense that "the rights and obligations of the parties to a contract of private carriage are governed
principally by their stipulations, not by the law on common carriers." [11]

In the present case, there is no indication that the undertaking in the contract between Loadmasters and
Glodel was private in character. There is no showing that Loadmasters solely and exclusively rendered
services to Glodel.

In fact, Loadmasters admitted that it is a common carrier. [12]

In the same vein, Glodel is also considered a common carrier within the context of Article 1732. In its
Memorandum, [13] it states that it "is a corporation duly organized and existing under the laws of the
Republic of the Philippines and is engaged in the business of customs brokering." It cannot be
considered otherwise because as held by this Court in Schmitz Transport & Brokerage Corporation v.
Transport Venture, Inc., [14] a customs broker is also regarded as a common carrier, the transportation of
goods being an integral part of its business.

Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business

18
and for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods
transported by them according to all the circumstances of such case, as required by Article 1733 of the
Civil Code. When the Court speaks of extraordinary diligence, it is that extreme measure of care and
caution which persons of unusual prudence and circumspection observe for securing and preserving
their own property or rights. [15] This exacting standard imposed on common carriers in a contract of
carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common
carrier once the goods have been lodged for shipment. [16] Thus, in case of loss of the goods, the
common carrier is presumed to have been at fault or to have acted negligently. [17] This presumption of
fault or negligence, however, may be rebutted by proof that the common carrier has observed
extraordinary diligence over the goods.

With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the
exercise of extraordinary diligence lasts from the time the goods are unconditionally placed in the
possession of, and received by, the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them. [18]

Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and severally
liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of the New Civil Code,
"the responsibility of two or more persons who are liable for a quasi-delict is solidary."

Loadmasters' claim that it was never privy to the contract entered into by Glodel with the consignee
Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a direct contractual
relation with Columbia, but it is liable for tort under the provisions of Article 2176 of the Civil Code on
quasi-delicts which expressly provide:

ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is
no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.

Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service, Inc. v.
Phoenix Assurance Company of New York,/McGee & Co., Inc. [19] where this Court held that a tort may
arise despite the absence of a contractual relationship, to wit:

We agree with the Court of Appeals that the complaint filed by Phoenix and McGee
against Mindanao Terminal, from which the present case has arisen, states a cause of
action. The present action is based on quasi-delict, arising from the negligent and
careless loading and stowing of the cargoes belonging to Del Monte Produce. Even
assuming that both Phoenix and McGee have only been subrogated in the rights of Del
Monte Produce, who is not a party to the contract of service between Mindanao Terminal
and Del Monte, still the insurance carriers may have a cause of action in light of the
Court's consistent ruling that the act that breaks the contract may be also a tort. In fine,
a liability for tort may arise even under a contract, where tort is that which breaches the
contract. In the present case, Phoenix and McGee are not suing for damages for
injuries arising from the breach of the contract of service but from the alleged

19
 negligent manner by which Mindanao Terminal handled the cargoes belonging to Del
Monte Produce. Despite the absence of contractual relationship between Del Monte
Produce and Mindanao Terminal, the allegation of negligence on the part of the
defendant should be sufficient to establish a cause of action arising from
quasi-delict. [Emphases supplied]

In connection therewith, Article 2180 provides:

ART. 2180. The obligation imposed by Article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is responsible.

xxxx

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.

It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees
(truck driver and helper) were instrumental in the hijacking or robbery of the shipment. As employer,
Loadmasters should be made answerable for the damages caused by its employees who acted within the
scope of their assigned task of delivering the goods safely to the warehouse.

Whenever an employee's negligence causes damage or injury to another, there instantly arises a
presumption juris tantum that the employer failed to exercise diligentissimi patris families in the
selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees. [20] To avoid
liability for a quasi-delict committed by its employee, an employer must overcome the presumption by
presenting convincing proof that he exercised the care and diligence of a good father of a family in the
selection and supervision of his employee. [21] In this regard, Loadmasters failed.

Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to ensure that
Loadmasters would fully comply with the undertaking to safely transport the subject cargo to the
designated destination. It should have been more prudent in entrusting the goods to Loadmasters by
taking precautionary measures, such as providing escorts to accompany the trucks in delivering the
cargoes. Glodel should, therefore, be held liable with Loadmasters. Its defense of force majeure is
unavailing.

At this juncture, the Court clarifies that there exists no principal-agent relationship between Glodel and
Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code provides: "By the
contract of agency a person binds himself to render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter." The elements of a contract of agency
are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for
himself; (4) the agent acts within the scope of his authority. [22]

Accordingly, there can be no contract of agency between the parties. Loadmasters never represented
Glodel. Neither was it ever authorized to make such representation. It is a settled rule that the basis

20
for agency is representation, that is, the agent acts for and on behalf of the principal on matters within
the scope of his authority and said acts have the same legal effect as if they were personally executed by
the principal. On the part of the principal, there must be an actual intention to appoint or an intention
naturally inferable from his 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 not obtaining in this case.

What then is the extent of the respective liabilities of Loadmasters and Glodel? Each wrongdoer is
liable for the total damage suffered by R&B Insurance. Where there are several causes for the resulting
damages, a party is not relieved from liability, even partially. It is sufficient that the negligence of a
party is an efficient cause without which the damage would not have resulted. It is no defense to one of
the concurrent tortfeasors that the damage would not have resulted from his negligence alone, without
the negligence or wrongful acts of the other concurrent tortfeasor. As stated in the case of Far Eastern
Shipping v. Court of Appeals, [24]

X x x. Where several causes producing an injury are concurrent and each is an efficient
cause without which the injury would not have happened, the injury may be attributed to
all or any of the causes and recovery may be had against any or all of the responsible
persons although under the circumstances of the case, it may appear that one of them was
more culpable, and that the duty owed by them to the injured person was not the same.
No actor's negligence ceases to be a proximate cause merely because it does not exceed
the negligence of other actors. Each wrongdoer is responsible for the entire result and is
liable as though his acts were the sole cause of the injury.

There is no contribution between joint tortfeasors whose liability is solidary since both of
them are liable for the total damage. Where the concurrent or successive negligent acts or
omissions of two or more persons, although acting independently, are in combination the
direct and proximate cause of a single injury to a third person, it is impossible to
determine in what proportion each contributed to the injury and either of them is
responsible for 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 latter.

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 the subject cargo. In this case, however, it cannot succeed
in seeking judicial sanction against Loadmasters because the records disclose that it did not properly
interpose a cross-claim against the latter. Glodel did not even pray that Loadmasters be liable for any
and all claims that it may be adjudged liable in favor of R&B Insurance. Under the Rules, a compulsory
counterclaim, or a cross-claim, not set up shall be barred.25 Thus, a cross-claim cannot be set up for the
first time on appeal.

21
For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid on
equitable grounds. "Equity, which has been aptly described as ‘a justice outside legality,’ is applied only
in the absence of, and never against, statutory law or judicial rules of procedure."26 The Court cannot be
a lawyer and take the cudgels for a party who has been at fault or negligent.

WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the Court
of Appeals is MODIFIED to read as follows:

WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services, Inc. and
respondent Glodel Brokerage Corporation jointly and severally liable to respondent R&B Insurance
Corporation for the insurance indemnity it paid to consignee Columbia Wire & Cable Corporation and
ordering both parties to pay, jointly and severally, R&B Insurance Corporation a] the amount of
₱1,896,789.62 representing the insurance indemnity; b] the amount equivalent to ten (10%) percent
thereof for attorney’s fees; and c] the amount of ₱22,427.18 for litigation expenses.

The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against petitioner
Loadmasters Customs Services, Inc. is DENIED.

SO ORDERED.

22
 G.R. NO. 144805, June 08, 2006
EDUARDO V. LINTONJUA, JR. AND ANTONIO K. LITONJUA,
PETITIONERS, VS. ETERNIT CORPORATION (NOW ETERTON
MULTI- RESOURCES CORPORATION), ETEROUTREMER, S.A.
AND FAR EAST BANK & TRUST COMPANY, RESPONDENTS.
DECISION

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision[1] of the Court of
Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional
Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the
Resolution[2] of the CA denying the motion for reconsideration thereof.

The Eternit Corporation (EC) is a corporation duly organized and registered under
Philippine laws. Since 1950, it had been engaged in the manufacture of roofing
materials and pipe products. Its manufacturing operations were conducted on eight
parcels of land with a total area of 47,233 square meters. The properties, located in
Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos.
451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name
of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of
stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation
organized and registered under the laws of Belgium.[3] Jack Glanville, an Australian
citizen, was the General Manager and President of EC, while Claude Frederick Delsaux
was the Regional Director for Asia of ESAC. Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political situation in the
Philippines and wanted to stop its operations in the country. The Committee for Asia of
ESAC instructed Michael Adams, a member of EC's Board of Directors, to dispose of
the eight parcels of land. Adams engaged the services of realtor/broker Lauro G.
Marquez so that the properties could be offered for sale to prospective buyers. Glanville
later showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo
B. Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986,
Marquez declared that he was authorized to sell the properties for P27,000,000.00 and
that the terms of the sale were subject to negotiation.[4]

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo
Litonjua, Jr., 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

23
siblings' offer and relayed the same to Delsaux in Belgium, but the latter did not
respond. On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his
position/ counterproposal to the offer of the Litonjua siblings. It was only on February
12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss
decision," the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing
obligations prior to final liquidation."[5]

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux.
Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred with Glanville,
and in a Letter dated February 26, 1987, confirmed that the Litonjua siblings had
accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings
would confirm full payment within 90 days after execution and preparation of all
documents of sale, together with the necessary governmental clearances.[6]

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank
& Trust Company, Ermita Branch, and drafted an Escrow Agreement to expedite the
sale.[7]

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the
sale would be implemented. In a telex dated April 22, 1987, Glanville informed Delsaux
that he had met with the buyer, which had given him the impression that "he is prepared
to press for a satisfactory conclusion to the sale."[8] He also emphasized to Delsaux that
the buyers were concerned because they would incur expenses in bank commitment fees
as a consequence of prolonged period of inaction.[9]

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of

the Philippines, the political situation in the Philippines had improved. Marquez
received a telephone call from Glanville, advising that the sale would no longer proceed.
Glanville followed it up with a Letter dated May 7, 1987, confirming that he had been
instructed by his principal to inform Marquez that "the decision has been taken at a
Board Meeting not to sell the properties on which Eternit Corporation is situated."[10]

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC
Regional Office had decided not to proceed with the sale of the subject land, to wit:

May 22, 1987

Mr. L.G. Marquez
L.G. Marquez, Inc.

334 Makati Stock Exchange Bldg.

6767 Ayala Avenue
Makati, Metro Manila

24
 Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale
of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering [the]
new political situation since the departure of MR. MARCOS and a certain
stabilization in the Philippines, the Committee has decided not to stop our
operations in Manila. In fact, production has started again last week, and (sic) to
recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would
change at a later state, we would consult you again.

xxx

Yours sincerely,
(Sgd.)
C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)[11]

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for
damages they had suffered on account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton
Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig
City. An amended complaint was filed, in which defendant EC was substituted by Eterton
Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G.
Eufemio were impleaded as additional defendants on account of their purchase of ESAC shares of
stocks and were the controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business
in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and
stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez to
sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own personal making
which did not bind EC.

On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended
complaint.[12] The fallo of the decision reads:

25
 WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources
Corporation and Eteroutremer, S.A. is dismissed on the ground that there is no valid and
binding sale between the plaintiffs and said defendants.

The complaint as against Far East Bank and Trust Company is likewise dismissed for
lack of cause of action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and

Eteroutremer, S.A. is also dismissed for lack of merit.[13]
The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void
and not merely unenforceable, and as such, could not have been ratified by the principal. In any event,
such ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had
agreed to sell the property without a clear authorization from the corporation concerned, that is, through
resolutions of the Board of Directors and stockholders. The trial court also pointed out that the supposed
sale involves substantially all the assets of defendant EC which would result in the eventual total
cessation of its operation.[14]

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding
that the real estate broker in the instant case needed a written authority from appellee corporation and/or
that said broker had no such written authority; and (2) the lower court committed grave error of law in
holding that appellee corporation is not legally bound for specific performance and/or damages in the
absence of an enabling resolution of the board of directors."[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.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it;
neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale.
Since the sale involved substantially all of the corporation's assets, it would necessarily need the
authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. [16] The Litonjuas filed
a motion for reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of
Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special
authority from EC's board of directors to bind such corporation to the sale of its properties. Delsaux,
who was merely the representative of ESAC (the majority stockholder of EC) had no authority to bind
the latter. The CA pointed out that Delsaux was not even a member of the board of directors of EC.
Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between the parties.

In the instant petition for review, petitioners aver that

I

26
 THE COURT OF APPEALS ERRED IN HOLDING THAT THERE
WAS NO PERFECTED CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING

THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT
ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND

DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT
PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT
AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING
POWER TO SELL THE SAID PROPERTIES.[17]
Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the
parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover
obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer of
respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was
made known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of EC for
Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary
agent because his authority was of a special and limited character in most respects. His only job as a
broker was to look for a buyer and to bring together the parties to the transaction. He was not authorized
to sell the properties or to make a binding contract to respondent EC; hence, petitioners argue, Article
1874 of the New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent EC's counter-offer,
resulting in a perfected contract of sale.

Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville,
who was the President and General Manager of respondent EC, and Delsaux, who was the Managing
Director for ESAC Asia, had the necessary authority to sell the subject property or, at least, had been
allowed by respondent EC to hold themselves out in the public as having the power to sell the subject
properties. Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President
and General Manager of Eternit, to sell the properties of said corporation to any
interested party, which authority, as hereinabove discussed, need not be in
writing.

27
 2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned
SEVERAL MONTHS, from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its

properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit's offer to sell the

properties as evidenced by the Petitioners' ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US] $1,000,000.00 with the
Security Bank and that an ESCROW agreement was drafted over the subject
properties;

6. Glanville's telex to Delsaux inquiring "WHEN WE (Respondents) WILL

IMPLEMENT ACTION TO BUY AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced
the fact that Petitioners' offer was allegedly REJECTED by both Glanville and
Delsaux.[18]

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners'
offer and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners
insist that Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit:
Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale
of the land which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and
examined the position as far as the Philippines are (sic) concerned. Considering the new
political situation since the departure of MR. MARCOS and a certain stabilization in the
Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact
production started again last week, and (sic) to reorganize the participation in the
Corporation.

We regret that we could not make a deal with you this time, but in case the policy
would change at a later stage we would consult you again.

In the meantime, I remain

Yours sincerely,

28
 C.F. DELSAUX[19]
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly
permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners
insist that respondents held themselves to the public as possessing power to sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are
proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC)
and ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez
had no authority from the stockholders of respondent EC and its Board of Directors to offer the
properties for sale to the petitioners, or to any other person or entity for that matter. They assert that
the decision and resolution of the CA are in accord with law and the evidence on record, and should be
affirmed in toto.

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux,
conformed to the written authority of Marquez to sell the properties. The authority of Glanville and
Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the
sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their
positions and their duties in respondent EC at the time of the transaction, and the fact that respondent
ESAC owns 90% of the shares of stock of respondent EC, a formalresolution of the Board of Directors
would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was
able to communicate the offer of respondent EC and the petitioners' acceptance thereof. There was no
time that they acted without the knowledge of respondents. In fact, respondent EC never repudiated the
acts of Glanville, Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in
this case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent
EC to act as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of
their authority as agents, is a question of fact. In the absence of express written terms creating the
relationship of an agency, the existence of an agency is a fact question.[20] Whether an agency by
estoppel was created or whether a person acted within the bounds of his apparent authority, and whether
the principal is estopped to deny the apparent authority of its agent are, likewise, questions of fact to be
resolved on the basis of the evidence on record.[21] The findings of the trial court on such issues, as
affirmed by the CA, are conclusive on the Court, absent evidence that the trial and appellate courts
ignored, misconstrued, or misapplied facts and circumstances of substance which, if considered, would
warrant a modification or reversal of the outcome of the case.[22]

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of
Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record,
whether testimonial and documentary. There are, however, recognized exceptions where the Court may
delve into and resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible;
(3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the

29
 Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) when the findings
of the Court of Appeals are contrary to those of the trial court; (8) when the findings of
fact are conclusions without citation of specific evidence on which they are based; (9)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed by
the parties, which, if properly considered, would justify a different conclusion; and (10)
when the findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record.[23]
We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant
case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is
supported by the evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that
it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to
prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their
counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be stressed
that when specific performance is sought of a contract made with an agent, the agency must be
established by clear, certain and specific proof.[24]

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines,
provides:
SEC. 23. The Board of Directors or Trustees. - Unless otherwise provided in this Code,
the corporate powers of all corporations formed under this Code shall be exercised, all
business conducted and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders of stocks, or where
there is no stock, from among the members of the corporation, who shall hold office for
one (1) year and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is
not affected by the personal rights,obligations and transactions of the latter.[25] It may act only through
its board of directors or, when authorized either by its by-laws or by its board resolution, through its
officers or agents in the normal course of business. The general principles of agency govern the
relation between the corporation and its officers or agents, subject to the articles of incorporation,
by-laws, or relevant provisions of law.[26]

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject
to the limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. - Every corporation incorporated under this
Code has the power and capacity:

xxxx

1. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of a lawful business of the

30
 corporation may reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders or members, and as such,
may not be sold without express authority from the board of directors.[27] Physical acts, like the offering
of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers
of such properties and the execution of the deed of sale covering such property, can be performed by the
corporation only by officers or agents duly authorized for the purpose by corporate by-laws or by
specific acts of the board of directors.[28] Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not in the course of,
or connected with, the performance of authorized duties of such director, are not binding on the
corporation.[29]

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will
have to be with the board of directors through its officers and agents as authorized by a board resolution
or by its by-laws.[30] An unauthorized act of an officer of the corporation is not binding on it unless the
latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a
corporation by a person purporting to be an agent thereof but without written authority from the
corporation is null and void. The declarations of the agent alone are generally insufficient to establish
the fact or extent of his/her authority.[31]

By the contract of agency, a person binds himself to render some service or to do something in
representation on behalf of another, with the consent or authority of the latter.[32] Consent of both
principal and agent is necessary to create an agency. The principal must intend that the agent shall act
for him; the agent must intend to accept the authority and act on it, and the intention of the parties must
find expression either in words or conduct between them.[33]

An agency may be expressed or implied from the act of the principal, from his silence or lack of action,
or his failure to repudiate the agency knowing that another person is acting on his behalf without
authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the
agency, or from his silence or inaction according to the circumstances.[34] Agency may be oral unless
the law requires a specific form.[35] However, to create or convey real rights over immovable property,
a special power of attorney is necessary.[36] Thus, when a sale of a piece of land or any portion thereof
is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void.[37]

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board
of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let
alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC including
the improvements thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan
the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners' claim
that he had likewise been authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of
Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia,[38]
the Board of Directors of respondent ESAC,[39] and the Belgian/Swiss component of the management of
respondent ESAC.[40] As such, Adams and Glanville engaged the services of Marquez to offer to sell

31
the properties to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that
he was authorized to offer for sale the property for P27,000,000.00 and the other terms of the sale
subject to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through
Marquez, the latter relayed petitioners' offer to Glanville; Glanville had to send a telex to Delsaux to
inquire the position of respondent ESAC to petitioners' offer. However, as admitted by petitioners in
their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux
had to wait for confirmation from respondent ESAC.[41] When Delsaux finally responded to Glanville
on February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of
respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to
final liquidation.[42] The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the
entire management or Board of Directors of respondent ESAC. While it is true that petitioners accepted
the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them;
hence, EC was not bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux
were members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not
as duly authorized agents of respondent EC; a board resolution evincing the grant of such authority is
needed to bind EC to any agreement regarding the sale of the subject properties. Such board resolution
is not a mere formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent
ESAC owned 90% of the shares of stocks of respondent EC; however, the mere fact that a corporation
owns a majority of the shares of stocks of another, or even all of such shares of stocks, taken alone, will
not justify their being treated as one corporation.[43]

It bears stressing that in an agent-principal relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do. Such a relationship can only be
effected with the consent of the principal, which must not, in any way, be compelled by law or by any
court.[44]

The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent
EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said
properties to the petitioners. A person dealing with a known agent is not authorized, under any
circumstances, blindly to trust the agents; statements as to the extent of his powers; such person must
not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts
within the scope of his authority.[45] The settled rule is that, persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal liable, to ascertain not only the fact of agency
but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon
them to prove it.[46] In this case, the petitioners failed to discharge their burden; hence, petitioners are
not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as their
agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and
in behalf of the petitioners, that the latter had accepted such offer to sell the land and the improvements
thereon. However, we agree with the ruling of the appellate court that Marquez had no authority to bind
respondent EC to sell the subject properties. A real estate broker is one who negotiates the sale of real
properties. His business, generally speaking, is only to find a purchaser who is willing to buy the land

32
upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale.
Indeed, an authority to find a purchaser of real property does not include an authority to sell.[47]

Equally barren of merit is petitioners' contention that respondent EC is estopped to deny the existence of
a principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist,
the following must be established: (1) the principal manifested a representation of the agent's authority
or knowlingly allowed the agent to assume suchauthority; (2) the third person, in good faith, relied upon
such representation; (3) relying upon such representation, such third person has changed his position to
his detriment.[48] 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.[49] Such proof is lacking in this case. In their communications to
the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for
and in behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between the petitioners and
respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various
communications inter se were never submitted to the Board of Directors of respondent EC for
ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against
the petitioners.

SO ORDERED.

33
 G.R. No. 130148, December 15, 1997
JOSE BORDADOR AND LYDIA BORDADOR, PETITIONERS, VS.
BRIGIDA D. LUZ, ERNESTO M. LUZ AND NARCISO DEGANOS,
RESPONDENTS.
DECISION

REGALADO, J.:

In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in
CA-G.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of
Malolos, Bulacan which found private respondent Narciso Deganos liable to petitioners
for actual damages, but absolved respondent spouses Brigida D. Luz and Ernesto M.
Luz of liability. Petitioners likewise belabor the subsequent resolution of the Court of
Appeals which denied their motion for reconsideration of its challenged decision.

Petitioners were engaged in the business of purchase and sale of jewelry and respondent
Brigida D. Luz, also known as Aida D. Luz, was their regular customer. On several
occasions during the period from April 27, 1987 to September 4, 1987, respondent
Narciso Deganos, the brother of Brigida D. Luz, received several pieces of gold and
jewelry from petitioners amounting to P382,816.00. [1] These items and their prices were
indicated in seventeen receipts covering the same. Eleven of the receipts stated that they
were received for a certain Evelyn Aquino, a niece of Deganos, and the remaining six
indicated that they were received for Brigida D. Luz. [2]

Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and
return the unsold items to petitioners. Deganos remitted only the sum of P53,207.00. He
neither paid the balance of the sales proceeds, nor did he return any unsold item to
petitioners. By January 1990, the total of his unpaid account to petitioners, including
interest, reached the sum of P725,463.98. [3] Petitioners eventually filed a complaint in
the barangay court against Deganos to recover said amount.

In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
appeared as a witness for Deganos and ultimately, she and her husband, together with
Deganos, signed a compromise agreement with petitioners. In that compromise
agreement, Deganos obligated himself to pay petitioners, on installment basis, the
balance of his account plus interest thereon. However, he failed to comply with his
aforestated undertakings.

On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial
Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of a sum of
money and damages, with an application for preliminary attachment.[4] Ernesto Luz was
impleaded therein as the spouse of Brigida.

34
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with
estafa[5] in the Regional Trial Court of Malolos, Bulacan, which was docketed as
Criminal Case No. 785-M-94. That criminal case appears to be still pending in said trial
court.

During the trial of the civil case, petitioners claimed that Deganos acted as the agent of
Brigida D. Luz when he received the subject items of jewelry and, because he failed to
pay for the same, Brigida, as principal, and her spouse are solidarily liable with him
therefor.

On the other hand, while Deganos admitted that he had an unpaid obligation to
petitioners, he claimed that the same was only in the sum of P382,816.00 and not
P725,463.98. He further asserted that it was he alone who was involved in the
transaction with the petitioners; that he neither acted as agent for nor was he authorized
to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts
indicated that the items were received by him for the latter. He further claimed that he
never delivered any of the items he received from petitioners to Brigida.

Brigida, on her part, denied that she had anything to do with the transactions between
petitioners and Deganos. She claimed that she never authorized Deganos to receive any
item of jewelry in her behalf and, for that matter, neither did she actually receive any of
the articles in question.

After trial, the court below found that only Deganos was liable to petitioners for the
amount and damages claimed. It held that while Brigida D. Luz did have transactions
with petitioners in the past, the items involved were already paid for and all that Brigida
owed petitioners was the sum of P21,483.00 representing interest on the principal
account which she had previously paid for.[6]

The trial court also found that it was petitioner Lydia Bordador who indicated in the
receipts that the items were received by Deganos for Evelyn Aquino and Brigida D. Luz.
[7]
Said court was “persuaded that Brigida D. Luz was behind Deganos,” but because
there was no memorandum to this effect, the agreement between the parties was
unenforceable under the Statute of Frauds. [8] Absent the required memorandum or any
written document connecting the respondent Luz spouses with the subject receipts, or
authorizing Deganos to act on their behalf, the alleged agreement between petitioners
and Brigida D. Luz was unenforceable.

Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest
thereon from June 25, 1990, and attorney’s fees. Brigida D. Luz was ordered to pay
P21,483.00 representing the interest on her own personal loan. She and her co-defendant
spouse were absolved from any other or further liability. [9]

35
As stated at the outset, petitioners appealed the judgment of the court a quo to the Court
of Appeals which affirmed said judgment. [10] The motion for reconsideration filed by
petitioners was subsequently dismissed, [11] hence the present recourse to this Court.

The primary issue in the instant petition is whether or not herein respondent spouses are
liable to petitioners for the latter’s claim for money and damages in the sum of
P725,463.98, plus interests and attorney’s fees, despite the fact that the evidence does
not show that they signed any of the subject receipts or authorized Deganos to receive
the items of jewelry on their behalf.

Petitioners argue that the Court of Appeals erred in adopting the findings of the court a
quo that respondent spouses are not liable to them, as said conclusion of the trial court is
contradicted by the finding of fact of the appellate court that “(Deganos) acted as agent
of his sister (Brigida Luz).” [12] In support of this contention, petitioners quoted several
letters sent to them by Brigida D. Luz wherein the latter acknowledged her obligation to
petitioners and requested for more time to fulfill the same. They likewise aver that
Brigida testified in the trial court that Deganos took some gold articles from petitioners
and delivered the same to her.

Both the Court of Appeals and the trial court, however, found as a fact that the
aforementioned letters concerned the previous obligations of Brigida to petitioners, and
had nothing to do with the money sought to be recovered in the instant case. Such
concurrent factual findings are entitled to great weight, hence, petitioners cannot
plausibly claim in this appellate review that the letters were in the nature of
acknowledgments by Brigida that she was the principal of Deganos in the subject
transactions.

On the other hand, with regard to the testimony of Brigida admitting delivery of the gold
to her, there is no showing whatsoever that her statement referred to the items which are
the subject matter of this case. It cannot, therefore, be validly said that she admitted her
liability regarding the same.

Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him
with apparent authority as her agent and held him out to the public as such, hence
Brigida can not be permitted to deny said authority to innocent third parties who dealt
with Deganos under such belief. [13] Petitioners further represent that the Court of
Appeals recognized in its decision that Deganos was an agent of Brigida.[14]

The evidence does not support the theory of petitioners that Deganos was an agent of
Brigida D. Luz and that the latter should consequently be held solidarily liable with
Deganos in his obligation to petitioners. While the quoted statement in the findings of
fact of the assailed appellate decision mentioned that Deganos ostensibly acted as an

36
 agent of Brigida, the actual conclusion and ruling of the Court of Appeals categorically
stated that, “(Brigida Luz) never authorized her brother (Deganos) to act for and in her
behalf in any transaction with Petitioners x x x.” [15] It is clear, therefore, that even
assuming arguendo that Deganos acted as an agent of Brigida, the latter never
authorized him to act on her behalf with regard to the transactions subject of this case.

The Civil Code provides:

Art. 1868. By the contract of agency a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or authority of
the latter.
The basis for agency is representation. Here, there is no showing that Brigida consented to the acts of
Deganos or authorized him to act on her behalf, much less with respect to the particular transactions
involved. Petitioners’ attempt to foist liability on respondent spouses through the supposed agency
relation with Deganos is groundless and ill-advised.

Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice
but on at least six occasions as evidenced by six receipts, several pieces of jewelry of substantial value
without requiring a written authorization from his alleged principal. A person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the agent. [16]

The records show that neither an express nor an implied agency was proven to have existed between
Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in their transactions with
Deganos, cannot seek relief from the effects of their negligence by conjuring a supposed agency relation
between the two respondents where no evidence supports such claim.

Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the court
below, which it affirmed, is “null and void” as it contradicted its ruling in CA-G.R. SP No. 39445
holding that there is “sufficient evidence/proof” against Brigida D. Luz and Deganos for estafa in the
pending criminal case. They further aver that said appellate court erred in ruling against them in this
civil action since the same would result in an inevitable conflict of decisions should the trial court
convict the accused in the criminal case.

By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and Deganos
had filed a demurrer to evidence and a motion for reconsideration in the aforestated criminal case, both
of which were denied by the trial court. They then filed a petition for certiorari in the Court of Appeals
to set aside the denial of their demurrer and motion for reconsideration but, as just stated, their petition
therefor was dismissed.[17]

Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in CA-G.R.
SP No. 39445 with respect to the criminal case is equivalent to a finding that there is sufficient evidence
in the estafa case against Brigida D. Luz and Deganos. Hence, as already stated, petitioners theorize that
the decision and resolution of the Court of Appeals now being impugned in the case at bar would result
in a possible conflict with the prospective decision in the criminal case. Instead of promulgating the

37
present decision and resolution under review, so they suggest, the Court of Appeals should have awaited
the decision in the criminal case, so as not to render academic or preempt the same or, worse, create two
conflicting rulings. [18]

Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases
involving alleged fraudulent acts, a civil action for damages, entirely separate and distinct from the
criminal action, may be brought by the injured party. Such civil action shall proceed independently of
the criminal prosecution and shall require only a preponderance of evidence.

It is worth noting that this civil case was instituted four years before the criminal case for estafa was
filed, and that although there was a move to consolidate both cases, the same was denied by the trial
court. Consequently, it was the duty of the two branches of the Regional Trial Court concerned to
independently proceed with the civil and criminal cases. It will also be observed that a final judgment
rendered in a civil action absolving the defendant from civil liability is no bar to a criminal action. [19]

It is clear, therefore, that this civil case may proceed independently of the criminal case [20] especially
because while both cases are based on the same facts, the quantum of proof required for holding the
parties liable therein differ. Thus, it is improvident of petitioners to claim that the decision and
resolution of the Court of Appeals in the present case would be preemptive of the outcome of the
criminal case. Their fancied fear of possible conflict between the disposition of this civil case and the
outcome of the pending criminal case is illusory.

Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the denial
resolution dated August 18, 1997, as the same was tainted with irregularities and badges of fraud
perpetrated by its court officers. [21] They charge that said appellate court, through conspiracy and fraud
on the part of its officers, gravely abused its discretion in issuing that resolution denying their motion
for reconsideration. They claim that said resolution was drafted by the ponente, then signed and issued
by the members of the Eleventh Division of said court within one and a half days from the elevation
thereof by the division clerk of court to the office of the ponente.

It is the thesis of petitioners that there was undue haste in issuing the resolution as the same was made
without waiting for the lapse of the ten-day period for respondents to file their comment and for
petitioners to file their reply. It was allegedly impossible for the Court of Appeals to resolve the issue in
just one and a half days, especially because its ponente, the late Justice Maximiano C. Asuncion, was
then recuperating from surgery and, that, additionally, “hundreds of more important cases were
pending.” [22]

These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its officers
strikes us as a desperate attempt of petitioners to induce this Court to give credence to their arguments
which, as already found by both the trial and intermediate appellate courts, are devoid of factual and
legal substance. The regrettably irresponsible attempt to tarnish the image of the intermediate appellate
tribunal and its judicial officers through ad hominem imputations could well be contumacious, but we
are inclined to let that pass with a strict admonition that petitioners refrain from indulging in such
conduct in litigations.

On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial court’s decision.

38
 Petitioners moved for reconsideration and the Court of Appeals ordered respondents to file a
[23]

comment. Respondents filed the same on August 5, 1997 [24] and petitioners filed their reply to said
comment on August 15, 1997. [25] The Eleventh Division of said court issued the questioned resolution
denying petitioner’s motion for reconsideration on August 18, 1997.[26]

It is ironic that while some litigants malign the judiciary for being supposedly slothful in disposing of
cases, petitioners are making a show of calling out for justice because the Court of Appeals issued a
resolution disposing of a case sooner than expected of it. They would even deny the exercise of
discretion by the appellate court to prioritize its action on cases in line with the procedure it has adopted
in disposing thereof and in declogging its dockets. It is definitely not for the parties to determine and
dictate when and how a tribunal should act upon those cases since they are not even aware of the status
of the dockets and the internal rules and policies for acting thereon.

The fact that a resolution was issued by said court within a relatively short period of time after the
records of the case were elevated to the office of the ponente cannot, by itself, be deemed irregular.
There is no showing whatsoever that the resolution was issued without considering the reply filed by
petitioners. In fact, that brief pleading filed by petitioners does not exhibit any esoteric or ponderous
argument which could not be analyzed within an hour. It is a legal presumption, born of wisdom and
experience, that official duty has been regularly performed; [27] that the proceedings of a judicial tribunal
are regular and valid, and that judicial acts and duties have been and will be duly and properly
performed. [28] The burden of proving irregularity in official conduct is on the part of petitioners and
they have utterly failed to do so. It is thus reprehensible for them to cast aspersions on a court of law on
the bases of conjectures or surmises, especially since one of the petitioners appears to be a member of
the Philippine Bar.

Lastly, petitioners fault the trial court’s holding that whatever contract of agency was established
between Brigida D. Luz and Narciso Deganos is unenforceable under the Statute of Frauds as that
aspect of this case allegedly is not covered thereby. [29] They proceed on the premise that the Statute of
Frauds applies only to executory contracts and not to executed or to partially executed ones. From there,
they move on to claim that the contract involved in this case was an executed contract as the items had
already been delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in the execution
of the contract and removed the same from the coverage of the Statute of Frauds.

Petitioners’ claim is speciously unmeritorious. It should be emphasized that neither the trial court nor
the appellate court categorically stated that there was such a contractual relation between these two
respondents. The trial court merely said that if there was such an agency existing between them, the
same is unenforceable as the contract would fall under the Statute of Frauds which requires the
presentation of a note or memorandum thereof in order to be enforceable in court. That was merely a
preparatory statement of a principle of law. What was finally proven as a matter of fact is that there was
no such contract between Brigida D. Luz and Narciso Deganos, executed or partially executed, and no
delivery of any of the items subject of this case was ever made to the former.

WHEREFORE, no error having been committed by the Court of Appeals in affirming the judgment of
the court a quo, its challenged decision and resolution are hereby AFFIRMED and the instant petition
is DENIED, with double costs against petitioners
SO ORDERED.

39
 G.R. NO. 153057, August 07, 2006
MR. & MRS. GEORGE R. TAN, PETITIONERS, VS. G.V.T.
ENGINEERING SERVICES, ACTING THROUGH ITS OWNER/
MANAGER GERINO V. TACTAQUIN, RESPONDENT.
DECISION

AUSTRIA-MARTINEZ, J.:

Assailed in the present petition for review on certiorari under Rule 45 of the Rules of
Court is the June 29, 2001 Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No.
59699 affirming with modification the Decision of the Regional Trial Court (RTC) of
Quezon City, Branch 81 in Civil Case No. Q-90-7405; and its Resolution[2] promulgated
on April 10, 2002 denying petitioners' Motion for Partial Reconsideration.

The facts are as follows:

On October 18, 1989, the spouses George and Susan Tan (spouses Tan) entered into a
contract with G.V.T. Engineering Services (G.V.T.), through its owner/manager Gerino
Tactaquin (Tactaquin) for the construction of their residential house at Ifugao St., La
Vista, Quezon City. The contract price was P1,700,000.00. Since the spouses Tan have
no knowledge about building construction, they hired the services of Engineer Rudy
Cadag (Cadag) to supervise the said construction. In the course of the construction, the
spouses Tan caused several changes in the plans and specifications and ordered the
deletion of some items in G.V.T.'s scope of work. This brought about differences
between the spouses Tan and Cadag, on one hand, and Tactaquin, on the other.
Subsequently, the latter stopped the construction of the subject house.

On December 4, 1990, G.V.T., through Tactaquin, filed a Complaint for specific

performance and damages against the spouses Tan and Cadag with the RTC of Quezon
City contending that by reason of the changes in the plans and specifications of the
construction project ordered by Cadag and the spouses Tan, it was forced to borrow
money from third persons at exorbitant interest; that several portions of their contract
were deleted but only to be awarded later to other contractors; that it suffered
tremendous delay in the completion of the project brought about by the spouses Tan's
delay in the delivery of construction materials on the jobsite; that all the aforementioned
acts caused undue prejudice and damage to it.

In their Answer with Counterclaims, the spouses Tan and Cadag alleged, among others,
that G.V.T. performed several defective works; that to avert further losses, the spouses
Tan deleted some portions of the project covered by G.V.T.'s contract and awarded
other portions to another contractor; that the changes ordered by the spouses Tan were

40
 agreed upon by the parties; that G.V.T., being a mere single proprietorship has no legal
personality and cannot be a party in a civil action.

Trial ensued and the court a quo made the following factual findings:

To begin with, it is not disputed that there was delay in the delivery of the needed
construction materials which in turn caused tremendous delay in project completion. The
documentary evidence on record shows that plaintiff, practically during the entire period
that he was working on the project, complained to defendants about the non-delivery on
time of the materials on the project site (Exhs. D, G, H, H-1, H-2, H-3, H-4, and H-5).
Plaintiff's request for prompt delivery of materials fell on deaf ears.

xxxx

Plaintiff's losses as a result of the delay were aggravated by cancellation by defendants of

major portions of the project such as skylight roofing, installation of cement tiles, soil
poisoning and finishing among others, which were all included in the construction
agreement but were assigned to other contractors (TSN, 9/6/91); Exh. I).

In his testimony, defendant Cadag declared that thirteen (13) items in the construction
agreement were deleted mainly due to the lack of technical know-how of the plaintiff,
coupled with lack of qualified personnel; that he immediately notified the plaintiff upon
discovering the defective workmanship (TSN, 5/26/93); and that he became aware of the
imperfection in plaintiff's work as early as during the plastering of the walls (TSN,
10/12/97). The evidence is clear however that plaintiff's attention about the alleged faulty
work was called for the first time only on November 16, 1990 when plaintiff was
furnished with defendants' letter bearing date of November 10, 1990 (Exh. 20) as their
reply to plaintiff's letter of even date.

xxxx

It bears pointing out that defendant Cadag testified that during the construction of the
house of defendant spouses he was at the job site everyday to see to it that the
construction was being done according to the plans and specifications (TSN, 9/31/94).
He was assisted in the project by the other supervising representatives of defendants
spouses, namely, Engr. Rogelio Menguito, Engr. Armando Menguito and Arch. Hans
Palma who went to the project site to attend the weekly meetings. It thus appears that
there was a close monitoring by the defendant of the construction by the plaintiff.[3]
On the basis of the foregoing findings, the trial court concluded thus:
It is therefore the finding of this Court that defendants' conclusions as to the
workmanship and competence of plaintiff are unsupported and without basis and that
their act of deleting several major items from plaintiff's scope of work was uncalled for,

41
 if not done in bad faith. Defendants's [sic] acts forced plaintiff to withdraw from the
project.[4]
Accordingly, the RTC rendered a Decision[5] with the following dispositive portion:
WHEREFORE, judgment is hereby rendered as follows:

1. Ordering defendants Rodovaldo Cadag and spouses George and Susan Tan to pay
plaintiff, jointly and severally:

a) the sum of P366,340.00 representing the balance of the contract price;

b) the amount of P49,578.56 representing the 5% retention fee;
c) the amount of P45,000.00 as moral damages;
d) the amount of P100,000.00 for and as attorney's fees; and
e) the amount of P17,000.00 as litigation expenses.

1. Dismissing defendants' counterclaims.

Costs against defendants.

IT IS ORDERED.[6]

Aggrieved by the trial court's decision, the spouses Tan filed an appeal with the CA contending that the
trial court erred in not dismissing the complaint on the ground that G.V.T. has no legal capacity to sue;
in not finding that it was G.V.T. which caused the delay in the construction of the subject residential
house; in awarding amounts in favor of G.V.T. representing the balance of the contract price, retention
fee, moral damages and attorney's fees; and in finding Cadag jointly and severally liable with the
spouses Tan.

In its Decision of June 29, 2001, the CA affirmed with modification the judgment of the trial court, to
wit:
IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby MODIFIED
by deleting the awards for moral damages, attorney's fees and litigation expenses and
dismissing the case against appellant Rodovaldo Cadag. In all other respect, the
challenged judgment is AFFIRMED. Costs against the appellant-spouses George and
Susan Tan.

SO ORDERED.[7]
Both parties filed their respective Motions for Partial Reconsideration but these were denied by the CA
in its Resolution of April 10, 2002.[8]

Hence, herein petition by the spouses Tan based on the following assignments of errors:

1. RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT

PETITIONERS DID NOT VIOLATE THEIR CONSTRUCTION
AGREEMENT WITH THE PRIVATE RESPONDENT; HENCE, THEY

42
 CANNOT BE REQUIRED TO PAY THE AMOUNTS OF P366,340.00
REPRESENTING THE BALANCE OF THE CONTRACT PRICE OF
P1,700,000.00 AND P49,578.56 REPRESENTING 5 PERCENT RETENTION
FEE.

xxxx

1. RESPONDENT COURT OF APPEALS LIKEWISE ERRED IN NOT

ABSOLVING THE PETITIONERS FROM LIABILITY TO PRIVATE
RESPONDENT.

xxxx

1. RESPONDENT COURT OF APPEALS ALSO ERRED IN NOT ORDERING

THE DISMISSAL OF CIVIL CASE NO. Q-90-7405 FOR LACK OF
JURISDICTION ON THE PART OF THE LOWER COURT.[9]

Petitioners contend that since Tactaquin consented and acquiesced to the changes and alterations made
in the plan of the subject house he cannot complain and discontinue the construction of the said house.
Petitioners assert that it would be highly unfair and unjust for them to be required to pay the amount
representing the cost of the remaining unfinished portion of the house after it was abandoned by
Tactaquin, for to do so would enable the latter to unjustly enrich himself at their expense. With respect
to the retention fee, petitioners argue that this amount is payable only after the house is completed and
turned over to them. Since respondent never completed the construction of the subject house, petitioners
claim that they should not be required to pay the retention fee. Petitioners also contend that respondent
failed to prove that it is entitled to actual damages.

As to the second assigned error, petitioners contend that since the CA dismissed the complaint against
Cadag it follows that they should not also be held liable because they merely relied upon and followed
the advice and instructions of Cadag whom they hired to supervise the construction of their house.

Anent the last assigned error, petitioners argue that G.V.T., being a sole proprietorship, is not a juridical
person and, hence, has no legal personality to institute the complaint with the trial court. Consequently,
the trial court did not acquire jurisdiction over the case and all proceedings conducted by it are null and
void. Petitioners contend that they raised this issue in their Answer to the Complaint and in their appeal
to the CA.

In their Supplemental Petition, petitioners contend that under their contract with G.V.T., the latter
agreed to employ only labor in the construction of the subject house and that petitioners shall supply the
materials; that it was error on the part of the CA and the trial court to award the remaining balance of
the contract price in favor of respondent despite the fact that some items from the latter's scope of work
were deleted with its consent. Petitioners argue that since the above-mentioned items were deleted, it
follows that respondent should not be compensated for the work which it has not accomplished.
Petitioners went further to claim that the value of the deleted items should, in fact, be deducted from the
original contract price. As to the delay in the construction of the subject house, petitioners assert that

43
said delay was attributable to respondent which failed to pay the wages of its workers who, in turn,
refused to continue working; that petitioners were even forced to pay the workers' wages for the
construction to continue.

In its Comment, respondent contends that the CA and the trial court are one in finding that petitioners
are the ones responsible for breach of contract, for unjustifiably deleting items agreed upon and
delaying delivery of construction materials, and that these findings were never rebutted by contrary
evidence. Respondent asserts that findings of fact of the trial court especially when affirmed by the CA
are conclusive on the Supreme Court when supported by the evidence on record and that the Supreme
Court's jurisdiction in cases brought before it from the CA via Rule 45 of the Rules of Court is limited
to reviewing errors of law.

As to the second assigned error, respondent asserts that petitioners' argument is fallacious because the
court's ruling absolving Cadag from liability is based on the fact that the there is no privity of contract
between him and respondent. This, respondent argues, cannot be said with respect to it and petitioners.

As to the last assigned error, respondent quoted portions of this Court's ruling in the case of Yao Ka Sin
Trading v. Court of Appeals[10], as cited by the CA in its challenged Decision. In the said case, the Court
basically held that no one has been misled by the error in the name of the party plaintiff and to send the
case back to the trial court for amendment and new trial for the simple purpose of changing the name of
the plaintiff is not justified considering that there would be, on re-trial, the same complaint, answer,
defense, interests, witnesses and evidence.

The Court finds the petition without merit.

The Court finds it proper to discuss first the issue regarding G.V.T.'s lack of legal personality to sue.

Petitioners raised the issue of G.V.T.'s lack of legal personality to be a party in a civil action as a
defense in their Answer with Counterclaims and, thus, are not estopped from raising this issue before
the CA or this Court.[11] It is true that G.V.T. Engineering Services, being a sole proprietorship, is not
vested with a legal personality to bring suit or defend an action in court. A perusal of the records of the
present case shows that respondent's complaint filed with the trial court as well as its Appellee's Brief
submitted to the CA and its Comment filed before this Court are all captioned as "G.V.T. Engineering
Services acting through its owner/manager Gerino V. Tactaquin". In fact, the first paragraph of the
complaint refers to G.V.T. as the plaintiff. On this basis, it can be inferred that G.V.T. was the one
which filed the complaint and that it is only acting through its proprietor. However, subsequent
allegations in the complaint show that the suit is actually brought by Tactaquin. Averments therein refer
to the plaintiff as a natural person. In fact, one of the prayers in the complaint is for the recovery of
moral damages by reason of "his sufferings, mental anguish, moral shock, sleepless nights, serious
anxiety and besmirch[ed] reputation as an Engineer and Contractor." It is settled that, as a rule, juridical
persons are not entitled to moral damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral
shock.[12] From these, it can be inferred that it was actually Tactaquin who is the complainant. As such,
the proper caption should have been "Gerino Tactaquin doing business under the name and style of
G.V.T. Engineering Services", as is usually done in cases filed involving sole proprietorships.
Nonetheless, these are matters of form and the Court finds the defect merely technical, which does not,

44
in any way, affect its jurisdiction.

This Court has held time and again that rules of procedure should be viewed as mere tools designed to
aid the courts in the speedy, just and inexpensive determination of the cases before them.[13] Liberal
construction of the rules and the pleadings is the controlling principle to effect substantial justice.[14] In
fact, this Court is not impervious to instances when rules of procedure must yield to the loftier demands
of substantial justice and equity.[15] Citing Aguam v. Court of Appeals[16], this Court held in Barnes v.
Quijano[17] that:
The law abhors technicalities that impede the cause of justice. The court's primary duty
is to render or dispense justice. "A litigation is not a game of technicalities." "Lawsuits
unlike duels are not to be won by a rapier's thrust. Technicality, when it deserts its proper
office as an aid to justice and becomes its great hindrance and chief enemy, deserves
scant consideration from courts." Litigations must be decided on their merits and not on
technicality. Every party litigant must be afforded the amplest opportunity for the proper
and just determination of his cause, free from the unacceptable plea of technicalities.
Thus, dismissal of appeals purely on technical grounds is frowned upon where the policy
of the court is to encourage hearings of appeals on their merits and the rules of procedure
ought not to be applied in a very rigid, technical sense; rules of procedure are used only
to help secure, not override substantial justice. It is a far better and more prudent course
of action for the court to excuse a technical lapse and afford the parties a review of the
case on appeal to attain the ends of justice rather than dispose of the case on technicality
and cause a grave injustice to the parties, giving a false impression of speedy disposal of
cases while actually resulting in more delay, if not a miscarriage of justice.[18]
More importantly, there is no showing that respondent's failure to place the correct caption in the
complaint or to amend the same later resulted in any prejudice on the part of petitioners. Thus, this
Court held as early as the case of Alonso v. Villamor,[19] that:
No one has been misled by the error in the name of the party plaintiff. If we should by
reason of this error send this case back for amendment and new trial, there would be on
the retrial the same complaint, the same answer, the same defense, the same interests, the
same witnesses, and the same evidence. The name of the plaintiff would constitute the
only difference between the old trial and the new. In our judgment there is not enough in
a name to justify such action.[20]
In the same manner, it would be an unjustifiable abandonment of the principles laid down in the
above-mentioned cases if the Court would nullify the proceedings had in the present case by the lower
and appellate courts on the simple ground that the complaint filed with the trial court was not properly
captioned.

Coming to the merits of the case, the Court finds for the respondent.

As to the first assigned error, respondent did not refute petitioners' contention that he gave his consent
and acquiesced to the decision of petitioners to change or alter the construction plan of the subject house.
However, respondent contends that he did not agree to the deletions made by petitioners of some of the
items of work covered by their contract. Both the trial and appellate courts gave credence to
respondent's contention when they ruled that petitioners were guilty of "deleting several major items
from plaintiff's (herein respondent's) scope of work"[21] or "of unjustifiably deleting items agreed upon

45
in the construction agreement and delaying the delivery of construction materials"[22] thereby forcing
respondent to withdraw from the project. From these acts of petitioners, both the trial and appellate
courts made categorical findings that petitioners are the ones guilty of breach of contract.

The Court upholds the factual findings of the trial and appellate courts with respect to petitioners'
liability for breach of their contract with respondent. Questions of facts are beyond the pale of Rule 45
of the Rules of Court as a petition for review may only raise questions of law.[23] Moreover, factual
findings of the trial court, particularly when affirmed by the Court of Appeals, are generally binding on
this Court.[24] More so, as in this case, where petitioners have failed to show that the courts below
overlooked or disregarded certain facts or circumstances of such import as would have altered the
outcome of the case.[25] The Court, thus, finds no reason to set aside the lower courts' factual findings.

An examination of the records shows that respondent, indeed, refused to give his consent to the
abovementioned deletions as evidenced by his letters dated November 10, 1990[26] and November 23,
1990[27] addressed to the spouses Tan. Moreover, petitioners' delay in the delivery of construction
materials is also evidenced by the minutes of the meeting held among the representatives of petitioners
and respondent on May 5, 1990[28] as well as the letter of respondent to petitioners dated June 15,
1990.[29]

Having resolved that petitioners are guilty of breach of contract, the next question is whether they are
liable to pay the amounts of P366,340.00 and P49,578.56, which supposedly represent the balance of
the price of their contract with respondent and 5% retention fee, respectively.

There is no question that petitioners are liable for damages for having breached their contract with
respondent. Article 1170 of the Civil Code provides that those who in the performance of their
obligations are guilty of fraud, negligence or delay and those who in any manner contravene the tenor
thereof are liable for damages. Moreover, the Court agrees with the trial court that under Article 1234 of
the Civil Code, if the obligation has been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment less damages suffered by the obligee. In the
present case, it is not disputed that respondent withdrew from the project on November 23, 1990. Prior
to such withdrawal, respondents gave to petitioners its 22nd Billing, dated October 29, 1990, where the
approximated percentage of work completed as of that date was 74% and the portion of the contract
paid by petitioners so far was P1,265,660.60.[30] This was not disputed by petitioners. Hence, respondent
was able to establish that he has substantially performed his obligation in good faith.

It is also established that a substantial part of the remaining items of work which were supposed to be
done by respondent were deleted by petitioners from his scope of work and awarded to other contractors,
thus, forcing him to withdraw from the contract. These works include the following: 1) soil poisoning; 2)
T & G ceiling and flooring; 3) wood parquet; 4) vitrified floor tiles; 5) glazed and unglazed tiles; 6)
washout; 7) marble flooring; 8) vinyl flooring; 9) plywood sheeting; 10) plain GI sheets; 11) cement
tiles; 12) skylights; 13) Fixtures electrical works; and, 14) Fixtures and accessories and plumbing
works.[31]

The Court finds no cogent reason to depart from the ruling of the trial court, as affirmed by the CA, that
since petitioners are guilty of breach of contract by deleting the above-mentioned items from
respondent's scope of work, the value of the said items should be credited in respondent's favor. It is

46
established that if the above-mentioned deleted items would have been performed by respondent, as it
should have been pursuant to their contract, the construction is already 96% completed.[32] Hence,
respondent should be paid 96% of the total contract price of P1,700,000, or P1,632,000.00. The Court
agrees with the trial court that since petitioners already paid respondent the total amount of
P1,265,660.00, the former should be held liable to pay the balance of P366,340.00.

As to the 5% retention fee which respondent seeks to recover, petitioners do not deny that they have
retained the same in their custody. The only contention petitioners advance is that respondent is not
entitled to recover this fee because it is stipulated under their contract that petitioners shall only give
them to respondent upon completion of the project and the same is turned over to them. In the present
case, respondent was not able to complete the project. However, his failure to complete his obligation
under the contract was not due to his fault but because he was forced to withdraw therefrom by reason
of the breach committed by petitioners. Nonetheless, as earlier discussed, at the time that respondent
withdrew from the contract, he has already performed in good faith a substantial portion of his
obligation. Considering that he was not at fault, the law provides that he is entitled to recover as though
there has been a strict and complete fulfillment of his obligation.[33] On this basis, the Court finds no
error in the ruling of the trial and appellate courts that respondent is entitled to the recovery of 5%
retention fee.

The Court finds that respondent was only able to establish the amount of P20,772.05, which is the sum
of all the retention fees appearing in the bills presented by respondent in evidence.[34] Settled is the rule
that actual or compensatory damages cannot be presumed but must be proved with reasonable degree of
certainty.[35] A court cannot rely on speculations, conjectures or guesswork as to the fact of damage but
must depend upon competent proof that they have indeed been suffered by the injured party and on the
basis of the best evidence obtainable as to the actual amount thereof.[36] It must point out specific facts
that could provide the gauge for measuring whatever compensatory or actual damages were borne.[37]
Considering that the documentary evidence presented by respondent to prove the sum of retention fees
sought to be recovered totals an amount which is less than that granted by the trial court, it is only
proper to reduce such award in accordance with the evidence presented.

As to the second assigned error, it is wrong for petitioners to argue that since Cadag, whom they hired
to supervise the construction of their house, was absolved by the court from liability, they should not
also be held liable.

The Court finds no error on the part of the CA in ruling that it is a basic principle in civil law, on
relativity of contracts, that contracts can only bind the parties who had entered into it and it cannot favor
or prejudice third persons. Contracts take effect only between the parties, their successors in interest,
heirs and assigns.[38] Moreover, every cause of action ex contractu must be founded upon a contract,
oral or written, either express or implied.[39] In the present case, the complaint for specific performance
filed by herein respondent with the trial court was based on the failure of the spouses Tan to faithfully
comply with the provisions of their contract. In other words, respondent's cause of action was the breach
of contract committed by the spouses Tan. Cadag is not a party to this contract. Neither did he enter into
any contract with respondent regarding the construction of the subject house. Hence, considering that
respondent's cause of action was breach of contract and since there is no privity of contract between him
and Cadag, there is no obligation or liability to speak about and thus no cause of action arises. Clearly,
Cadag, not being privy to the transaction between respondent and the spouses Tan, should not be made

47
to answer for the latter's default.

Furthermore, Cadag was employed by the spouses Tan to supervise the construction of their house.
Acting as such, his role is merely that of an agent. The essence of agency being the representation of
another, it is evident that the obligations contracted are for and on behalf of the principal.[40] A
consequence of this representation is the liability of the principal for the acts of his agent performed
within the limits of his authority that is equivalent to the performance by the principal himself who
should answer therefor.[41] In the present case, since there is neither allegation nor evidence that Cadag
exceeded his authority, all his acts are considered as those of his principal, the spouses Tan, who are,
therefore, the ones answerable for such acts.

WHEREFORE, the petition is partly GRANTED. The appealed Decision and Resolution of the Court
of Appeals are AFFIRMED with MODIFICATION whereby the amount of retention fee which
petitioners are ordered to pay is reduced from P49,578.56 to P20,772.05.

No costs.

SO ORDERED.

48
 G.R. No. L-28740, February 24, 1981
FERMIN Z. CARAM, JR., PETITIONER, VS. CLARO L. LAURETA,
RESPONDENT.
DECISION

FERNANDEZ, J.:

This is a petition for certiorari to review the decision of the Court of Appeals
promulgated on January 29, 1968 in CA-G.R. NO. 35721-R entitled "Claro L. Laureta,
plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin Caram Jr.,
defendants-appellant; Tampino (Mansaca), et al. Intervenors-appellants," affirming the
decision of the Court of First Instance of Davao in Civil Case No. 3083.[1]

On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao an action for nullity,
recovery of ownership and/or reconveyance with damages and attorney's fees against Marcos Mata,
Codidi Mata, Fermin Z. Caram Jr. and the Register of Deeds of Davao City.[2]

On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by Original
Certificate of Title No. 3019 in favor of Claro Laureta, plaintiff, the respondent herein. The deed of
absolute sale in favor of the plaintiff was not registered because it was not acknowledged before a
notary public or any other authorized officer. At the time the sale was executed, there was no authorized
officer before whom the sale could be acknowledged inasmuch as the civil government in Tagum,
Davao was not as yet organized. However, the defendant Marcos Mata delivered to Laureta the peaceful
and lawful possession of the premises of the land together with the pertinent papers thereof such as the
Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax declaration, tax receipts and
other papers related thereto.[3] Since June 10, 1945, the plaintiff Laureta had been and is still in
continuous, adverse and notorious occupation of said land, without being molested, disturbed or stopped
by any of the defendants or their representatives. In fact, Laureta had been paying realty taxes due
thereon and had introduced improvements worth not less than P20,000.00 at the time of the filing of the
complaint.[4]

On May 5 1947, the same land covered by Original Certificate of Title No. 3019 was sold by Marcos
Mata to defendant Fermin Z. Caram Jr., petitioner herein. The deed of sale in favor of Caram was
acknowledged before Atty. Abelardo Aportadera. On May 22, 1947, Marcos Mata, through Attys.
Abelardo Aportadera and Gumercindo Arcilla, filed with the Court of First Instance of Davao a petition
for the issuance of a new Owner's Duplicate of Original Certificate of Title No. 3019, alleging as
ground therefor the loss of said title in the evacuation place of defendant Marcos Mata in Magugpo,
Tagum, Davao. On June 5, 1947, the Court of First Instance of Davao issued an order directing the
Register of Deeds of Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in favor of
Marcos Mata and declaring the lost title as null and void. On December 9, 1947, the second sale

49
between Marcos Mata and Fermin Caram Jr. was registered with the Register of Deeds. On the same
date, Transfer Certificate of Title No. 140 was issued in favor of Fermin Caram Jr.[5]

On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their answer with counterclaim
admitting the existence of a private absolute deed of sale of his only property in favor of Claro L.
Laureta but alleging that he signed the same as he was subjected to duress, threat and intimidation for
the plaintiff was the commanding officer of the 10th division USFIP, operating in the unoccupied areas
of Northern Davao with its headquarters at Project No. 7 (Km. 60, Davao-Agusan Highways), in the
Municipality of Tagum, Province of Davao; that Laureta's words and requests were laws; that although
the defendant Mata did not like to sell his property or sign the document without even understanding the
same, he was ordered to accept P650.00 Mindanao Emergency notes; and that due to his fear of harm or
danger that will happen to him or to his family, if he refused, he had no other alternative but to sign the
document.[6]

The defendants Marcos Mata and Codidi Mata also admit the existence of a record in the Registry of
Deeds regarding a document allegedly signed by him in favor of his co-defendant Fermin Caram Jr. but
denies that he ever signed the document for he knew before hand that he had signed a deed of sale in
favor of the plaintiff and that the plaintiff was in possession of the certificate of title; that if ever his
thumb mark appeared in the document purportedly alienating the property to Fermin Caram Jr., his
consent was obtained through fraud and misrepresentation for the defendant Mata is illiterate and
ignorant and did not know what he was signing; and that he did not receive a consideration for the said
sale.[7]

The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging that he has no
knowledge or information about the previous encumbrances, transactions, and alienations in favor of
plaintiff until the filing of the complaints.[8]

The trial court rendered a decision dated February 29, 1964, the dispositive portion of which reads:[9]

"1. Declaring that the deed of sale, Exhibit A, executed by Marcos Mata in favor of
Claro L. Laureta stands and prevails over the deed of sale, Exhibit F, in favor of Fermin
Caram, Jr.;

"2. Declaring as null and void the deed of sale Exhibit F, in favor of Fermin Caram, Jr.;

"3. Directing Marcos Mata to acknowledge the deed of sale, Exhibit A, in favor of Claro
L. Laureta;

50
 "4. Directing Claro L. Laureta to secure the approval of the Secretary of Agriculture and
Natural Resources on the deed, Exhibit A, after Marcos Mata shall have acknowledged
the same before a notary public;

"5. Directing Claro L. Laureta to surrender to the Register of Deeds for the City and
Province of Davao the Owner's Duplicate of Original Certificate of Title No. 3019 and
the latter to cancel the same;

"6. Ordering the Register of Deeds for the City and Province of Davao to cancel Transfer
Certificate of Title No. T-140 in the name of Fermin Caram, Jr.;

"7. Directing the Register of Deeds for the City and Province of Davao to issue a title in
favor of Claro L. Laureta, Filipino, resident of Quezon City, upon presentation of the
deed executed by Marcos Mata in his favor, Exhibit A, duly acknowledged by him and
approved by the Secretary of Agriculture and Natural Resources, and

"8. Dismissing the counterclaim and cross claim of Marcos Mata and Codidi Mata, the
counterclaim of Caram, Jr., the answer in intervention, counterclaim and cross-claim of
the Mansacas.

"The Court makes no pronouncement as to costs.

"SO ORDERED."

The defendants appealed from the judgment to the Court of Appeals.[10] The appeal was docketed as
CA-G.R. NO. 35721-R.

The Court of Appeals promulgated its decision on January 29, 1968 affirming the judgment of the trial
court.

51
In his brief, the petitioner assigns the following errors:[11]

"I

"THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT

IRESPE AND APORTADERA WERE ATTORNEYS-IN-FACT OF PETITIONER
CARAM FOR THE PURPOSE OF BUYING THE PROPERTY IN QUESTION.

"II

"THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE

EVIDENCE ADDUCED IN THE TRIAL COURT CONSTITUTE LEGAL EVIDENCE
OF FRAUD ON THE PART OF IRESPE AND APORTADERA ATTRIBUTABLE TO
PETITIONER.

"III

"THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ERROR OF

LAW IN HOLDING THAT KNOWLEDGE OF IRESPE AND APORTADERA OF A
PRIOR UNREGISTERED SALE OF A TITLED PROPERTY ATTRIBUTABLE TO
PETITIONER AND EQUIVALENT IN LAW OF REGISTRATION OF SAID SALE.

"IV

"THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT AN

ACTION FOR RECONVEYANCE ON THE GROUND OF FRAUD PRESCRIBES
WITHIN FOUR (4) YEARS."

52
The petitioner assails the finding of the trial court that the second sale of the property was made through
his representatives, Pedro Irespe and Atty. Abelardo Aportadera. He argues that Pedro Irespe was acting
merely as a broker or intermediary with the specific task and duty to pay Marcos Mata the sum of
P1,000.00 for the latter's property and to see to it that the requisite deed of sale covering the purchase
was properly executed by Marcos Mata; that the identity of the property to be bought and the price of
the purchase had already been agreed upon by the parties; and that the other alleged representative, Atty.
Aportadera, merely acted as a notary public in the execution of the deed of sale.

The contention of the petitioner has no merit. The facts of record show that Mata, the vendor, and
Caram, the second vendee had never met. During the trial, Marcos Mata testified that he knows Atty.
Aportadera but did not know Caram.[12] Thus, the sale of the property could have only been through
Caram's representatives, Irespe and Aportadera. The petitioner, in his answer, admitted that Atty.
Aportadera acted as his notary public and attorney-in-fact at the same time in the purchase of the
property.[13]

The petitioner contends that he cannot be considered to have acted in bad faith because there is no direct
proof showing that Irespe and Aportadera, his alleged agents, had knowledge of the first sale to Laureta.
This contention is also without merit.

The Court of Appeals, in affirming the decision of the trial court, said:[14]

"The trial court, in holding that appellant Caram, Jr. was not a purchaser in good faith, at
the time he bought the same property from appellant Mata, on May 5, 1947, entirely
discredited the testimony of Aportadera. Thus it stated in its decision:

'The testimony of Atty. Aportadera quoted elsewhere in this decision is

hollow. There is every reason to believe that Irespe and he had known of
the sale of the property in question to Laureta on the day Mata and Irespe,
accompanied by Leoning Mansaca, went to the office of Atty. Aportadera
for the sale of the same property to Caram, Jr., represented by Irespe as
attorney-in-fact. Leoning Mansaca was with the two - Irespe and Mata - to
engage the services of Atty. Aportadera in the annulment of the sale of his
land to Laureta. When Leoning Mansaca narrated to Atty. Aportadera the
circumstances under which his property had been sold to Laureta, he must
have included in the narration the sale of the land of Mata, for the two
properties had been sold on the same occasion and under the same
circumstances. Even as early as immediately after liberation, Irespe, who
was the witness in most of the cases filed by Atty. Aportadera in his

53
 capacity as Provincial Fiscal of Davao against Laureta, must have known
of the purchases of lands made by Laureta when he was regimental
commander, one of which was the sale made by Mata. It was not a mere
coincidence that Irespe was made guardian ad litem of Leoning Mansaca,
at the suggestion of Atty. Aportadera and attoney-in-fact of Caram, Jr.

'The Court cannot help being convinced that Irespe, attorney-in-fact of

Caram, Jr. had knowledge of the prior existing transaction, Exhibit A,
between Mata and Laureta over the land, subject matter of this liti-gation,
when the deed, Exhibit F, was executed by Mata in favor of Caram, Jr.
And this knowledge has the effect of registration as to Caram, Jr.' (R.A.
pp. 123-124)

"We agree with His Honor's conclusion on this particular point, on two grounds - the
first, the same con-cerns matters affecting the credibility of a witness of which the
findings of the trial court command great weight, and second, the same is borne out by
the testimony of Atty. Aportadera himself. (t.s.n., pp. 187-190, 213-215, Restauro)."

Even if Irespe and Aportadera did not have actual knowledge of the first sale, still, their actions have
not satisfied the requirement of good faith. Bad faith is not based solely on the fact that a vendee had
knowledge of the defect or lack of title of his vendor. In the case of Leung Yee vs. F. L. Strong
Machinery Co. and Williamson, this Court held:[15]

"One who purchases real estate with knowledge of a defect or lack of title in his vendor
can not claim that he has acquired title thereto in good faith, as against the true owner of
the land or of an interest therein, and the same rule must be applied to one who has
knowledge of facts which should have put him upon such inquiry and investigation as
might be necessary to acquaint him with the defects in the title of his vendor."

In the instant case, Irespe and Aportadera had knowledge of circumstances which ought to have put
them an inquiry. Both of them knew that Mata's certificate of title together with other papers pertaining
to the land was taken by soldiers under the command of Col. Claro L. Laureta.[16] Added to this is the
fact that at the time of the second sale. Laureta was already in possession of the land. Irespe and
Aportadera should have investigated the nature of Laureta's possession. If they failed to exercise the
ordinary care expected of a buyer of real estate they must suffer the consequences. The rule of caveat

54
emptor requires the purchaser to be aware of the supposed title of the vendor and one who buys without
checking the vendor's title takes all the risks and losses consequent to such failure.[17]

The principle that a person dealing with the owner of the registered land is not bound to go behind the
certificate and inquire into transactions the existence of which is not there intimated[18] should not
apply in this case. It was of common knowledge that at the time the soldiers of Laureta took the
documents from Mata, the civil government of Tagum was not yet established and that there were no
officials to ratify contracts of sale and make them registerable. Obviously, Aportadera and Irespe knew
that even if Mata previously had sold the disputed property such sale could not have been registered.

There is no doubt then that Irespe and Aportadera, acting as agents of Ceram, purchased the property of
Mata in bad faith. Applying the principle of agency, Ceram, as principal, should also be deemed to have
acted in bad faith.

Article 1544 of the New Civil Code provides that:

"Art. 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good
faith, if it should be movable property.

"Should it be immovable property, the ownership shall belong to the person, acquiring it
who in good faith first recorded it in the Registry of Property.

"Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith. (1473)"

Since Caram was a registrant in bad faith, the situation is as if there was no registration at all.[19]

The question to be determined now is, who was first in possession in good faith? A possessor in good
faith is one who is not aware that there exists in his title or mode of acquisition any flaw which
invalidates it.[20] Laureta was first in possession of the property. He is also a possessor in good faith. It is
true that Mata had alleged that the deed of sale in favor of Laureta was procured by force.[21] Such
defect, however, was cured when, after the lapse of four years from the time the intimidation ceased,
Marcos Mata lost both his rights to file an action for annulment or to set up nullity of the contract as a
defense in an action to enforce the same.

55
Anent the fourth error assigned, the petitioner contends that the second deed of sale, Exhibit "F", is a
voidable contract. Being a voidable contract, the action for annulment of the same on the ground of
fraud must be brought within four (4) years from the discovery of the fraud. In the case at bar, Laureta
is deemed to have discovered that the land in question has been sold to Caram to his prejudice on
December 9, 1947, when the Deed of Sale, Exhibit "F" was recorded and entered in the Original
Certificate of Title by the Registered of Deeds and a new Certificate of Title No. 140 was issued in the
name of Caram. Therefore, when the present case was filed on June 29, 1959, plaintiff's cause of action
had long prescribed.

The petitioner's conclusion that the second deed of sale, "Exhibit F", is a voidable contract is not correct.
In order that fraud can be a ground for the annulment of a contract, it must be employed prior to or
simultaneous to the consent or creation of the contract. The fraud or dolo causante must be that which
determines or is the essential cause of the contract. Dolo causante as a ground for tie annulment of
contract is specifically described in Article 1338 of the New Civil Code of the Philippines as "insidious
words or machinations of one of the contracting parties" which induced the other to enter into a contract,
and "without them, he would not have agreed to".

The second deed of sale in favor of Caram is not a voidable contract. No evidence whatsoever was
shown that through insidious words or machinations, the representatives of Caram, Irespe and
Aportadera had induced Mata to enter into the contract.

Since the second deed of sale is not a voidable contract, Article 1391, Civil Code of the Philippines
which provides that the action for annulment shall be brought within four (4) years from the time of the
discovery of fraud does not apply.

Moreover, Laureta has been in continuous possession of the land since he bought it in June 1945.

A more important reason why Laureta's action could not have prescribed is that the second contract of
sale, having been registered in bad faith, is null and void. Article 1410 of the Civil Code of the
Philippines provides that any action or defense for the declaration of the inexistence of a contract does
not prescribe.

In a Memorandum of Authorities[22] submitted to this Court on March 13, 1978, the petitioner insists
that the action of Laureta against Caram has prescribed because the second contract of sale is not void
under Article 1409[23] of the Civil Code of the Philippines which enumerates the kinds of contracts
which are considered void. Moreover, Article 1544 of the New Civil Code of the Philippines does not
declare void a second sale of immovable registered in bad faith.

The fact that the second contract is not considered void under Article 1409 and that Article 1544 does
not declare void a deed of sale registered in bad faith does not mean that said contract is not void.
Article 1544 specifically provides who shall be the owner in case of a double sale of an immovable
property. To give full effect to this provision, the status of the two contracts must be determined and
clarified. One contract must be declared valid so that one vendee may exercise all the rights of an owner,

56
while the other contract must be declared void to cut off all rights which may arise from said contract.
Otherwise, Article 1544 will be meaningless.

The first sale in favor of Laureta prevails over the sale in favor of Caram.

WHEREFORE, the petition is hereby denied and the decision of the Court of Appeals sought to be
reviewed is affirmed, without pronouncement as to costs.

SO ORDERED

57
 G.R. No. L-57339, December 29, 1983
AIR FRANCE, PETITIONER, VS. HONORABLE COURT OF
APPEALS, JOSE G. GANA (DECEASED), CLARA A. GANA, RAMON
GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA,
JAIME JAVIER GANA, CLOTILDE VDA. DE AREVALO, AND
EMILY SAN JUAN, RESPONDENTS.
DECISION
MELENCIO-HERRERA, J.:

In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then respondent
Court of Appeals[1] promulgated on 15 December 1980 in CA-G.R. No. 58164-R, entitled "Jose G.
Gana, et al. vs. Sociedad Nacionale Air France", which reversed the Trial Court's judgment dismissing
the Complaint of private respondents for damages arising from breach of contract of carriage, and
awarding instead P90,000.00 as moral damages.

Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the GANAS),
purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly authorized travel agent,
nine (9) "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS paid
a total of US$2,528.85 for their economy and first class fares. Said tickets were bought at the then
prevailing exchange rate of P3.90 per US$1.00. The GANAS also paid travel taxes of P100.00 for
each passenger.

On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other tickets
for the same route. At this time, the GANAS were booked for the Manila/Osaka segment on AIR
FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight 187
on 22 May 1970. The aforesaid tickets were valid until 8 May 1971, the date written under the printed
words "Non valable apres de" (meaning, "not valid after the").

The GANAS did not depart on 8 May 1970.

Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a Secretary of the
Sta. Clara Lumber Company where Jose Gana was the Director and Treasurer, for the extension of the
validity of their tickets, which were due to expire on 8 May 1971. Teresita enlisted the help of Lee
Ella, Manager of the Philippine Travel Bureau, who used to handle travel arrangements for the
personnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar Rillo, Office Manager of
AIR FRANCE. The tickets were returned to Ella who was informed that extension was not possible
unless the fare differentials resulting from the increase in fares 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.

58
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before the
expiry date. In the morning of the very day of their scheduled departure on the first leg of their trip,
Teresita requested travel agent Ella to arrange the revalidation of the tickets. Ella gave the same
negative answer and warned her that although the tickets could be used by the GANAS if they left on 7
May 1971, the tickets would no longer be valid for the rest of their trip because the tickets would then
have expired on 8 May1971. Teresita replied that it will be up to the GANAS to make the
arrangements. With that assurance, Ella, on his own, attached to the tickets validating stickers for the
Osaka/Tokyo flight, one a JAL sticker and the other an SAS (Scandinavian Airways System) sticker.
The SAS sticker indicates thereon that it was "Revalidated by the Philippine Travel Bureau, Branch No.
2" (as shown by a circular rubber stamp) and signed "Ador", and the date is handwritten in the center of
the circle. Then appear under printed headings the notations: JL 108 (Flight), 16 May (Date), 1040
(Time), OK (status). Apparently, Ella made no more attempt to contact AIR FRANCE as there was no
more time.

Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on
board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with respect to this leg of the
trip.

However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the tickets
because of their expiration, and the GANAS had to purchase new tickets. They encountered the same
difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor their tickets.
They were able to return only after pre-payment in Manila, through their relatives, of the readjusted
rates. They finally flew back to Manila on separate Air France Flights on 19May 1971 for Jose Gana
and 26 May 1971 for the rest of the family.

On 25 August 1971, the GANAS commenced before the then Court of First Instance of Manila, Branch
III, Civil Case No. 84111 for damages arising from breach of contract of carriage.

AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS brought
upon themselves the predicament they found themselves in and assumed the consequential risks; that
travel agent Ella's affixing of validating stickers on the tickets without the knowledge and consent of
AIR FRANCE, violated airline tariff rules and regulations and was beyond the scope of his authority as
a travel agent; and that AIR FRANCE was not guilty of any fraudulent conductor bad faith.

On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional Stipulations
of Fact as well as on the documentary and testimonial evidence.

The GANAS appealed to respondent Appellate Court. During the pendency of the appeal, Jose Gana,
the principal plaintiff, died.

On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's judgment in
a Decision, which decreed:

59
"WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered to pay
appellants moral damages in the total sum of NINETY THOUSAND PESOS (P90,000.00) plus costs."

"SO ORDERED."[2]

Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this instance,
to which we gave due course.
The crucial issue is whether or not, under the environmental milieu, the GANAS have made out a case
for breach of contract of carriage entitling them to an award of damages.

We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.

Pursuant to tariff rules and regulations of the International Air Transportation Association (IATA),
included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties in the Trial Court,
dated 31 March 1973, an airplane ticket is valid for one year. "The passenger must undertake the final
portion of his journey by departing from the last point at which he has made a voluntary stop before the
expiry of this limit (parag. 3.1.2) x x x That is the time allowed a passenger to begin and to complete his
trip (parags. 3.2 and 3.3.). x x x A ticket can no longer be used for travel if its validity has expired
before the passenger completes his trip (parag. 3.5.1). x x x To complete the trip, the passenger must
purchase a new ticket for the remaining portion of the journey" (ibid.)[3]

From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract when it
dishonored the tickets of the GANAS after 8 May 1971 since those tickets expired on said date; nor
when it required the GANAS to buy new tickets or have their tickets re-issued for the Tokyo/Manila
segment of their trip. Neither can it be said that, when upon sale of the new tickets, it imposed
additional charges representing fare differentials, it was motivated by self-interest or unjust enrichment
considering that an increase of fares took effect, as authorized by the Civil Aeronautics Board (CAB) in
April 1971. This procedure is well in accord with the IATA tariff rules which provide:

"6 TARIFF RULES

"3 APPLICABLE FARE ON THE DATE OF DEPARTURE

"3.1 General Rule.

"All journeys must be charged for at the fare (or charge) in effect on the date on which transportation
commences from the point of origin. Any ticket sold prior to a change of 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 ticket must be issued and the difference is to be
collected or refunded as the case may be. No adjustment is necessary if the increase or decrease in
fare (or charge) occurs when the journey is already commenced.[4]

60
The GANAS cannot defend by contending lack of knowledge of those rules since the evidence bears
out that Teresita, who handled travel arrangements for the GANAS, was duly informed by travel agent
Ella of the advice of Rillo, the Office Manager of Air France, that the tickets in question could not be
extended beyond the period of their validity without paying the fare differentials and additional travel
taxes brought about by the increased fare rate and travel taxes.

"ATTY. VALTE

"Q What did you tell Mrs. Manucdoc, in turn, after being told this by Mr. Rillo?

"A I told her, because that is the reason why they accepted again the tickets when we returned the
tickets again, that they could not be extended. They could be extended by paying the additional fare,
additional tax and additional exchange during that time.

"Q You said so to Mrs. Manucdoc?

"A Yes, sir." x x x[5]

The ruling relied on by respondent Appellate Court, therefore, in KLM vs. Court of Appeals, 65 SCRA
237(1975), holding that it would be unfair to charge respondents therein with automatic knowledge or
notice of conditions in contracts of adhesion, is inapplicable. To all legal intents and purposes,
Teresita was the agent of the GANAS and notice to her of the rejection of the request for extension of
the validity of the tickets was notice to the GANAS, her principals.

The SAS validating sticker for the Osaka/Tokyo flight affixed by Ella showing reservations for JAL
Flight 108 for 16 May 1971, without clearing the same with AIR FRANCE allegedly because of the
imminent departure of the GANAS on the same day so that he could not get in touch with Air France[6],
was certainly in contravention of IATA rules although as he had explained, he did so upon Teresita's
assurance that for the onward flight from Osaka and return, the GANAS would make other
arrangements.

"Q Referring you to page 33 of the transcript of the last session, I had this question which reads as
follows: 'But did she say anything to you when you said that the tickets were about to expire?' Your
answer was: 'I am the one who asked her. At that time I told her if the tickets being used....I was
telling her what about their bookings on the return. What about their travel on the return? She told
me it is up for the Ganas to make the arrangement.’ May I know from you what did you mean by this
testimony of yours?

"A That was on the day when they were asking me on May 7, 1971 when they were checking the
tickets. I told Mrs. Manucdoc that I was going to get the tickets. I asked her what about the tickets
onward from the return from Tokyo, and her answer was it is up for the Ganas to make the arrangement,
because I told her that they could leave on the seventh, but they could take care of that when they
arrived in Osaka.

61
"Q What do you mean?

"A The Ganas will make the arrangement from Osaka, Tokyo and, Manila.

"Q What arrangement?

"A The arrangement for the airline because the tickets would expire on May and they insisted on
leaving. I asked Mrs. Manucdoc what about the return onward portion because they would be
traveling to Osaka, and her answer was, it is up for the Ganas to make the arrangement.

"Q Exactly what were the words of Mrs. Manucdoc when you told her that? If you can remember,
what were her exact words?

"A Her words only, it is up for the Ganas to make the arrangement.

"Q This was in Tagalog or in English?

"A I think it was in English. x x x[7]

The circumstance 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 Manila the day before the expiry date of their tickets and that "other
arrangements" were to be made with respect to the remaining segments. Besides, the validating
stickers that Ella affixed on his own merely reflect the status of reservations on the specified flight and
could not legally serve to extend the validity of a ticket or revive an expired one.

The conclusion is inevitable that the GANAS brought upon themselves the predicament they were in for
having insisted on using tickets that were due to expire in an effort, perhaps, to beat the deadline and in
the thought that by commencing the trip the day before the expiry date, they could complete the trip
even thereafter. It should be recalled that AIR FRANCE was even unaware of the validating SAS and
JAL stickers that Ella had affixed spuriously. Consequently, Japan Air Lines and AIR FRANCE
merely acted within their contractual rights when they dishonored the tickets on the remaining segments
of the trip and when AIR FRANCE demanded payment of the adjusted fare rates and travel taxes for the
Tokyo/Manila flight.

WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended
Complaint filed by private respondents hereby dismissed.

No costs.

SO ORDERED.

62
 G.R. No. 126751, March 28, 2001
SAFIC ALCAN & CIE, PETITIONER, VS. IMPERIAL VEGETABLE
OIL CO., INC., RESPONDENT.
DECISION

YNARES-SANTIAGO, J.:

Petitioner Safic Alcan & Cie (hereinafter, "Safic") is a French corporation engaged in
the international purchase, sale and trading of coconut oil. It filed with the Regional
Trial Court of Manila, Branch XXV, a complaint dated February 26, 1987 against
private respondent Imperial Vegetable Oil Co., Inc. (hereinafter, "IVO"), docketed as
Civil Case No. 87-39597. Petitioner Safic alleged that on July 1, 1986 and September 25,
1986, it placed purchase orders with IVO for 2,000 long tons of crude coconut oil,
valued at US$222.50 per ton, covered by Purchase Contract Nos. A601446 and
A601655, respectively, to be delivered within the month of January 1987. Private
respondent, however, failed to deliver the said coconut oil and, instead, offered a "wash
out" settlement, whereby the coconut oil subject of the purchase contracts were to be
"sold back" to IVO at the prevailing price in the international market at the time of wash
out. Thus, IVO bound itself to pay to Safic the difference between the said prevailing
price and the contract price of the 2,000 long tons of crude coconut oil, which amounted
to US$293,500.00. IVO failed to pay this amount despite repeated oral and written
demands.

Under its second cause of action, Safic alleged that on eight occasions between April 24,
1986 and October 31, 1986, it placed purchase orders with IVO for a total of 4,750 tons
of crude coconut oil, covered by Purchase Contract Nos. A601297A/B, A601384,
A601385, A601391, A601415, A601681, A601683 and A601770A/B/C/. When IVO
failed to honor its obligation under the wash out settlement narrated above, Safic
demanded that IVO make marginal deposits within forty-eight hours on the eight
purchase contracts in amounts equivalent to the difference between the contract price
and the market price of the coconut oil, to compensate it for the damages it suffered
when it was forced to acquire coconut oil at a higher price. IVO failed to make the
prescribed marginal deposits on the eight contracts, in the aggregate amount of
US$391,593.62, despite written demand therefor.

The demand for marginal deposits was based on the customs of the trade, as governed
by the provisions of the standard N.I.O.P. Contract and the FOSFA Contract, to wit:

N.I.O.P. Contract, Rule 54 - If the financial condition of either party to a contract subject
to these rules becomes so impaired as to create a reasonable doubt as to the ability of

63
 such party to perform its obligations under the contract, the other party may from time to
time demand marginal deposits to be made within forty-eight (48) hours after receipt of
such demand, such deposits not to exceed the difference between the contract price and
the market price of the goods covered by the contract on the day upon which such
demand is made, such deposit to bear interest at the prime rate plus one percent (1%) per
annum. Failure to make such deposit within the time specified shall constitute a breach
of contract by the party upon whom demand for deposit is made, and all losses and
expenses resulting from such breach shall be for the account of the party upon whom
such demand is made. (Underscoring ours.)[1]

FOSFA Contract, Rule 54 - BANKRUPTCY/INSOLVENCY: If before the fulfillment

of this contract either party shall suspend payment, commit an act of bankruptcy, notify
any of his creditors that he is unable to meet his debts or that he has suspended payment
or that he is about to suspend payment of his debts, convene, call or hold a meeting
either of his creditors or to pass a resolution to go into liquidation (except for a voluntary
winding up of a solvent company for the purpose of reconstruction or amalgamation) or
shall apply for an official moratorium, have a petition presented for winding up or shall
have a Receiver appointed, the contract shall forthwith be closed, either at the market
price then current for similar goods or, at the option of the other party at a price to be
ascertained by repurchase or resale and the difference between the contract price and
such closing-out price shall be the amount which the other party shall be entitled to claim
shall be liable to account for under this contract (sic). Should either party be dissatisfied
with the price, the matter shall be referred to arbitration. Where no such resale or
repurchase takes place, the closing-out price shall be fixed by a Price Settlement
Committee appointed by the Federation. (Underscoring ours.)[2]
Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and US$391,593.62, plus
attorney's fees and litigation expenses. The complaint also included an application for a writ of
preliminary attachment against the properties of IVO.

Upon Safic's posting of the requisite bond, the trial court issued a writ of preliminary attachment.
Subsequently, the trial court ordered that the assets of IVO be placed under receivership, in order to
ensure the preservation of the same.

In its answer, IVO raised the following special affirmative defenses: Safic had no legal capacity to sue
because it was doing business in the Philippines without the requisite license or authority; the subject
contracts were speculative contracts entered into by IVO's then President, Dominador Monteverde, in
contravention of the prohibition by the Board of Directors against engaging in speculative paper trading,
and despite IVO's lack of the necessary license from Central Bank to engage in such kind of trading
activity; and that under Article 2018 of the Civil Code, if a contract which purports to be for the
delivery of goods, securities or shares of stock is entered into with the intention that the difference
between the price stipulated and the exchange or market price at the time of the pretended delivery shall
be paid by the loser to the winner, the transaction is null and void.

IVO set up counterclaims anchored on harassment, paralyzation of business, financial losses,

64
rumor-mongering and oppressive action. Later, IVO filed a supplemental counterclaim alleging that it
was unable to operate its business normally because of the arrest of most of its physical assets; that its
suppliers were driven away; and that its major creditors have inundated it with claims for immediate
payment of its debts, and China Banking Corporation had foreclosed its chattel and real estate
mortgages.

During the trial, the lower court found that in 1985, prior to the date of the contracts sued upon, the
parties had entered into and consummated a number of contracts for the sale of crude coconut oil. In
those transactions, Safic placed several orders and IVO faithfully filled up those orders by shipping out
the required crude coconut oil to Safic, totalling 3,500 metric tons. Anent the 1986 contracts being sued
upon, the trial court refused to declare the same as gambling transactions, as defined in Article 2018 of
the Civil Code, although they involved some degree of speculation. After all, the court noted, every
business enterprise carries with it a certain measure of speculation or risk. However, the contracts
performed in 1985, on one hand, and the 1986 contracts subject of this case, on the other hand, differed
in that under the 1985 contracts, deliveries were to be made within two months. This, as alleged by
Safic, was the time needed for milling and building up oil inventory. Meanwhile, the 1986 contracts
stipulated that the coconut oil were to be delivered within period ranging from eight months to eleven to
twelve months after the placing of orders. The coconuts that were supposed to be milled were in all
likelihood not yet growing when Dominador Monteverde sold the crude coconut oil. As such, the 1986
contracts constituted trading in futures or in mere expectations.

The lower court further held that the subject contracts were ultra vires and were entered into by
Dominador Monteverde without authority from the Board of Directors. It distinguished between the
1985 contracts, where Safic likewise dealt with Dominador Monteverde, who was presumably
authorized to bind IVO, and the 1986 contracts, which were highly speculative in character. Moreover,
the 1985 contracts were covered by letters of credit, while the 1986 contracts were payable by
telegraphic transfers, which were nothing more than mere promises to pay once the shipments became
ready. For these reasons, the lower court held that Safic cannot invoke the 1985 contracts as an implied
corporate sanction for the high-risk 1986 contracts, which were evidently entered into by Monteverde
for his personal benefit.

The trial court ruled that Safic failed to substantiate its claim for actual damages. Likewise, it rejected
IVO's counterclaim and supplemental counterclaim.

Thus, on August 28, 1992, the trial court rendered judgment as follows:
WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff Safic
Alcan & Cie, without prejudice to any action it might subsequently institute against
Dominador Monteverde, the former President of Imperial Vegetable Oil Co., Inc., arising
from the subject matter of this case. The counterclaim and supplemental counterclaim of
the latter defendant are likewise hereby dismissed for lack of merit. No pronouncement
as to costs.

The writ of preliminary attachment issued in this case as well as the order placing
Imperial Vegetable Oil Co., Inc. under receivership are hereby dissolved and set aside.[3]

65
Both IVO and Safic appealed to the Court of Appeals, jointly docketed as CA-G.R. CV No. 40820.

IVO raised only one assignment of error, viz:

THE TRIAL COURT ERRED IN HOLDING THAT THE ISSUANCE OF THE WRIT
OF PRELIMINARY ATTACHMENT WAS NOT THE MAIN CAUSE OF THE
DAMAGES SUFFERED BY DEFENDANT AND IN NOT AWARDING
DEFENDANT-APPELLANT SUCH DAMAGES.
For its part, Safic argued that:
THE TRIAL COURT ERRED IN HOLDING THAT IVO'S PRESIDENT,
DOMINADOR MONTEVERDE, ENTERED INTO CONTRACTS WHICH WERE
ULTRA VIRES AND WHICH DID NOT BIND OR MAKE IVO LIABLE.

THE TRIAL COURT ERRED IN HOLDING THAT SAFIC WAS UNABLE TO

PROVE THE DAMAGES SUFFERED BY IT AND IN NOT AWARDING SUCH
DAMAGES.

THE TRIAL COURT ERRED IN NOT HOLDING THAT IVO IS LIABLE UNDER
THE WASH OUT CONTRACTS.
On September 12, 1996, the Court of Appeals rendered the assailed Decision dismissing the appeals and
affirming the judgment appealed from in toto.[4]

Hence, Safic filed the instant petition for review with this Court, substantially reiterating the errors it
raised before the Court of Appeals and maintaining that the Court of Appeals grievously erred when:

1. it declared that the 1986 forward contracts (i.e., Contracts Nos. A601446 and
A60155 (sic) involving 2,000 long tons of crude coconut oil, and Contracts Nos.
A601297A/B, A601385, A601391, A601415, A601681. A601683 and
A601770A/B/C involving 4,500 tons of crude coconut oil) were unauthorized
acts of Dominador Monteverde which do not bind IVO in whose name they were
entered into. In this connection, the Court of Appeals erred when (i) it ignored its
own finding that (a) Dominador Monteverde, as IVO's President, had "an implied
authority to make any contract necessary or appropriate to the contract of the
ordinary business of the company"; and (b) Dominador Monteverde had validly
entered into similar forward contracts for and on behalf of IVO in 1985; (ii) it
distinguished between the 1986 forward contracts despite the fact that the Manila
RTC has struck down IVO's objection to the 1986 forward contracts (i.e. that
they were highly speculative paper trading which the IVO Board of Directors had
prohibited Dominador Monteverde from engaging in because it is a form of
gambling where the parties do not intend actual delivery of the coconut oil sold)
and instead found that the 1986 forward contracts were not gambling; (iii) it
relied on the testimony of Mr. Rodrigo Monteverde in concluding that the IVO
Board of Directors did not authorize its President, Dominador Monteverde, to
enter into the 1986 forward contracts; and (iv) it did not find IVO, in any case,

66
 estopped from denying responsibility for, and liability under, the 1986 forward
contracts because IVO had recognized itself bound to similar forward contracts
which Dominador Monteverde entered into (for and on behalf of IVO) with Safic
in 1985 notwithstanding that Dominador Monteverde was (like in the 1986
forward contracts) not expressly authorized by the IVO Board of Directors to
enter into such forward contracts;

2. it declared that Safic was not able to prove damages suffered by it, despite the
fact that Safic had presented not only testimonial, but also documentary, evidence
which proved the higher amount it had to pay for crude coconut oil (vis-à-vis the
contract price it was to pay to IVO) when IVO refused to deliver the crude
coconut oil bought by Safic under the 1986 forward contracts; and

3. it failed to resolve the issue of whether or not IVO is liable to Safic under the
wash out contracts involving Contracts Nos. A601446 and A60155 (sic), despite
the fact that Safic had properly raised the issue on its appeal, and the evidence
and the law support Safic's position that IVO is so liable to Safic.

In fine, Safic insists that the appellate court grievously erred when it did not declare that IVO's
President, Dominador Monteverde, validly entered into the 1986 contracts for and on behalf of IVO.

We disagree.

Article III, Section 3 [g] of the By-Laws[5] of IVO provides, among others, that -
Section 3. Powers and Duties of the President. - The President shall be elected by the
Board of Directors from their own number.

He shall have the following duties:

xxxxxxxxx

[g] Have direct and active management of the business and operation of the corporation,
conducting the same according to the orders, resolutions and instruction of the Board of
Directors and according to his own discretion whenever and wherever the same is not
expressly limited by such orders, resolutions and instructions.
It can be clearly seen from the foregoing provision of IVO's By-laws that Monteverde had no blanket
authority to bind IVO to any contract. He must act according to the instructions of the Board of
Directors. Even in instances when he was authorized to act according to his discretion, that discretion
must not conflict with prior Board orders, resolutions and instructions. The evidence shows that the
IVO Board knew nothing of the 1986 contracts[6] and that it did not authorize Monteverde to enter into
speculative contracts.[7] In fact, Monteverde had earlier proposed that the company engage in such
transactions but the IVO Board rejected his proposal.[8] Since the 1986 contracts marked a sharp
departure from past IVO transactions, Safic should have obtained from Monteverde the prior
authorization of the IVO Board. Safic can not rely on the doctrine of implied agency because before the
controversial 1986 contracts, IVO did not enter into identical contracts with Safic. The basis for agency

67
is representation and a person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent.[9] In the case of Bacaltos Coal Mines v. Court of Appeals,[10] we
elucidated the rule on dealing with an agent thus:
Every person dealing with an agent is put upon inquiry and must discover upon his peril
the authority of the agent. If he does not make such inquiry, he is chargeable with
knowledge of the agent's authority, and his ignorance of that authority will not be any
excuse. Persons dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal, to
ascertain not only the fact of the agency but also the nature and extent of the authority,
and in case either is controverted, the burden of proof is upon them to establish it.[11]
The most prudent thing petitioner should have done was to ascertain the extent of the authority of
Dominador Monteverde. Being remiss in this regard, petitioner can not seek relief on the basis of a
supposed agency.

Under Article 1898[12] of the Civil Code, the acts of an agent beyond the scope of his authority do not
bind the principal unless the latter ratifies the same expressly or impliedly. It also bears emphasizing
that when the third person knows that the agent was acting beyond his power or authority, the principal
can not be held liable for the acts of the agent. If the said third person is aware of such limits of
authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter
undertook to secure the principal's ratification.[13]

There was no such ratification in this case. When Monteverde entered into the speculative contracts
with Safic, he did not secure the Board's approval.[14] He also did not submit the contracts to the Board
after their consummation so there was, in fact, no occasion at all for ratification. The contracts were not
reported in IVO's export sales book and turn-out book.[15] Neither were they reflected in other books and
records of the corporation.[16] It must be pointed out that the Board of Directors, not Monteverde,
exercises corporate power.[17] Clearly, Monteverde's speculative contracts with Safic never bound IVO
and Safic can not therefore enforce those contracts against IVO.

To bolster its cause, Safic raises the novel point that the IVO Board of Directors did not set limitations
on the extent of Monteverde's authority to sell coconut oil. It must be borne in mind in this regard that a
question that was never raised in the courts below can not be allowed to be raised for the first time on
appeal without offending basic rules of fair play, justice and due process.[18] Such an issue was not
brought to the fore either in the trial court or the appellate court, and would have been disregarded by
the latter tribunal for the reasons previously stated. With more reason, the same does not deserve
consideration by this Court.

Be that as it may, Safic's belated contention that the IVO Board of Directors did not set limitations on
Monteverde's authority to sell coconut oil is belied by what appears on the record. Rodrigo Monteverde,
who succeeded Dominador Monteverde as IVO President, testified that the IVO Board had set down the
policy of engaging in purely physical trading thus:
Q. Now you said that IVO is engaged in trading. With whom does it usually trade its oil?
A. I am not too familiar with trading because as of March 1987, I was not yet an officer of the
corporation, although I was at the time already a stockholder, I think IVO is engaged in
trading oil.

68
Q. As far as you know, what kind of trading was IVO engaged with?
A. It was purely on physical trading.

Q. How did you know this?

A. As a stockholder, rather as member of [the] Board of Directors, I frequently visited the plant
and from my observation, as I have to supervise and monitor purchases of copras and also the
sale of the same, I observed that the policy of the corporation is for the company to engaged
(sic) or to purely engaged (sic)in physical trading.

Q. What do you mean by physical trading?

A. Physical Trading means - we buy and sell copras that are only available to us. We only have
to sell the available stocks in our inventory.

Q. And what is the other form of trading?

Atty. Fernando
No basis, your Honor.

Atty. Abad

Well, the witness said they are engaged in physical trading and what I am saying [is] if there
are any other kind or form of trading.

Court
Witness may answer if he knows.

Witness
A. Trading future[s] contracts wherein the trader commits a price and to deliver coconut oil in
the future in which he is yet to acquire the stocks in the future.

Atty. Abad
Q. Who established the so-called physical trading in IVO?
A. The Board of Directors, sir.

Atty. Abad.
Q. How did you know that?
A. There was a meeting held in the office at the factory and it was brought out and suggested by
our former president, Dominador Monteverde, that the company should engaged (sic) in
future[s] contract[s] but it was rejected by the Board of Directors. It was only Ador
Monteverde who then wanted to engaged (sic) in this future[s] contract[s].

Q. Do you know where this meeting took place?

69
A. As far as I know it was sometime in 1985.

Q. Do you know why the Board of Directors rejected the proposal of Dominador Monteverde
that the company should engaged (sic) in future[s] contracts?

Atty. Fernando
Objection, your Honor, no basis.

Court
Why don't you lay the basis?

Atty. Abad
Q. Were you a member of the board at the time?
A. In 1975, I am already a stockholder and a member.

Q. Then would [you] now answer my question?

Atty. Fernando
No basis, your Honor. What we are talking is about 1985.

Atty. Abad
Q. When you mentioned about the meeting in 1985 wherein the Board of Directors rejected the
future[s] contract[s], were you already a member of the Board of Directors at that time?
A. Yes, sir.

Q. Do you know the reason why the said proposal of Mr. Dominador Monteverde to engage in
future[s] contract[s] was rejected by the Board of Directors?
A. Because this future[s] contract is too risky and it partakes of gambling.

Q. Do you keep records of the Board meetings of the company?

A. Yes, sir.

Q. Do you have a copy of the minutes of your meeting in 1985?

A .Incidentally our Secretary of the Board of Directors, Mr. Elfren Sarte, died in 1987 or 1988,
and despite [the] request of our office for us to be furnished a copy he was not able to furnish
us a copy.[19]

xxxxxxxxx

Atty. Abad
Q. You said the Board of Directors were against the company engaging in future[s] contracts. As
far as you know, has this policy of the Board of Directors been observed or followed?

70
Witness
A. Yes, sir.

Q How far has this Dominador Monteverde been using the name of I.V.O. in selling future
contracts without the proper authority and consent of the company's Board of Directors?
A. Dominador Monteverde never records those transactions he entered into in connection with
these future[s] contracts in the company's books of accounts.

Atty. Abad
Q. What do you mean by that the future[s] contracts were not entered into the books of accounts
of the company?

Witness
A. Those were not recorded at all in the books of accounts of the company, sir.[20]

xxxxxxxxx

Q. What did you do when you discovered these transactions?

A. There was again a meeting by the Board of Directors of the corporation and that we agreed to
remove the president and then I was made to replace him as president.

Q. What else?
A. And a resolution was passed disowning the illegal activities of the former president.[21]
Petitioner next argues that there was actually no difference between the 1985 physical contracts and the
1986 futures contracts.

The contention is unpersuasive for, as aptly pointed out by the trial court and sustained by the appellate
court -
Rejecting IVO's position, SAFIC claims that there is no distinction between the 1985 and
1986 contracts, both of which groups of contracts were signed or authorized by IVO's
President, Dominador Monteverde. The 1986 contracts, SAFIC would bewail, were
similarly with their 1985 predecessors, forward sales contracts in which IVO had
undertaken to deliver the crude coconut oil months after such contracts were entered into.
The lead time between the closing of the deal and the delivery of the oil supposedly
allowed the seller to accumulate enough copra to mill and to build up its inventory and
so meet its delivery commitment to its foreign buyers. SAFIC concludes that the 1986
contracts were equally binding, as the 1985 contracts were, on IVO.

Subjecting the evidence on both sides to close scrutiny, the Court has found some
remarkable distinctions between the 1985 and 1986 contracts. x x x

1. The 1985 contracts were performed within an average of two months from the
date of the sale. On the other hand, the 1986 contracts were to be performed

71
 within an average of eight and a half months from the dates of the sale. All the
supposed performances fell in 1987. Indeed, the contract covered by Exhibit J
was to be performed 11 to 12 months from the execution of the contract. These
pattern (sic) belies plaintiff's contention that the lead time merely allowed for
milling and building up of oil inventory. It is evident that the 1986 contracts
constituted trading in futures or in mere expectations. In all likelihood, the
coconuts that were supposed to be milled for oil were not yet on their trees when
Dominador Monteverde sold the crude oil to SAFIC.

2. The mode of payment agreed on by the parties in their 1985 contracts was
uniformly thru the opening of a letter of credit LC by SAFIC in favor of IVO.
Since the buyer's letter of credit guarantees payment to the seller as soon as the
latter is able to present the shipping documents covering the cargo, its opening
usually mark[s] the fact that the transaction would be consummated. On the other
hand, seven out of the ten 1986 contracts were to be paid by telegraphic transfer
upon presentation of the shipping documents. Unlike the letter of credit, a mere
promise to pay by telegraphic transfer gives no assurance of [the] buyer's
compliance with its contracts. This fact lends an uncertain element in the 1986
contracts.

3. Apart from the above, it is not disputed that with respect to the 1985 contracts,
IVO faithfully complied with Central Bank Circular No. 151 dated April 1, 1963,
requiring a coconut oil exporter to submit a Report of Foreign Sales within
twenty-four (24) hours "after the closing of the relative sales contract" with a
foreign buyer of coconut oil. But with respect to the disputed 1986 contracts, the
parties stipulated during the hearing that none of these contracts were ever
reported to the Central Bank, in violation of its above requirement. (See
Stipulation of Facts dated June 13, 1990). The 1986 sales were, therefore suspect.

4. It is not disputed that, unlike the 1985 contacts, the 1986 contracts were never
recorded either in the 1986 accounting books of IVO or in its annual financial
statement for 1986, a document that was prepared prior to the controversy.
(Exhibits 6 to 6-0 and 7 to 7-I). Emelita Ortega, formerly an assistant of
Dominador Monteverde, testified that they were strange goings-on about the
1986 contract. They were neither recorded in the books nor reported to the
Central Bank. What is more, in those unreported cases where profits were made,
such profits were ordered remitted to unknown accounts in California, U.S.A., by
Dominador Monteverde.

xxxxxxxxx

Evidently, Dominador Monteverde made business for himself, using the name of IVO
but concealing from it his speculative transactions.

72
Petitioner further contends that both the trial and appellate courts erred in concluding that Safic was not
able to prove its claim for damages. Petitioner first points out that its wash out agreements with
Monteverde where IVO allegedly agreed to pay US$293,500.00 for some of the failed contracts was
proof enough and, second, that it presented purchases of coconut oil it made from others during the
period of IVO's default.

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

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

The records disclose that during the course of the proceedings in the trial court, IVO filed an amended
motion[22] for production and inspection of the following documents: a.] contracts of resale of coconut
oil that Safic bought from IVO; b.] the records of the pooling and sales contracts covering the oil from
such pooling, if the coconut oil has been pooled and sold as general oil; c.] the contracts of the purchase
of oil that, according to Safic, it had to resort to in order to fill up alleged undelivered commitments of
IVO; d.] all other contracts, confirmations, invoices, wash out agreements and other documents of sale
related to (a), (b) and (c). This amended motion was opposed by Safic.[23] The trial court, however, in its
September 16, 1988 Order,[24] ruled that:
From the analysis of the parties' respective positions, conclusion can easily be drawn
therefrom that there is materiality in the defendant's move: firstly, plaintiff seeks to
recover damages from the defendant and these are intimately related to plaintiff's alleged
losses which it attributes to the default of the defendant in its contractual commitments;
secondly, the documents are specified in the amended motion. As such, plaintiff would
entertain no confusion as to what, which documents to locate and produce considering
plaintiff to be (without doubt) a reputable going concern in the management of the affairs
which is serviced by competent, industrious, hardworking and diligent personnel; thirdly,
the desired production and inspection of the documents was precipitated by the
testimony of plaintiff's witness (Donald O'Meara) who admitted, in open court, that they
are available. If the said witness represented that the documents, as generally described,
are available, reason there would be none for the same witness to say later that they
could not be produced, even after they have been clearly described.

Besides, if the Court may additionally dwell on the issue of damages, the production and
inspection of the desired documents would be of tremendous help in the ultimate
resolution thereof. Plaintiff claims for the award of liquidated or actual damages to the
tune of US$391,593.62 which, certainly, is a huge amount in terms of pesos, and which

73
 defendant disputes. As the defendant cannot be precluded in taking exceptions to the
correctness and validity of such claim which plaintiff's witness (Donald O'Meara)
testified to, and as, by this nature of the plaintiff's claim for damages, proof thereof is a
must which can be better served, if not amply ascertained by examining the records of
the related sales admitted to be in plaintiff's possession, the amended motion for
production and inspection of the defendant is in order.

The interest of justice will be served best, if there would be a full disclosure by the
parties on both sides of all documents related to the transactions in litigation.
Notwithstanding the foregoing ruling of the trial court, Safic did not produce the required documents,
prompting the court a quo to assume that if produced, the documents would have been adverse to Safic's
cause. In its efforts to bolster its claim for damages it purportedly sustained, Safic suggests a substitute
mode of computing its damages by getting the average price it paid for certain quantities of coconut oil
that it allegedly bought in 1987 and deducting this from the average price of the 1986 contracts. But this
mode of computation if flawed because: 1.] it is conjectural since it rests on average prices not on actual
prices multiplied by the actual volume of coconut oil per contract; and 2.] it is based on the unproven
assumption that the 1987 contracts of purchase provided the coconut oil needed to make up for the
failed 1986 contracts. There is also no evidence that Safic had contracted to supply third parties with
coconut oil from the 1986 contracts and that Safic had to buy such oil from others to meet the
requirement.

Along the same vein, it is worthy to note that the quantities of oil covered by its 1987 contracts with
third parties do not match the quantities of oil provided under the 1986 contracts. Had Safic produced
the documents that the trial court required, a substantially correct determination of its actual damages
would have been possible. This, unfortunately, was not the case. Suffice it to state in this regard that
"[T]he power of the courts to grant damages and attorney's fees demands factual, legal and equitable
justification; its basis cannot be left to speculation and conjecture."[25]

WHEREFORE, in view of all the foregoing, the petition is DENIED for lack of merit.

SO ORDERED.

74
 G.R. No. 18058, January 16, 1923
FABIOLA SEVERINO, PLAINTIFF AND APPELLEE, VS.
GUILLERMO SEVERINO, DEFENDANT AND APPELLANT.
FELICITAS VILLANUEVA, INTERVENOR AND APPELLEE.
DECISION

OSTRAND, J.:

This is an action brought by the plaintiff as the alleged natural daughter and sole heir of
one Melecio Severino, deceased, to compel the defendant Guillermo Severino to convey
to her four parcels of land described in the complaint, or in default thereof to pay her the
sum of P800,000 in damages for wrongfully causing said land to be registered in his
own name. Felicitas Villanueva, in her capacity as administratrix of the estate of
Melecio Severino, has filed a complaint in intervention claiming the same relief as the
original plaintiff, except in so far as she prays that the conveyance be made, or damages
paid, to the estate instead of to the plaintiff Fabiola Severino. The defendant answered
both complaints with a general denial.

The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the acknowledged
natural child of the said Melecio Severino and ordering the defendant to convey 428 hectares of the land
in question to the intervenor as administratrix of the estate of the said Melecio Severino, to deliver to
her the proceeds in his possession of a certain mortgage placed thereon by him and to pay the costs.
From this judgment only the defendant appeals.

The land described in the complaint forms one continuous tract and consists of lots Nos. 827, 828, 834,
and 874 of the cadaster of Silay, Province of Occidental Negros, which measure, respectively, 61
hectares, 74 ares, and 79 centiares; 76 hectares, 34 ares, and 79 centiares; 52 hectares, 86 ares, and 60
centiares and 608 hectares, 77 ares and 28 centiares, or a total of 799 hectares, 75 ares, and 46 centiares.

The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some 428 hectares
of the land were recorded in the Mortgage Law Register in his name in the year 1901 by virtue of
possessory information proceedings instituted on the 9th day of May of that year by his brother Agapito
Severino in his behalf; that during the lifetime of Melecio Severino the land was worked by the
defendant, Guillermo Severino, his brother, as administrator for and on behalf of the said Melecio
Severino; that after Melecio's death, the defendant Guillermo Severino continued to occupy the land;
that in 1916 a parcel survey was made of the lands in the municipality of Silay, including the land here
in question, and cadastral proceedings were instituted for the registration of the land titles within the
surveyed area; that in the cadastral proceedings the land here in question was described as four separate
lots numbered as above stated; that Roque Hofileña, as lawyer for Guillermo Severino, filed answers in
behalf of the latter in said proceedings claiming the lots mentioned as the property of his client; that no

75
opposition was presented in the proceedings to the claims of Guillermo Severino and the court therefore
decreed the title in his favor, in pursuance of which decree certificates of title were issued to him in the
month of March, 1917.

It may be further observed that at the time of the cadastral proceedings the plaintiff Fabiola Severino
was a minor; that Guillermo Severino did not appear personally in the proceedings and did not there
testify; that the only testimony in support of his claim was that of his attorney Hofileña, who swore that
he knew the land and that he also knew that Guillermo Severino inherited the land from his father and
that he, by himself, and through his predecessors in interest, had possessed the land for thirty years.

The appellant presents the following nine assignments of error:

"1. The trial court erred in admitting the evidence that was offered by plaintiff in order to
establish the fact that said plaintiff was the legally acknowledged natural child of the
deceased Melecio Severino.

"2. The trial court erred in finding that, under the evidence presented, plaintiff was the
legally acknowledged natural child of Melecio Severino.

"3. The trial court erred in rejecting the evidence offered by defendant to establish the
absence of fraud on his part in securing title to the lands in Nacayao.

"4. The trial court erred in concluding that the evidence adduced by plaintiff and
intervenor established that defendant was guilty of fraud in procuring title to the lands in
question in his name.

"5. The trial court erred in declaring that the land that was formerly placed in the name of
Melecio Severino had an extent of either 434 or 428 hectares at the time of his death.

"6. The trial court erred in declaring that the value of the land in litigation is P500 per
hectare.

"7. The trial court erred in granting the petition of the plaintiff for an attachment without
first giving the defendant an opportunity to be heard.

"8. The trial court erred in ordering the conveyance of 428 hectares of land by defendant
to the administratrix.

"9. The trial court erred in failing or refusing to make any finding as to the defendant's
contention that the petition for attachment was utterly devoid of any reasonable ground."

In regard to the first two assignments of error, we agree with the appellant that the trial court erred in
making a declaration in the present case as to the recognition of Fabiola Severino as the natural child of

76
Melecio Severino. We have held in the case of Briz vs. Briz and Remigio (43 Phil., 763), that "The
legitimate heirs or kin of a deceased person who would be prejudiced by a declaration that another
person is entitled to recognition as the natural child of such decedent, are necessary and indispensable
parties to any action in which a judgment declaring the right to recognition is sought." In the present
action only the widow, the alleged natural child, and one of the brothers of the deceased are parties; the
other potential heirs have not been included. But, inasmuch as the judgment appealed from is in favor of
the intervenor and not of the plaintiff, except to the extent of holding that the latter is a recognized
natural child of the deceased, this question is, from the view we take of the case, of no importance in its
final disposition. We may say, however, in this connection, that the point urged in appellant's brief that
it does not appear affirmatively from the evidence that, at the time of the conception of Fabiola, her
mother was a single woman, may be sufficiently disposed of by a reference to article 130 of the Civil
Code and subsection 1 of section 334 of the Code of Civil Procedure which create the presumption that
a child born out of wedlock is natural rather than illegitimate. The question of the status of the plaintiff
Fabiola Severino and her right to share in the inheritance may, upon notice to all the interested parties,
be determined in the probate proceedings for the settlement of the estate of the deceased.

The fifth assignment of error relates to the finding of the trial court that the land belonging to Melecio
Severino had an area of 428 hectares. The appellant contends that the court should have found that there
were only 324 hectares inasmuch as one hundred hectares of the original area were given to Melecio's
brother Donato during the lifetime of the father Ramon Severino. As it appears that Ramon Severino
died in 1896 and that the possessory information proceedings, upon which the finding of the trial court
as to the area of the land is principally based, were not instituted until the year 1901, we are not
disposed to disturb the conclusions of the trial court on this point. Moreover, in the year 1913, the
defendant Guillermo Severino testified under oath, in the case of Montelibano vs. Severino, that the
area of the land owned by Melecio Severino and of which he (Guillermo) was the administrator,
embraced an area of 424 hectares. The fact that Melecio Severino, in declaring the land for taxation in
1906, stated that the area was only 324 hectares and 60 ares while entitled to some weight is not
conclusive and is not sufficient to overcome the positive statement of the defendant and the recitals in
the record of the possessory information proceedings.

The sixth assignment of error is also of minor importance in view of the fact that in the dispositive part
of the decision of the trial court, the only relief given is an order requiring the appellant to convey to the
administratrix the land in question, together with such parts of the proceeds of the mortgage thereon as
remain in his hands. We may say furher that the court's estimate of the value of the land does not appear
unreasonable and that, upon the evidence before us, it will not be disturbed.

The seventh and ninth assignments of error relate to the ex parte granting by the trial court of a
preliminary attachment in the case and the refusal of the court to dissolve the same. We find no merit
whatever in these assignments and a detailed discussion of them is unnecessary.

The third, fourth, and eighth assignments of error involve the vital points in the case, are inter-related
and may be conveniently considered together.

77
The defendant argues that the gist of the instant action is the alleged fraud on his part in causing the
land in question to be registered in his name; that the trial court therefore erred in rejecting his offer of
evidence to the effect that the land was owned in common by all the heirs of Ramon Severino and did
not belong to Melecio Severino exclusively; that such evidence, if admitted, would have shown that he
did not act with fraudulent intent in taking title to the land; that the trial court erred in holding him
estopped from denying Melecio's title; that more than a year having elapsed since the entry of the final
decree adjudicating the land to the defendant, said decree cannot now be reopened; that the ordering of
the defendant to convey the decreed land to ,the administratrix is, for all practical purposes, equivalent
to the reopening of the decree of registration; that under section 38 of the Land Registration Act the
defendant has an indefeasible title to the land; and that the question of ownership of the land being thus
judicially settled, the question as to the previous relations between the parties cannot now be inquired
into.

Upon no point can the defendant's contentions be sustained. It may first be observed that this is not an
action under section 38 of the Land Registration Act to reopen or set aside a decree; it is an action in
personam against an agent to compel him to return, or retransfer, to the heirs or the estate of its
principal, the property committed to his custody as such agent, to execute the necessary documents of
conveyance to effect such retransfer or, in default thereof, to pay damages.

That the defendant came into the possession of the property here in question as the agent of the
deceased Melecio Severino in the administration of the property, cannot be successfully disputed. His
testimony in the case of Montelibano vs. Severino (civil case No. 902 of the Court of First Instance of
Occidental Negros and which forms a part of the evidence in the present case) is, in fact, conclusive in
this respect. He there stated under oath that from the year 1902 up to the time the testimony was given,
in the year 1913, he had been continuously in charge and occupation of the land as the encargado or
administrator of Melecio Severino; that he had always known the land as the property of Melecio
Severino; and that the possession of the latter had been peaceful, continuous, and exclusive. In his
answer filed in the same case, the same defendant, through his attorney, disclaimed all personal interest
in the land and averred that it was wholly the property of his brother Melecio.

Neither is it disputed that the possession enjoyed by the defendant at the time of obtaining his decree
was of the same character as that held during the lifetime of his brother, except in so far as shortly
before the trial of the cadastral case the defendant had secured from his brothers and sisters a
relinquishment in his favor of such rights as they might have in the land.

The relations of an agent to his principal are fiduciary and it is an elementary and very old rule that in
regard to property forming the subject-matter of the agency, he is estopped from acquiring or asserting a
title adverse to that of the principal. His position is analogous to that of a trustee and he cannot
consistently, with the principles of good faith, be allowed to create in himself an interest in opposition
to that of his principal or cestui que trust. Upon this ground, and substantially in harmony with the
principles of the Civil Law (see sentence of the supreme court of Spain of May 1, 1900), the English
Chancellors held that in general whatever a trustee does for the advantage of the trust estate inures to
the benefit of the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte

78
Hughes, 6 Ves., 617; Ex parte James, 8 Ves., 337; Oliver vs. Court, 8 Price, 127.) The same principle
has been consistently adhered to in so many American cases and is so well established that exhaustive
citations of authorities are superfluous and we shall therefore limit ourselves to quoting a few of the
numerous judicial expressions upon the subject. The principle is well stated in the case of Gilbert vs.
Hewetson (79 Minn., 326):

"A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations
respecting property or persons, is utterly disabled from acquiring for his own benefit the
property committed to his custody for management. This rule is entirely independent of
the fact whether any fraud has intervened. No fraud in fact need be shown, and no excuse
will be heard from the trustee. It is to avoid the necessity of any such inquiry that the rule
takes so general a form. The rule stands on the moral obligation to refrain from placing
one's self in positions which ordinarily excite conflicts between self-interest and integrity.
It seeks to remove the temptation that might arise out of such a relation to serve one's
self-interest at the expense of one's integrity and duty to another, by making it impossible
to profit by yielding to temptation. It applies universally to all who come within its
principle."

In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court, speaking through
Chief Justice Marshall, said:

"But Massie, the agent of Oneale, has entered and surveyed a portion of that land for
himself and obtained a patent for it in his own name. According to the clearest and best
established principles of equity, the agent who so acts becomes a trustee for his principal.
He cannot hold the land under an entry for himself otherwise than as trustee for his
principal."

In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court, after examining the
authorities, said:

"The substance of these authorities is that, wherever a person obtains the legal title to
land by any artifice or concealment, or by making use of facilities intended for the
benefit of another, a court of equity will impress upon the land so held by him a trust in
favor of the party who is justly entitled to them, and will order the trust executed by
decreeing their conveyance to the party in whose favor the trust was created." (Citing
Bank of Metropolis vs. Guttschlick, 14 Pet., 19, 31; Moses vs. Murgatroyd, 1 Johns. Ch.,
119; Cumberland vs. Codrington, 3 Johns. Ch., 229, 261; Neilson vs. Blight, 1 Johns.
Cas., 205; Weston vs. Barker, 12 Johns., 276.)

The same doctrine has also been adopted, in the Philippines. In the case of Uy Aloc vs. Cho Jan Ling
(19 Phil., 202), the facts are stated by the court as follows:

79
 "From the facts proven at the trial it appears that a number of Chinese merchants raised a
fund by voluntary subscription with which they purchased a valuable tract of land and
erected a large building to be used as a sort of club house for the mutual benefit of the
subscribers to the fund. The subscribers organized themselves into an irregular
association, which had no regular articles of association, and was not incorporated or
registered in the commercial registry or elsewhere. The association not having any
existence as a legal entity, it was agreed to have the title to the property placed in the
name of one of the members, the defendant, Cho Jan Ling, who on his part accepted the
trust, and agreed to hold the property as the agent of the members of the association.
After the club building was completed with the funds of the members of the association,
Cho Jan Ling collected some P25,000 in rents for which he failed and refused to account,
and upon proceedings being instituted to compel him to do so, he set up title in himself
to the club property as well as to the rents accruing therefrom, falsely alleging that he
had bought the real estate and constructed the building with his own funds, and denying
the claims of the members of the association that it was their funds which had been used
for that purpose."

The decree of the court provided, among other things, for the conveyance of the club house and the land
on which it stood jfrom the defendant, Cho Jan Ling, in whose name it was registered, to the members
of the association. In affirming the decree, this court said:

"In the case at bar the legal title of the holder of the registered title is not questioned; it is
admitted that the members of the association voluntarily obtained the inscription in the
name of Cho Jan Ling, and that they had no right to have that inscription cancelled; they
do not seek such cancellation, and on the contrary they allege and prove that the duly
registered legal title to the property is in Cho Jan Ling, but they maintain, and we think
that they rightly maintain, that he holds it under an obligation, both express and implied,
to deal with it exclusively for the benefit of the members of the association, and subject
to their will."

In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho, took title to
the land in his own name, while acting as agent for the municipality. The court said:

"There have been a number of cases before this court in which a title to real property was
acquired by a person in his own name, while acting under a fiduciary capacity, and who
afterwards sought to take advantage of the confidence reposed in him by claiming the
ownership of the property for himself. This court has invariably held such evidence
competent as between the fiduciary and the cestui que trust.

* * * * * * *

"What judgment ought to be entered in this case? The court below simply absolved the
defendant from the complaint. The defendant municipality does not ask for a cancellation

80
 of the deed. On the contrary, the deed is relied upon to supplement the oral evidence
showing that the title to the land is in the defendant. As we have indicated in Consunji vs.
Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan Ling, 19 Phil., 202, the proper procedure in
such a case, so long as the rights of innocent third persons have not intervened, is to
compel a conveyance to the rightful owner. This ought and can be done under the issues
raised and the proof presented in the case at bar."

The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.

As will be seen from the authorities quoted, an agent is not only estopped from denying his principal's
title to the property, but he is also disabled from acquiring interests therein adverse to those of his
principal during the term of the agency. But the defendant argues that his title has become res
adjudicata through the decree of registration and cannot now be disturbed.

This contention may, at first sight, appear to possess some force, but on closer examination it proves
untenable. The decree of registration determined the legal title to the land as of the date of the decree; as
to that there is no question. That, under section 38 of the Land Registration Act, this decree became
conclusive after one year from the date of the entry is not disputed and no one attempts to disturb the
decree or the proceedings upon which it is based; the plaintiff in intervention merely contends that in
equity the legal title so acquired inured to the benefit of the estate of Melecio Severino, the defendant's
principal and cestui que trust and asks that this superior equitable right be made effective by compelling
the defendant, as the holder of the legal title, to transfer it to the estate.

We have already shown that before the issuance of the decree of registration it was the undoubted duty
of the defendant to restore the property committed to his custody to his principal, or to the latter's estate,
and that the principal had a right of action in personam to enforce the performance of this duty and to
compel the defendant to execute the necessary conveyance to that effect. The only question remaining
for consideration is, therefore, whether the decree of registration extinguished this personal right of
action.

In Australia and New Zealand, under statutes in this respect similar to ours, courts of equity exercise
general jurisdiction in matters of fraud and error with reference to Torrens registered lands, and giving
attention to the special provisions of the Torrens acts, will issue such orders and directions to all the
parties to the proceedings as may seem just and proper under the circumstances. They may order parties
to make deeds of conveyance and if the order is disobeyed, they may cause proper conveyances to be
made by a Master in Chancery or Commissioner in accordance with the practice in equity (Hogg,
Australian Torrens System, p. 847).

In the United States courts have even gone so far in the exercise of their equity jurisdiction as to set
aside final decrees after the expiration of the statutory period of limitation for the reopening of such
decrees (Baart vs. Martin, 99 Minn., 197). But, considering that equity follows the law and that our
statutes expressly prohibit the reopening of a decree after one year from the date of its entry, this

81
practice would probably be out of question here, especially so as the ends of justice may be attained by
other equally effective, and less objectionable means.

Turning to our own Land Registration Act, we find no indication there of an intention to cut off,
through the issuance of a decree of registration, equitable rights or remedies such as those here in
question. On the contrary, section 70 of the Act provides:

"Registered lands and ownership therein, shall in all respects be subject to the same
burdens and incidents attached by law to unregistered land. Nothing contained in this Act
shall in any way be construed to relieve registered land or the owners thereof from any
rights incident to the relation of husband and wife, or from liability to attachment on
mesne process or levy on execution, or from liability to any lien of any description
established by law on land and the buildings thereon, or the interest of the owner in such
land or buildings, or to change the laws of descent, or the rights of partition between
coparceners, joint tenants and other cotenants, or the right to take the same by eminent
domain, or to relieve such land from liability to be appropriated in any lawful manner for
the payment of debts, or to change or affect in any other way any other rights or
liabilities created by Jaw and applicable to unregistered land, except as otherwise
expressly provided in this Act or in the amendments hereof."

Section 102 of the Act, after providing for actions for damages in which the Insular Treasurer, as the
Custodian of the Assurance Fund is a party, contains the following proviso:

"Provided, however, That nothing in this Act shall be construed to deprive the plaintiff of
any action which he may have against any person for such loss or damage or deprivation
of land or of any estate or interest therein without joining the Treasurer of the Philippine
Archipelago as a defendant therein."

That an action such as the present one is covered by this proviso can hardly admit of doubt. Such was
also the view taken by this court in the case of Medina Ong-Quingco vs. Imaz and Warner, Barnes & Co.
(27 Phil., 314), in which the plaintiff was seeking to take advantage of his possession of a certificate of
title to deprive the defendant of land included in that certificate and sold to him by the former owner
before the land was registered. The court decided adversely to plaintiff and in so doing said:

"As between them no question as to the indefeasibility of a Torrens title could arise.
Such an action could have been maintained at any time while the property remained in
the hands of the purchaser. The peculiar force of a Torrens title would have been brought
into play only when the purchaser had sold to an innocent third person for value the
lands described in his conveyance. * * * Generally speaking, as between the vendor and
the purchaser the same rights and remedies exist with reference to land registered under
Act No. 496, as exist in relation to land not so registered."

82
In Cabanos vs. Register of Deeds of Laguna and Obiñana (40 Phil., 620), it was held that, while a
purchaser of land under a pacto de retro cannot institute a real action for the recovery thereof where the
vendor under said sale has caused such lands to be registered in his name without said vendee's consent,
yet he may have his personal action based on.the contract of sale to compel the execution of an
unconditional deed for the said lands when the period for repurchase has passed.

Torrens titles being based on judicial decrees there is, of course, a strong presumption in favor of their
regularity or validity, and in order to maintain an action such as the present the proof as to the fiduciary
relation of the parties and of the breach of trust must be clear and convincing. Such proof isf as we have
seen, not lacking in this case.

But once the relation and the breach of trust on the part of the fiduciary is thus established, there is no
reason, neither practical nor legal, why he should not be compelled to make such reparation as may lie
within his power for the injury caused by his wrong, and as long as the land stands registered in the
name of the party who is guilty of the breach of trust and no rights of innocent third parties are
adversely, affected, there can be no reason why such reparation should not, in the proper case, take the
form of a conveyance or transfer of the title to the cestui que trust. No reasons of public policy demand
that a person guilty of fraud or breach of trust be permitted to use his certificate of title as a shield
against the consequences of his own wrong.

The judgment of the trial court is in accordance with the facts and the law. In order to prevent
unnecessary delay and further litigation it may, however, be well to attach some additional directions to
its dispositive clauses. It will be observed that lots Nos. 827, 828, and 834 of a total area of
approximately 191 hectares, lie wholly within the area to be conveyed to the plaintiff in intervention
and these lots may, therefore, be so conveyed without subdivision. The remaining 237 hectares to be
conveyed lie within the western part of lot No. 874 and before a conveyance of this portion can be
effected a subdivision of that lot must be made and a technical description of the portion to be conveyed,
as well as of the remaining portion of the lot, must be prepared. The subdivision shall be made by an
authorized surveyor and in accordance with the provisions of Circular No. 31 of the General Land
Registration Office, and the subdivision and technical descriptions shall be submitted to the Chief of
that office for his approval. Within thirty days after being notified of the approval of said subdivision
and technical descriptions, the defendant Guillenmo Severino shall execute good and sufficient deed or
deeds of conveyance in favor of the administratrix of the estate of the deceased Melecio Severino for
said lots Nos. 827, 828, 834, and the 237 hectares segregated from the western part of lot No. 874 and
shall deliver to the register of deeds his duplicate certificates of title for all of the four lots in order that
said certificates may be cancelled and new certificates issued. The cost of the subdivision and the fees
of the register of deeds will be paid by the plaintiff in intervention. It is so ordered.

With these additional directions the judgment appealed from is affirmed, with the costs against the
appellant. The right of the plaintiff Fabiola Severino to establish in the probate proceedings of the estate
of Melecio Severino her status as his recognized natural child is reserved.

83
 G.R. No. 151319, November 22, 2004
MANILA MEMORIAL PARK CEMETERY, INC., PETITIONER, VS.
PEDRO L. LINSANGAN, RESPONDENT.
DECISION

TINGA, J,:

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

This is a petition for review assailing the Decision[1] of the Court of Appeals dated 22
June 2001, and its Resolution[2] dated 12 December 2001 in CA G.R. CV No. 49802
entitled “Pedro L. Linsangan v. Manila Memorial Cemetery, Inc. et al.,” finding Manila
Memorial Park Cemetery, Inc. (MMPCI) jointly and severally liable with Florencia C.
Baluyot to respondent Atty. Pedro L. Linsangan.

The facts of the case are as follows:

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

Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued
Contract No. 28660, a new contract covering the subject lot in the name of the latter
instead of old Contract No. 25012. Atty. Linsangan protested, but Baluyot assured him
that he would still be paying the old price of P95,000.00 with P19,838.00 credited as full
down payment leaving a balance of about P75,000.00.[5]

Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15),
Block 83, Garden Estate I denominated as Contract No. 28660 and the Official Receipt
No. 118912 dated 6 April 1985 for the amount of P19,838.00. Contract No. 28660 has a
listed price of P132,250.00. Atty. Linsangan objected to the new contract price, as the
same was not the amount previously agreed upon. To convince Atty. Linsangan,
Baluyot executed a document[6] confirming that while the contract price is P132,250.00,

84
 Atty. Linsangan would pay only the original price of P95,000.00.

The document reads in part:

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

Prepared by:

(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager
Holy Cross Memorial Park
4/18/85

Dear Atty. Linsangan:

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

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

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

For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed a
Complaint[7] for Breach of Contract and Damages against the former.

Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was

85
cancelled conformably with the terms of the contract[8] because of non-payment of arrearages.[9]
MMPCI stated that Baluyot was not an agent but an independent contractor, and as such was not
authorized to represent MMPCI or to use its name except as to the extent expressly stated in the Agency
Manager Agreement.[10] Moreover, MMPCI was not aware of the arrangements entered into by Atty.
Linsangan and Baluyot, as it in fact received a down payment and monthly installments as indicated in
the contract.[11] Official receipts showing the application of payment were turned over to Baluyot whom
Atty. Linsangan had from the beginning allowed to receive the same in his behalf. Furthermore,
whatever misimpression that Atty. Linsangan may have had must have been rectified by the Account
Updating Arrangement signed by Atty. Linsangan which states that he “expressly admits that Contract
No. 28660 ‘on account of serious delinquency…is now due for cancellation under its terms and
conditions.’’’[12]

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

The dispositive portion of the decision reads:

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

The cross claim of defendant Manila Memorial Cemetery Incorporated as against

defendant Baluyot is GRANTED up to the extent of the costs.

SO ORDERED.[15]
MMPCI appealed the trial court’s decision to the Court of Appeals.[16] It claimed that Atty. Linsangan is
bound by the written contract with MMPCI, the terms of which were clearly set forth therein and read,
understood, and signed by the former.[17] It also alleged that Atty. Linsangan, a practicing lawyer for
over thirteen (13) years at the time he entered into the contract, is presumed to know his contractual
obligations and is fully aware that he cannot belatedly and unilaterally change the terms of the contract
without the consent, much less the knowledge of the other contracting party, which was MMPCI. And
in this case, MMPCI did not agree to a change in the contract and in fact implemented the same
pursuant to its clear terms. In view thereof, because of Atty. Linsangan’s delinquency, MMPCI validly
cancelled the contract.

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

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therein.[18]

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

The Court of Appeals affirmed the decision of the trial court. It upheld the trial court’s finding that
Baluyot was an agent of MMPCI at the time the disputed contract was entered into, having represented
MMPCI’s interest and acting on its behalf in the dealings with clients and customers. Hence, MMPCI is
considered estopped when it allowed Baluyot to act and represent MMPCI even beyond her authority.[20]
The appellate court likewise found that the acts of Baluyot bound MMPCI when the latter allowed the
former to act for and in its behalf and stead. While Baluyot’s authority “may not have been expressly
conferred upon her, the same may have been derived impliedly by habit or custom, which may have
been an accepted practice in the company for a long period of time.”[21] Thus, the Court of Appeals
noted, innocent third persons such as Atty. Linsangan should not be prejudiced where the principal
failed to adopt the needed measures to prevent misrepresentation. Furthermore, if an agent
misrepresents to a purchaser and the principal accepts the benefits of such misrepresentation, he cannot
at the same time deny responsibility for such misrepresentation.[22] Finally, the Court of Appeals
declared:
There being absolutely nothing on the record that would show that the court a quo
overlooked, disregarded, or misinterpreted facts of weight and significance, its factual
findings and conclusions must be given great weight and should not be disturbed by this
Court on appeal.

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

SO ORDERED.[23]
MMPCI filed its Motion for Reconsideration,[24] but the same was denied for lack of merit.[25]

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

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

87
MMPCI allowed Baluyot to act as though she had full powers to be held solidarily liable with the
latter.[29]

We find for the petitioner MMPCI.

The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is
limited to reviewing only errors of law, not fact, unless the factual findings complained of are devoid of
support by the evidence on record or the assailed judgment is based on misapprehension of facts.[30] In
BPI Investment Corporation v. D.G. Carreon Commercial Corporation,[31] this Court ruled:
There are instances when the findings of fact of the trial court and/or Court of Appeals
may be reviewed by the Supreme Court, such as (1) when the conclusion is a finding
grounded entirely on speculation, surmises and conjectures; (2) when the inference made
is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the findings are contrary to those of the trial court; (8)
when the findings of fact are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in the petitioners’
main and reply briefs are not disputed by the respondents; and (10) the findings of fact of
the Court of Appeals are premised on the supposed absence of evidence and contradicted
by the evidence on record.[32]
In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the
case, as well as made conclusions devoid of evidentiary support, hence we review its findings of fact.

By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.[33] Thus, the elements
of agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is
the execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and
not for himself; and (iv) the agent acts within the scope of his authority.[34]

In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency
Manager Agreement; an agency manager such as Baluyot is considered an independent contractor and
not an agent.[35] However, in the same contract, Baluyot as agency manager was authorized to solicit
and remit to MMPCI offers to purchase interment spaces belonging to and sold by the latter.[36]
Notwithstanding the claim of MMPCI that Baluyot was an independent contractor, the fact remains that
she was authorized to solicit solely for and in behalf of MMPCI. As properly found both by the trial
court and the Court of Appeals, Baluyot was an agent of MMPCI, having represented the interest of the
latter, and having been allowed by MMPCI to represent it in her dealings with its clients/prospective
buyers.

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

Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on

88
forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms
and, when signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties.

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

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

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

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

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

The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with
whom the agent contracted is aware of the limits of the powers granted by the principal.
In this case, however, the agent is liable if he undertook to secure the principal’s
ratification.

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

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

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies
them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own
unauthorized acts. Moreover, the principal must have knowledge of the acts he is to ratify.[44]

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

No ratification can be implied in the instant case.

A perusal of Baluyot’s Answer[48] reveals that the real arrangement between her and Atty. Linsangan
was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the
counterpart amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the
contract. Thus, every time an installment falls due, payment was to be made through a check from Atty.

90
Linsangan for P1,800.00 and a cash component of P1,455.00 from Baluyot.[49] However, it appears that
while Atty. Linsangan issued the post-dated checks, Baluyot failed to come up with her part of the
bargain. This was supported by Baluyot’s statements in her letter[50] to Mr. Clyde Williams, Jr., Sales
Manager of MMPCI, two days after she received the copy of the Complaint. In the letter, she admitted
that she was remiss in her duties when she consented to Atty. Linsangan’s proposal that he will pay the
old price while the difference will be shouldered by her. She likewise admitted that the contract
suffered arrearages because while Atty. Linsangan issued the agreed checks, she was unable to give her
share of P1,455.00 due to her own financial difficulties. Baluyot even asked for compassion from
MMPCI for the error she committed.

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

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

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

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

91
on this score.

Likewise, this Court does not find favor in the Court of Appeals’ findings that “the authority of
defendant Baluyot may not have been expressly conferred upon her; however, the same may have been
derived impliedly by habit or custom which may have been an accepted practice in their company in a
long period of time.” A perusal of the records of the case fails to show any indication that there was
such a habit or custom in MMPCI that allows its agents to enter into agreements for lower prices of its
interment spaces, nor to assume a portion of the purchase price of the interment spaces sold at such
lower price. No evidence was ever presented to this effect.

As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660
between MMPCI and by Atty. Linsangan for the purchase of an interment space in the former’s
cemetery. The other is the agreement between Baluyot and Atty. Linsangan for the former to shoulder
the amount P1,455.00, or the difference between P95,000.00, the original price, and P132,250.00, the
actual contract price.

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

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

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

However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages
from Baluyot, not as an agent of MMPCI, but in view of the latter’s breach of their separate
agreement. To review, Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangan’s
P1,800.00 to complete the monthly installment payment under the contract, which, by her own
admission, she was unable to do due to personal financial difficulties. It is undisputed that Atty.

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Linsangan issued the P1,800.00 as agreed upon, and were it not for Baluyot’s failure to provide the
balance, Contract No. 28660 would not have been cancelled. Thus, Atty. Linsangan has a cause of
action against Baluyot, which he can pursue in another case.

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

SO ORDERED.

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