After trial the court a quo rendered judgment with the following dispositive portion:

G.R. No. L-24332 January 31, 1978

A.
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.

On Plaintiffs Complaint

(1)
Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso share of
Concepcion Rallos in the property in question, Lot 5983 of the Cadastral Survey of Cebu is
concerned;

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.
MUOZ PALMA, J.:

(2)
Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No. 12989
covering Lot 5983 and to issue in lieu thereof another in the names of FELIX GO CHAN & SONS
REALTY CORPORATION and the Estate of Concepcion Rallos in the proportion of one-half (1/2) share
each pro-indiviso;

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion
Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of attorney which the
principal had executed in favor. The administrator of the estate of the went to court to have the sale
declared uneanforceable and to recover the disposed share. The trial court granted the relief prayed for,
but upon appeal the Court of Appeals uphold the validity of the sale and the complaint.

(3)
Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an undivided
one-half (1/2) share of Lot 5983 to the herein plaintiff;

Hence, this Petition for Review on certiorari.

(5)

Ordering both defendants to pay the costs jointly and severally.

The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and
registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu
covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters
executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for
and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955,
Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go
Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the
Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No.
12989 was issued in the named of the vendee.

B.

On GO CHANTS Cross-Claim:

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a
complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the
sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said
share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan &
Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and
the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way
of attorney's fees and payment of costs of suit. Named party defendants were Felix Go Chan & Sons
Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was
dropped from the complaint. The complaint was amended twice; defendant Corporation's Answer
contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint
against his sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his
sister Gerundia died and they were substituted by the respective administrators of their estates.

C.
On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon
Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia Rallos:

PAT CASE: AGENCY

(4)
Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to
pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and

(1)
Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos,
to pay to defendant Felix Co Chan & Sons Realty Corporation the sum of P5,343.45, representing the
price of one-half (1/2) share of lot 5983;
(2)
Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay
in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation the sum of
P500.00.

(1)
Dismissing the third-party complaint without prejudice to filing either a complaint against the
regular administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia
Rallos, covering the same subject-matter of the third-party complaint, at bar. (pp. 98-100, Record on
Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the
foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The
appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the
appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon Rallos,
moved for a reconsider of the decision but the same was denied in a resolution of March 4, 1965. 2
Page 1 of 150

What is the legal effect of an act performed by an agent after the death of his principal? Applied more
particularly to the instant case, We have the query. is the sale of the undivided share of Concepcion
Rallos in lot 5983 valid although it was executed by the agent after the death of his principal? What is the
law in this jurisdiction as to the effect of the death of the principal on the authority of the agent to act for
and in behalf of the latter? Is the fact of knowledge of the death of the principal a material factor in
determining the legal effect of an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter
tinder consideration.
1.
It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name
of another without being authorized by the latter, or unless he has by law a right to represent him. 3 A
contract entered into in the name of another by one who has no authority or the legal representation or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party. 4
Article 1403 (1) of the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1)
Those entered into in the name of another person by one who hi - been given no authority or
legal representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of agency
whereby one party, caged the principal (mandante), authorizes another, called the agent (mandatario), to
act for and in his behalf in transactions with third persons. The essential elements of agency are: (1)
there is 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 agents acts as a representative and not for
himself, and (4) the agent acts within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done within
the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself". 6
2.
There are various ways of extinguishing agency, 7 but her We are concerned only with one
cause death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art.
1709 of the Spanish Civil Code provides:
ART. 1919.

Agency is extinguished.

xxx

xxx

xxx

3.
By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ...
(Emphasis supplied)
PAT CASE: AGENCY

By reason of the very nature of the relationship between Principal and agent, agency is extinguished by
the death of the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is
found in the juridical basis of agency which is representation Them being an in. integration of the
personality of the principal integration that of the agent it is not possible for the representation to
continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason of the
nature of agency, death is a necessary cause for its extinction. Laurent says that the juridical tie between
the principal and the agent is severed ipso jure upon the death of either without necessity for the heirs of
the fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous and absolute
revocation of the authority of the agent unless the Power be coupled with an interest. 10 This is the
prevalent rule in American Jurisprudence where it is well-settled that a power without an interest confer.
red upon an agent is dissolved by the principal's death, and any attempted execution of the power
afterward is not binding on the heirs or representatives of the deceased. 11
3.
Is the general rule provided for in Article 1919 that the death of the principal or of the agent
extinguishes the agency, subject to any exception, and if so, is the instant case within that exception?
That is the determinative point in issue in this litigation. It is the contention of respondent corporation
which was sustained by respondent court that notwithstanding the death of the principal Concepcion
Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid
and enforceable inasmuch as the corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has
been constituted in the common interest of the latter and of the agent, or in the interest of a third person
who has accepted the stipulation in his favor.
ART. 1931.
Anything done by the agent, without knowledge of the death of the principal or of any
other cause which extinguishes the agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor of
Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his
principal is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge
of the death of the principal and (2) that the third person who contracted with the agent himself acted in
good faith. Good faith here means that the third person was not aware of the death of the principal at the
time he contracted with said agent. These two requisites must concur the absence of one will render the
act of the agent invalid and unenforceable.
Page 2 of 150

In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his
principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge
of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial court. 12
That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the court a quo
13 and of respondent appellate court when the latter stated that Simon Rallos 'must have known of the
death of his sister, and yet he proceeded with the sale of the lot in the name of both his sisters
Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the death of the
former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his principal
Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of his principal; it is not enough that
the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738
of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after the
death of the principal because it was not shown that the agent knew of his principal's demise. 15 To the
same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice
Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is
no indication in the record, that the agent Luy Kim Guan was aware of the death of his principal at the
time he sold the property. The death 6f the principal does not render the act of an agent unenforceable,
where the latter had no knowledge of such extinguishment of the agency. (1 SCRA 406, 412)
4.
In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned
out that there is no provision in the Code which provides that whatever is done by an agent having
knowledge of the death of his principal is void even with respect to third persons who may have
contracted with him in good faith and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the general rule
enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the general
rule it follows a fortiori that any act of an agent after the death of his principal is void ab initio unless the
same fags under the exception provided for in the aforementioned Articles 1930 and 1931. Article 1931,
being an exception to the general rule, is to be strictly construed, it is not to be given an interpretation or
application beyond the clear import of its terms for otherwise the courts will be involved in a process of
legislation outside of their judicial function.
5.
Another argument advanced by respondent court is that the vendee acting in good faith relied
on the power of attorney which was duly registered on the original certificate of title recorded in the
Register of Deeds of the province of Cebu, that no notice of the death was aver annotated on said
certificate of title by the heirs of the principal and accordingly they must suffer the consequences of such
omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which We quote:
PAT CASE: AGENCY

If the agency has been granted for the purpose of contracting with certain persons, the revocation must
be made known to them. But if the agency is general iii nature, without reference to particular person
with whom the agent is to contract, it is sufficient that the principal exercise due diligence to make the
revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom represents' on should be made,
it is the general opinion that all acts, executed with third persons who contracted in good faith, Without
knowledge of the revocation, are valid. In such case, the principal may exercise his right against the
agent, who, knowing of the revocation, continued to assume a personality which he no longer had.
(Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of terminating an
agency which is to be distinguished from revocation by operation of law such as death of the principal
which obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of
the relationship between principal and agent, agency is extinguished ipso jure upon the death of either
principal or agent. Although a revocation of a power of attorney to be effective must be communicated to
the parties concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as a
rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded
as an execution of the principal's continuing will. 19 With death, the principal's will ceases or is the of
authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What
the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in
the meantime adopt such measures as the circumstances may demand in the interest of the latter.
Hence, the fact that no notice of the death of the principal was registered on the certificate of title of the
property in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal
6.
Holding that the good faith of a third person in said with an agent affords the former sufficient
protection, respondent court drew a "parallel" between the instant case and that of an innocent
purchaser for value of a land, stating that if a person purchases a registered land from one who acquired
it in bad faith even to the extent of foregoing or falsifying the deed of sale in his favor the registered
owner has no recourse against such innocent purchaser for value but only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v.
Nano and Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner of
lands with Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano in his
favor. Vallejo delivered to Nano his land titles. The power was registered in the Office of the Register of
Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all in order including
the power of attorney. But Vallejo denied having executed the power The lower court sustained Vallejo
and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the Supreme Court,
quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:
Page 3 of 150

But there is a narrower ground on which the defenses of the defendant- appellee must be overruled.
Agustin Nano had possession of Jose Vallejo's title papers. Without those title papers handed over to
Nano with the acquiescence of Vallejo, a fraud could not have been perpetuated. When Fernando de la
Canters, a member of the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff,
searched the registration record, he found them in due form including the power of attorney of Vallajo in
favor of Nano. If this had not been so and if thereafter the proper notation of the encumbrance could not
have been made, Angela Blondeau would not have sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed by the registered owner thereof in the hands of another
operates as a representation to a third party that the holder of the transfer is authorized to deal with the
land.
As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the
one who made it possible by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We are
confronted with one who admittedly was an agent of his sister and who sold the property of the latter
after her death with full knowledge of such death. The situation is expressly covered by a provision of law
on agency the terms of which are clear and unmistakable leaving no room for an interpretation contrary
to its tenor, in the same manner that the ruling in Blondeau and the cases cited therein found a basis in
Section 55 of the Land Registration Law which in part provides:
xxx

xxx

xxx

The production of the owner's duplicate certificate whenever any voluntary instrument is presented for
registration shall be conclusive authority from the registered owner to the register of deeds to enter a
new certificate or to make a memorandum of registration in accordance with such instruments, and the
new certificate or memorandum Shall be binding upon the registered owner and upon all persons
claiming under him in favor of every purchaser for value and in good faith: Provided however, That in all
cases of registration provided by fraud, the owner may pursue all his legal and equitable remedies
against the parties to such fraud without prejudice, however, to the right, of any innocent holder for value
of a certificate of title. ... (Act No. 496 as amended)
7.
One last point raised by respondent corporation in support of the appealed decision is an 1842
ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an
agent after the death of the principal were held to be "good", "the parties being ignorant of the death".
Let us take note that the Opinion of Justice Rogers was premised on the statement that the parties were
ignorant of the death of the principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the death is
a good payment. in addition to the case in Campbell before cited, the same judge Lord Ellenboruogh,
has decided in 5 Esp. 117, the general question that a payment after the death of principal is not good.
Thus, a payment of sailor's wages to a person having a power of attorney to receive them, has been held
void when the principal was dead at the time of the payment. If, by this case, it is meant merely to decide
PAT CASE: AGENCY

the general proposition that by operation of law the death of the principal is a revocation of the powers of
the attorney, no objection can be taken to it. But if it intended to say that his principle applies where there
was 110 notice of death, or opportunity of twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death of
the principal, which he did not know, and which by no possibility could he know? It would be unjust to the
agent and unjust to the debtor. In the civil law, the acts of the agent, done bona fide in ignorance of the
death of his principal are held valid and binding upon the heirs of the latter. The same rule holds in the
Scottish law, and I cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81;
emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be
made that the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett,
the Court said.
There are several cases which seem to hold that although, as a general principle, death revokes an
agency and renders null every act of the agent thereafter performed, yet that where a payment has been
made in ignorance of the death, such payment will be good. The leading case so holding is that of
Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii
broadly announced. It is referred to, and seems to have been followed, in the case of Dick v. Page, 17
Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased principal had
received the benefit of the money paid, and therefore the representative of the estate might well have
been held to be estopped from suing for it again. . . . These cases, in so far, at least, as they announce
the doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4
Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle in
its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except
so far as it related to the particular facts, was a mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of his
views on the general subject, than as the adjudication of the Court upon the point in question. But
accordingly all power weight to this opinion, as the judgment of a of great respectability, it stands alone
among common law authorities and is opposed by an array too formidable to permit us to following it. (15
Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no
such conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides
for two exceptions to the general rule that death of the principal revokes ipso jure the agency, to wit: (1)
that the agency is coupled with an interest (Art 1930), and (2) that the act of the agent was executed
without knowledge of the death of the principal and the third person who contracted with the agent acted
also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress
the indispensable requirement that the agent acted without knowledge or notice of the death of the
Page 4 of 150

principal In the case before Us the agent Ramon Rallos executed the sale notwithstanding notice of the
death of his principal Accordingly, the agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We
affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of
Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all
instances.
So Ordered.
G.R. No. 76931

May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933

May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED, respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives,
Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a 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:
PAT CASE: AGENCY

WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as follows:
1.

Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the
Philippines, including any United States military installation therein which are not serviced by an Air
Carrier Representation Office (ACRO), for the sale of air passenger transportation. The services to be
performed by Orient Air Services shall include:
(a)
soliciting and promoting passenger traffic for the services of American and, if necessary,
employing staff competent and sufficient to do so;
(b)
providing and maintaining a suitable area in its place of business to be used exclusively for the
transaction of the business of American;
(c)
arranging for distribution of American's timetables, tariffs and promotional material to sales
agents and the general public in the assigned territory;
(d)
servicing and supervising of sales agents (including such sub-agents as may be appointed by
Orient Air Services with the prior written consent of American) in the assigned territory including if
required by American the control of remittances and commissions retained; and
(e)
holding out a passenger reservation facility to sales agents and the general public in the
assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within the United States,
neither Orient Air Services nor its sub-agents will perform services for any other air carrier similar to
those to be performed hereunder for American without the prior written consent of American. Subject to
periodic instructions and continued consent from American, Orient Air Services may sell air passenger
transportation to be performed within the United States by other scheduled air carriers provided
American does not provide substantially equivalent schedules between the points involved.
xxx
4.

xxx

xxx

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 semimonthly, on the 15th and last days of each month for sales made during the preceding half month.

Page 5 of 150

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.

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

5.

13.
American will pay Orient Air Services commission on transportation sold hereunder by Orient Air
Services or its sub-agents as follows:
(a)

Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient
Air Services or its sub-agents over American's services and any connecting through air transportation,
when made on American's ticket stock, equal to the following percentages of the tariff fares and charges:
(i)
For transportation solely between points within the United States and between such points and
Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.
(ii)
For transportation included in a through ticket covering transportation between points other
than those described above: 8% or such other rate(s) as may be prescribed by the International Air
Transport Association.
(b)

Overriding commission

In addition to the above commission American will pay Orient Air Services an overriding commission of
3% of the tariff fares and charges for all sales of transportation over American's service by Orient Air
Service or its sub-agents.
xxx
10.

xxx

xxx

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.

xxx

xxx

Commissions

IATA and ATC Rules

PAT CASE: AGENCY

Termination

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

xxx

x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to
promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US
$254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by
Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air with
the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and 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, . . . 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 occasioned prejudice to its
business interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the trial court
ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant
and against plaintiff dismissing the complaint and holding the termination made by the latter as affecting
the GSA agreement illegal and improper and order the plaintiff to reinstate defendant as its general sales
agent for passenger tranportation in the Philippines in accordance with said GSA agreement; plaintiff is
ordered to pay defendant the balance of the overriding commission on total flown revenue covering the
period from March 16, 1977 to December 31, 1980 in the amount of US$84,821.31 plus the additional
amount of US$8,000.00 by way of proper 3% overriding commission per month commencing from
Page 6 of 150

January 1, 1981 until such reinstatement or said amounts in its Philippine peso equivalent legally
prevailing at the time of payment plus legal interest to commence from the filing of the counterclaim up to
the time of payment. Further, plaintiff is directed to pay defendant the amount of One Million Five
Hundred Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three
Hundred Thousand (P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The dispositive portion of the appellate
court's decision is as follows:

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.
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:

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;

5.

Commissions

a)

...

b)

Overriding Commission

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

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. (Emphasis supplied)

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;

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.

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
PAT CASE: AGENCY

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
Page 7 of 150

foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as referred to
by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the
promotion and marketing of American Air's services for air passenger transportation, and the solicitation
of sales therefor. In return for such efforts and services, Orient Air was to be paid commissions of two (2)
kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and charges from sales by
Orient Air when made on American Air ticket stock; and second, an overriding commission of 3% of tariff
fares and charges for all sales of passenger transportation over American Air services. It is immediately
observed that the precondition attached to the first type of commission does not obtain for the second
type of commissions. The latter type of commissions would accrue for sales of American Air services
made not on its ticket stock but on the ticket stock of other air carriers sold by such carriers or other
authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock would erase any distinction between the two (2)
types of commissions and would lead to the absurd conclusion that the parties had entered into a
contract with meaningless provisions. Such an interpretation must at all times be avoided with every
effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air was
the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this "contract
of adhesion" is to be taken "contra proferentem", i.e., construed against the party who caused the
ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil
Code provides that the interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity. 14 To put it differently, when several interpretations of a provision are
otherwise equally proper, that interpretation or construction is to be adopted which is most favorable to
the party in whose favor the provision was made and who did not cause the ambiguity. 15 We therefore
agree with the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read
against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate
court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the
Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is
entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount of its
commissions. Since, as stated ante, Orient is entitled to the 3% override. American's premise, therefore,
for the cancellation of the Agreement did not exist. . . ."
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 Agreementthat of retaining from the sales proceeds its accrued
PAT CASE: AGENCY

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.1wphi1 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."
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.
G.R. No. 167552

April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,

vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION
CHICO-NAZARIO, J.:

Page 8 of 150

Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10
August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech
Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed
the Order3 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.

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

The generative facts of the case are as follows:

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioners 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

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 ASSIGNOR5 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 ASSIGNEE6 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;
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. 09339 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, petitioners 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 attorneys fees.11 Because of respondents failure to abide by said final demand letter, petitioner
PAT CASE: AGENCY

On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of preliminary
attachment.13

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 petitioners 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 petitioners motion to declare respondent ERWIN in default
"for his failure to answer within the prescribed period despite the opportunity granted"18 but it denied
petitioners 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 EDWINs Memorandum21 in support of his special and affirmative defenses
and petitioners opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002
dropping respondent EDWIN as a party defendant in this case. According to the trial court
A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon
acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single
proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that
plaintiff corporation is represented by its general manager Alberto de Jesus in the contract which is dated
June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact] Systems Sales which is
owned solely by defendant Erwin H. Cuizon, made a down payment of 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
Page 9 of 150

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
Petitioners 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 ERWINs 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 ERWINs action repudiated EDWINs power to
sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an
agent, petitioner claims that he should be made personally liable for the obligations of his principal.26
Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into
selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner
directs the attention of this Court to the fact that respondents are bound not only by their principal and
agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the
obvious signs of conspiracy to defraud petitioner.27

PAT CASE: AGENCY

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 latters 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.
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:

Page 10 of 150

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 EDWINs 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.
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.
PAT CASE: AGENCY

SO ORDERED.
[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.
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.
Page 11 of 150

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 attorneys 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]
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 latters claim for money and damages in the sum of P725,463.98, plus interests and
attorneys 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
PAT CASE: AGENCY

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 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]
Page 12 of 150

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
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.
PAT CASE: AGENCY

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 courts decision.
[23] Petitioners moved for reconsideration and the Court of Appeals ordered respondents to file a
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 petitioners 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
Page 13 of 150

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 courts 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.
Puno, Mendoza, and Martinez, JJ., concur.
SYNOPSIS
In 1974, Overland Express Lines, Inc. entered into a Contract of Lease with Option to Buy with herein
petitioners involving a land in Quezon City. The term of the lease was for one (1) year, during which
period, the lessee was granted an option to purchase the lot for P3,000.00 per square meter. Thereafter,
the lease shall be on a per month basis with a monthly rental of P3,000.00. Later, for failure to pay the
increased rental of P8,000.00 per month effective June 1976, herein petitioners filed an action for
ejectment to which the Corporation was ordered to vacate the leased premises. The Corporation,
however, questioned the jurisdiction of the City Court over the ejectment case. Subsequently, the
Corporation filed its own action for specific performance and fixing the period for obligation. It sought to
PAT CASE: AGENCY

compel the execution of a deed of sale pursuant to the option to purchase, and the receipt of the partial
payment it made and to fix the period to pay the balance thereof.
Petitioners have established a right to evict private respondent from the subject premises for nonpayment of rentals. In this regard, the then City Court had exclusive jurisdiction over the ejectment suit.
The filing by the Corporation of a suit with the RTC for specific performance did not divest the City Court
of its jurisidiction over the ejectment case The decision of the City Court was affirmed by the
Intermediate Appellate Court and the Supreme Court. Having failed to exercise the option to purchase
within the stipulated one-year period, private respondent Corporation cannot now enforce its option. An
implied new lease on a monthly basis does not ipso facto carry with it an implied revival of the option to
purchase the leased premises. The right to exercise the option to purchase expired with the termination
of the original contract of lease for one year. The private respondent delivered a check of P300,000.00
to Alice Dizon who allegedly acted as agent of petitioners pursuant to the supposed authority given by
petitioner as payee thereof does not amount to a perfected contract of sale pursuant to the contract of
lease with option to buy. There was no valid consent by the petitioners on the supposed sale entered
into by Alice Dizon, as petitioners alleged agent, and private respondent.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; LEASE; NON-PAYMENT OF RENTALS GIVES RIGHT TO
EVICT, REGARDLESS OF THE ACTION FOR SPECIFIC PERFORMANCE TO ENFORCE OPTION TO
PURCHASE WHICH WAS ALSO INSTITUTED. Petitioners have established a right to evict private
respondent from the subject premises for non-payment of rentals. Since the rent was paid on a monthly
basis, the period of lease is considered to be from month to month in accordance with Article 1687 of the
New Civil Code. Where the rentals are paid monthly, the lease, even if verbal may be deemed to be on
a monthly basis, expiring at the end of every month pursuant to Article 1687, in relation to Article 1673 of
the Civil Code. In such case, a demand to vacate is not even necessary for judicial action after the
expiration of every month. When private respondent failed to pay the increased rental, the petitioners
had a cause of action to institute an ejectment suit against the former with the then City Court. In this
regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by private
respondent of a suit with the Regional Trial Court for specific performance to enforce the option to
purchase did not divest the then City Court of its jurisdiction to take cognizance over the ejectment case.
Of note is the fact that the decision of the City Court was affirmed by both the Intermediate Appellate
Court and this Court.
2. ID.; ID.; ID.; FAILURE TO EXERCISE OPTION TO PURCHASE WITHIN THE STIPULATED PERIOD;
EFFECT; CASE AT BAR. Having failed to exercise the option to purchase within the stipulated one year
period, private respondent cannot enforce its option to purchase anymore. Moreover, even assuming
arguendo that the right to exercise the option still subsists at the time private respondent tendered the
amount, the suit for specific performance to enforce the option to purchase was filed more than ten (10)
years after accrual of the cause of action as provided under Article 1144 of the New Civil Code. In this
case, there was a contract of lease for one (1) year with option to purchase. The contract of lease
expired without the private respondent, as lessee, purchasing the property but remained in possession
thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other
Page 14 of 150

terms of the original contract of lease which are revived in the implied new lease under Article 1670 of
the New Civil Code are only those terms which are germane to the lessees right of continued enjoyment
of the property leased. Therefore, an implied new lease does not ipso facto carry with it any implied
revival of private respondents option to purchase (as lessee thereof) the leased premises. The
provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in
the impliedly renewed contract because it is alien to the possession of the lessee. Private respondents
right to exercise the option to purchase expired with the termination of the original contract of lease for
one year.
3. ID.; ID.; CONTRACT OF SALE; WHEN PERFECTED. Under Article 1475 of the New Civil Code, the
contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object
of the contract and upon the price. From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form of contracts. Thus, the elements of
a contract of sale are consent, object, and price in money or its equivalent. It bears stressing that the
absence of any of these essential elements negates the existence of a perfected contract of sale. Sale is
a consensual contract and he who alleges it must show its existence by competent proof.
4. ID.; ID.; CONTRACT OF AGENCY; NOT APPRECIATED. There was no valid consent by the
petitioners (as co-owners of the leased premises) on the supposed sale entered into by Dizon, as
petitioners alleged agent, and private respondent. 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. As
provided in Article 1868 of the New Civil Code, there was no showing that petitioners consented to the
act of Dizon nor authorized her to act on their behalf with regard to her transaction with private
respondent. The most prudent thing private respondent should have done was to ascertain the extent of
the authority of Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis
of a supposed agency.
[G.R. No. 122544. January 28, 1999]
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and
JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR.,
petitioners, vs. COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.
[G.R. No. 124741. January 28, 1999]
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and
JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR.,
petitioners, vs. COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND
EXPRESS LINES, INC., respondents.
DECISION
MARTINEZ, J.:
Two consolidated petitions were filed before us seeking to set aside and annul the decisions and
resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed
with procedural intricacies which finally found its way to this Court.
PAT CASE: AGENCY

G. R. NO. 122544:
On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of
Lease with Option to Buy with petitioners[1] (lessors) involving a 1,755.80 square meter parcel of land
situated at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of the lease
was for one (1) year commencing from May 16, 1974 up to May 15, 1975. During this period, private
respondent was granted an option to purchase for the amount of P3,000.00 per square meter.
Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976,
petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the
then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982, the
City Court rendered judgment[2] ordering private respondent to vacate the leased premises and to pay
the sum of P624,000.00 representing rentals in arrears and/or as damages in the form of reasonable
compensation for the use and occupation of the premises during the period of illegal detainer from June
1976 to November 1982 at the monthly rental of P8,000.00, less payments made, plus 12% interest per
annum from November 18, 1976, the date of filing of the complaint, until fully paid, the sum of P8,000.00
a month starting December 1982, until private respondent fully vacates the premises, and to pay
P20,000.00 as and by way of attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining the
enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City Court.
On September 26, 1984, the then Intermediate Appellate Court[3] (now Court of Appeals) rendered a
decision[4] stating that:
"x x x, the alleged question of whether petitioner was granted an extension of the option to buy the
property; whether such option, if any, extended the lease or whether petitioner actually paid the alleged
P300,000.00 to Fidela Dizon, as representative of private respondents in consideration of the option and,
whether petitioner thereafter offered to pay the balance of the supposed purchase price, are all merely
incidental and do not remove the unlawful detainer case from the jurisdiction of respondent court. In
consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be
raised and decided in the unlawful detainer suit as, to rule otherwise, would be a violation of the principle
prohibiting multiplicity of suits. (Original Records, pp. 38-39)."
The motion for reconsideration was denied. On review, this Court dismissed the petition in a resolution
dated June 19, 1985 and likewise denied private respondent's subsequent motion for reconsideration in
a resolution dated September 9, 1985.[5]
On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City (Civil
Case No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with prayer for
the issuance of a restraining order pending hearing on the prayer for a writ of preliminary injunction. It
sought to compel the execution of a deed of sale pursuant to the option to purchase and the receipt of
Page 15 of 150

the partial payment, and to fix the period to pay the balance. In an Order dated October 25, 1985, the
trial court denied the issuance of a writ of preliminary injunction on the ground that the decision of the
then City Court for the ejectment of the private respondent, having been affirmed by the then
Intermediate Appellate Court and the Supreme Court, has become final and executory.
Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch 102
(Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from Judgment
with injunction and damages. In its decision[6] dated May 12, 1986, the trial court dismissed the
complaint for annulment on the ground of res judicata, and the writ of preliminary injunction previously
issued was dissolved. It also ordered private respondent to pay P3,000.00 as attorney's fees. As a
consequence of private respondent's motion for reconsideration, the preliminary injunction was
reinstated, thereby restraining the execution of the City Court's judgment on the ejectment case.
The two cases were thereafter consolidated before the RTC of Quezon City, Branch 77. On April 28,
1989, a decision[7] was rendered dismissing private respondent's complaint in Civil Case No. Q-45541
(specific performance case) and denying its motion for reconsideration in Civil Case No. 46487
(annulment of the ejectment case). The motion for reconsideration of said decision was likewise denied.
On appeal,[8] respondent Court of Appeals rendered a decision[9] upholding the jurisdiction of the City
Court of Quezon City in the ejectment case. It also concluded that there was a perfected contract of sale
between the parties on the leased premises and that pursuant to the option to buy agreement, private
respondent had acquired the rights of a vendee in a contract of sale. It opined that the payment by
private respondent of P300,000.00 on June 20, 1975 as partial payment for the leased property, which
petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was the
operative act that gave rise to a perfected contract of sale, and that for failure of petitioners to deny
receipt thereof, private respondent can therefore assume that Alice A. Dizon, acting as agent of
petitioners, was authorized by them to receive the money in their behalf. The Court of Appeals went
further by stating that in fact, what was entered into was a "conditional contract of sale" wherein
ownership over the leased property shall not pass to the private respondent until it has fully paid the
purchase price. Since private respondent did not consign to the court the balance of the purchase price
and continued to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in
monthly rentals until full payment of the purchase price. The dispositive portion of said decision reads:
"WHEREFORE, the appealed decision in Case No. 46487 is AFFIRMED. The appealed decision in Case
No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The defendants-appellees are ordered to
execute the deed of absolute sale of the property in question, free from any lien or encumbrance
whatsoever, in favor of the plaintiff-appellant, and to deliver to the latter the said deed of sale, as well as
the owner's duplicate of the certificate of title to said property upon payment of the balance of the
purchase price by the plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00 per month
from June 1976, plus 6% interest per annum, until payment of the balance of the purchase price, as
previously agreed upon by the parties.

Upon denial of the motion for partial reconsideration (Civil Case No. Q-45541) by respondent Court of
Appeals,[10] petitioners elevated the case via petition for certiorari questioning the authority of Alice A.
Dizon as agent of petitioners in receiving private respondent's partial payment amounting to P300,000.00
pursuant to the Contract of Lease with Option to Buy. Petitioners also assail the propriety of private
respondent's exercise of the option when it tendered the said amount on June 20, 1975 which
purportedly resulted in a perfected contract of sale.
G. R. NO. 124741:
Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No. 3829155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch
38, for execution of the judgment[11] dated November 22, 1982 which was granted in a resolution dated
June 29, 1992. Private respondent filed a motion to reconsider said resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction and/or
restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution dated
September 16, 1992 on the ground that the same was a refiled case previously dismissed for lack of
merit. On November 26, 1992, entry of judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil Case
No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court ordered
the issuance of a third alias writ of execution. In denying private respondent's motion for reconsideration,
it ordered the immediate implementation of the third writ of execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City,
Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining order (SP.
PROC. No. 93-18722) challenging the enforceability and validity of the MTC judgment as well as the
order for its execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an order[12] granting the issuance of a
writ of preliminary injunction upon private respondent's posting of an injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners filed a
petition[13] for certiorari and prohibition with a prayer for a temporary restraining order and/or preliminary
injunction with the Court of Appeals. In its decision,[14] the Court of Appeals dismissed the petition and
ruled that:
"The avowed purpose of this petition is to enjoin the public respondent from restraining the ejectment of
the private respondent. To grant the petition would be to allow the ejectment of the private respondent.
We cannot do that now in view of the decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners'
alleged right to eject private respondent has been demonstrated to be without basis in the said civil case.
The petitioners have been shown, after all, to have no right to eject private respondents.

SO ORDERED."
PAT CASE: AGENCY

Page 16 of 150

WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED.

SO ORDERED."[15]
Petitioners' motion for reconsideration was denied in a resolution[16] by the Court of Appeals stating that:
"This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiff-appellant (private
respondent herein) acquired the rights of a vendee in a contract of sale, in effect, recognizing the right of
the private respondent to possess the subject premises. Considering said decision, we should not allow
ejectment; to do so would disturb the status quo of the parties since the petitioners are not in possession
of the subject property. It would be unfair and unjust to deprive the private respondent of its possession
of the subject property after its rights have been established in a subsequent ruling.
WHEREFORE, the motion for reconsideration is DENIED for lack of merit.
SO ORDERED."[17]
Hence, this instant petition.
We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent from the subject premises for nonpayment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1) year
(May 16, 1974 to May 15, 1975) during which the private respondent was given an option to purchase
said property at P3,000.00 per square meter. After the expiration thereof, the lease was for P3,000.00
per month.
Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and
private respondent. However, since the rent was paid on a monthly basis, the period of lease is
considered to be from month to month in accordance with Article 1687 of the New Civil Code.[18] Where
the rentals are paid monthly, the lease, even if verbal may be deemed to be on a monthly basis, expiring
at the end of every month pursuant to Article 1687, in relation to Article 1673 of the Civil Code.[19] In
such case, a demand to vacate is not even necessary for judicial action after the expiration of every
month.[20]
When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the
petitioners had a cause of action to institute an ejectment suit against the former with the then City Court.
In this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by
private respondent of a suit with the Regional Trial Court for specific performance to enforce the option to
purchase did not divest the then City Court of its jurisdiction to take cognizance over the ejectment case.
Of note is the fact that the decision of the City Court was affirmed by both the Intermediate Appellate
Court and this Court.

PAT CASE: AGENCY

Second. Having failed to exercise the option within the stipulated one-year period, private respondent
cannot enforce its option to purchase anymore. Moreover, even assuming arguendo that the right to
exercise the option still subsists at the time private respondent tendered the amount on June 20, 1975,
the suit for specific performance to enforce the option to purchase was filed only on October 7, 1985 or
more than ten (10) years after accrual of the cause of action as provided under Article 1144 of the New
Civil Code.[21]
In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease
expired without the private respondent, as lessee, purchasing the property but remained in possession
thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other
terms of the original contract of lease which are revived in the implied new lease under Article 1670 of
the New Civil Code[22] are only those terms which are germane to the lessees right of continued
enjoyment of the property leased.[23] Therefore, an implied new lease does not ipso facto carry with it
any implied revival of private respondent's option to purchase (as lessee thereof) the leased premises.
The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated
in the impliedly renewed contract because it is alien to the possession of the lessee. Private respondents
right to exercise the option to purchase expired with the termination of the original contract of lease for
one year. The rationale of this Court is that:
This is a reasonable construction of the provision, which is based on the presumption that when the
lessor allows the lessee to continue enjoying possession of the property for fifteen days after the
expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to
the rent which is customarily paid in this case up to the end of the month because the rent was paid
monthly. Necessarily, if the presumed will of the parties refers to the enjoyment of possession the
presumption covers the other terms of the contract related to such possession, such as the amount of
rental, the date when it must be paid, the care of the property, the responsibility for repairs, etc. But no
such presumption may be indulged in with respect to special agreements which by nature are foreign to
the right of occupancy or enjoyment inherent in a contract of lease.[24]
Third. There was no perfected contract of sale between petitioners and private respondent. Private
respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of
petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee thereof.
Private respondent further contended that petitioners filing of the ejectment case against it based on the
contract of lease with option to buy holds petitioners in estoppel to question the authority of petitioner
Fidela Dizon. It insisted that the payment of P300,000.00 as partial payment of the purchase price
constituted a valid exercise of the option to buy.
Under Article 1475 of the New Civil Code, the contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts. Thus, the elements of a contract of sale are consent, object, and price in
money or its equivalent. It bears stressing that the absence of any of these essential elements negates
the existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it must
show its existence by competent proof.[25]
Page 17 of 150

In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru
Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute a
perfected contract of sale pursuant to the contract of lease with option to buy. There was no valid
consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into by
Alice A. Dizon, as petitioners alleged agent, and private respondent. 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.[26] As provided in Article 1868 of the New Civil Code,[27] there was no
showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf
with regard to her transaction with private respondent. The most prudent thing private respondent should
have done was to ascertain the extent of the authority of Alice A. Dizon. Being negligent in this regard,
private respondent cannot seek relief on the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals,[28] we explained the rule in dealing with an agent:
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 agents 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.
For the long years that private respondent was able to thwart the execution of the ejectment suit
rendered in favor of petitioners, we now write finis to this controversy and shun further delay so as to
ensure that this case would really attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29,
1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision
dated December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court
of Appeals are hereby REVERSED and SET ASIDE.
Let the records of this case be remanded to the trial court for immediate execution of the judgment dated
November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of
Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then Intermediate
Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this Court.

DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision
of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent
court's resolution of September 30, 1994 modifying said decision. Both decision and resolution amended
the judgment dated February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil
Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co.,
Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts
(SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the
instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag
contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated
October 16, 1989."[1] The transaction it covered was a "direct sale."[2] The SLDR also contains an
additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."[3]
On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights
in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three
checks postdated November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been
authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a
copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to withdraw for and in our
behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated
October 16, 1989 in the total quantity of 25,000 bags."[4]
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as
payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging
receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also
covered SLDR No. 1213.

[G.R. No. 117356. June 19, 2000]

Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was
allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow
further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated January
23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been
refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags
had been withdrawn.[5] CSC thus inquired when it would be allowed to withdraw the remaining 23,000
bags.

VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED SUGAR
CORPORATION, respondents.

On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against
SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks.[6]

However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which
they received through Alice A. Dizon on June 20, 1975.
SO ORDERED.

PAT CASE: AGENCY

Page 18 of 150

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared
checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to
STM's account. Petitioner also noted that CSC had represented itself to be STM's agent as it had
withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118.
Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and
herein petitioner. Since the former could not be served with summons, the case proceeded only against
the latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same
Teresita Ng Sy who could not be reached through summons.[7] CSC, however, did not bother to pursue
its case against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M.
Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be
ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00
in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and
litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags.[8] Since STM
had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no
longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of
contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery
receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs
prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said
party's rights and interests.

"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar
due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized
profits, the amount of P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is
10% of the acquisition value of the undelivered bags of refined sugar in the amount of P13,570,000.00,
as attorney's fees, plus the costs.
"SO ORDERED."[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of
P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the
purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR No.
1213 on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C15 inclusive which are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising
in favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered by SLDR
No. 1213 and 1214. Said checks appear to have been honored and duly credited to the account of
Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued official receipt
no. 34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1).
The testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout of
defendant Victorias Milling Company showing the quantity and value of the purchases made by St.
Therese Merchandising, the SLDR no. issued to cover the purchase, the official reciept no. and the
status of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the
same has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of
payment.'

Since no settlement was reached at pre-trial, the trial court heard the case on the merits.

"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the
25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not
been fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias
Milling Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren
assertion that the purchase price has not been fully paid and is not corroborated by any positive
evidence. There is an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by
the buyer in payment of the purchased price were dishonored. However, said witness failed to present in
Court any dishonored check or any replacement check. Said witness likewise failed to present any bank
record showing that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of
the sugar covered by SLDR No. 1214 were dishonored."[10]

As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:

Petitioner appealed the trial courts decision to the Court of Appeals.

"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and
against defendant Victorias Milling Company:

On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions
involving only one account or one general contract of sale. Pursuant to this contract, STM or any of its
authorized agents could withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M

Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to
defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith.
Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral
damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also
prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.

PAT CASE: AGENCY

Page 19 of 150

was only one of 22 SLDRs issued to STM and since the latter had already withdrawn its full quota of
sugar under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of
sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate
and independent transactions and that the details of the series of purchases were contained in a single
statement with a consolidated summary of cleared check payments and sugar stock withdrawals
because this a more convenient system than issuing separate statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the transaction between
petitioner and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b)
Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not
CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could
compel petitioner to deliver 23,000 bags allegedly unwithdrawn.

"Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586
cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence
only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for
this is to afford the party against whom the evidence is presented to object thereto if he deems it
necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which was offered to
prove that checks in the total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for
Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained
undelivered.

"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L.
Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that
it had withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw
anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee
had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining
23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar
delivery to the STM corresponded only to the value of cleared checks; and that all sugar corresponded to
cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It
did not present evidence to show how many bags of sugar had been withdrawn against SLDR No.
1214M, precisely because of its theory that all sales in question were a series of one single transaction
and withdrawal of sugar depended on the clearing of checks paid therefor.

" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined
sugar, as attorneys fees;

"After a second look at the evidence, We see no reason to overturn the findings of the trial court on this
point."[13]

"3) Pay the costs of suit.

Hence, the instant petition, positing the following errors as grounds for review:

"SO ORDERED."[11]

"1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing
petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for
and in our (STM) behalf," (emphasis in the original) private respondent's withdrawing 2,000 bags of
sugar for STM, and STM's empowering other persons as its agents to withdraw sugar against the same
SLDR No. 1214M, rendered respondent like the other persons, an agent of STM as held in Rallos v.
Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving
being an assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was
conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so.
(Art. 1431, Civil Code).

On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to
wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to:

Both parties then seasonably filed separate motions for reconsideration.

In its resolution dated September 30, 1994, the appellate court modified its decision to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]

" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant
and undisputed facts which, had they been considered, would have shown that petitioner was not liable,
except for 69 bags of sugar, and which would justify review of its conclusion of facts by this Honorable
Court.

The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
PAT CASE: AGENCY

" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the
Civil Code when it ruled that compensation applied only to credits from one SLDR or contract and not to
Page 20 of 150

those from two or more distinct contracts between the same parties; and erred in denying petitioner's
right to setoff all its credits arising prior to notice of assignment from other sales or SLDRs against
private respondent's claim as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability
to 69 bags, because the law on compensation applies precisely to two or more distinct contracts
between the same parties (emphasis in the original).

"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our
behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar
(SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags."[16]

"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. F
between petitioner and STM, respondent's admission of its balance, and STM's acquiescence thereto by
silence for almost one year did not render Exh. `F' an account stated and its balance binding.

"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."

"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214,
namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to its availability at
the Nawaco warehouse, made the sale conditional and prevented STM or private respondent from
acquiring title to the sugar; and the non-availability of sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from
seeking judicial reliefs (sic) from petitioner, its only remedy being against its assignor."[14]

The Civil Code defines a contract of agency as follows:

It is clear from Article 1868 that the basis of agency is representation.[17] On the part of the principal,
there must be an actual intention to appoint[18] or an intention naturally inferable from his words or
actions;[19] and on the part of the agent, there must be an intention to accept the appointment and act
on it,[20] and in the absence of such intent, there is generally no agency.[21] One factor which most
clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act
under the control or direction of another - the principal. Indeed, the very word "agency" has come to
connote control by the principal.[22] The control factor, more than any other, has caused the courts to put
contracts between principal and agent in a separate category.[23] The Court of Appeals, in finding that
CSC, was not an agent of STM, opined:

Simply stated, the issues now to be resolved are:

(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence,
estopped to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction
under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No.
1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands
doctrine" to preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal.
It is settled that an issue which was not raised during the trial in the court below could not be raised for
the first time on appeal as to do so would be offensive to the basic rules of fair play, justice, and due
process.[15] Nonetheless, the Court of Appeals opted to address this issue, hence, now a matter for our
consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No.
1214M to show that the latter was STM's agent. The pertinent portion of said letter reads:

PAT CASE: AGENCY

"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law
makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting
upon the persons alleging the agency, to show not only the fact of its existence, but also its nature and
extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently
establish the existence of an agency relation between plaintiff-appellee and STM. The fact alone that it
(STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not
be eyed as pointing to the existence of an agency relation ...It should be viewed in the context of all the
circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its agent
by the use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January
1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and
endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000
bags of sugar covered by the SLDR No. 1214M were sold and transferred by STM to it ...A conclusion
that there was a valid sale and transfer to plaintiff-appellee may, therefore, be made thus capacitating
plaintiff-appellee to sue in its own name, without need of joining its imputed principal STM as coplaintiff."[24]
In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form,
and not an agent of STM. Private respondent CSC was not subject to STM's control. The question of
whether a contract is one of sale or agency depends on the intention of the parties as gathered from the
whole scope and effect of the language employed.[25] That the authorization given to CSC contained the
phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the
intention of the parties.[26] That no agency was meant to be established by the CSC and STM is clearly
shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it.
[27] The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale,
Page 21 of 150

and not an agency. Hence, on this score, no error was committed by the respondent appellate court
when it held that CSC was not STM's agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into between petitioner
and STM are but serial parts of one account, petitioner insists that its debt has been offset by its claim for
STM's unpaid purchases, pursuant to Article 1279 of the Civil Code.[28] However, the trial court found,
and the Court of Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a
separate and independent transaction; it was not a serial part of a single transaction or of one account
contrary to petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner had
been paid for the sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to
deliver said commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner and
CSC, as assignee of STM, were not mutually creditors and debtors of each other. No reversible error
could thereby be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil
Code to the present case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a
conditional sale or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy,
SLDR No. 1214M contains the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through a representative, title to refined sugar is transferred
to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied) and
buyer/trader assumes full responsibility therefore"[29]
The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the
buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of
sale, not a contract to sell. Petitioner is now estopped from alleging the contrary. The contract is the law
between the contracting parties.[30] And where the terms and conditions so stipulated are not contrary to
law, morals, good customs, public policy or public order, the contract is valid and must be upheld.[31]
Having transferred title to the sugar in question, petitioner is now obliged to deliver it to the purchaser or
its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a
conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's
selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case against Teresita
Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar against SLDR No.
1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of "clean
hands" should be applied to preclude CSC from seeking judicial relief. However, despite careful scrutiny,
we find here the records bare of convincing evidence whatsoever to support the petitioner's allegations
of fraud. We are now constrained to deem this matter purely speculative, bereft of concrete proof.

G.R. No. 156262 July 14, 2005

MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses ANASTACIO and
MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves the collection of a sum of money. Specifically, this
case arose from the failure of petitioners to pay respondents predecessor-in-interest. This fact was
shown by the non-encashment of checks issued by a third person, but indorsed by herein Petitioner
Maria Tuazon in favor of the said predecessor. Under these circumstances, to enable respondents to
collect on the indebtedness, the check drawer need not be impleaded in the Complaint. Thus, the suit is
directed, not against the drawer, but against the debtor who indorsed the checks in payment of the
obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the July 31, 2002
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 46535. The decretal portion of the assailed
Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED."
On the other hand, the affirmed Decision3 of Branch 34 of the Regional Trial Court (RTC) of Gapan,
Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants,
ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay the plaintiffs, as follows:
"1. The sum of P1,750,050.00, with interests from the filing of the second amended complaint;
"2. The sum of P50,000.00, as attorneys fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
x x x x x x x x x"4
SO ORDERED.
PAT CASE: AGENCY

Page 22 of 150

The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses Leonilo and
Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased Bartolome] Ramos
[predecessor-in-interest of respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid
for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment therefor, the spouses
Tuazon issued x x x [several] Traders Royal Bank checks.

The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon. Those
cases were later consolidated and amended to include Spouses Anastacio and Mary Buenaventura, with
Alejandro Tuazon and Melecio Tuazon as additional defendants. Having passed away before the pretrial,
Bartolome Ramos was substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to file a
third-party complaint against her. Allegedly, she was primarily liable to respondents, because she was
the one who had purchased the merchandise from their predecessor, as evidenced by the fact that the
checks had been drawn in her name. The RTC, however, denied petitioners Motion.

xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of funds.
[Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew that they had
no available fund to support the checks, and they failed to provide for the payment of these despite
repeated demands made on them.
"[Respondents] averred that because spouses Tuazon anticipated that they would be sued, they
conspired with the other [defendants] to defraud them as creditors by executing x x x fictitious sales of
their properties. They executed x x x simulated sale[s] [of three lots] in favor of the x x x spouses
Buenaventura x x x[,] as well as their residential lot and the house thereon[,] all located at Nueva Ecija,
and another simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the Land
Transportation Office of Cabanatuan City on September 7, 1988. [Co-petitioner] Melecio Tuazon, a son
of spouses Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over a residential lot
located at Nueva Ecija. Another simulated sale of a Toyota Willys was executed on January 25, 1988 in
favor of their other son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales, the titles of
these properties issued in the names of spouses Tuazon were cancelled and new ones were issued in
favor of the [co-]defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly,
by the said ante-dated and simulated sales and the corresponding transfers there was no more property
left registered in the names of spouses Tuazon answerable to creditors, to the damage and prejudice of
[respondents].
"For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos. They alleged
that it was Magdalena Ramos, wife of said deceased, who owned and traded the merchandise and
Maria Tuazon was merely her agent. They argued that it was Evangeline Santos who was the buyer of
the rice and issued the checks to Maria Tuazon as payments therefor. In good faith[,] the checks were
received [by petitioner] from Evangeline Santos and turned over to Ramos without knowing that these
were not funded. And it is for this reason that [petitioners] have been insisting on the inclusion of
Evangeline Santos as an indispensable party, and her non-inclusion was a fatal error. Refuting that the
sale of several properties were fictitious or simulated, spouses Tuazon contended that these were sold
because they were then meeting financial difficulties but the disposals were made for value and in good
faith and done before the filing of the instant suit. To dispute the contention of plaintiffs that they were the
buyers of the rice, they argued that there was no sales invoice, official receipts or like evidence to prove
this. They assert that they were merely agents and should not be held answerable."5
PAT CASE: AGENCY

Since the trial court acquitted petitioners in all three of the consolidated criminal cases, they appealed
only its decision finding them civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an agency between
respondents and Spouses Tuazon. The appellate court disbelieved petitioners contention that
Evangeline Santos should have been impleaded as an indispensable party. Inasmuch as all the checks
had been indorsed by Maria Tuazon, who thereby became liable to subsequent holders for the amounts
stated in those checks, there was no need to implead Santos.
Hence, this Petition.6
Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents of the
respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the petitioners
despite x x x the failure of the respondents to include in their action Evangeline Santos, an indispensable
party to the suit."7
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Agency

Page 23 of 150

Well-entrenched is the rule that the Supreme Courts role in a petition under Rule 45 is limited to
reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial court,
especially when affirmed by the CA, are conclusive on the parties and this Court.8 Petitioners have not
given us sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do something in representation or
on behalf of another, with the latters consent or authority.9 The following are the elements of agency: (1)
the parties consent, express or implied, to establish the relationship; (2) the object, which is the
execution of a juridical act in relation to a third person; (3) the representation, by which the one who acts
as an agent does so, not for oneself, but as a representative; (4) the limitation that the agent acts within
the scope of his or her authority.10 As the basis of agency is representation, there must be, on the part
of the principal, an actual intention to appoint, an intention naturally inferable from the principals words
or actions. In the same manner, there must be an intention on the part of the agent to accept the
appointment and act upon it. Absent such mutual intent, there is generally no agency.11
This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice
buyers themselves; they were not mere agents of respondents in their rice dealership. The question of
whether a contract is one of sale or of agency depends on the intention of the parties.12

As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be
accepted or paid, or both, according to their tenor; and that in case they were dishonored, she would pay
the corresponding amount.17 After an instrument is dishonored by nonpayment, indorsers cease to be
merely secondarily liable; they become principal debtors whose liability becomes identical to that of the
original obligor. The holder of a negotiable instrument need not even proceed against the maker before
suing the indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is not an indispensable
party in an action against Maria Tuazon, the indorser of the checks.
Indispensable parties are defined as "parties in interest without whom no final determination can be
had."19 The instant case was originally one for the collection of the purchase price of the rice bought by
Maria Tuazon from respondents predecessor. In this case, it is clear that there is no privity of contract
between respondents and Santos. Hence, a final determination of the rights and interest of the parties
may be made without any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioners.
SO ORDERED.

The declarations of agents alone are generally insufficient to establish the fact or extent of their
authority.13 The law makes no presumption of agency; proving its existence, nature and extent is
incumbent upon the person alleging it.14 In the present case, petitioners raise the fact of agency as an
affirmative defense, yet fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the
amounts represented by the bounced checks, in a separate civil case that they sought to be
consolidated with the current one. If, as they claim, they were mere agents of respondents, petitioners
should have brought the suit against Santos for and on behalf of their alleged principal, in accordance
with Section 2 of Rule 3 of the Rules on Civil Procedure.15 Their filing a suit against her in their own
names negates their claim that they acted as mere agents in selling the rice obtained from Bartolome
Ramos.

DECISION

Second Issue:

BRION, J.:

Indispensable Party

Assailed in this petition for review on certiorari1 under Rule 45 of the Revised Rules of Court is the
decision2 dated September 24, 2008 and the resolution3 dated April 30, 2009 of the Court of Appeals
(CA) in CA-G.R. CV No. 82301. The appellate court affirmed the decision of the Regional Trial Court
(RTC) of Quezon City, Branch 77, dismissing the complaint for declaration of nullity of loan filed by
petitioner Alvin Patrimonio and ordering him to pay respondent Octavio 1arasigan III (Marasigan) the
sum of P200,000.00.

Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded as an
indispensable party. They insist that respondents Complaint against them is based on the bouncing
checks she issued; hence, they point to her as the person primarily liable for the obligation.
We hold that respondents cause of action is clearly founded on petitioners failure to pay the purchase
price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the questioned checks in
favor of respondents, in accordance with Sections 31 and 63 of the Negotiable Instruments Law.16 That
Santos was the drawer of the checks is thus immaterial to the respondents cause of action.
PAT CASE: AGENCY

G.R. No. 187769, June 04, 2014

ALVIN PATRIMONIO, Petitioner, v. NAPOLEON GUTIERREZ AND OCTAVIO MARASIGAN III,
Respondents.

The Factual Background

The facts of the case, as shown by the records, are briefly summarized below.
Page 24 of 150

The petitioner and the respondent Napoleon Gutierrez (Gutierrez) entered into a business venture under
the name of Slam Dunk Corporation (Slum Dunk), a production outfit that produced mini-concerts and
shows related to basketball. Petitioner was already then a decorated professional basketball player while
Gutierrez was a well-known sports columnist.
In the course of their business, the petitioner pre-signed several checks to answer for the expenses of
Slam Dunk. Although signed, these checks had no payees name, date or amount. The blank checks
were entrusted to Gutierrez with the specific instruction not to fill them out without previous notification to
and approval by the petitioner. According to petitioner, the arrangement was made so that he could verify
the validity of the payment and make the proper arrangements to fund the account.
In the middle of 1993, without the petitioners knowledge and consent, Gutierrez went to Marasigan (the
petitioners former teammate), to secure a loan in the amount of P200,000.00 on the excuse that the
petitioner needed the money for the construction of his house. In addition to the payment of the principal,
Gutierrez assured Marasigan that he would be paid an interest of 5% per month from March to May
1994.

The RTC ruled on February 3, 2003 in favor of Marasigan.4 It found that the petitioner, in issuing the
pre-signed blank checks, had the intention of issuing a negotiable instrument, albeit with specific
instructions to Gutierrez not to negotiate or issue the check without his approval. While under Section 14
of the Negotiable Instruments Law Gutierrez had the prima facie authority to complete the checks by
filling up the blanks therein, the RTC ruled that he deliberately violated petitioners specific instructions
and took advantage of the trust reposed in him by the latter.
Nonetheless, the RTC declared Marasigan as a holder in due course and accordingly dismissed the
petitioners complaint for declaration of nullity of the loan. It ordered the petitioner to pay Marasigan the
face value of the check with a right to claim reimbursement from Gutierrez.
The petitioner elevated the case to the Court of Appeals (CA), insisting that Marasigan is not a holder in
due course. He contended that when Marasigan received the check, he knew that the same was without
a date, and hence, incomplete. He also alleged that the loan was actually between Marasigan and
Gutierrez with his check being used only as a security.
The Ruling of the CA

After much contemplation and taking into account his relationship with the petitioner and Gutierrez,
Marasigan acceded to Gutierrez request and gave him P200,000.00 sometime in February 1994.
Gutierrez simultaneously delivered to Marasigan one of the blank checks the petitioner pre-signed with
Pilipinas Bank, Greenhills Branch, Check No. 21001764 with the blank portions filled out with the words
Cash Two Hundred Thousand Pesos Only, and the amount of P200,000.00. The upper right portion
of the check corresponding to the date was also filled out with the words May 23, 1994 but the
petitioner contended that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason ACCOUNT
CLOSED. It was later revealed that petitioners account with the bank had been closed since May 28,
1993.
Marasigan sought recovery from Gutierrez, to no avail. He thereafter sent several demand letters to the
petitioner asking for the payment of P200,000.00, but his demands likewise went unheeded.
Consequently, he filed a criminal case for violation of B.P. 22 against the petitioner, docketed as Criminal
Case No. 42816.
On September 10, 1997, the petitioner filed before the Regional Trial Court (RTC) a Complaint for
Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent
Marasigan. He completely denied authorizing the loan or the checks negotiation, and asserted that he
was not privy to the parties loan agreement.
Only Marasigan filed his answer to the complaint. In the RTCs order dated December 22, 1997,
Gutierrez was declared in default.

On September 24, 2008, the CA affirmed the RTC ruling, although premised on different factual findings.
After careful analysis, the CA agreed with the petitioner that Marasigan is not a holder in due course as
he did not receive the check in good faith.
The CA also concluded that the check had been strictly filled out by Gutierrez in accordance with the
petitioners authority. It held that the loan may not be nullified since it is grounded on an obligation arising
from law and ruled that the petitioner is still liable to pay Marasigan the sum of P200,000.00.
After the CA denied the subsequent motion for reconsideration that followed, the petitioner filed the
present petition for review on certiorari under Rule 45 of the Revised Rules of Court.
The Petition
The petitioner argues that: (1) there was no loan between him and Marasigan since he never authorized
the borrowing of money nor the checks negotiation to the latter; (2) under Article 1878 of the Civil Code,
a special power of attorney is necessary for an individual to make a loan or borrow money in behalf of
another; (3) the loan transaction was between Gutierrez and Marasigan, with his check being used only
as a security; (4) the check had not been completely and strictly filled out in accordance with his
authority since the condition that the subject check can only be used provided there is prior approval
from him, was not complied with; (5) even if the check was strictly filled up as instructed by the petitioner,
Marasigan is still not entitled to claim the checks value as he was not a holder in due course; and (6) by
reason of the bad faith in the dealings between the respondents, he is entitled to claim for damages.
The Issues

The Ruling of the RTC

PAT CASE: AGENCY

Page 25 of 150

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

Whether the contract of loan in the amount of P200,000.00 granted by respondent Marasigan to
petitioner, through respondent Gutierrez, may be nullified for being void;

authority of the latter." Agency may be express, or implied from the acts of the principal, from his silence
or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his
behalf without authority.

Whether there is basis to hold the petitioner liable for the payment of the P200,000.00 loan;

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

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

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

Whether Marasigan is a holder in due course.

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

The Courts Ruling

xxxx

The petition is impressed with merit.

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

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

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

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

The requirements of a special power of attorney in Article 1878 of the Civil Code and of a special
authority in Rule 138 of the Rules of Court refer to the nature of the authorization and not its form. The
requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated
that such a mandate may be either oral or written, the one vital thing being that it shall be express. And
more recently, We stated that, if the special authority is not written, then it must be duly established by
evidence:

I. Liability Under the Contract of Loan

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

x x x the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And
while the same does not state that the special authority be in writing the Court has every reason to
expect that, if not in writing, the same be duly established by evidence other than the self-serving
assertion of counsel himself that such authority was verbally given him. (Home Insurance Company vs.
United States lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA 210; 225).
(emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf
of the Petitioner Should be Nullified for Being Void;
Petitioner is Not Bound by the Contract of Loan.

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

Page 26 of 150

A review of the records reveals that Gutierrez did not have any authority to borrow money in behalf of the
petitioner. Records do not show that the petitioner executed any special power of attorney (SPA) in favor
of Gutierrez. In fact, the petitioners testimony confirmed that he never authorized Gutierrez (or anyone
for that matter), whether verbally or in writing, to borrow money in his behalf, nor was he aware of any
such transaction:ChanRoblesVirtualawlibrary
ALVIN PATRIMONIO (witness)
ATTY. DE VERA:
Did you give Nap Gutierrez any Special Power of Attorney in writing authorizing him to borrow using your
money?
WITNESS:
No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioners acts of pre-signing the blank checks and releasing them
to Gutierrez suffice to establish that the petitioner had authorized Gutierrez to fill them out and contract
the loan in his behalf.
Marasigans submission fails to persuade us.
In the absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the
petitioner. As held in Yasuma v. Heirs of De Villa,9 involving a loan contracted by de Villa secured by real
estate mortgages in the name of East Cordillera Mining Corporation, in the absence of an SPA conferring
authority on de Villa, there is no basis to hold the corporation liable, to wit:ChanRoblesVirtualawlibrary
The power to borrow money is one of those cases where corporate officers as agents of the corporation
need a special power of attorney. In the case at bar, no special power of attorney conferring authority on
de Villa was ever presented. x x x There was no showing that respondent corporation ever authorized de
Villa to obtain the loans on its behalf.
xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the
corporation liable since there was no authority, express, implied or apparent, given to de Villa to borrow
money from petitioner. Neither was there any subsequent ratification of his act.
xxxx
The liability arising from the loan was the sole indebtedness of de Villa (or of his estate after his death).
(citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10 where this court
held:ChanRoblesVirtualawlibrary
PAT CASE: AGENCY

Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian
to obtain a loan from him.
xxxx
Petitioners testimony failed to categorically state, however, whether the loan was made on behalf of
respondent or of his wife. While petitioner claims that Lilian was authorized by respondent, the statement
of account marked as Exhibit "A" states that the amount was received by Lilian "in behalf of Mrs. Annie
Mercado.
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was
acting for and in behalf of respondent. She thus bound herself in her personal capacity and not as an
agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property
executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the
principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted in the name of the principal. x x x (emphasis
supplied).
In the absence of any showing of any agency relations or special authority to act for and in behalf of the
petitioner, the loan agreement Gutierrez entered into with Marasigan is null and void. Thus, the petitioner
is not bound by the parties loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks to Gutierrez is not legally
sufficient because the authority to enter into a loan can never be presumed. The contract of agency and
the special fiduciary relationship inherent in this contract must exist as a matter of fact. The person
alleging it has the burden of proof to show, not only the fact of agency, but also its nature and extent.11
As we held in People v. Yabut:12cralawred
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut or Geminiano Yabut, Jr., in
Caloocan City cannot, contrary to the holding of the respondent Judges, be licitly taken as delivery of the
checks to the complainant Alicia P. Andan at Caloocan City to fix the venue there. He did not take
delivery of the checks as holder, i.e., as "payee" or "indorsee." And there appears to be no contract of
agency between Yambao and Andan so as to bind the latter for the acts of the former. Alicia P. Andan
declared in that sworn testimony before the investigating fiscal that Yambao is but her "messenger" or
"part-time employee." There was no special fiduciary relationship that permeated their dealings. For a
contract of agency to exist, the consent of both parties is essential, the principal consents that the other
party, the agent, shall act on his behalf, and the agent consents so to act. It must exist as a fact. The law
makes no presumption thereof. The person alleging it has the burden of proof to show, not only the fact
of its existence, but also its nature and extent. This is more imperative when it is considered that the
transaction dealt with involves checks, which are not legal tender, and the creditor may validly refuse the
same as payment of obligation. (at p. 630). (emphasis supplied)
Page 27 of 150

The records show that Marasigan merely relied on the words of Gutierrez without securing a copy of the
SPA in favor of the latter and without verifying from the petitioner whether he had authorized the
borrowing of money or release of the check. He was thus bound by the risk accompanying his trust on
the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between
Marasigan And Petitioner, as The Latters
Consent Was Not Obtained.
Another significant point that the lower courts failed to consider is that a contract of loan, like any other
contract, is subject to the rules governing the requisites and validity of contracts in general.13 Article
1318 of the Civil Code14 enumerates the essential requisites for a valid contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract; and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the contract lacked the essential element of
consent. We agree with the petitioner. As we explained above, Gutierrez did not have the petitioners
written/verbal authority to enter into a contract of loan. While there may be a meeting of the minds
between Gutierrez and Marasigan, such agreement cannot bind the petitioner whose consent was not
obtained and who was not privy to the loan agreement. Hence, only Gutierrez is bound by the contract of
loan.
True, the petitioner had issued several pre-signed checks to Gutierrez, one of which fell into the hands of
Marasigan. This act, however, does not constitute sufficient authority to borrow money in his behalf and
neither should it be construed as petitioners grant of consent to the parties loan agreement. Without any
evidence to prove Gutierrez authority, the petitioners signature in the check cannot be taken, even
remotely, as sufficient authorization, much less, consent to the contract of loan. Without the consent
given by one party in a purported contract, such contract could not have been perfected; there simply
was no contract to speak of.15cralawred
With the loan issue out of the way, we now proceed to determine whether the petitioner can be made
liable under the check he signed.

any amount. In order, however, that any such instrument when completed may be enforced against any
person who became a party thereto prior to its completion, it must be filled up strictly in accordance with
the authority given and within a reasonable time. But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may
enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable
time.
This provision applies to an incomplete but delivered instrument. Under this rule, if the maker or drawer
delivers a pre-signed blank paper to another person for the purpose of converting it into a negotiable
instrument, that person is deemed to have prima facie authority to fill it up. It merely requires that the
instrument be in the possession of a person other than the drawer or maker and from such possession,
together with the fact that the instrument is wanting in a material particular, the law presumes agency to
fill up the blanks.16cralawred
In order however that one who is not a holder in due course can enforce the instrument against a party
prior to the instruments completion, two requisites must exist: (1) that the blank must be filled strictly in
accordance with the authority given; and (2) it must be filled up within a reasonable time. If it was proven
that the instrument had not been filled up strictly in accordance with the authority given and within a
reasonable time, the maker can set this up as a personal defense and avoid liability. However, if the
holder is a holder in due course, there is a conclusive presumption that authority to fill it up had been
given and that the same was not in excess of authority.17cralawred
In the present case, the petitioner contends that there is no legal basis to hold him liable both under the
contract and loan and under the check because: first, the subject check was not completely filled out
strictly under the authority he has given and second, Marasigan was not a holder in due course.
Marasigan is Not a Holder in Due Course
The Negotiable Instruments Law (NIL) defines a holder in due course, thus:ChanRoblesVirtualawlibrary
Sec. 52 A holder in due course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;

II. Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in

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

Section 14 of the Negotiable Instruments Law (NIL) which states:ChanRoblesVirtualawlibrary

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

Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the
person in possession thereof has a prima facie authority to complete it by filling up the blanks therein.
And a signature on a blank paper delivered by the person making the signature in order that the paper
may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for

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

PAT CASE: AGENCY

Page 28 of 150

Section 52(c) of the NIL states that a holder in due course is one who takes the instrument in good faith
and for value. It also provides in Section 52(d) that in order that one may be a holder in due course, it is
necessary that at the time it was negotiated to him he had no notice of any infirmity in the instrument or
defect in the title of the person negotiating it.
Acquisition in good faith means taking without knowledge or notice of equities of any sort which could be
set up against a prior holder of the instrument.18 It means that he does not have any knowledge of fact
which would render it dishonest for him to take a negotiable paper. The absence of the defense, when
the instrument was taken, is the essential element of good faith.19cralawred
As held in De Ocampo v. Gatchalian:20cralawred
In order to show that the defendant had knowledge of such facts that his action in taking the instrument
amounted to bad faith, it is not necessary to prove that the defendant knew the exact fraud that was
practiced upon the plaintiff by the defendant's assignor, it being sufficient to show that the defendant had
notice that there was something wrong about his assignor's acquisition of title, although he did not have
notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that the note was in some way tainted
with fraud. It is not necessary that he should know the particulars or even the nature of the fraud, since
all that is required is knowledge of such facts that his action in taking the note amounted bad faith.
The term bad faith does not necessarily involve furtive motives, but means bad faith in a commercial
sense. The manner in which the defendants conducted their Liberty Loan department provided an easy
way for thieves to dispose of their plunder. It was a case of no questions asked. Although gross
negligence does not of itself constitute bad faith, it is evidence from which bad faith may be inferred. The
circumstances thrust the duty upon the defendants to make further inquiries and they had no right to shut
their eyes deliberately to obvious facts. (emphasis supplied).
In the present case, Marasigans knowledge that the petitioner is not a party or a privy to the contract of
loan, and correspondingly had no obligation or liability to him, renders him dishonest, hence, in bad faith.
The following exchange is significant on this point:ChanRoblesVirtualawlibrary
WITNESS: AMBET NABUS
Q:
Now, I refer to the second call after your birthday. Tell us what you talked about?
A:
Since I celebrated my birthday in that place where Nap and I live together with the other crew, there were
several visitors that included Danny Espiritu. So a week after my birthday, Bong Marasigan called me up
again and he was fuming mad. Nagmumura na siya. Hinahanap niya si hinahanap niya si Nap, dahil
pinagtataguan na siya at sinabi na niya na kailangan I-settle na niya yung utang ni Nap, dahil
xxxx
WITNESS:
PAT CASE: AGENCY

Yes. Sinabi niya sa akin na kailangan ayusin na bago pa mauwi sa kung saan ang tsekeng tumalbog
(He told me that we have to fix it up before it) mauwi pa kung saan
xxxx
Q:
What was your reply, if any?
A:
I actually asked him. Kanino ba ang tseke na sinasabi mo? (Whose check is it that you are referring to or
talking about?)
Q:
What was his answer?
A:
It was Alvins check.
Q:
What was your reply, if any?
A:
I told him do you know that it is not really Alvin who borrowed money from you or what you want to
appear
xxxx
Q:
What was his reply?
A:
Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin ang maiipit dito. (T.S.N., Ambet
Nabus, July 27, 2000; pp.65-71; emphasis supplied)21
Since he knew that the underlying obligation was not actually for the petitioner, the rule that a possessor
of the instrument is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his
inaction and failure to verify, despite knowledge of that the petitioner was not a party to the loan, may be
construed as gross negligence amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due course, Marasigan is already totally
barred from recovery. The NIL does not provide that a holder who is not a holder in due course may not
in any case recover on the instrument.22 The only disadvantage of a holder who is not in due course is
that the negotiable instrument is subject to defenses as if it were non-negotiable.23 Among such
defenses is the filling up blank not within the authority.
On this point, the petitioner argues that the subject check was not filled up strictly on the basis of the
authority he gave. He points to his instruction not to use the check without his prior approval and argues
that the check was filled up in violation of said instruction.
Check Was Not Completed Strictly Under
The Authority Given by The Petitioner
Our own examination of the records tells us that Gutierrez has exceeded the authority to fill up the
blanks and use the check. To repeat, petitioner gave Gutierrez pre-signed checks to be used in their
Page 29 of 150

business provided that he could only use them upon his approval. His instruction could not be any
clearer as Gutierrez authority was limited to the use of the checks for the operation of their business,
and on the condition that the petitioners prior approval be first secured.
While under the law, Gutierrez had a prima facie authority to complete the check, such prima facie
authority does not extend to its use (i.e., subsequent transfer or negotiation) once the check is
completed. In other words, only the authority to complete the check is presumed. Further, the law used
the term "prima facie" to underscore the fact that the authority which the law accords to a holder is a
presumption juris tantum only; hence, subject to subject to contrary proof. Thus, evidence that there was
no authority or that the authority granted has been exceeded may be presented by the maker in order to
avoid liability under the instrument.

WHEREFORE, in view of the foregoing, judgment is hereby rendered GRANTING the petitioner Alvin
Patrimonio's petition for review on certiorari. The appealed Decision dated September 24, 2008 and the
Resolution dated April 30, 2009 of the Court of Appeals are consequently ANNULLED AND SET ASIDE.
Costs against the respondents.
SO ORDERED.
G.R. No. 174978

SALLY YOSHIZAKI, Petitioner,

vs.
JOY TRAINING CENTER OF AURORA, INC., Respondent.

In the present case, no evidence is on record that Gutierrez ever secured prior approval from the
petitioner to fill up the blank or to use the check. In his testimony, petitioner asserted that he never
authorized nor approved the filling up of the blank checks, thus:ChanRoblesVirtualawlibrary
ATTY. DE VERA:
Did you authorize anyone including Nap Gutierrez to write the date, May 23, 1994? WITNESS: No, sir.
Q:
Did you authorize anyone including Nap Gutierrez to put the word cash? In the check?
A:
No, sir.
Q:
Did you authorize anyone including Nap Gutierrez to write the figure P200,000 in this check?
A:
No, sir.
Q:
And lastly, did you authorize anyone including Nap Gutierrez to write the words P200,000 only xx in this
check?
A:
No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24
Notably, Gutierrez was only authorized to use the check for business expenses; thus, he exceeded the
authority when he used the check to pay the loan he supposedly contracted for the construction of
petitioner's house. This is a clear violation of the petitioner's instruction to use the checks for the
expenses of Slam Dunk. It cannot therefore be validly concluded that the check was completed strictly in
accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the petitioner can validly set up the personal
defense that the blanks were not filled up in accordance with the authority he gave. Consequently,
Marasigan has no right to enforce payment against the petitioner and the latter cannot be obliged to pay
the face value of the check.

PAT CASE: AGENCY

July 31, 2013

DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by petitioner Sally Yoshizaki to challenge the
February 14, 2006 Decision2 and the October 3, 2006 Resolution3 of the Court of Appeals (CA) in CAG.R. CV No. 83773.
The Factual Antecedents
Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a non-stock, non-profit religious
educational institution. It was the registered owner of a parcel of land and the building thereon (real
properties) located in San Luis Extension Purok No. 1, Barangay Buhangin, Baler, Aurora. The parcel of
land was designated as Lot No. 125-L and was covered by Transfer Certificate of Title (TCT) No. T25334.4
On November 10, 1998, the spouses Richard and Linda Johnson sold the real properties, a Wrangler
jeep, and other personal properties in favor of the spouses Sally and Yoshio Yoshizaki. On the same
date, a Deed of Absolute Sale5 and a Deed of Sale of Motor Vehicle6 were executed in favor of the
spouses Yoshizaki. The spouses Johnson were members of Joy Trainings board of trustees at the time
of sale. On December 7, 1998, TCT No. T-25334 was cancelled and TCT No. T-260527 was issued in
the name of the spouses Yoshizaki.
On December 8, 1998, Joy Training, represented by its Acting Chairperson Reuben V. Rubio, filed an
action for the Cancellation of Sales and Damages with prayer for the issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction against the spouses Yoshizaki and the spouses
Johnson before the Regional Trial Court of Baler, Aurora (RTC).8 On January 4, 1999, Joy Training filed
a Motion to Amend Complaint with the attached Amended Complaint. The amended complaint
impleaded Cecilia A. Abordo, officer-in-charge of the Register of Deeds of Baler, Aurora, as additional
defendant. The RTC granted the motion on the same date.9
Page 30 of 150

In the complaint, Joy Training alleged that the spouses Johnson sold its properties without the requisite
authority from the board of directors.10 It assailed the validity of a board resolution dated September 1,
199811 which purportedly granted the spouses Johnson the authority to sell its real properties. It averred
that only a minority of the board, composed of the spouses Johnson and Alexander Abadayan,
authorized the sale through the resolution. It highlighted that the Articles of Incorporation provides that
the board of trustees consists of seven members, namely: the spouses Johnson, Reuben, Carmencita
Isip, Dominador Isip, Miraflor Bolante, and Abelardo Aquino.12
Cecilia and the spouses Johnson were declared in default for their failure to file an Answer within the
reglementary period.13 On the other hand, the spouses Yoshizaki filed their Answer with Compulsory
Counterclaims on June 23, 1999. They claimed that Joy Training authorized the spouses Johnson to sell
the parcel of land. They asserted that a majority of the board of trustees approved the resolution. They
maintained that the actual members of the board of trustees consist of five members, namely: the
spouses Johnson, Reuben, Alexander, and Abelardo. Moreover, Connie Dayot, the corporate secretary,
issued a certification dated February 20, 199814 authorizing the spouses Johnson to act on Joy
Trainings behalf. Furthermore, they highlighted that the Wrangler jeep and other personal properties
were registered in the name of the spouses Johnson.15 Lastly, they assailed the RTCs jurisdiction over
the case. They posited that the case is an intra-corporate dispute cognizable by the Securities and
Exchange Commission (SEC).16
After the presentation of their testimonial evidence, the spouses Yoshizaki formally offered in evidence
photocopies of the resolution and certification, among others.17 Joy Training objected to the formal offer
of the photocopied resolution and certification on the ground that they were not the best evidence of their
contents.18 In an Order19 dated May 18, 2004, the RTC denied the admission of the offered copies.
The RTC Ruling
The RTC ruled in favor of the spouses Yoshizaki. It found that Joy Training owned the real properties.
However, it held that the sale was valid because Joy Training authorized the spouses Johnson to sell the
real properties. It recognized that there were only five actual members of the board of trustees;
consequently, a majority of the board of trustees validly authorized the sale. It also ruled that the sale of
personal properties was valid because they were registered in the spouses Johnsons name.20
Joy Training appealed the RTC decision to the CA.
The CA Ruling
The CA upheld the RTCs jurisdiction over the case but reversed its ruling with respect to the sale of real
properties. It maintained that the present action is cognizable by the RTC because it involves recovery of
ownership from third parties.
It also ruled that the resolution is void because it was not approved by a majority of the board of trustees.
It stated that under Section 25 of the Corporation Code, the basis for determining the composition of the
PAT CASE: AGENCY

board of trustees is the list fixed in the articles of incorporation. Furthermore, Section 23 of the
Corporation Code provides that the board of trustees shall hold office for one year and until their
successors are elected and qualified. Seven trustees constitute the board since Joy Training did not hold
an election after its incorporation.
The CA did not also give any probative value to the certification. It stated that the certification failed to
indicate the date and the names of the trustees present in the meeting. Moreover, the spouses Yoshizaki
did not present the minutes that would prove that the certification had been issued pursuant to a board
resolution.21 The CA also denied22 the spouses Yoshizakis motion for reconsideration, prompting
Sally23 to file the present petition.
The Petition
Sally avers that the RTC has no jurisdiction over the case. She points out that the complaint was
principally for the nullification of a corporate act. The transfer of the SECs original and exclusive
jurisdiction to the RTC24 does not have any retroactive application because jurisdiction is a substantive
matter.
She argues that the spouses Johnson were authorized to sell the parcel of land and that she was a
buyer in good faith because she merely relied on TCT No. T-25334. The title states that the spouses
Johnson are Joy Trainings representatives.
She also argues that it is a basic principle that a party dealing with a registered land need not go beyond
the certificate of title to determine the condition of the property. In fact, the resolution and the certification
are mere reiterations of the spouses Johnsons authority in the title to sell the real properties. She further
claims that the resolution and the certification are not even necessary to clothe the spouses Johnson
with the authority to sell the disputed properties. Furthermore, the contract of agency was subsisting at
the time of sale because Section 108 of Presidential Decree No. (PD) 1529 requires that the revocation
of authority must be approved by a court of competent jurisdiction and no revocation was reflected in the
certificate of title.25
The Case for the Respondent
In its Comment26 and Memorandum,27 Joy Training takes the opposite view that the RTC has
jurisdiction over the case. It posits that the action is essentially for recovery of property and is therefore a
case cognizable by the RTC. Furthermore, Sally is estopped from questioning the RTCs jurisdiction
because she seeks to reinstate the RTC ruling in the present case.
Joy Training maintains that it did not authorize the spouses Johnson to sell its real properties. TCT No. T25334 does not specifically grant the authority to sell the parcel of land to the spouses Johnson. It further
asserts that the resolution and the certification should not be given any probative value because they
were not admitted in evidence by the RTC. It argues that the resolution is void for failure to comply with
the voting requirements under Section 40 of the Corporation Code. It also posits that the certification is
void because it lacks material particulars.
Page 31 of 150

The Issues

There is no contract of agency between Joy Training and the spouses Johnson to sell the parcel of land
with its improvements

The case comes to us with the following issues:

1) Whether or not the RTC has jurisdiction over the present case; and
2) Whether or not there was a contract of agency to sell the real properties between Joy Training and the
spouses Johnson.
3) As a consequence of the second issue, whether or not there was a valid contract of sale of the real
properties between Joy Training and the spouses Yoshizaki.
Our Ruling

Article 1868 of the Civil Code defines a contract of agency as a contract whereby a person "binds himself
to render some service or to do something in representation or on behalf of another, with the consent or
authority of the latter." It may be express, or implied from the acts of the principal, from his silence or lack
of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.
As a general rule, a contract of agency may be oral. However, it must be written when the law requires a
specific form.33 Specifically, Article 1874 of the Civil Code provides that the contract of agency must be
written for the validity of the sale of a piece of land or any interest therein. Otherwise, the sale shall be
void. A related provision, Article 1878 of the Civil Code, states that special powers of attorney are
necessary to convey real rights over immovable properties.

We find the petition unmeritorious.

The RTC has jurisdiction over disputes concerning the application of the Civil Code
Jurisdiction over the subject matter is the power to hear and determine cases of the general class to
which the proceedings before a court belong.28 It is conferred by law. The allegations in the complaint
and the status or relationship of the parties determine which court has jurisdiction over the nature of an
action.29 The same test applies in ascertaining whether a case involves an intra-corporate
controversy.30
The CA correctly ruled that the RTC has jurisdiction over the present case. Joy Training seeks to nullify
the sale of the real properties on the ground that there was no contract of agency between Joy Training
and the spouses Johnson. This was beyond the ambit of the SECs original and exclusive jurisdiction
prior to the enactment of Republic Act No. 8799 which only took effect on August 3, 2000. The
determination of the existence of a contract of agency and the validity of a contract of sale requires the
application of the relevant provisions of the Civil Code. It is a well-settled rule that "disputes concerning
the application of the Civil Code are properly cognizable by courts of general jurisdiction."31 Indeed, no
special skill requiring the SECs technical expertise is necessary for the disposition of this issue and of
this case.
The Supreme Court may review questions of fact in a petition for review on certiorari when the findings
of fact by the lower courts are conflicting

The special power of attorney mandated by law must be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the authorized act. We unequivocably declared in Cosmic
Lumber Corporation v. Court of Appeals34 that a special power of attorneymust express the powers of
the agent in clear and unmistakable language for the principal to confer the right upon an agent to sell
real estate. When there is any reasonable doubt that the language so used conveys such power, no
such construction shall be given the document. The purpose of the law in requiring a special power of
attorney in the disposition of immovable property is to protect the interest of an unsuspecting owner from
being prejudiced by the unwarranted act of another and to caution the buyer to assure himself of the
specific authorization of the putative agent.35
In the present case, Sally presents three pieces of evidence which allegedly prove that Joy Training
specially authorized the spouses Johnson to sell the real properties: (1) TCT No. T-25334, (2) the
resolution, (3) and the certification. We quote the pertinent portions of these documents for a thorough
examination of Sallys claim. TCT No. T-25334, entered in the Registry of Deeds on March 5, 1998,
states:
A parcel of land x x x is registered in accordance with the provisions of the Property Registration Decree
in the name of JOY TRAINING CENTER OF AURORA, INC., Rep. by Sps. RICHARD A. JOHNSON and
LINDA S. JOHNSON, both of legal age, U.S. Citizen, and residents of P.O. Box 3246, Shawnee, Ks
66203, U.S.A.36 (emphasis ours)
On the other hand, the fifth paragraph of the certification provides:

We are aware that the issues at hand require us to review the pieces of evidence presented by the
parties before the lower courts. As a general rule, a petition for review on certiorari precludes this Court
from entertaining factual issues; we are not duty-bound to analyze again and weigh the evidence
introduced in and considered by the lower courts. However, the present case falls under the recognized
exception that a review of the facts is warranted when the findings of the lower courts are conflicting.32
Accordingly, we will examine the relevant pieces of evidence presented to the lower court.
PAT CASE: AGENCY

Further, Richard A. and Linda J. Johnson were given FULL AUTHORITY for ALL SIGNATORY purposes
for the corporation on ANY and all matters and decisions regarding the property and ministry here. They
will follow guidelines set forth according to their appointment and ministerial and missionary training and
in that, they will formulate and come up with by-laws which will address and serve as governing papers
Page 32 of 150

over the center and corporation. They are to issue monthly and quarterly statements to all members of
the corporation.37 (emphasis ours)
The resolution states:
We, the undersigned Board of Trustees (in majority) have authorized the sale of land and building owned
by spouses Richard A. and Linda J. Johnson (as described in the title SN No. 5102156 filed with the
Province of Aurora last 5th day of March, 1998. These proceeds are going to pay outstanding loans
against the project and the dissolution of the corporation shall follow the sale. This is a religious, nonprofit corporation and no profits or stocks are issued.38 (emphasis ours)
The above documents do not convince us of the existence of the contract of agency to sell the real
properties. TCT No. T-25334 merely states that Joy Training is represented by the spouses Johnson.
The title does not explicitly confer to the spouses Johnson the authority to sell the parcel of land and the
building thereon. Moreover, the phrase "Rep. by Sps. RICHARD A. JOHNSON and LINDA S.
JOHNSON"39 only means that the spouses Johnson represented Joy Training in land registration.
The lower courts should not have relied on the resolution and the certification in resolving the
case.1wphi1 The spouses Yoshizaki did not produce the original documents during trial. They also
failed to show that the production of pieces of secondary evidence falls under the exceptions
enumerated in Section 3, Rule 130 of the Rules of Court.40 Thus, the general rule that no evidence
shall be admissible other than the original document itself when the subject of inquiry is the contents of a
document applies.41
Nonetheless, if only to erase doubts on the issues surrounding this case, we declare that even if we
consider the photocopied resolution and certification, this Court will still arrive at the same conclusion.
The resolution which purportedly grants the spouses Johnson a special power of attorney is negated by
the phrase "land and building owned by spouses Richard A. and Linda J. Johnson."42 Even if we
disregard such phrase, the resolution must be given scant consideration. We adhere to the CAs position
that the basis for determining the board of trustees composition is the trustees as fixed in the articles of
incorporation and not the actual members of the board. The second paragraph of Section 2543 of the
Corporation Code expressly provides that a majority of the number of trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of corporate business.
Moreover, the certification is a mere general power of attorney which comprises all of Joy Trainings
business.44 Article 1877 of the Civil Code clearly states that "an agency couched in general terms
comprises only acts of administration, even if the principal should state that he withholds no power or
that the agent may execute such acts as he may consider appropriate, or even though the agency
should authorize a general and unlimited management."45
The contract of sale is unenforceable

Necessarily, the absence of a contract of agency renders the contract of sale unenforceable;46 Joy
Training effectively did not enter into a valid contract of sale with the spouses Yoshizaki. Sally cannot
also claim that she was a buyer in good faith. She misapprehended the rule that persons dealing with a
registered land have the legal right to rely on the face of the title and to dispense with the need to inquire
further, except when the party concerned has actual knowledge of facts and circumstances that would
impel a reasonably cautious man to make such inquiry.47 This rule applies when the ownership of a
parcel of land is disputed and not when the fact of agency is contested.
At this point, we reiterate the established principle that persons dealing with an agent must ascertain not
only the fact of agency, but also the nature and extent of the agents authority.48 A third person with
whom the agent wishes to contract on behalf of the principal may require the presentation of the power
of attorney, or the instructions as regards the agency.49 The basis for agency is representation and a
person dealing with an agent is put upon inquiry and must discover on his own peril the authority of the
agent.50 Thus, Sally bought the real properties at her own risk; she bears the risk of injury occasioned
by her transaction with the spouses Johnson.
WHEREFORE, premises considered, the assailed Decision dated February 14, 2006 and Resolution
dated October 3, 2006 of the Court of Appeals are hereby AFFIRMED and the petition is hereby DENIED
for lack of merit.
SO ORDERED.
G.R. No. 163928

January 21, 2015

MANUEL JUSAYAN, ALFREDO JUSAYAN, AND MICHAEL JUSAYAN Petitioners,

vs.
JORGE SOMBILLA, Respondent.
DECISION
BERSAMIN, J.:
The Court resolves whether a lease of agricultural land between the respondent and the predecessor of
the petitioners was a civil law lease or an agricultural lease. The resolution is determinative of whether or
not the Regional Trial Court (RTC) had original exclusive jurisdiction over the action commenced by the
predecessor of the petitioners against the respondent. The Case
Under review on certiorari is the decision promulgated on October 20, 2003,1 whereby the Court of
Appeals (CA) reversed the judgment in favor of the petitioners rendered on April 13, 1999 in CAR Case
No. 17117 entitled Timoteo Jusayan, Manuel Jusayan, Alfredo Jusayan and Michael Jusayan v. Jorge
Sombillaby the RTC, Branch 30, in Iloilo City.2
Antecedents

PAT CASE: AGENCY

Page 33 of 150

Wilson Jesena (Wilson) owned four parcels of land situated in New Lucena, Iloilo. On June 20, 1970,
Wilson entered into an agreement with respondent Jorge Sombilla (Jorge),3 wherein Wilson designated
Jorge as his agent to supervise the tilling and farming of his riceland in crop year 1970-1971. On August
20, 1971, before the expiration of the agreement, Wilson sold the four parcels of land to Timoteo
Jusayan (Timoteo).4 Jorge and Timoteo verbally agreed that Jorge would retain possession of the
parcels of land and would deliver 110 cavans of palay annually to Timoteo without need for accounting of
the cultivation expenses provided that Jorge would pay the irrigation fees. From 1971 to 1983, Timoteo
and Jorge followed the arrangement. In 1975, the parcels of land were transferred in the names of
Timoteos sons, namely; Manuel, Alfredo and Michael (petitioners). In 1984, Timoteo sent several letters
to Jorge terminating his administration and demanding the return of the possession of the parcels of
land.5
Due to the failure of Jorge to render accounting and to return the possession of the parcels of land
despite demands, Timoteo filed on June 30, 1986 a complaint for recovery of possession and accounting
against Jorge in the RTC (CAR Case No. 17117). Following Timoteos death on October 4, 1991, the
petitioners substituted him as the plaintiffs.
In his answer,6 Jorge asserted that he enjoyed security of tenure as the agricultural lessee of Timoteo;
and that he could not be dispossessed of his landholding without valid cause.
Ruling of the RTC
In its decision rendered on April 13, 1999,7 the RTC upheld the contractual relationship of agency
between Timoteo and Jorge; and ordered Jorge to deliver the possession of the parcels of land to the
petitioners.
Judgment of the CA
Jorge appealed to the CA.
In the judgment promulgated on October 20, 2003,8 the CA reversed the RTC and dismissed the case,
declaring that the contractual relationship between the parties was one of agricultural tenancy; and that
the demand of Timoteo for the delivery of his share in the harvest and the payment of irrigation fees
constituted an agrarian dispute that was outside the jurisdiction of the RTC, and well within the exclusive
jurisdiction of the Department of Agriculture (DAR) pursuant to Section 3(d) of Republic Act No. 6657
(Comprehensive Agrarian Reform Law of 1988).
Issues
The petitioners now appeal upon the following issues, namely:
a.) Whether or not the relationship between the petitioners and respondent is that of agency or
agricultural leasehold; and
PAT CASE: AGENCY

b.) Whether or not RTC, Branch 30, Iloilo City as Regional Trial Court and Court of Agrarian Relations,
had jurisdiction over the herein case.9
Ruling of the Court
The petition for review lacks merit.
To properly resolve whether or not the relationship between Timoteo and Jorge was that of an agency or
a tenancy, an analysis of the concepts of agency and tenancy is in order.
In agency, the agent binds himself to render some service or to do something in representation or on
behalf of the principal, with the consent or authority of the latter.10 The basis of the civil law relationship
of agency is representation,11 the elements of which are, namely: (a) the relationship is established by
the parties consent, express or implied; (b) the object is the execution of a juridical act in relation to a
third person; (c) the agent acts as representative and not for himself; and (d) the agent acts within the
scope of his authority.12 Whether or not an agency has been created is determined by the fact that one
is representing and acting for another.13 The law does not presume agency; hence, proving its
existence, nature and extent is incumbent upon the person alleging it.14
The claim of Timoteo that Jorge was his agent contradicted the verbal agreement he had fashioned with
Jorge. By assenting to Jorges possession of the land sans accounting of the cultivation expenses and
actual produce of the land provided that Jorge annually delivered to him 110 cavans of palay and paid
the irrigation fees belied the very nature of agency, which was representation. The verbal agreement
between Timoteo and Jorge left all matters of agricultural production to the sole discretion of Jorge and
practically divested Timoteo of the right to exercise his authority over the acts to be performed by Jorge.
While inpossession of the land, therefore, Jorge was acting for himself instead offor Timoteo. Unlike
Jorge, Timoteo did not benefit whenever the production increased, and did not suffer whenever the
production decreased. Timoteos interest was limited to the delivery of the 110 cavans of palay annually
without any concern about how the cultivation could be improved in order to yield more produce.
On the other hand, to prove the tenancy relationship, Jorge presented handwritten receipts15 indicating
that the sacks of palay delivered to and received by one Corazon Jusayan represented payment of
rental. In this regard, rental was the legal term for the consideration of the lease.16 Consequently, the
receipts substantially proved that the contractual relationship between Jorge and Timoteo was a lease.
Yet, the lease of an agricultural land can be either a civil law or an agricultural lease.1wphi1 In the civil
law lease, one of the parties binds himself to give to another the enjoyment or use ofa thing for a price
certain, and for a period that may be definite or indefinite.17 In the agricultural lease, also termed as a
lease hold tenancy, the physical possession of the land devoted to agriculture is given by its owner or
legal possessor (landholder) to another (tenant) for the purpose of production through labor of the latter
and of the members of his immediate farm household, in consideration of which the latter agrees to
share the harvest with the landholder, or to pay a price certain or ascertainable, either in produce or in
money, or in both.18 Specifically, in Gabriel v. Pangilinan,19 this Court differentiated between a
leasehold tenancy and a civil law lease in the following manner, namely: (1) the subject matter of a
Page 34 of 150

leasehold tenancy is limited to agricultural land, but that of a civil law lease may be rural or urban
property; (2) as to attention and cultivation, the law requires the leasehold tenant to personally attend to
and cultivate the agricultural land; the civil law lessee need not personally cultivate or work the thing
leased; (3) as to purpose, the landholding in leasehold tenancy is devoted to agriculture; in civil law
lease, the purpose may be for any other lawful pursuits; and(4) as to the law that governs, the civil law
lease is governed by the Civil Code, but the leasehold tenancy is governed by special laws.
The sharing of the harvest in proportion to the respective contributions of the landholder and tenant,
otherwise called share tenancy,20 was abolished on August 8, 1963 under Republic Act No. 3844. To
date, the only permissible system of agricultural tenancy is leasehold tenancy,21 a relationship wherein a
fixed consideration is paid instead of proportionately sharing the harvest as in share tenancy.
In Teodoro v. Macaraeg,22 this Court has synthesized the elements of agricultural tenancy to wit: (1) the
object of the contract or the relationship is an agricultural land that is leased or rented for the purpose of
agricultural production; (2) the size of the landholding is such that it is susceptible of personal cultivation
by a single person with the assistance of the members of his immediate farm household; (3) the tenantlessee must actually and personally till, cultivate or operate the land, solely or with the aid of labor from
his immediate farm household; and (4) the landlord-lessor, who is either the lawful owner or the legal
possessor of the land, leases the same to the tenant-lessee for a price certain or ascertainable either in
an amount of money or produce.
It can be gleaned that in both civil law lease of an agricultural land and agricultural lease, the lessor
gives to the lessee the use and possession of the land for a price certain. Although the purpose of the
civil law lease and the agricultural lease may be agricultural cultivation and production, the distinctive
attribute that sets a civil law lease apart from an agricultural lease is the personal cultivation by the
lessee. An agricultural lessee cultivates by himself and with the aid of those of his immediate farm
household. Conversely, even when the lessee is in possession of the leased agricultural land and paying
a consideration for it but is not personally cultivating the land, he or she is a civil law lessee.
The only issue remaining to be resolved is whether or not Jorge personally cultivated the leased
agricultural land.
Cultivation is not limited to the plowing and harrowing of the land, but includes the various phases of
farm labor such as the maintenance, repair and weeding of dikes, paddies and irrigation canals in the
landholding. Moreover, it covers attending to the care of the growing plants,23 and grown plants like fruit
trees that require watering, fertilizing, uprooting weeds, turning the soil, fumigating to eliminate plant
pests24 and all other activities designed to promote the growth and care of the plants or trees and
husbanding the earth, by general industry, so that it may bring forth more products or fruits.25 In Tarona
v. Court of Appeals,26 this Court ruled that a tenant is not required to be physically present in the land at
all hours of the day and night provided that he lives close enough to the land to be cultivated to make it
physically possible for him to cultivate it with some degree of constancy.
Nor was there any question that the parcels of agricultural land with a total area of 7.9 hectares involved
herein were susceptible of cultivation by a single person with the help of the members of his immediate
PAT CASE: AGENCY

farm household. As the Court has already observed, an agricultural land of an area of four hectares,27 or
even of an area as large as 17 hectares,28 could be personally cultivated by a tenant by himself or with
help of the members of his farm household.
It is elementary that he who alleges the affirmative of the issue has the burden of proof.29 Hence, Jorge,
as the one claiming to be an agricultural tenant, had to prove all the requisites of his agricultural tenancy
by substantial evidence.30 In that regard, his knowledge of and familiarity with the landholding, its
production and the instances when the landholding was struck by drought definitely established that he
personally cultivated the land.31 His ability to farm the seven hectares of land despite his regular
employment as an Agricultural Technician at the Municipal Agriculture Office32 was not physically
impossible for him to accomplish considering that his daughter, a member of his immediate farm
household, was cultivating one of the parcels of the land.33 Indeed, the law did not prohibit him as the
agricultural lessee who generally worked the land himself or with the aid of member of his immediate
household from availing himself occasionally or temporarily of the help of others in specific jobs.34 In
short, the claim of the petitioners that the employment of Jorge as an Agricultural Technician at the
Municipal Agriculture Office disqualified him as a tenant lacked factual or legal basis.
Section 7 of Republic Act No. 3844 provides that once there is an agricultural tenancy, the agricultural
tenants right to security of tenure is recognized and protected. The landowner cannot eject the
agricultural tenant from the land unless authorized by the proper court for causes provided by law.
Section 36 of Republic Act No. 3844, as amended by Republic Act No. 6389, enumerates the several
grounds for the valid dispossession of the tenant.35 It is underscored, however, that none of such
grounds for valid dispossession of landholding was attendant in Jorges case.
Although the CA has correctly categorized Jorges case as an agrarian dispute, it ruled that the RTC
lacked jurisdiction over the case based on Section 50 of Republic Act No. 6657, which vested in the
Department of Agrarian Reform (DAR) the "primary jurisdiction to determine and adjudicate agrarian
reform matters" and the "exclusive original jurisdiction over all matters involving the implementation of
agrarian reform" except disputes falling under the exclusive jurisdiction of the Department of Agriculture
and the Department of Environment and Natural Resources.
We hold that the CA gravely erred. The rule is settled that the jurisdiction of a court is determined by the
statute in force at the time of the commencement of an action.36 In 1980, upon the passage of Batas
Pambansa Blg. 129 (Judiciary Reorganization Act), the Courts of Agrarian Relations were integrated into
the Regional Trial Courts and the jurisdiction of the Courts of Agrarian Relations was vested in the
Regional Trial Courts.37 It was only on August 29, 1987, when Executive Order No. 229 took effect, that
the general jurisdiction of the Regional Trial Courts to try agrarian reform matters was transferred to the
DAR. Therefore, the RTC still had jurisdiction over the dispute at the time the complaint was filed in the
RTC on June 30, 1986.
WHEREFORE, the Court GRANTS the petition for review on certiorari by PARTIALLY AFFIRMING the
decision of the Court of Appeals to the extent that it upheld the tenancy relationship of the parties;
DISMISSES the complaint for recovery of possession and accounting; and ORDERS the petitioners to
pay the costs of suit.
Page 35 of 150

The parties are ordered to comply with their undertakings as agricultural lessor and agricultural lessee.

1.
Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as
defined and penalized under Article 315, paragraph 1(b) of the Revised Penal Code;

SO ORDERED.
2.
Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS and TWO (2) MONTHS
of prision correccional as minimum, to TEN (10) YEARS of prision mayor as maximum;
3.
Ordering her to return to the offended party Mrs. Victoria Suarez the ring or its value in the
amount of P169,000 without subsidiary imprisonment in case insolvency; and
G.R. No. 102784

February 28, 1996

ROSA LIM, petitioner,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No. 10290, entitled
"People v. Rosa Lim," promulgated on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against petitioner Rosa Lim before Branch 92
of the Regional Trial Court of Quezon City.1 The Information reads:
That on or about the 8th day of October 1987, in Quezon City, Philippines and within the jurisdiction of
this Honorable Court, the said accused with intent to gain, with unfaithfulness and/or abuse of
confidence, did, then and there, wilfully, unlawfully and feloniously defraud one VICTORIA SUAREZ, in
the following manner, to wit: on the date and place aforementioned said accused got and received in
trust from said complainant one (1) ring 3.35 solo worth P169,000.00, Philippine Currency, with the
obligation to sell the same on commission basis and to turn over the proceeds of the sale to said
complainant or to return said jewelry if unsold, but the said accused once in possession thereof and far
from complying with her obligation despite repeated demands therefor, misapplied, misappropriated and
converted the same to her own personal use and benefit, to the damage and prejudice of the said
offended party in the amount aforementioned and in such other amount as may be awarded under the
provisions of the Civil Code.
CONTRARY TO LAW.2
After arraignment and trial on the merits, the trial court rendered judgment, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
PAT CASE: AGENCY

4.

To pay costs.3

On appeal, the Court of Appeals affirmed the judgment of conviction with the modification that the
penalty imposed shall be six (6) years, eight (8) months and twenty-one (21) days to twenty (20) years in
accordance with Article 315, paragraph 1 of the Revised Penal Code.4
Petitioner filed a motion for reconsideration before the appellate court on September 20, 1991, but the
motion was denied in a Resolution dated November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition for review alleging the following
grounds:
I
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES OF COURT AND THE
DECISION OF THIS HONORABLE COURT IN NOT PASSING UPON THE FIRST AND THIRD
ASSIGNED ERRORS IN PETITIONER'S BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL EVIDENCE
RULE WAS WAIVED WHEN THE PRIVATE PROSECUTOR CROSS-EXAMINED THE PETITIONER
AND AURELIA NADERA AND WHEN COMPLAINANT WAS CROSS-EXAMINED BY THE COUNSEL
FOR THE PETITIONER AS TO THE TRUE NATURE OF THE AGREEMENT BETWEEN THE PARTIES
WHEREIN IT WAS DISCLOSED THAT THE TRUE AGREEMENT OF THE PARTIES WAS A SALE OF
JEWELRIES AND NOT WHAT WAS EMBODIED IN THE RECEIPT MARKED AS EXHIBIT "A" WHICH
WAS RELIED UPON BY THE RESPONDENT COURT IN AFFIRMING THE JUDGMENT OF
CONVICTION AGAINST HEREIN PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE PRINCIPLE ENUNCIATED BY
THIS HONORABLE COURT TO THE EFFECT THAT "ACCUSATION" IS NOT, ACCORDING TO THE
FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE PROSECUTION MUST OVERTHROW THE
Page 36 of 150

PRESUMPTION OF INNOCENCE WITH PROOF OF GUILT BEYOND REASONABLE DOUBT. TO

MEET THIS STANDARD, THERE IS NEED FOR THE MOST CAREFUL SCRUTINY OF THE
TESTIMONY OF THE STATE, BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF WHATEVER
DEFENSE IS OFFERED BY THE ACCUSED. ONLY IF THE JUDGE BELOW AND THE APPELLATE
TRIBUNAL COULD ARRIVE AT A CONCLUSION THAT THE CRIME HAD BEEN COMMITTED
PRECISELY BY THE PERSON ON TRIAL UNDER SUCH AN EXACTING TEST SHOULD SENTENCE
THUS REQUIRED THAT EVERY INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE PROOF
AGAINST HIM MUST SURVIVE THE TEST OF REASON; THE STRONGEST SUSPICION MUST NOT
BE PERMITTED TO SWAY JUDGMENT. (People v. Austria, 195 SCRA 700)5
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu received from private
respondent Victoria Suarez the following two pieces of jewelry; one (1) 3.35 carat diamond ring worth
P169,000.00 and one (1) bracelet worth P170,000.00, to be sold on commission basis. The agreement
was reflected in a receipt marked as Exhibit "A"6 for the prosecution. The transaction took place at the
Sir Williams Apartelle in Timog Avenue, Quezon City, where Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but failed to return the diamond
ring or to turn over the proceeds thereof if sold. As a result, private complainant, aside from making
verbal demands, wrote a demand letter7 to petitioner asking for the return of said ring or the proceeds of
the sale thereof. In response, petitioner, thru counsel, wrote a letter8 to private respondent's counsel
alleging that Rosa Lim had returned both ring and bracelet to Vicky Suarez sometime in September,
1987, for which reason, petitioner had no longer any liability to Mrs. Suarez insofar as the pieces of
jewelry were concerned. Irked, Vicky Suarez filed a complaint for estafa under Article 315, par l(b) of the
Revised Penal Code for which the petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in October 1987, together
with one Aurelia Nadera, who introduced petitioner to private respondent, and that they were lodged at
the Williams Apartelle in Timog, Quezon City. Petitioner denied that the transaction was for her to sell the
two pieces of jewelry on commission basis. She told Mrs. Suarez that she would consider buying the
pieces of jewelry far her own use and that she would inform the private complainant of such decision
before she goes back to Cebu. Thereafter, the petitioner took the pieces of jewelry and told Mrs. Suarez
to prepare the "necessary paper for me to sign because I was not yet prepare (d) to buy it."9 After the
document was prepared, petitioner signed it. To prove that she did not agree to the terms of the receipt
regarding the sale on commission basis, petitioner insists that she signed the aforesaid document on the
upper portion thereof and not at the bottom where a space is provided for the signature of the person(s)
receiving the jewelry. 10

would in turn give them back to the private complainant. The petitioner did as she was told and gave the
two pieces of jewelry to Nadera as evidenced by a handwritten receipt, dated October 12, 1987. 11
Two issues need to be resolved: First, what was the real transaction between Rosa Lim and Vicky
Suarez a contract of agency to sell on commission basis as set out in the receipt or a sale on credit; and,
second, was the subject diamond ring returned to Mrs. Suarez through Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she never received the jewelries in trust or
on commission basis from Vicky Suarez. The real agreement between her and the private respondent
was a sale on credit with Mrs. Suarez as the owner-seller and petitioner as the buyer, as indicated by the
bet that petitioner did not sign on the blank space provided for the signature of the person receiving the
jewelry but at the upper portion thereof immediately below the description of the items taken. 12
The contention is far from meritorious.
The receipt marked as Exhibit "A" which establishes a contract of agency to sell on commission basis
between Vicky Suarez and Rosa Lim is herein reproduced in order to come to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking tinanggap kay
___________ the following jewelries:
ang mga alahas na sumusunod:
Description
Mga Uri
Price
Halaga
l ring 3.35 dolo
P

169,000.00

1 bracelet
9;170,000.00
total
Kabuuan
P

339,000.00

On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by telephone in order
to inform her that she was no longer interested in the ring and bracelet. Mrs. Suarez replied that she was
busy at the time and so, she instructed the petitioner to give the pieces of jewelry to Aurelia Nadera who
PAT CASE: AGENCY

Page 37 of 150

in good condition, to be sold in CASH ONLY within . . . days from date of signing this receipt na nasa
mabuting kalagayan upang ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob ng . . . araw mula ng
ating pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period mentioned above; if I would be able to sell,
I shall immediately deliver and account the whole proceeds of sale thereof to the owner of the jewelries
at his/her residence; my compensation or commission shall be the over-price on the value of each
jewelry quoted above. I am prohibited to sell any jewelry on credit or by installment; deposit, give for
safekeeping: lend, pledge or give as security or guaranty under any circumstance or manner, any jewelry
to other person or persons.
kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning na panahong nakatala sa
itaas; kung maipagbili ko naman ay dagli kong isusulit at ibibigay ang buong pinagbilhan sa may-ari ng
mga alahas sa kanyang bahay tahanan; ang aking gantimpala ay ang mapapahigit na halaga sa
nakatakdang halaga sa itaas ng bawat alahas HINDI ko ipinahihintulutang ipa-u-u-tang o ibibigay na
hulugan ang alin mang alahas, ilalagak, ipagkakatiwala; ipahihiram; isasangla o ipananagot kahit sa
anong paraan ang alin mang alahas sa ibang mga tao o tao.
I sign my name this . . . day of . . . 19 . . . at Manila, NILALAGDAAN ko ang kasunduang ito ngayong ika
_____ ng dito sa Maynila.

basis does not belong to any of these three categories, hence it is valid and enforceable in whatever
form it may be entered into.
Furthermore, there is only one type of legal instrument where the law strictly prescribes the location of
the signature of the parties thereto. This is in the case of notarial wills found in Article 805 of the Civil
Code, to wit:
Every will, other than a holographic will, must be subscribed at the end thereof by the testator himself . . .
.
The testator or the person requested by him to write his name and the instrumental witnesses of the will,
shall also sign, as aforesaid, each and every page thereof, except the last, on the left margin. . . .
In the case before us, the parties did not execute a notarial will but a simple contract of agency to sell on
commission basis, thus making the position of petitioner's signature thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez through Aurelia
Nadera, thus relieving her of any liability. Rosa Lim testified to this effect on direct examination by her
counsel:
Q:

___________________
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)
Address: . . . . . . . . . . . .
Rosa Lim's signature indeed appears on the upper portion of the receipt immediately below the
description of the items taken: We find that this fact does not have the effect of altering the terms of the
transaction from a contract of agency to sell on commission basis to a contract of sale. Neither does it
indicate absence or vitiation of consent thereto on the part of Rosa Lim which would make the contract
void or voidable. The moment she affixed her signature thereon, petitioner became bound by all the
terms stipulated in the receipt. She, thus, opened herself to all the legal obligations that may arise from
their breach. This is clear from Article 1356 of the New Civil Code which provides:

And when she left the jewelries with you, what did you do thereafter?

A:
On October 12, I was bound for Cebu. So I called up Vicky through telephone and informed her
that I am no longer interested in the bracelet and ring and that I will just return it.
Q:

And what was the reply of Vicky Suarez?

A:
She told me that she could not come to the apartelle since she was very busy. So, she asked me if
Aurelia was there and when I informed her that Aurelia was there, she instructed me to give the pieces of
jewelry to Aurelia who in turn will give it back to Vicky.
Q:

And you gave the two (2) pieces of jewelry to Aurelia Nadera?

A:

Yes, Your Honor. 14

This was supported by Aurelia Nadera in her direct examination by petitioner's counsel:
Contracts shall be obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present. . . .
However, there are some provisions of the law which require certain formalities for particular contracts.
The first is when the form is required for the validity of the contract; the second is when it is required to
make the contract effective as against third parties such as those mentioned in Articles 1357 and 1358;
and the third is when the form is required for the purpose of proving the existence of the contract, such
as those provided in the Statute of Frauds in article 1403. 13 A contract of agency to sell on commission
PAT CASE: AGENCY

Q:

Do you know if Rosa Lim in fact returned the jewelries?

A:

She gave the jewelries to me.

Q:

Why did Rosa Lim give the jewelries to you?

Page 38 of 150

A:
Rosa Lim called up Vicky Suarez the following morning and told Vicky Suarez that she was going
home to Cebu and asked if she could give the jewelries to me.
Q:

And when did Rosa Lim give to you the jewelries?

A:

Before she left for Cebu. 15

(b)
By misappropriating or converting, to the prejudice of another, money, goods, or any other
personal property received by the offender in trust or on commission, or for administration, or under any
other obligation involving the duty to make delivery of or to return the same, even though such obligation
be totally or partially guaranteed by a bond; or by denying having received such money, goods, or other
property.

On rebuttal, these testimonies were belied by Vicky Suarez herself:

xxx

Q:
It has been testified to here also by both Aurelia Nadera and Rosa Lim that you gave authorization
to Rosa Lim to turn over the two (2) pieces of jewelries mentioned in Exhibit "A" to Aurelia Nadera, what
can you say about that?

The elements of estafa with abuse of confidence under this subdivision are as follows. (1) That money,
goods, or other personal property be received by the offender in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of, or to return, the
same; (2) That there be misappropriation or conversion of such money or property by the offender or
denial on his part of such receipt; (3) That such misappropriation or conversion or denial is to the
prejudice of another; and (4) That there is a demand made by the offended party to the offender (Note:
The 4th element is not necessary when there is evidence of misappropriation of the goods by the
defendant) 19

A:
That is not true sir, because at that time Aurelia Nadera is highly indebted to me in the amount of
P140,000.00, so if I gave it to Nadera, I will be exposing myself to a high risk. 16<
The issue as to the return of the ring boils down to one of credibility. Weight of evidence is not
determined mathematically by the numerical superiority of the witnesses testifying to a given fact. It
depends upon its practical effect in inducing belief on the part of the judge trying the case.17 In the case
at bench, both the trial court and the Court of Appeals gave weight to the testimony of Vicky Suarez that
she did not authorize Rosa Lim to return the pieces of jewelry to Nadera. The respondent court, in
affirming the trial court, said:
. . . This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It contravenes
the very terms of Exhibit A. The instruction by the complaining witness to appellant to deliver the ring to
Aurelia Nadera is vehemently denied by the complaining witness, who declared that she did not
authorize and/or instruct appellant to do so. And thus, by delivering the ring to Aurelia without the
express authority and consent of the complaining witness, appellant assumed the right to dispose of the
jewelry as if it were hers, thereby committing conversion, a clear breach of trust, punishable under Article
315, par. 1(b), Revised Penal Code.
We shall not disturb this finding of the respondent court. It is well settled that we should not interfere with
the judgment of the trial court in determining the credibility of witnesses, unless there appears in the
record some fact or circumstance of weight and influence which has been overlooked or the significance
of which has been misinterpreted. The reason is that the trial court is in a better position to determine
questions involving credibility having heard the witnesses and having observed their deportment and
manner of testifying during the trial. 18
Article 315, par. 1(b) of the Revised Penal Code provides:
Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
xxx

xxx

xxx

PAT CASE: AGENCY

xxx

xxx

All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal Code, are present in
the case at bench. First, the receipt marked as Exhibit "A" proves that petitioner Rosa Lim received the
pieces of jewelry in trust from Vicky Suarez to be sold on commission basis. Second, petitioner
misappropriated or converted the jewelry to her own use; and, third, such misappropriation obviously
caused damage and prejudice to the private respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
[G.R. No. 142950. March 26, 2001]
EQUITABLE PCI BANK, formerly EQUITABLE BANKING CORPORATION, petitioner, vs. ROSITA
KU, respondent.
DECISION
KAPUNAN, J.:
Can a person be evicted by virtue of a decision rendered in an ejectment case where she was not joined
as a party? This was the issue that confronted the Court of Appeals, which resolved the issue in the
negative. To hold the contrary, it said, would violate due process. Given the circumstances of the present
case, petitioner Equitable PCI Bank begs to differ. Hence, this petition.
On February 4, 1982, respondent Rosita Ku, as treasurer of Noddy Dairy Products, Inc., and Ku Giok
Heng, as Vice-President/General Manager of the same corporation, mortgaged the subject property to
Page 39 of 150

the Equitable Banking Corporation, now known as Equitable PCI Bank to secure Noddy Inc.s loan to
Equitable. The property, a residential house and lot located in La Vista, Quezon City, was registered in
respondents name.
Noddy, Inc. subsequently failed to pay the loan secured by the mortgage, prompting petitioner to
foreclose the property extrajudicially. As the winning bidder in the foreclosure sale, petitioner was issued
a certificate of sale. Respondent failed to redeem the property. Thus, on December 10, 1984, the
Register of Deeds canceled the Transfer Certificate of Title in the name of respondent and a new one
was issued in petitioners name.
On May 10, 1989, petitioner instituted an action for ejectment before the Quezon City Metropolitan Trial
Court (MeTC) against respondents father Ku Giok Heng. Petitioner alleged that it allowed Ku Giok Heng
to remain in the property on the condition that the latter pay rent. Ku Giok Hengs failure to pay rent
prompted the MeTC to seek his ejectment. Ku Giok Heng denied that there was any lease agreement
over the property.
On December 8, 1994, the MeTC rendered a decision in favor of petitioner and ordered Ku Giok Heng
to, among other things, vacate the premises. It ruled:
x x x for his failure or refusal to pay rentals despite proper demands, the defendant had not established
his right for his continued possession of or stay in the premises acquired by the plaintiff thru foreclosure,
the title of which had been duly transferred in the name of the plaintiff. The absence of lease agreement
or agreement for the payment of rentals is of no moment in the light of the prevailing Supreme Court
ruling on the matter. Thus: It is settled that the buyer in foreclosure sale becomes the absolute owner of
the property purchased if it is not redeemed during the period of one (1) year after the registration of the
sale is as such he is entitled to the possession of the property and the demand at any time following the
consolidation of ownership and the issuance to him of a new certificate of title. The buyer can, in fact,
demand possession of the land even during the redemption period except that he has to post a bond in
accordance with Section 7 of Act No. 3155 as amended. Possession of the land then becomes an
absolute right of the purchaser as confirmed owner. Upon proper application and proof of title, the
issuance of a writ of possession becomes a ministerial duty of the court. (David Enterprises vs. IBAA[,]
191 SCRA 116).[1]
Ku Giok Heng did not appeal the decision of the MeTC. Instead, he and his daughter, respondent Rosita
Ku, filed on December 20, 1994, an action before the Regional Trial Court (RTC) of Quezon City to nullify
the decision of the MeTC. Finding no merit in the complaint, the RTC on September 13, 1999 dismissed
the same and ordered the execution of the MeTC decision.
Respondent filed in the Court of Appeals (CA) a special civil action for certiorari assailing the decision of
the RTC. She contended that she was not made a party to the ejectment suit and was, therefore,
deprived of due process. The CA agreed and, on March 31, 2000, rendered a decision enjoining the
eviction of respondent from the premises.

PAT CASE: AGENCY

On May 10, 2000, Equitable PCI Bank filed in this Court a motion for an extension of 30 days from May
10, 2000 or until June 9, 2000 to file its petition for review of the CA decision. The motion alleged that the
Bank received the CA decision on April 25, 2000.[2] The Court granted the motion for a 30-day extension
counted from the expiration of the reglementary period and conditioned upon the timeliness of the filing
of [the] motion [for extension].[3]
On June 13, 2000,[4] Equitable Bank filed its petition, contending that there was no need to name
respondent Rosita Ku as a party in the action for ejectment since she was not a resident of the premises
nor was she in possession of the property.
The petition is meritorious.
Generally, no man shall be affected by any proceeding to which he is a stranger, and strangers to a case
are not bound by judgment rendered by the court.[5] Nevertheless, a judgment in an ejectment suit is
binding not only upon the defendants in the suit but also against those not made parties thereto, if they
are:
a) trespassers, squatters or agents of the defendant fraudulently occupying the property to frustrate the
judgment;
b) guests or other occupants of the premises with the permission of the defendant;
c) transferees pendente lite;
d) sub-lessees;
e) co-lessees; or
f) members of the family, relatives and other privies of the defendant.[6]
Thus, even if respondent were a resident of the property, a point disputed by the parties, she is
nevertheless bound by the judgment of the MeTC in the action for ejectment despite her being a nonparty thereto. Respondent is the daughter of Ku Giok Heng, the defendant in the action for ejectment.
Respondent nevertheless claims that the petition is defective. The bank alleged in its petition that it
received a copy of the CA decision on April 25, 2000. A Certification dated June 6, 2000 issued by the
Manila Central Post Office reveals, however, that the copy was duly delivered to and received by Joel
Rosales (Authorized Representative) on April 24, 2000.[7] Petitioners motion for extension to file this
petition was filed on May 10, 2000, sixteen (16) days from the petitioners receipt of the CA decision (April
24, 2000) and one (1) day beyond the reglementary period for filing the petition for review (May 9, 2000).
Petitioner however maintains its honest representation of having received [a copy of the decision] on
April 25, 2000.[8] Appended as Annex A to petitioners Reply is an Affidavit[9] dated October 27, 2000
Page 40 of 150

and executed by Joel Rosales, who was mentioned in the Certification as having received the decision.
The Affidavit states:
(1) I am an employee of Unique Industrial & Allied Services, Inc. (Unique) a corporation duly organized
and existing under Philippine laws with principal place of business at 1206 Vito Cruz St., Malate, Manila,
and I am assigned with the Equitable PCI Bank, Mail and Courier Department, Equitable PCI Bank Tower
II, cor. Makati Avenue and H.V. dela Costa St., Makati City, Metro Manila;
(2) Under the contract of services between the Bank and Unique, it is my official duty and responsibility
to receive and pick-up from the Manila Central Post Office (CPO) the various mails, letters,
correspondence, and other mail matters intended for the banks various departments and offices at
Equitable Bank Building, 262 Juan Luna St., Binondo, Manila. This building, however, also houses
various other offices or tenants not related to the Bank.
(3) I am not the constituted agent of Curato Divina Mabilog Niedo Magturo Pagaduan Law Office whose
former address is at Rm. 405 4/F Equitable Bank Bldg., 262 Juan Luna St., Binondo, Manila, for
purposes of receiving their incoming mail matters; neither am I any such agent of the various other
tenants of the said Building. On occasions when I receive mail matters for said law office, it is only to
help them receive their letters promptly.
(4) On April 24, 2000, I received the registered letter sent by the Court of Appeals, covered by Registry
Receipt No. 125234 and Delivery No. 4880 (copy of envelope attached as Annex A) together with other
mail matters, and brought them to the Mail and Courier Department;
(5) After sorting out these mail matters, on April 25, 2000, I erroneously recorded them on page 422 of
my logbook as having been received by me on said dated April 25, 2000 (copy of page 422 is attached
as Annex B).
(6) On April 27, 2000, this letter was sent by the Mail and Courier Department to said Law Office whose
receiving clerk Darwin Bawar opened the letter and stamped on the Notice of Judgment their actual date
of receipt: April 27, 2000 (copy of the said Notice with the date so stamped is attached as Annex C).
(7) On May 8, 2000, Atty. Roland A. Niedo of said law office inquired from me as to my actual date of
receipt of this letter, and I informed him that based on my logbook, I received it on April 25, 2000.
(8) I discovered this error only on September 6, 2000, when I was informed by Atty. Niedo that
Postmaster VI Alfredo C. Mabanag, Jr. of the Central Post Office, Manila, issued a certification that I
received the said mail on April 24, 2000.

vs. NLRC.[12] In said case, the bailiff served the decision of the National Labor Relations Commission at
the ground floor of the building of the petitioner therein, the Philippine Long Distance Telephone Co.,
rather than on the office of its counsel, whose address, as indicated in the notice of the decision, was on
the ninth floor of the building. We held that:
x x x practical considerations and the realities of the situation dictate that the service made by the bailiff
on March 23, 1981 at the ground floor of the petitioners building and not at the address of record of
petitioners counsel on record at the 9th floor of the PLDT building cannot be considered a valid service.
It was only when the Legal Services Division actually received a copy of the decision on March 26, 1981
that a proper and valid service may be deemed to have been made. x x x.
Applying the foregoing provisions and jurisprudence, petitioner submits that actual receipt by its counsel
was on April 27, 2000, not April 25, 2000. Following the argument to its logical conclusion, the motion for
extension to file the petition for review was even filed two (2) days before the lapse of the 15-day
reglementary period. That counsel treated April 25, 2000 and not April 27, 2000 as the date of receipt
was purportedly intended to obviate respondents possible argument that the 15-day period had to be
counted from April 25, 2000.
The Court is not wholly convinced by petitioners argument. The Affidavit of Joel Rosales states that he is
not the constituted agent of Curato Divina Mabilog Nedo Magturo Pagaduan Law Office. An agency may
be express but it may also be implied from the acts of the principal, from his silence, or lack of action, or
his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.
[13] Likewise, acceptance by the agent may also be express, although it may also be implied from his
acts which carry out the agency, or from his silence or inaction according to the circumstances.[14] In
this case, Joel Rosales averred that [o]n occasions when I receive mail matters for said law office, it is
only to help them receive their letters promptly, implying that counsel had allowed the practice of Rosales
receiving mail in behalf of the former. There is no showing that counsel had objected to this practice or
took steps to put a stop to it. The facts are, therefore, inadequate for the Court to make a ruling in
petitioners favor.
Assuming the motion for extension was indeed one day late, petitioner urges the Court, in any event, to
suspend its rules and admit the petition in the interest of justice. Petitioner invokes Philippine National
Bank vs. Court of Appeals,[15] where the petition was filed three (3) days late. The Court held:
It has been said time and again that the perfection of an appeal within the period fixed by the rules is
mandatory and jurisdictional. But, it is always in the power of this Court to suspend its own rules, or to
except a particular case from its operation, whenever the purposes of justice require it. Strong
compelling reasons such as serving the ends of justice and preventing a grave miscarriage thereof
warrant the suspension of the rules.

(9) I hereby confirm that this error was caused by an honest mistake.
Petitioner argues that receipt on April 25, 2000 by Joel Rosales, who was not an agent of its counsels
law office, did not constitute notice to its counsel, as required by Sections 2[10] and 10,[11] Rule 13 of
the Rules of Court. To support this contention, petitioner cites Philippine Long Distance Telephone Co.
PAT CASE: AGENCY

The Court proceeded to enumerate cases where the rules on reglementary periods were suspended.
Republic vs. Court of Appeals[16] involved a delay of six days; Siguenza vs. Court of Appeals,[17]
thirteen days; Pacific Asia Overseas Shipping Corporation vs. NLRC,[18] one day; Cortes vs. Court of
Page 41 of 150

Appeals,[19] seven days; Olacao vs. NLRC,[20] two days; Legasto vs. Court of Appeals,[21] two days;
and City Fair Corporation vs. NLRC,[22] which also concerned a tardy appeal.

On 28 November 1945, private respondent Paciente Cordero, son-in-law of the Alteras, signed a
document in the Visayan dialect, the English translation of which reads:

The Court finds these arguments to be persuasive, especially in light of the merits of the petition.

MEMORANDUM OF REPURCHASE OVER A PARCEL OF LAND SOLD WITH REPURCHASE WHICH

DOCUMENT GOT LOST

WHEREFORE, the petition is GIVEN DUE COURSE and GRANTED. The decision of the Court of
Appeals is REVERSED.
SO ORDERED.
G.R. No. L-40242 December 15, 1982
DOMINGA CONDE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, MANILA PACIENTE CORDERO, together with his wife,
NICETAS ALTERA, RAMON CONDE, together with his wife, CATALINA T. CONDE, respondents.
MELENCIO-HERRERA, J.:
An appeal by certiorari from the Decision of respondent Court of Appeals 1 (CA-G.R. No. 48133- R)
affirming the judgment of the Court of First Instance of Leyte, Branch IX, Tacloban City (Civil Case No. B110), which dismissed petitioner's Complaint for Quieting of Title and ordered her to vacate the property
in dispute and deliver its possession to private respondents Ramon Conde and Catalina Conde.
The established facts, as found by the Court of Appeals, show that on 7 April 1938. Margarita Conde,
Bernardo Conde and the petitioner Dominga Conde, as heirs of Santiago Conde, sold with right of
repurchase, within ten (10) years from said date, a parcel of agricultural land located in Maghubas
Burauen Leyte, (Lot 840), with an approximate area of one (1) hectare, to Casimira Pasagui, married to
Pio Altera (hereinafter referred to as the Alteras), for P165.00. The "Pacto de Retro Sale" further
provided:
... (4)
if at the end of 10 years the said land is not repurchased, a new agreement shall be made
between the parties and in no case title and ownership shall be vested in the hand of the party of the
SECOND PART (the Alteras).
xxx

xxx

xxx (Exhibit "B")

On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No. 840 to the Alteras "subject to the right
of redemption by Dominga Conde, within ten (10) years counting from April 7, 1983, after returning the
amount of P165.00 and the amounts paid by the spouses in concept of land tax ... " (Exhibit "1"). Original
Certificate of Title No. N-534 in the name of the spouses Pio Altera and Casimira Pasagui, subject to
said right of repurchase, was transcribed in the "Registration Book" of the Registry of Deeds of Leyte on
14 November 1956 (Exhibit "2").
PAT CASE: AGENCY

WE, PIO ALTERA and PACIENTE CORDERO, both of legal age, and residents of Burauen Leyte,
Philippines, after having been duly sworn to in accordance with law free from threats and intimidation, do
hereby depose and say:
1. That I, PIO ALTERA bought with the right of repurchase two parcels of land from DOMINGA CONDE,
BERNARDO CONDE AND MARGARITA CONDE, all brother and sisters.
2. That these two parcels of land were all inherited by the three.
3. That the document of SALE WITH THE RIGHT OF REPURCHASE got lost in spite of the diligent
efforts to locate the same which was lost during the war.
4. That these two parcels of land which was the subject matter of a Deed of Sale with the Right of
Repurchase consists only of one document which was lost.
5. Because it is about time to repurchase the land, I have allowed the representative of Dominga Conde,
Bernardo Conde and Margarita Conde in the name of EUSEBIO AMARILLE to repurchase the same.
6. Now, this very day November 28, 1945, 1 or We have received together with Paciente Cordero who is
my son-in-law the amount of ONE HUNDRED SIXTY-FIVE PESOS (P165. 00) Philippine Currency of
legal tender which was the consideration in that sale with the right of repurchase with respect to the two
parcels of land.
That we further covenant together with Paciente Cordero who is my son-in-law that from this day the
said Dominga Conde, Bernardo Conde and Margarita Conde will again take possession of the
aforementioned parcel of land because they repurchased the same from me. If and when their
possession over the said parcel of land be disturbed by other persons, I and Paciente Cordero who is my
son-in-law will defend in behalf of the herein brother and sisters mentioned above, because the same
was already repurchased by them.
IN WITNESS WHEREOF, I or We have hereunto affixed our thumbmark or signature to our respective
names below this document or memorandum this 28th day of November 1945 at Burauen Leyte,
Philippines, in the presence of two witnesses.
PIO ALTERA

(Sgd.) PACIENTE CORDERO

WITNESSES:
Page 42 of 150

1. (SGD.) TEODORO C. AGUILLON

To be noted is the fact that neither of the vendees-a-retro, Pio Altera nor Casimira Pasagui, was a
signatory to the deed. Petitioner maintains that because Pio Altera was very ill at the time, Paciente
Cordero executed the deed of resale for and on behalf of his father-in-law. Petitioner further states that
she redeemed the property with her own money as her co-heirs were bereft of funds for the purpose.
The pacto de retro document was eventually found.
On 30 June 1965 Pio Altera sold the disputed lot to the spouses Ramon Conde and Catalina T. Conde,
who are also private respondents herein. Their relationship to petitioner does not appear from the
records. Nor has the document of sale been exhibited.
Contending that she had validly repurchased the lot in question in 1945, petitioner filed, on 16 January
1969, in the Court of First Instance of Leyte, Branch IX, Tacloban City, a Complaint (Civil Case No. B110), against Paciente Cordero and his wife Nicetas Altera, Ramon Conde and his wife Catalina T.
Conde, and Casimira Pasagui Pio Altera having died in 1966), for quieting of title to real property and
declaration of ownership.
Petitioner's evidence is that Paciente Cordero signed the Memorandum of Repurchase in representation
of his father-in-law Pio Altera, who was seriously sick on that occasion, and of his mother-in-law who was
in Manila at the time, and that Cordero received the repurchase price of P65.00.
Private respondents, for their part, adduced evidence that Paciente Cordero signed the document of
repurchase merely to show that he had no objection to the repurchase; and that he did not receive the
amount of P165.00 from petitioner inasmuch as he had no authority from his parents-in-law who were
the vendees-a-retro.
After trial, the lower Court rendered its Decision dismissing the Complaint and the counterclaim and
ordering petitioner "to vacate the property in dispute and deliver its peaceful possession to the
defendants Ramon Conde and Catalina T. Conde".
On appeal, the Court of Appeals upheld the findings of the Court a quo that petitioner had failed to validly
exercise her right of repurchase in view of the fact that the Memorandum of Repurchase was signed by
Paciente Cordero and not by Pio Altera, the vendee-a-retro, and that there is nothing in said document to
show that Cordero was specifically authorized to act for and on behalf of the vendee a retro, Pio Altera.
Reconsideration having been denied by the Appellate Court, the case is before us on review.
There is no question that neither of the vendees-a-retro signed the "Memorandum of Repurchase", and
that there was no formal authorization from the vendees for Paciente Cordero to act for and on their
behalf.

PAT CASE: AGENCY

Of significance, however, is the fact that from the execution of the repurchase document in 1945,
possession, which heretofore had been with the Alteras, has been in the hands of petitioner as stipulated
therein. Land taxes have also been paid for by petitioner yearly from 1947 to 1969 inclusive (Exhibits "D"
to "D-15"; and "E"). If, as opined by both the Court a quo and the Appellate Court, petitioner had done
nothing to formalize her repurchase, by the same token, neither have the vendees-a-retro done anything
to clear their title of the encumbrance therein regarding petitioner's right to repurchase. No new
agreement was entered into by the parties as stipulated in the deed of pacto de retro, if the vendors a
retro failed to exercise their right of redemption after ten years. If, as alleged, petitioner exerted no effort
to procure the signature of Pio Altera after he had recovered from his illness, neither did the Alteras
repudiate the deed that their son-in-law had signed. Thus, an implied agency must be held to have been
created from their silence or lack of action, or their failure to repudiate the agency. 2
Possession of the lot in dispute having been adversely and uninterruptedly with petitioner from 1945
when the document of repurchase was executed, to 1969, when she instituted this action, or for 24
years, the Alteras must be deemed to have incurred in laches. 3 That petitioner merely took advantage
of the abandonment of the land by the Alteras due to the separation of said spouses, and that petitioner's
possession was in the concept of a tenant, remain bare assertions without proof.
Private respondents Ramon Conde and Catalina Conde, to whom Pio Altera sold the disputed property
in 1965, assuming that there was, indeed, such a sale, cannot be said to be purchasers in good faith.
OCT No. 534 in the name of the Alteras specifically contained the condition that it was subject to the right
of repurchase within 10 years from 1938. Although the ten-year period had lapsed in 1965 and there was
no annotation of any repurchase by petitioner, neither had the title been cleared of that encumbrance.
The purchasers were put on notice that some other person could have a right to or interest in the
property. It behooved Ramon Conde and Catalina Conde to have looked into the right of redemption
inscribed on the title, and particularly the matter of possession, which, as also admitted by them at the
pre-trial, had been with petitioner since 1945.
Private respondent must be held bound by the clear terms of the Memorandum of Repurchase that he
had signed wherein he acknowledged the receipt of P165.00 and assumed the obligation to maintain the
repurchasers in peaceful possession should they be "disturbed by other persons". It was executed in the
Visayan dialect which he understood. He cannot now be allowed to dispute the same. "... If the contract
is plain and unequivocal in its terms he is ordinarily bound thereby. It is the duty of every contracting
party to learn and know its contents before he signs and delivers it." 4
There is nothing in the document of repurchase to show that Paciente Cordero had signed the same
merely to indicate that he had no objection to petitioner's right of repurchase. Besides, he would have
had no personality to object. To uphold his oral testimony on that point, would be a departure from the
parol evidence rule 5 and would defeat the purpose for which the doctrine is intended.
... The purpose of the rule is to give stability to written agreements, and to remove the temptation and
possibility of perjury, which would be afforded if parol evidence was admissible. 6

Page 43 of 150

In sum, although the contending parties were legally wanting in their respective actuations, the
repurchase by petitioner is supported by the admissions at the pre-trial that petitioner has been in
possession since the year 1945, the date of the deed of repurchase, and has been paying land taxes
thereon since then. The imperatives of substantial justice, and the equitable principle of laches brought
about by private respondents' inaction and neglect for 24 years, loom in petitioner's favor.

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision, giving
due course to the complaint for sum of money and damages filed by petitioners Fernando Viloria
(Fernando) and Lourdes Viloria (Lourdes), collectively called Spouses Viloria, against respondent
Continental Airlines, Inc. (CAI). As culled from the records, below are the facts giving rise to such
complaint.

WHEREFORE, the judgment of respondent Court of Appeals is hereby REVERSED and SET ASIDE,
and petitioner is hereby declared the owner of the disputed property. If the original of OCT No. N-534 of
the Province of Leyte is still extant at the office of the Register of Deeds, then said official is hereby
ordered to cancel the same and, in lieu thereof, issue a new Transfer Certificate of Title in the name of
petitioner, Dominga Conde.

On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife,
Lourdes, two (2) round trip airline tickets from San Diego, California to Newark, New Jersey on board
Continental Airlines. Fernando purchased the tickets at US$400.00 each from a travel agency called
"Holiday Travel" and was attended to by a certain Margaret Mager (Mager). According to Spouses
Viloria, Fernando agreed to buy the said tickets after Mager informed them that there were no available
seats at Amtrak, an intercity passenger train service provider in the United States. Per the tickets,
Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on
August 21, 1997.

No costs.
SO ORDERED.

G.R. No. 188288

January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,

vs.
CONTINENTAL AIRLINES, INC.,
DECISION
REYES, J.:
This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision1 of
the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled "Spouses
Fernando and Lourdes Viloria v. Continental Airlines, Inc.," the dispositive portion of which states:
WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding
US$800.00 or its peso equivalent at the time of payment, plus legal rate of interest from 21 July 1997
until fully paid, [P]100,000.00 as moral damages, [P]50,000.00 as exemplary damages, [P]40,000.00 as
attorneys fees and costs of suit to plaintiffs-appellees is hereby REVERSED and SET ASIDE.
Defendant-appellants counterclaim is DENIED.
Costs against plaintiffs-appellees.
SO ORDERED.2
PAT CASE: AGENCY

Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or
August 6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully
booked and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air
called for a higher fare of US$526.00 per passenger and would mean traveling by night, Fernando opted
to request for a refund. Mager, however, denied his request as the subject tickets are non-refundable
and the only option that Continental Airlines can offer is the re-issuance of new tickets within one (1) year
from the date the subject tickets were issued. Fernando decided to reserve two (2) seats with Frontier
Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station
where he saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats
available and he can travel on Amtrak anytime and any day he pleased. Fernando then purchased two
(2) tickets for Washington, D.C.
From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her
that she had misled them into buying the Continental Airlines tickets by misrepresenting that Amtrak was
already fully booked. Fernando reiterated his demand for a refund but Mager was firm in her position that
the subject tickets are non-refundable.
Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a
refund and alleging that Mager had deluded them into purchasing the subject tickets.3
In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had
been referred to the Customer Refund Services of Continental Airlines at Houston, Texas.4
In a letter dated March 24, 1998, Continental Micronesia denied Fernandos request for a refund and
advised him that he may take the subject tickets to any Continental ticketing location for the re-issuance
of new tickets within two (2) years from the date they were issued. Continental Micronesia informed
Page 44 of 150

Fernando that the subject tickets may be used as a form of payment for the purchase of another
Continental ticket, albeit with a re-issuance fee.5
On June 17, 1999, Fernando went to Continentals ticketing office at Ayala Avenue, Makati City to have
the subject tickets replaced by a single round trip ticket to Los Angeles, California under his name.
Therein, Fernando was informed that Lourdes ticket was non-transferable, thus, cannot be used for the
purchase of a ticket in his favor. He was also informed that a round trip ticket to Los Angeles was
US$1,867.40 so he would have to pay what will not be covered by the value of his San Diego to Newark
round trip ticket.
In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer
wished to have them replaced. In addition to the dubious circumstances under which the subject tickets
were issued, Fernando claimed that CAIs act of charging him with US$1,867.40 for a round trip ticket to
Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to use Lourdes ticket,
breached its undertaking under its March 24, 1998 letter.6
On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to
refund the money they used in the purchase of the subject tickets with legal interest from July 21, 1997
and to pay P1,000,000.00 as moral damages, P500,000.00 as exemplary damages and P250,000.00 as
attorneys fees.7

Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in
presenting to plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to travel via
AMTRAK, but defendants agent misled him into purchasing Continental Airlines tickets instead on the
fraudulent misrepresentation that Amtrak was fully booked. In fact, defendant Airline did not specifically
denied (sic) this allegation.
Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline
tickets on Ms. Magers misleading misrepresentations. Continental Airlines agent Ms. Mager further
relied on and exploited plaintiff Fernandos need and told him that they must book a flight immediately or
risk not being able to travel at all on the couples preferred date. Unfortunately, plaintiffs spouses fell prey
to the airlines and its agents unethical tactics for baiting trusting customers."10
Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAIs agent, hence, bound
by her bad faith and misrepresentation. As far as the RTC is concerned, there is no issue as to whether
Mager was CAIs agent in view of CAIs implied recognition of her status as such in its March 24, 1998
letter.
The act of a travel agent or agency being involved here, the following are the pertinent New Civil Code
provisions on agency:

CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the
subject tickets are non-refundable; (b) Fernando cannot insist on using the ticket in Lourdes name for
the purchase of a round trip ticket to Los Angeles since the same is non-transferable; (c) as Mager is not
a CAI employee, CAI is not liable for any of her acts; (d) CAI, its employees and agents did not act in
bad faith as to entitle Spouses Viloria to moral and exemplary damages and attorneys fees. CAI also
invoked the following clause printed on the subject tickets:

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.

3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier
are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carriers conditions of
carriage and related regulations which are made part hereof (and are available on application at the
offices of carrier), except in transportation between a place in the United States or Canada and any
place outside thereof to which tariffs in force in those countries apply.8

Agency may be oral, unless the law requires a specific form.

According to CAI, one of the conditions attached to their contract of carriage is the non-transferability
and non-refundability of the subject tickets.
The RTCs Ruling
Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria are
entitled to a refund in view of Magers misrepresentation in obtaining their consent in the purchase of the
subject tickets.9 The relevant portion of the April 3, 2006 Decision states:

PAT CASE: AGENCY

Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without
authority.

As its very name implies, a travel agency binds itself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. This court takes judicial
notice of the common services rendered by travel agencies that represent themselves as such,
specifically the reservation and booking of local and foreign tours as well as the issuance of airline
tickets for a commission or fee.
The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21, 1997
were no different from those offered in any other travel agency. Defendant airline impliedly if not
expressly acknowledged its principal-agent relationship with Ms. Mager by its offer in the letter dated
March 24, 1998 an obvious attempt to assuage plaintiffs spouses hurt feelings.11
Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the
subject tickets within two (2) years from their date of issue when it charged Fernando with the amount of
Page 45 of 150

US$1,867.40 for a round trip ticket to Los Angeles and when it refused to allow Fernando to use Lourdes
ticket. Specifically:
Tickets may be reissued for up to two years from the original date of issue. When defendant airline still
charged plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00 for the
unused tickets when the same were presented within two (2) years from date of issue, defendant airline
exhibited callous treatment of passengers.12
The Appellate Courts Ruling
On appeal, the CA reversed the RTCs April 3, 2006 Decision, holding that CAI cannot be held liable for
Magers act in the absence of any proof that a principal-agent relationship existed between CAI and
Holiday Travel. According to the CA, Spouses Viloria, who have the burden of proof to establish the fact
of agency, failed to present evidence demonstrating that Holiday Travel is CAIs agent. Furthermore,
contrary to Spouses Vilorias claim, the contractual relationship between Holiday Travel and CAI is not an
agency but that of a sale.
Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing
agent of Holiday Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this
premise, they contend that Continental Airlines should be held liable for the acts of Mager. The trial court
held the same view.
We do not agree. By the contract of agency, a person binds him/herself 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 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 him/herself; and (4) the agent acts within the scope of his/her authority. As the
basis of agency is representation, there must be, on the part of the principal, an actual intention to
appoint, an intention naturally inferable from the principals words or actions. In the same manner, there
must be an intention on the part of the agent to accept the appointment and act upon it. Absent such
mutual intent, there is generally no agency. It is likewise a settled rule that persons dealing with an
assumed 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. Agency is never presumed, neither is it created by the mere use of
the word in a trade or business name. We have perused the evidence and documents so far presented.
We find nothing except bare allegations of plaintiffs-appellees that Mager/Holiday Travel was acting in
behalf of Continental Airlines. From all sides of legal prism, the transaction in issue was simply a contract
of sale, wherein Holiday Travel buys airline tickets from Continental Airlines and then, through its
employees, Mager included, sells it at a premium to clients.13
The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was
clearly printed on the face of the subject tickets, which constitute their contract with CAI. Therefore, the
grant of their prayer for a refund would violate the proscription against impairment of contracts.
PAT CASE: AGENCY

Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the higher
amount of US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is no
compulsion for CAI to charge the lower amount of US$856.00, which Spouses Viloria claim to be the fee
charged by other airlines. The matter of fixing the prices for its services is CAIs prerogative, which
Spouses Viloria cannot intervene. In particular:
It is within the respective rights of persons owning and/or operating business entities to peg the premium
of the services and items which they provide at a price which they deem fit, no matter how expensive or
exhorbitant said price may seem vis--vis those of the competing companies. The Spouses Viloria may
not intervene with the business judgment of Continental Airlines.14
The Petitioners Case
In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the latters
reversal of the RTCs April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses Viloria
claim that CAI acted in bad faith when it required them to pay a higher amount for a round trip ticket to
Los Angeles considering CAIs undertaking to re-issue new tickets to them within the period stated in
their March 24, 1998 letter. CAI likewise acted in bad faith when it disallowed Fernando to use Lourdes
ticket to purchase a round trip to Los Angeles given that there is nothing in Lourdes ticket indicating that
it is non-transferable. As a common carrier, it is CAIs duty to inform its passengers of the terms and
conditions of their contract and passengers cannot be bound by such terms and conditions which they
are not made aware of. Also, the subject contract of carriage is a contract of adhesion; therefore, any
ambiguities should be construed against CAI. Notably, the petitioners are no longer questioning the
validity of the subject contracts and limited its claim for a refund on CAIs alleged breach of its
undertaking in its March 24, 1998 letter.
The Respondents Case
In its Comment, CAI claimed that Spouses Vilorias allegation of bad faith is negated by its willingness to
issue new tickets to them and to credit the value of the subject tickets against the value of the new ticket
Fernando requested. CAI argued that Spouses Vilorias sole basis to claim that the price at which CAI
was willing to issue the new tickets is unconscionable is a piece of hearsay evidence an advertisement
appearing on a newspaper stating that airfares from Manila to Los Angeles or San Francisco cost
US$818.00.15 Also, the advertisement pertains to airfares in September 2000 and not to airfares
prevailing in June 1999, the time when Fernando asked CAI to apply the value of the subject tickets for
the purchase of a new one.16 CAI likewise argued that it did not undertake to protect Spouses Viloria
from any changes or fluctuations in the prices of airline tickets and its only obligation was to apply the
value of the subject tickets to the purchase of the newly issued tickets.
With respect to Spouses Vilorias claim that they are not aware of CAIs restrictions on the subject tickets
and that the terms and conditions that are printed on them are ambiguous, CAI denies any ambiguity
and alleged that its representative informed Fernando that the subject tickets are non-transferable when
he applied for the issuance of a new ticket. On the other hand, the word "non-refundable" clearly
appears on the face of the subject tickets.
Page 46 of 150

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-agency
relationship exists between them. As an independent contractor, Holiday Travel was without capacity to
bind CAI.
Issues
To determine the propriety of disturbing the CAs January 30, 2009 Decision and whether Spouses
Viloria have the right to the reliefs they prayed for, this Court deems it necessary to resolve the following
issues:
a. Does a principal-agent relationship exist between CAI and Holiday Travel?
b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the
acts of Holiday Travels agents and employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travels agents and employees, can the
representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the
consent of Spouse Viloria in the purchase of the subject tickets?
d. Is CAI justified in insisting that the subject tickets are non-transferable and non-refundable?
e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by
Fernando?
f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of the
subject tickets in the purchase of new ones when it refused to allow Fernando to use Lourdes ticket and
in charging a higher price for a round trip ticket to Los Angeles?
This Courts Ruling
I. A principal-agent relationship exists between CAI and Holiday Travel.
With respect to the first issue, which is a question of fact that would require this Court to review and reexamine the evidence presented by the parties below, this Court takes exception to the general rule that
the CAs findings of fact are conclusive upon Us and our jurisdiction is limited to the review of questions
of law. It is well-settled to the point of being axiomatic that this Court is authorized to resolve questions of
fact if confronted with contrasting factual findings of the trial court and appellate court and if the findings
of the CA are contradicted by the evidence on record.17
According to the CA, agency is never presumed and that he who alleges that it exists has the burden of
proof. Spouses Viloria, on whose shoulders such burden rests, presented evidence that fell short of
indubitably demonstrating the existence of such agency.
PAT CASE: AGENCY

We disagree. The CA failed to consider undisputed facts, discrediting CAIs denial that Holiday Travel is
one of its agents. Furthermore, in erroneously characterizing the contractual relationship between CAI
and Holiday Travel as a contract of sale, the CA failed to apply the fundamental civil law principles
governing agency and differentiating it from sale.
In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an agency
and spelled out the essential elements thereof:
Out of the above given principles, sprung the creation and acceptance of the relationship of agency
whereby one party, called the principal (mandante), authorizes another, called the agent (mandatario), to
act for and in his behalf in transactions with third persons. The essential elements of agency are: (1)
there is 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, and (4) the agent acts within the scope of his authority.1avvphi1
Agency is basically personal, representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done within
the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself."19
Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second
elements are present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby
Holiday Travel would enter into contracts of carriage with third persons on CAIs behalf. The third
element is also present as it is undisputed that Holiday Travel merely acted in a representative capacity
and it is CAI and not Holiday Travel who is bound by the contracts of carriage entered into by Holiday
Travel on its behalf. The fourth element is also present considering that CAI has not made any allegation
that Holiday Travel exceeded the authority that was granted to it. In fact, CAI consistently maintains the
validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager was
not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to enter
into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March 24,
1998 letters, where it impliedly recognized the validity of the contracts entered into by Holiday Travel with
Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them the subject
tickets, CAI did not deny that Holiday Travel is its authorized agent.
Prior to Spouses Vilorias filing of a complaint against it, CAI never refuted that it gave Holiday Travel the
power and authority to conclude contracts of carriage on its behalf. As clearly extant from the records,
CAI recognized the validity of the contracts of carriage that Holiday Travel entered into with Spouses
Viloria and considered itself bound with Spouses Viloria by the terms and conditions thereof; and this
constitutes an unequivocal testament to Holiday Travels authority to act as its agent. This Court cannot
therefore allow CAI to take an altogether different position and deny that Holiday Travel is its agent
without condoning or giving imprimatur to whatever damage or prejudice that may result from such
denial or retraction to Spouses Viloria, who relied on good faith on CAIs acts in recognition of Holiday
Travels authority. Estoppel is primarily based on the doctrine of good faith and the avoidance of harm
that will befall an innocent party due to its injurious reliance, the failure to apply it in this case would
result in gross travesty of justice.20 Estoppel bars CAI from making such denial.
Page 47 of 150

As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or implied from
the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing
that another person is acting on his behalf without authority."
Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar
that the CA had branded the contractual relationship between CAI and Holiday Travel as one of sale.
The distinctions between a sale and an agency are not difficult to discern and this Court, as early as
1970, had already formulated the guidelines that would aid in differentiating the two (2) contracts. In
Commissioner of Internal Revenue v. Constantino,21 this Court extrapolated that the primordial
differentiating consideration between the two (2) contracts is the transfer of ownership or title over the
property subject of the contract. In an agency, the principal retains ownership and control over the
property and the agent merely acts on the principals behalf and under his instructions in furtherance of
the objectives for which the agency was established. On the other hand, the contract is clearly a sale if
the parties intended that the delivery of the property will effect a relinquishment of title, control and
ownership in such a way that the recipient may do with the property as he pleases.
Since the company retained ownership of the goods, even as it delivered possession unto the dealer for
resale to customers, the price and terms of which were subject to the company's control, the relationship
between the company and the dealer is one of agency, tested under the following criterion:
"The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to
the establishment of rules by the application of which this difficulty may be solved. The decisions say the
transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such
transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor
as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a
resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as
his property, but as the property of the principal, who remains the owner and has the right to control
sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon
sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1;
Tiedeman on Sales, 1." (Salisbury v. Brooks, 94 SE 117, 118-119)22
As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is a
sale is certainly confounding, considering that CAI is the one bound by the contracts of carriage
embodied by the tickets being sold by Holiday Travel on its behalf. It is undisputed that CAI and not
Holiday Travel who is the party to the contracts of carriage executed by Holiday Travel with third persons
who desire to travel via Continental Airlines, and this conclusively indicates the existence of a principalagent relationship. That the principal is bound by all the obligations contracted by the agent within the
scope of the authority granted to him is clearly provided under Article 1910 of the Civil Code and this
constitutes the very notion of agency.
II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agents
employees if it has been established by preponderance of evidence that the principal was also at fault or
negligent or that the principal exercise control and supervision over them.
PAT CASE: AGENCY

Considering that Holiday Travel is CAIs agent, does it necessarily follow that CAI is liable for the fault or
negligence of Holiday Travels employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23 CAI
argues that it cannot be held liable for the actions of the employee of its ticketing agent in the absence of
an employer-employee relationship.
An examination of this Courts pronouncements in China Air Lines will reveal that an airline company is
not completely exonerated from any liability for the tort committed by its agents employees. A prior
determination of the nature of the passengers cause of action is necessary. If the passengers cause of
action against the airline company is premised on culpa aquiliana or quasi-delict for a tort committed by
the employee of the airline companys agent, there must be an independent showing that the airline
company was at fault or negligent or has contributed to the negligence or tortuous conduct committed by
the employee of its agent. The mere fact that the employee of the airline companys agent has
committed a tort is not sufficient to hold the airline company liable. There is no vinculum juris between
the airline company and its agents employees and the contractual relationship between the airline
company and its agent does not operate to create a juridical tie between the airline company and its
agents employees. Article 2180 of the Civil Code does not make the principal vicariously liable for the
tort committed by its agents employees and the principal-agency relationship per se does not make the
principal a party to such tort; hence, the need to prove the principals own fault or negligence.
On the other hand, if the passengers cause of action for damages against the airline company is based
on contractual breach or culpa contractual, it is not necessary that there be evidence of the airline
companys fault or negligence. As this Court previously stated in China Air Lines and reiterated in Air
France vs. Gillego,24 "in an action based on a breach of contract of carriage, the aggrieved party does
not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the
existence of the contract and the fact of its non-performance by the carrier."
Spouses Vilorias cause of action on the basis of Magers alleged fraudulent misrepresentation is clearly
one of tort or quasi-delict, there being no pre-existing contractual relationship between them. Therefore,
it was incumbent upon Spouses Viloria to prove that CAI was equally at fault.
However, the records are devoid of any evidence by which CAIs alleged liability can be substantiated.
Apart from their claim that CAI must be held liable for Magers supposed fraud because Holiday Travel is
CAIs agent, Spouses Viloria did not present evidence that CAI was a party or had contributed to Magers
complained act either by instructing or authorizing Holiday Travel and Mager to issue the said
misrepresentation.
It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and
conditions of the subject contracts, which Mager entered into with them on CAIs behalf, in order to deny
Spouses Vilorias request for a refund or Fernandos use of Lourdes ticket for the re-issuance of a new
one, and simultaneously claim that they are not bound by Magers supposed misrepresentation for
purposes of avoiding Spouses Vilorias claim for damages and maintaining the validity of the subject
contracts. It may likewise be argued that CAI cannot deny liability as it benefited from Magers acts,
which were performed in compliance with Holiday Travels obligations as CAIs agent.
Page 48 of 150

However, a persons vicarious liability is anchored on his possession of control, whether absolute or
limited, on the tortfeasor. Without such control, there is nothing which could justify extending the liability
to a person other than the one who committed the tort. As this Court explained in Cangco v. Manila
Railroad Co.:25
With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is
competent for the legislature to elect and our Legislature has so elected to limit such liability to
cases in which the person upon whom such an obligation is imposed is morally culpable or, on the
contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral culpability,
so as to include responsibility for the negligence of those persons whose acts or omissions are
imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited control over
them. The legislature which adopted our Civil Code has elected to limit extra-contractual liability with
certain well-defined exceptions to cases in which moral culpability can be directly imputed to the
persons to be charged. This moral responsibility may consist in having failed to exercise due care in
one's own acts, or in having failed to exercise due care in the selection and control of one's agent or
servants, or in the control of persons who, by reasons of their status, occupy a position of dependency
with respect to the person made liable for their conduct.26 (emphasis supplied)
It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by
preponderant evidence. The existence of control or supervision cannot be presumed and CAI is under
no obligation to prove its denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme
v. Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment
relationship. The defendant is under no obligation to prove the negative averment. This Court said:

(4) years from the time of the discovery of the fraud. Once a contract is annulled, the parties are obliged
under Article 1398 of the same Code to restore to each other the things subject matter of the contract,
including their fruits and interest.
On the basis of the foregoing and given the allegation of Spouses Viloria that Fernandos consent to the
subject contracts was supposedly secured by Mager through fraudulent means, it is plainly apparent that
their demand for a refund is tantamount to seeking for an annulment of the subject contracts on the
ground of vitiated consent.
Whether the subject contracts are annullable, this Court is required to determine whether Magers
alleged misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an agency,
whether fraud attended the execution of a contract is factual in nature and this Court, as discussed
above, may scrutinize the records if the findings of the CA are contrary to those of the RTC.
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one
of the contracting parties, the other is induced to enter into a contract which, without them, he would not
have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely
the incidental (dolo incidente), inducement to the making of the contract.30 In Samson v. Court of
Appeals,31 causal fraud was defined as "a deception employed by one party prior to or simultaneous to
the contract in order to secure the consent of the other."32
Also, fraud must be serious and its existence must be established by clear and convincing evidence. As
ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere preponderance of evidence is not
adequate:
Fraud must also be discounted, for according to the Civil Code:

"It is an old and well-settled rule of the courts that the burden of proving the action is upon the plaintiff,
and that if he fails satisfactorily to show the facts upon which he bases his claim, the defendant is under
no obligation to prove his exceptions. This [rule] is in harmony with the provisions of Section 297 of the
Code of Civil Procedure holding that each party must prove his own affirmative allegations, etc."29
(citations omitted)

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which without them, he would not have agreed to.

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travels employees or
that CAI was equally at fault, no liability can be imposed on CAI for Magers supposed
misrepresentation.

To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full, clear,
and convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The
fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that
which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each case
should be considered, taking into account the personal conditions of the victim."34

III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are
not entitled to a refund. Magers statement cannot be considered a causal fraud that would justify the
annulment of the subject contracts that would oblige CAI to indemnify Spouses Viloria and return the
money they paid for the subject tickets.
Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting
parties was obtained through fraud, the contract is considered voidable and may be annulled within four
PAT CASE: AGENCY

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have
been employed by both contracting parties.

After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has
not been satisfactorily established as causal in nature to warrant the annulment of the subject contracts.
In fact, Spouses Viloria failed to prove by clear and convincing evidence that Magers statement was
fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed available seats at
Page 49 of 150

Amtrak for a trip to New Jersey on August 13, 1997 at the time they spoke with Mager on July 21, 1997;
(b) Mager knew about this; and (c) that she purposely informed them otherwise.
This Court finds the only proof of Magers alleged fraud, which is Fernandos testimony that an Amtrak
had assured him of the perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed
out and as Fernando admitted, it was possible that during the intervening period of three (3) weeks from
the time Fernando purchased the subject tickets to the time he talked to said Amtrak employee, other
passengers may have cancelled their bookings and reservations with Amtrak, making it possible for
Amtrak to accommodate them. Indeed, the existence of fraud cannot be proved by mere speculations
and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is
presumed that "a person is innocent of crime or wrong" and that "private transactions have been fair and
regular."35 Spouses Viloria failed to overcome this presumption.
IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject
contracts.

resolution, the defect is in the consummation stage of the contract when the parties are in the process of
performing their respective obligations; in annulment, the defect is already present at the time of the
negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy of rescission
under Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts, forfeiting their
right to demand their annulment. A party cannot rely on the contract and claim rights or obligations under
it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking
inconsistent positions.39
V. Contracts cannot be rescinded for a slight or casual breach.
CAI cannot insist on the non-transferability of the subject tickets.
Considering that the subject contracts are not annullable on the ground of vitiated consent, the next
question is: "Do Spouses Viloria have the right to rescind the contract on the ground of CAIs supposed
breach of its undertaking to issue new tickets upon surrender of the subject tickets?"

Even assuming that Magers representation is causal fraud, the subject contracts have been impliedly
ratified when Spouses Viloria decided to exercise their right to use the subject tickets for the purchase of
new ones. Under Article 1392 of the Civil Code, "ratification extinguishes the action to annul a voidable
contract."

Article 1191, as presently worded, states:

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:

The injured party may choose between the fulfilment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.

Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification
if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the
person who has a right to invoke it should execute an act which necessarily implies an intention to waive
his right.

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing
approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.36

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.

Simultaneous with their demand for a refund on the ground of Fernandos vitiated consent, Spouses
Viloria likewise asked for a refund based on CAIs supposed bad faith in reneging on its undertaking to
replace the subject tickets with a round trip ticket from Manila to Los Angeles.

According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it refused
to apply the value of Lourdes ticket for Fernandos purchase of a round trip ticket to Los Angeles and in
requiring him to pay an amount higher than the price fixed by other airline companies.

In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on
contractual breach. Resolution, the action referred to in Article 1191, is based on the defendants breach
of faith, a violation of the reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao
Corrugated Carton Corporation,38 this Court ruled that a claim for a reimbursement in view of the other
partys failure to comply with his obligations under the contract is one for rescission or resolution.

In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used as a form of payment
toward the purchase of another Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket,
for tickets purchased prior to October 30, 1997)."

However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2)
inconsistent remedies. In resolution, all the elements to make the contract valid are present; in
annulment, one of the essential elements to a formation of a contract, which is consent, is absent. In
PAT CASE: AGENCY

Clearly, there is nothing in the above-quoted section of CAIs letter from which the restriction on the nontransferability of the subject tickets can be inferred. In fact, the words used by CAI in its letter supports
the position of Spouses Viloria, that each of them can use the ticket under their name for the purchase of
new tickets whether for themselves or for some other person.
Page 50 of 150

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject
tickets for the purchase of a round trip ticket between Manila and Los Angeles that he was informed that
he cannot use the ticket in Lourdes name as payment.
Contrary to CAIs claim, that the subject tickets are non-transferable cannot be implied from a plain
reading of the provision printed on the subject tickets stating that "[t]o the extent not in conflict with the
foregoing carriage and other services performed by each carrier are subject to: (a) provisions contained
in this ticket, x x x (iii) carriers conditions of carriage and related regulations which are made part hereof
(and are available on application at the offices of carrier) x x x." As a common carrier whose business is
imbued with public interest, the exercise of extraordinary diligence requires CAI to inform Spouses
Viloria, or all of its passengers for that matter, of all the terms and conditions governing their contract of
carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of carriage to impute
knowledge on its passengers of and demand compliance with a certain condition or undertaking that is
not clearly stipulated. Since the prohibition on transferability is not written on the face of the subject
tickets and CAI failed to inform Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes
ticket as payment for Fernandos purchase of a new ticket.
CAIs refusal to accept Lourdes ticket for the purchase of a new ticket for Fernando is only a casual
breach.
Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The
general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for
such substantial and fundamental violations as would defeat the very object of the parties in making the
agreement.40 Whether a breach is substantial is largely determined by the attendant circumstances.41
While CAIs refusal to allow Fernando to use the value of Lourdes ticket as payment for the purchase of
a new ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it
cannot, however be considered substantial. The endorsability of the subject tickets is not an essential
part of the underlying contracts and CAIs failure to comply is not essential to its fulfillment of its
undertaking to issue new tickets upon Spouses Vilorias surrender of the subject tickets. This Court takes
note of CAIs willingness to perform its principal obligation and this is to apply the price of the ticket in
Fernandos name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise
willing to accept the ticket in Lourdes name as full or partial payment as the case may be for the
purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAIs willingness
to comply with its undertaking under its March 24, 1998 cannot be doubted, albeit tainted with its
erroneous insistence that Lourdes ticket is non-transferable.
Moreover, Spouses Vilorias demand for rescission cannot prosper as CAI cannot be solely faulted for
the fact that their agreement failed to consummate and no new ticket was issued to Fernando. Spouses
Viloria have no right to insist that a single round trip ticket between Manila and Los Angeles should be
priced at around $856.00 and refuse to pay the difference between the price of the subject tickets and
the amount fixed by CAI. The petitioners failed to allege, much less prove, that CAI had obliged itself to
issue to them tickets for any flight anywhere in the world upon their surrender of the subject tickets. In its
March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets may be used as a form of
PAT CASE: AGENCY

payment toward the purchase of another Continental ticket"42 and there is nothing in it suggesting that
CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that the
surrender of the subject tickets will be considered as full payment for any ticket that the petitioners intend
to buy regardless of actual price and destination. The CA was correct in holding that it is CAIs right and
exclusive prerogative to fix the prices for its services and it may not be compelled to observe and
maintain the prices of other airline companies.43
The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not
preclude CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an amount it
deems proper and which does not provide Spouses Viloria an excuse not to pay such price, albeit
subject to a reduction coming from the value of the subject tickets. It cannot be denied that Spouses
Viloria had the concomitant obligation to pay whatever is not covered by the value of the subject tickets
whether or not the subject tickets are transferable or not.1avvphi1
There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged
with a higher rate. The only evidence the petitioners presented to prove that the price of a round trip
ticket between Manila and Los Angeles at that time was only $856.00 is a newspaper advertisement for
another airline company, which is inadmissible for being "hearsay evidence, twice removed." Newspaper
clippings are hearsay if they were offered for the purpose of proving the truth of the matter alleged. As
ruled in Feria v. Court of Appeals,:44
[N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only
inadmissible but without any probative value at all whether objected to or not, unless offered for a
purpose other than proving the truth of the matter asserted. In this case, the news article is admissible
only as evidence that such publication does exist with the tenor of the news therein stated.45 (citations
omitted)
The records of this case demonstrate that both parties were equally in default; hence, none of them can
seek judicial redress for the cancellation or resolution of the subject contracts and they are therefore
bound to their respective obligations thereunder. As the 1st sentence of Article 1192 provides:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear his own damages. (emphasis
supplied)
Therefore, CAIs liability for damages for its refusal to accept Lourdes ticket for the purchase of
Fernandos round trip ticket is offset by Spouses Vilorias liability for their refusal to pay the amount,
which is not covered by the subject tickets. Moreover, the contract between them remains, hence, CAI is
duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the
subject tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of
the subject tickets.
This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:
Page 51 of 150

Since both parties were in default in the performance of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they
are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule
that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the
liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. x x x.47
Another consideration that militates against the propriety of holding CAI liable for moral damages is the
absence of a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code
requires evidence of bad faith and fraud and moral damages are generally not recoverable in culpa
contractual except when bad faith had been proven.48 The award of exemplary damages is likewise not
warranted. Apart from the requirement that the defendant acted in a wanton, oppressive and malevolent
manner, the claimant must prove his entitlement to moral damages.49
WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.

CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA QUEAO, respondents.
DECISION
TINGA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth
Division of the respondent Court of Appeals promulgated on 21 December 1994[1], which affirmed in toto
the decision handed down by the Regional Trial Court (RTC) of Pasay City.[2]
The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a complaint
before the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered into with
petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, declaring the questioned Real
Estate Mortgage void, which Naguiat appealed to the Court of Appeals. After the Court of Appeals upheld
the RTC decision, Naguiat instituted the present petition.

PAT CASE: AGENCY

To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of
Naguiat, and surrendered to the latter the owners duplicates of the titles covering the mortgaged
properties.[4] On the same day, the mortgage deed was notarized, and Queao issued to Naguiat a
promissory note for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest at
12% per annum, payable on 11 September 1980.[5] Queao also issued a Security Bank and Trust
Company check, postdated 11 September 1980, for the amount of TWO HUNDRED THOUSAND
PESOS (P200,000.00) and payable to the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of
funds. On the following day, 12 September 1980, Queao requested Security Bank to stop payment of her
postdated check, but the bank rejected the request pursuant to its policy not to honor such requests if
the check is drawn against insufficient funds.[6]
On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of the loan.
Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting,
Queao told Naguiat that she did not receive the proceeds of the loan, adding that the checks were
retained by Ruebenfeldt, who purportedly was Naguiats agent.[7]

[G.R. No. 118375. October 3, 2003]

The operative facts follow:

Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (P200,000.00),
which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao Associated Bank Check No.
090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00), which was
earlier issued to Naguiat by the Corporate Resources Financing Corporation. She also issued her own
Filmanbank Check No. 065314, to the order of Queao, also dated 11 August 1980 and for the amount of
Ninety Five Thousand Pesos (P95,000.00). The proceeds of these checks were to constitute the loan
granted by Naguiat to Queao.[3]

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province, who
then scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale, Queao
filed the case before the Pasay City RTC,[8] seeking the annulment of the mortgage deed. The trial court
eventually stopped the auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and
void, and ordering Naguiat to return to Queao the owners duplicates of her titles to the mortgaged lots.
[10] Naguiat appealed the decision before the Court of Appeals, making no less than eleven
assignments of error. The Court of Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of whether
Queao had actually received the loan proceeds which were supposed to be covered by the two checks
Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public document, the
mortgage deed enjoys the presumption that the recitals therein are true. Naguiat also questions the
admissibility of various representations and pronouncements of Ruebenfeldt, invoking the rule on the
non-binding effect of the admissions of third persons.[11]
Page 52 of 150

The resolution of the issues presented before this Court by Naguiat involves the determination of facts, a
function which this Court does not exercise in an appeal by certiorari. Under Rule 45 which governs
appeal by certiorari, only questions of law may be raised[12] as the Supreme Court is not a trier of facts.
[13] The resolution of factual issues is the function of lower courts, whose findings on these matters are
received with respect and are in fact generally binding on the Supreme Court.[14] A question of law
which the Court may pass upon must not involve an examination of the probative value of the evidence
presented by the litigants.[15] There is a question of law in a given case when the doubt or difference
arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts.[16]
Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of the
lower courts.[17] But Naguiats case does not fall under any of the exceptions. In any event, both the
decisions of the appellate and trial courts are supported by the evidence on record and the applicable
laws.
Against the common finding of the courts below, Naguiat vigorously insists that Queao received the loan
proceeds. Capitalizing on the status of the mortgage deed as a public document, she cites the rule that a
public document enjoys the presumption of validity and truthfulness of its contents. The Court of
Appeals, however, is correct in ruling that the presumption of truthfulness of the recitals in a public
document was defeated by the clear and convincing evidence in this case that pointed to the absence of
consideration.[18] This Court has held that the presumption of truthfulness engendered by notarized
documents is rebuttable, yielding as it does to clear and convincing evidence to the contrary, as in this
case.[19]
On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued or
endorsed were actually encashed or deposited. The mere issuance of the checks did not result in the
perfection of the contract of loan. For the Civil Code provides that the delivery of bills of exchange and
mercantile documents such as checks shall produce the effect of payment only when they have been
cashed.[20] It is only after the checks have produced the effect of payment that the contract of loan may
be deemed perfected. Art. 1934 of the Civil Code provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of
the contract.

Court of Appeals rejected the argument, holding that since Ruebenfeldt was an authorized
representative or agent of Naguiat the situation falls under a recognized exception to the rule.[22] Still,
Naguiat insists that Ruebenfeldt was not her agent.
Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt is
supported by ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was not a
stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queao the checks
she issued or indorsed to Queao, pending delivery by the latter of additional collateral. Ruebenfeldt
served as agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it was in
connection with that transaction that Queao came to know Naguiat.[23] It was also Ruebenfeldt who
accompanied Queao in her meeting with Naguiat and on that occasion, on her own and without Queao
asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00 payable to Naguiat, to cover
for Queaos alleged liability to Naguiat under the loan agreement.[24]
The Court of Appeals recognized the existence of an agency by estoppel[25] citing Article 1873 of the
Civil Code.[26] Apparently, it considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of Naguiat,
but Naguiat did nothing to correct Queaos impression. In that situation, the rule is clear. One who clothes
another with apparent authority as his agent, and holds him out to the public as such, cannot be
permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third
parties dealing with such person in good faith, and in the honest belief that he is what he appears to be.
[27] The Court of Appeals is correct in invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in
the face of the fact that the checks issued or indorsed to Queao were never encashed or deposited to
her account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did not
remit and the borrower did not receive the proceeds of the loan. That being the case, it follows that the
mortgage which is supposed to secure the loan is null and void. The consideration of the mortgage
contract is the same as that of the principal contract from which it receives life, and without which it
cannot exist as an independent contract.[28] A mortgage contract being a mere accessory contract, its
validity would depend on the validity of the loan secured by it.[29]
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the
object of the contract.[21] In this case, the objects of the contract are the loan proceeds which Queao
would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the
checks were encashed or deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat
presented no such proof, it follows that the checks were not encashed or credited to Queaos account.
Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the
ground that they could not bind her following the res inter alia acta alteri nocere non debet rule. The
PAT CASE: AGENCY

SO ORDERED.
[G.R. NO. 163553 : December 11, 2009]
YUN KWAN BYUNG, Petitioner, v. PHILIPPINE AMUSEMENT AND GAMING CORPORATION,
Respondent.
Page 53 of 150

DECISION
CARPIO, J.:
The Case
Yun Kwan Byung (petitioner) filed this Petition for Review 1 assailing the Court of Appeals' Decision 2
dated 27 May 2003 in CA-G.R. CV No. 65699 as well as the Resolution 3 dated 7 May 2004 denying the
Motion for Reconsideration. In the assailed decision, the Court of Appeals (CA) affirmed the Regional
Trial Court's Decision 4 dated 6 May 1999. The Regional Trial Court of Manila, Branch 13 (trial court),
dismissed petitioner's demand against respondent Philippine Amusement and Gaming Corporation
(PAGCOR) for the redemption of gambling chips.
The Facts
PAGCOR is a government-owned and controlled corporation tasked to establish and operate gambling
clubs and casinos as a means to promote tourism and generate sources of revenue for the government.
To achieve these objectives, PAGCOR is vested with the power to enter into contracts of every kind and
for any lawful purpose that pertains to its business. Pursuant to this authority, PAGCOR launched its
Foreign Highroller Marketing Program (Program). The Program aims to invite patrons from foreign
countries to play at the dollar pit of designated PAGCOR-operated casinos under specified terms and
conditions and in accordance with industry practice. 5
The Korean-based ABS Corporation was one of the international groups that availed of the Program. In a
letter-agreement dated 25 April 1996 (Junket Agreement), ABS Corporation agreed to bring in foreign
players to play at the five designated gaming tables of the Casino Filipino Silahis at the Grand Boulevard
Hotel in Manila (Casino Filipino). The relevant stipulations of the Junket Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket chips. The junket chips will be
distinguished from the chips being used by other players in the gaming tables.
ABS Corporation will distribute these junket chips to its players and at the end of the playing period, ABS
Corporation will collect the junket chips from its players and make an accounting to the casino treasury.
2. ABS Corporation will assume sole responsibility to pay the winnings of its foreign players and settle
the collectibles from losing players.
3. ABS Corporation shall hold PAGCOR absolutely free and harmless from any damage, claim or liability
which may arise from any cause in connection with the Junket Agreement.
5. In providing the gaming facilities and services to these foreign players, PAGCOR is entitled to receive
from ABS Corporation a 12.5% share in the gross winnings of ABS Corporation or 1.5 million US dollars,
whichever is higher, over a playing period of 6 months. PAGCOR has the option to extend the period. 6
PAT CASE: AGENCY

Petitioner, a Korean national, alleges that from November 1996 to March 1997, he came to the
Philippines four times to play for high stakes at the Casino Filipino. 7 Petitioner claims that in the course
of the games, he was able to accumulate gambling chips worth US$2.1 million. Petitioner presented as
evidence during the trial gambling chips with a face value of US$1.1 million. Petitioner contends that
when he presented the gambling chips for encashment with PAGCOR's employees or agents, PAGCOR
refused to redeem them. 8
Petitioner brought an action against PAGCOR seeking the redemption of gambling chips valued at
US$2.1 million. Petitioner claims that he won the gambling chips at the Casino Filipino, playing
continuously day and night. Petitioner alleges that every time he would come to Manila, PAGCOR would
extend to him amenities deserving of a high roller. A PAGCOR official who meets him at the airport would
bring him to Casino Filipino, a casino managed and operated by PAGCOR. The card dealers were all
PAGCOR employees, the gambling chips, equipment and furnitures belonged to PAGCOR, and
PAGCOR enforced all the regulations dealing with the operation of foreign exchange gambling pits.
Petitioner states that he was able to redeem his gambling chips with the cashier during his first few
winning trips. But later on, the casino cashier refused to encash his gambling chips so he had no
recourse but to deposit his gambling chips at the Grand Boulevard Hotel's deposit box, every time he
departed from Manila. 9
PAGCOR claims that petitioner, who was brought into the Philippines by ABS Corporation, is a junket
player who played in the dollar pit exclusively leased by ABS Corporation for its junket players. PAGCOR
alleges that it provided ABS Corporation with distinct junket chips. ABS Corporation distributed these
chips to its junket players. At the end of each playing period, the junket players would surrender the
chips to ABS Corporation. Only ABS Corporation would make an accounting of these chips to
PAGCOR's casino treasury. 10
As additional information for the junket players playing in the gaming room leased to ABS Corporation,
PAGCOR posted a notice written in English and Korean languages which reads:
NOTICE
This GAMING ROOM is exclusively operated by ABS under arrangement with PAGCOR, the former is
solely accountable for all PLAYING CHIPS wagered on the tables. Any financial
ARRANGEMENT/TRANSACTION between PLAYERS and ABS shall only be binding upon said
PLAYERS and ABS. 11
PAGCOR claims that this notice is a standard precautionary measure 12 to avoid confusion between
junket players of ABS Corporation and PAGCOR's players.
PAGCOR argues that petitioner is not a PAGCOR player because under PAGCOR's gaming rules,
gambling chips cannot be brought outside the casino. The gambling chips must be converted to cash at
the end of every gaming period as they are inventoried every shift. Under PAGCOR's rules, it is
impossible for PAGCOR players to accumulate two million dollars worth of gambling chips and to bring
the chips out of the casino premises. 13
Page 54 of 150

Since PAGCOR disclaimed liability for the winnings of players recruited by ABS Corporation and refused
to encash the gambling chips, petitioner filed a complaint for a sum of money before the trial court. 14
PAGCOR filed a counterclaim against petitioner. Then, trial ensued.

(f) The disbursement, administration, management and recording of foreign exchange currencies used in
the casino(s) shall be carried out in accordance with existing foreign exchange regulations, and
periodical reports of the transactions in such foreign exchange currencies by the Corporation shall be
duly recorded and reported to the Central Bank thru the designated Agent Bank; andcralawlibrary

On 6 May 1999, the trial court dismissed the complaint and counterclaim. Petitioner appealed the trial
court's decision to the CA. On 27 May 2003, the CA affirmed the appealed decision. On 27 June 2003,
petitioner moved for reconsideration which was denied on 7 May 2004.

(g) The Corporation shall issue the necessary rules and regulations for the guidance and information of
players qualified to participate in the foreign exchange gaming pit, in order to make certain that the terms
and conditions as above set forth are strictly complied with.

Aggrieved by the CA's decision and resolution, petitioner elevated the case before this Court.

The trial court held that only PAGCOR could use foreign currency in its gaming tables. When PAGCOR
accepted only a fixed portion of the dollar earnings of ABS Corporation in the concept of a lease of
facilities, PAGCOR shared its franchise with ABS Corporation in violation of the PAGCOR's charter.
Hence, the Junket Agreement is void. Since the Junket Agreement is not permitted by PAGCOR's
charter, the mutual rights and obligations of the parties to this case would be resolved based on agency
and estoppel. 16

The Ruling of the Trial Court

The trial court ruled that based on PAGCOR's charter, 15 PAGCOR has no authority to lease any portion
of the gambling tables to a private party like ABS Corporation. Section 13 of Presidential Decree No.
1869 or the PAGCOR's charter states:
Sec. 13. Exemptions xxx
(4) Utilization of Foreign Currencies - The Corporation shall have the right and authority, solely and
exclusively in connection with the operations of the casino(s), to purchase, receive, exchange and
disburse foreign exchange, subject to the following terms and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up solely and exclusively for players and
patrons utilizing foreign currencies;
(b) The Corporation shall appoint and designate a duly accredited commercial bank agent of the Central
Bank, to handle, administer and manage the use of foreign currencies in the casino(s);
(c) The Corporation shall provide an office at casino(s) exclusively for the employees of the designated
bank, agent of the Central Bank, where the Corporation shall maintain a dollar account which will be
utilized exclusively for the above purpose and the casino dollar treasury employees;
(d) Only persons with foreign passports or certificates of identity (for Hong Kong patron only) duly issued
by the government or country of their residence will be allowed to play in the foreign exchange gaming
pit;
(e) Only foreign exchange prescribed to form part of the Philippine International Reserve and the
following foreign exchange currencies: Australian Dollar, Singapore Dollar, Hong Kong Dollar, shall be
used in this gaming pit;

PAT CASE: AGENCY

The trial court found that the petitioner wanted to redeem gambling chips that were specifically used by
ABS Corporation at its gaming tables. The gambling chips come in distinctive orange or yellow colors
with stickers bearing denominations of 10,000 or 1,000. The 1,000 gambling chips are smaller in size
and the words "no cash value" marked on them. The 10,000 gambling chips do not reflect the "no cash
value" sign. The senior treasury head of PAGCOR testified that these were the gambling chips used by
the previous junket operators and PAGCOR merely continued using them. However, the gambling chips
used in the regular casino games were of a different quality. 17
The trial court pointed out that PAGCOR had taken steps to warn players brought in by all junket
operators, including ABS Corporation, that they were playing under special rules. Apart from the different
kinds of gambling chips used, the junket players were confined to certain gaming rooms. In these rooms,
notices were posted that gambling chips could only be encashed there and nowhere else. A photograph
of one such notice, printed in Korean and English, stated that the gaming room was exclusively operated
by ABS Corporation and that ABS Corporation was solely accountable for all the chips wagered on the
gaming tables. Although petitioner denied seeing this notice, this disclaimer has the effect of a negative
evidence that can hardly prevail against the positive assertions of PAGCOR officials whose credibility is
also not open to doubt. The trial court concluded that petitioner had been alerted to the existence of
these special gambling rules, and the mere fact that he continued to play under the same restrictions
over a period of several months confirms his acquiescence to them. Otherwise, petitioner could have
simply chose to stop gambling. 18
In dismissing petitioner's complaint, the trial court concluded that petitioner's demand against PAGCOR
for the redemption of the gambling chips could not stand. The trial court stated that petitioner, a stranger
to the agreement between PAGCOR and ABS Corporation, could not under principles of equity be
charged with notice other than of the apparent authority with which PAGCOR had clothed its employees
and agents in dealing with petitioner. Since petitioner was made aware of the special rules by which he
was playing at the Casino Filipino, petitioner could not now claim that he was not bound by them. The
trial court explained that in an unlawful transaction, the courts will extend equitable relief only to a party
Page 55 of 150

who was unaware of all its dimensions and whose ignorance of them exposed him to the risk of being
exploited by the other. Where the parties enter into such a relationship with the opportunity to know all of
its ramifications, as in this case, there is no room for equitable considerations to come to the rescue of
any party. The trial court ruled that it would leave the parties where they are. 19
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four errors assigned by petitioner.
First, petitioner maintains that he was never a junket player of ABS Corporation. Petitioner also denies
seeing a notice that certain gaming rooms were exclusively operated by entities under special
agreement. 20
The CA ruled that the records do not support petitioner's theory. Petitioner's own testimony reveals that
he enjoyed special accommodations at the Grand Boulevard Hotel. This similar accommodation was
extended to players brought in by ABS Corporation and other junket operators. Petitioner cannot
disassociate himself from ABS Corporation for it is unlikely that an unknown high roller would be
accorded choice accommodations by the hotel unless the accommodation was facilitated by a junket
operator who enjoyed such privilege. 21

agent is authorized by the principal to enter into a particular transaction, but instead of contracting on
behalf of the principal, the agent acts in his own name. 27
The CA concluded that no such legal fiction existed between PAGCOR and ABS Corporation. PAGCOR
entered into a Junket Agreement to lease to ABS Corporation certain gaming areas. It was never
PAGCOR's intention to deal with the junket players. Neither did PAGCOR intend ABS Corporation to
represent PAGCOR in dealing with the junket players. Representation is the basis of agency but
unfortunately for petitioner none is found in this case. 28
The CA added that the special gaming chips, while belonging to PAGCOR, are mere accessories in the
void Junket Agreement with ABS Corporation. In Article 1883, the phrase "things belonging to the
principal" refers only to those things or properties subject of a particular transaction authorized by the
principal to be entered into by its purported agent. Necessarily, the gambling chips being mere incidents
to the void lease agreement cannot fall under this category. 29
The CA ruled that Article 2152 30 of the Civil Code is also not applicable. The circumstances relating to
negotiorum gestio are non-existent to warrant an officious manager to take over the management and
administration of PAGCOR. 31
Fourth, petitioner asks for equitable relief. 32

The CA added that the testimonies of PAGCOR's employees affirming that notices were posted in
English and Korean in the gaming areas are credible in the absence of any convincing proof of ill motive.
Further, the specified gaming areas used only special chips that could be bought and exchanged at
certain cashier booths in that area. 22
Second, petitioner attacks the validity of the contents of the notice. Since the Junket Agreement is void,
the notice, which was issued pursuant to the Junket Agreement, is also void and cannot affect petitioner.
23
The CA reasoned that the trial court never declared the notice valid and neither did it enforce the
contents thereof. The CA emphasized that it was the act of cautioning and alerting the players that was
upheld. The trial court ruled that signs and warnings were in place to inform the public, petitioner
included, that special rules applied to certain gaming areas even if the very agreement giving rise to
these rules is void. 24
Third, petitioner takes the position that an implied agency existed between PAGCOR and ABS
Corporation. 25
The CA disagreed with petitioner's view. A void contract has no force and effect from the very beginning.
It produces no effect either against or in favor of anyone. Neither can it create, modify or extinguish the
juridical relation to which it refers. Necessarily, the Junket Agreement, being void from the beginning,
cannot give rise to an implied agency. The CA explained that it cannot see how the principle of implied
agency can be applied to this case. Article 1883 26 of the Civil Code applies only to a situation where the

The CA explained that although petitioner was never a party to the void Junket Agreement, petitioner
cannot deny or feign blindness to the signs and warnings all around him. The notices, the special
gambling chips, and the separate gaming areas were more than enough to alert him that he was playing
under different terms. Petitioner persisted and continued to play in the casino. Petitioner also enjoyed the
perks extended to junket players of ABS Corporation. For failing to heed these signs and warnings,
petitioner can no longer be permitted to claim equitable relief. When parties do not come to court with
clean hands, they cannot be allowed to profit from their own wrong doing. 33
The Issues
Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is not liable to petitioner, disregarding the doctrine of
implied agency, or agency by estoppel;
2. Whether the CA erred in using intent of the contracting parties as the test for creation of agency, when
such is not relevant since the instant case involves liability of the presumed principal in implied agency to
a third party; andcralawlibrary
3. Whether the CA erred in failing to consider that PAGCOR ratified, or at least adopted, the acts of the
agent, ABS Corporation. 34
The Ruling of the Court

PAT CASE: AGENCY

Page 56 of 150

The petition lacks merit.

After a circumspect consideration of the foregoing discussion and the contending positions of the parties,
we hold that PAGCOR has acted beyond the limits of its authority when it passed on or shared its
franchise to SAGE.

Courts will not enforce debts arising from illegal gambling

Gambling is prohibited by the laws of the Philippines as specifically provided in Articles 195 to 199 of the
Revised Penal Code, as amended. Gambling is an act beyond the pale of good morals, 35 and is thus
prohibited and punished to repress an evil that undermines the social, moral, and economic growth of
the nation. 36 Presidential Decree No. 1602 (PD 1602), 37 which modified Articles 195-199 of the
Revised Penal Code and repealed inconsistent provisions, 38 prescribed stiffer penalties on illegal
gambling. 39
As a rule, all forms of gambling are illegal. The only form of gambling allowed by law is that stipulated
under Presidential Decree No. 1869, which gave PAGCOR its franchise to maintain and operate
gambling casinos. The issue then turns on whether PAGCOR can validly share its franchise with junket
operators to operate gambling casinos in the country. Section 3(h) of PAGCOR's charter states:
Section 3. Corporate Powers. - The Corporation shall have the following powers and functions, among
others:

In the Del Mar case where a similar issue was raised when PAGCOR entered into a joint venture
agreement with two other entities in the operation and management of jai alai games, the Court, in an En
Banc Resolution dated 24 August 2001, partially granted the motions for clarification filed by respondents
therein insofar as it prayed that PAGCOR has a valid franchise, but only by itself (i.e. not in association
with any other person or entity), to operate, maintain and/or manage the game of jai-alai.
In the case at bar, PAGCOR executed an agreement with SAGE whereby the former grants the latter the
authority to operate and maintain sports betting stations and Internet gaming operations. In essence, the
grant of authority gives SAGE the privilege to actively participate, partake and share PAGCOR's
franchise to operate a gambling activity. The grant of franchise is a special privilege that constitutes a
right and a duty to be performed by the grantee. The grantee must not perform its activities arbitrarily and
whimsically but must abide by the limits set by its franchise and strictly adhere to its terms and
conditionalities. A corporation as a creature of the State is presumed to exist for the common good.
Hence, the special privileges and franchises it receives are subject to the laws of the State and the
limitations of its charter. There is therefore a reserved right of the State to inquire how these privileges
had been employed, and whether they have been abused. (Emphasis supplied)cralawlibrary

xxx
h) to enter into, make, perform, and carry out contracts of every kind and for any lawful purpose
pertaining to the business of the Corporation, or in any manner incident thereto, as principal, agent or
otherwise, with any person, firm, association, or corporation.

Thus, PAGCOR has the sole and exclusive authority to operate a gambling activity. While PAGCOR is
allowed under its charter to enter into operator's or management contracts, PAGCOR is not allowed
under the same charter to relinquish or share its franchise. PAGCOR cannot delegate its power in view
of the legal principle of delegata potestas delegare non potest, inasmuch as there is nothing in the
charter to show that it has been expressly authorized to do so. 41

xxx
The Junket Agreement would be valid if under Section 3(h) of PAGCOR's charter, PAGCOR could share
its gambling franchise with another entity. In Senator Jaworski v. Phil. Amusement and Gaming Corp., 40
the Court discussed the extent of the grant of the legislative franchise to PAGCOR on its authority to
operate gambling casinos:
A legislative franchise is a special privilege granted by the state to corporations. It is a privilege of public
concern which cannot be exercised at will and pleasure, but should be reserved for public control and
administration, either by the government directly, or by public agents, under such conditions and
regulations as the government may impose on them in the interest of the public. It is Congress that
prescribes the conditions on which the grant of the franchise may be made. Thus the manner of granting
the franchise, to whom it may be granted, the mode of conducting the business, the charter and the
quality of the service to be rendered and the duty of the grantee to the public in exercising the franchise
are almost always defined in clear and unequivocal language.

PAT CASE: AGENCY

Similarly, in this case, PAGCOR, by taking only a percentage of the earnings of ABS Corporation from its
foreign currency collection, allowed ABS Corporation to operate gaming tables in the dollar pit. The
Junket Agreement is in direct violation of PAGCOR's charter and is therefore void.
Since the Junket Agreement violates PAGCOR's charter, gambling between the junket player and the
junket operator under such agreement is illegal and may not be enforced by the courts. Article 2014 42
of the Civil Code, which refers to illegal gambling, states that no action can be maintained by the winner
for the collection of what he has won in a game of chance.
Although not raised as an issue by petitioner, we deem it necessary to discuss the applicability of
Republic Act No. 9487 43 (RA 9487) to the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the power to enter into special agreement
with third parties to share the privileges under its franchise for the operation of gambling casinos:

Page 57 of 150

Section 1. The Philippine Amusement and Gaming Corporation (PAGCOR) franchise granted under
Presidential Decree No. 1869 otherwise known as the PAGCOR Charter, is hereby further amended to
read as follows:
xxx
(2) Section 3(h) is hereby amended to read as follows:
"SEC. 3. Corporate Powers. "x x x
"(h) to enter into, make, conclude, perform, and carry out contracts of every kind and nature and for any
lawful purpose which are necessary, appropriate, proper or incidental to any business or purpose of the
PAGCOR, including but not limited to investment agreements, joint venture agreements, management
agreements, agency agreements, whether as principal or as an agent, manpower supply agreements, or
any other similar agreements or arrangements with any person, firm, association or corporation."
(Boldfacing supplied)

Article 1869 of the Civil Code states that implied agency is derived from the acts of the principal, from his
silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on
his behalf without authority. Implied agency, being an actual agency, is a fact to be proved by deductions
or inferences from other facts. 47
On the other hand, apparent authority is based on estoppel and can arise from two instances. First, the
principal may knowingly permit the agent to hold himself out as having such authority, and the principal
becomes estopped to claim that the agent does not have such authority. Second, the principal may
clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that the
agent actually has such authority. 48 In an agency by estoppel, there is no agency at all, but the one
assuming to act as agent has apparent or ostensible, although not real, authority to represent another.
49
The law makes no presumption of agency and proving its existence, nature and extent is incumbent
upon the person alleging it. 50 Whether or not an agency has been created is a question to be
determined by the fact that one represents and is acting for another. 51
Acts and conduct of PAGCOR negates the existence of an implied agency or an agency by estoppel

PAGCOR sought the amendment of its charter precisely to address and remedy the legal impediment
raised in Senator Jaworski v. Phil. Amusement and Gaming Corp.
Unfortunately for petitioner, RA 9487 cannot be applied to the present case. The Junket Agreement was
entered into between PAGCOR and ABS Corporation on 25 April 1996 when the PAGCOR charter then
prevailing (PD 1869) prohibited PAGCOR from entering into any arrangement with a third party that
would allow such party to actively participate in the casino operations.
It is a basic principle that laws should only be applied prospectively unless the legislative intent to give
them retroactive effect is expressly declared or is necessarily implied from the language used. 44 RA
9487 does not provide for any retroactivity of its provisions. All laws operate prospectively absent a clear
contrary language in the text, 45 and that in every case of doubt, the doubt will be resolved against the
retroactive operation of laws. 46
Thus, petitioner cannot avail of the provisions of RA 9487 as this was not the law when the acts giving
rise to the claimed liabilities took place. This makes the gambling activity participated in by petitioner
illegal. Petitioner cannot sue PAGCOR to redeem the cash value of the gambling chips or recover
damages arising from an illegal activity for two reasons. First, petitioner engaged in gambling with ABS
Corporation and not with PAGCOR. Second, the court cannot assist petitioner in enforcing an illegal act.
Moreover, for a court to grant petitioner's prayer would mean enforcing the Junket Agreement, which is
void.
Now, to address the issues raised by petitioner in his petition, petitioner claims that he is a third party
proceeding against the liability of a presumed principal and claims relief, alternatively, on the basis of
implied agency or agency by estoppel.
PAT CASE: AGENCY

Petitioner alleges that there is an implied agency. Alternatively, petitioner claims that even assuming that
no actual agency existed between PAGCOR and ABS Corporation, there is still an agency by estoppel
based on the acts and conduct of PAGCOR showing apparent authority in favor of ABS Corporation.
Petitioner states that one factor which distinguishes agency from other legal precepts is control and the
following undisputed facts show a relationship of implied agency:
1. Three floors of the Grand Boulevard Hotel 52 were leased to PAGCOR for conducting gambling
operations; 53
2. Of the three floors, PAGCOR allowed ABS Corporation to use one whole floor for foreign exchange
gambling, conducted by PAGCOR dealers using PAGCOR facilities, operated by PAGCOR employees
and using PAGCOR chips bearing the PAGCOR logo; 54
3. PAGCOR controlled the release, withdrawal and return of all the gambling chips given to ABS
Corporation in that part of the casino and at the end of the day, PAGCOR conducted an inventory of the
gambling chips; 55
4. ABS Corporation accounted for all gambling chips with the Commission on Audit (COA), the official
auditor of PAGCOR; 56
5. PAGCOR enforced, through its own manager, all the rules and regulations on the operation of the
gambling pit used by ABS Corporation. 57

Page 58 of 150

Petitioner's argument is clearly misplaced. The basis for agency is representation, 58 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. 59 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. 60
Absent such mutual intent, there is generally no agency. 61
There is no implied agency in this case because PAGCOR did not hold out to the public as the principal
of ABS Corporation. PAGCOR's actions did not mislead the public into believing that an agency can be
implied from the arrangement with the junket operators, nor did it hold out ABS Corporation with any
apparent authority to represent it in any capacity. The Junket Agreement was merely a contract of lease
of facilities and services.
The players brought in by ABS Corporation were covered by a different set of rules in acquiring and
encashing chips. The players used a different kind of chip than what was used in the regular gaming
areas of PAGCOR, and that such junket players played specifically only in the third floor area and did not
mingle with the regular patrons of PAGCOR. Furthermore, PAGCOR, in posting notices stating that the
players are playing under special rules, exercised the necessary precaution to warn the gaming public
that no agency relationship exists.rbl rl l lbrr
For the second assigned error, petitioner claims that the intention of the parties cannot apply to him as
he is not a party to the contract.
We disagree. The Court of Appeals correctly used the intent of the contracting parties in determining
whether an agency by estoppel existed in this case. An agency by estoppel, which is similar to the
doctrine of apparent authority requires proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken in reliance. 62
There can be no apparent authority of an agent without acts or conduct on the part of the principal and
such acts or conduct of the principal must have been known and relied upon in good faith and as a result
of the exercise of reasonable prudence by a third person as claimant, and such must have produced a
change of position to its detriment. 63 Such proof is lacking in this case.
In the entire duration that petitioner played in Casino Filipino, he was dealing only with ABS Corporation,
and availing of the privileges extended only to players brought in by ABS Corporation. The facts that he
enjoyed special treatment upon his arrival in Manila and special accommodations in Grand Boulevard
Hotel, and that he was playing in special gaming rooms are all indications that petitioner cannot claim
good faith that he believed he was dealing with PAGCOR. Petitioner cannot be considered as an
innocent third party and he cannot claim entitlement to equitable relief as well.
For his third and final assigned error, petitioner asserts that PAGCOR ratified the acts of ABS
Corporation.

PAT CASE: AGENCY

The trial court has declared, and we affirm, that the Junket Agreement is void. A void or inexistent
contract is one which has no force and effect from the very beginning. Hence, it is as if it has never been
entered into and cannot be validated either by the passage of time or by ratification. 64 Article 1409 of
the Civil Code provides that contracts expressly prohibited or declared void by law, such as gambling
contracts, "cannot be ratified." 65
WHEREFORE, we DENY the petition. We AFFIRM the Court of Appeals' Decision dated 27 May 2003 as
well as the Resolution dated 7 May 2004 as modified by this Decision.
SO ORDERED.

PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE CASTILLA (represented by Mother and
Attorney-in-Fact VIRGINIA CASTILLA),
Petitioners,
- versus COURT OF APPEALS, SPOUSES ISAGANI BELARMINO and LETICIA OCAMPO, EUFEMIA SAN
AGUSTIN-MAGSINO, ZENAIDA SAN AGUSTIN-McCRAE, MILAGROS SAN AGUSTIN-FORTMAN,
MINERVA SAN AGUSTIN-ATKINSON, FERDINAND SAN AGUSTIN, RAUL SAN AGUSTIN,
ISABELITA SAN AGUSTIN-LUSTENBERGER and VIRGILIO SAN AGUSTIN,
Respondents.
G.R. No. 160346

August 25, 2009

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
For our resolution is a petition for review on certiorari assailing the April 23, 2003 Decision[1] and
October 8, 2003 Resolution[2] of the Court of Appeals (CA) in CA-G.R. CV No. 59426. The appellate
court, in the said decision and resolution, reversed and set aside the January 14, 1998 Decision[3] of the
Regional Trial Court (RTC), which ruled in favor of petitioners.
The dispute stemmed from the following facts.
During their lifetime, spouses Pedro San Agustin and Agatona Genil were able to acquire a 246-square
meter parcel of land situated in Barangay Anos, Los Baos, Laguna and covered by Original Certificate of
Title (OCT) No. O-(1655) 0-15.[4] Agatona Genil died on September 13, 1990 while Pedro San Agustin
Page 59 of 150

died on September 14, 1991. Both died intestate, survived by their eight (8) children: respondents
Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of Undivided
Shares[5] conveying in favor of petitioners (the Pahuds, for brevity) their respective shares from the lot
they inherited from their deceased parents for P525,000.00.[6] Eufemia also signed the deed on behalf
of her four (4) other co-heirs, namely: Isabelita on the basis of a special power of attorney executed on
September 28, 1991,[7] and also for Milagros, Minerva, and Zenaida but without their apparent written
authority.[8] The deed of sale was also not notarized.[9]
On July 21, 1992, the Pahuds paid P35,792.31 to the Los Baos Rural Bank where the subject property
was mortgaged.[10] The bank issued a release of mortgage and turned over the owners copy of the OCT
to the Pahuds.[11] Over the following months, the Pahuds made more payments to Eufemia and her
siblings totaling to P350,000.00.[12] They agreed to use the remaining P87,500.00[13] to defray the
payment for taxes and the expenses in transferring the title of the property.[14] When Eufemia and her
co-heirs drafted an extra-judicial settlement of estate to facilitate the transfer of the title to the Pahuds,
Virgilio refused to sign it.[15]
On July 8, 1993, Virgilios co-heirs filed a complaint[16] for judicial partition of the subject property before
the RTC of Calamba, Laguna. On November 28, 1994, in the course of the proceedings for judicial
partition, a Compromise Agreement[17] was signed with seven (7) of the co-heirs agreeing to sell their
undivided shares to Virgilio for P700,000.00. The compromise agreement was, however, not approved
by the trial court because Atty. Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-heirs, refused to
sign the agreement because he knew of the previous sale made to the Pahuds.[18]
On December 1, 1994, Eufemia acknowledged having received P700,000.00 from Virgilio.[19] Virgilio
then sold the entire property to spouses Isagani Belarmino and Leticia Ocampo (Belarminos) sometime
in 1994. The Belarminos immediately constructed a building on the subject property.
Alarmed and bewildered by the ongoing construction on the lot they purchased, the Pahuds immediately
confronted Eufemia who confirmed to them that Virgilio had sold the property to the Belarminos.[20]
Aggrieved, the Pahuds filed a complaint in intervention[21] in the pending case for judicial partition.
After trial, the RTC upheld the validity of the sale to petitioners. The dispositive portion of the decision
reads:
WHEREFORE, the foregoing considered, the Court orders:
1. the sale of the 7/8 portion of the property covered by OCT No. O (1655) O-15 by the plaintiffs as
heirs of deceased Sps. Pedro San Agustin and Agatona Genil in favor of the Intervenors-Third Party
plaintiffs as valid and enforceable, but obligating the Intervenors-Third Party plaintiffs to complete the
payment of the purchase price of P437,500.00 by paying the balance of P87,500.00 to defendant Fe
(sic) San Agustin Magsino. Upon receipt of the balance, the plaintiff shall formalize the sale of the 7/8
portion in favor of the Intervenor[s]-Third Party plaintiffs;
PAT CASE: AGENCY

2. declaring the document entitled Salaysay sa Pagsang-ayon sa Bilihan (Exh. 2-a) signed by plaintiff
Eufemia San Agustin attached to the unapproved Compromise Agreement (Exh. 2) as not a valid sale in
favor of defendant Virgilio San Agustin;
3. declaring the sale (Exh. 4) made by defendant Virgilio San Agustin of the property covered by OCT
No. O (1655)-O-15 registered in the names of Spouses Pedro San Agustin and Agatona Genil in favor of
Third-party defendant Spouses Isagani and Leticia Belarmino as not a valid sale and as inexistent;
4. declaring the defendant Virgilio San Agustin and the Third-Party defendants spouses Isagani and
Leticia Belarmino as in bad faith in buying the portion of the property already sold by the plaintiffs in favor
of the Intervenors-Third Party Plaintiffs and the Third-Party Defendant Sps. Isagani and Leticia
Belarmino in constructing the two-[storey] building in (sic) the property subject of this case; and
5. declaring the parties as not entitled to any damages, with the parties shouldering their respective
responsibilities regarding the payment of attorney[]s fees to their respective lawyers.
No pronouncement as to costs.
SO ORDERED.[22]
Not satisfied, respondents appealed the decision to the CA arguing, in the main, that the sale made by
Eufemia for and on behalf of her other co-heirs to the Pahuds should have been declared void and
inexistent for want of a written authority from her co-heirs. The CA yielded and set aside the findings of
the trial court. In disposing the issue, the CA ruled:
WHEREFORE, in view of the foregoing, the Decision dated January 14, 1998, rendered by the Regional
Trial Court of Calamba, Laguna, Branch 92 in Civil Case No. 2011-93-C for Judicial Partition is hereby
REVERSED and SET ASIDE, and a new one entered, as follows:
(1) The case for partition among the plaintiffs-appellees and appellant Virgilio is now considered closed
and terminated;
(2) Ordering plaintiffs-appellees to return to intervenors-appellees the total amount they received from
the latter, plus an interest of 12% per annum from the time the complaint [in] intervention was filed on
April 12, 1995 until actual payment of the same;
(3) Declaring the sale of appellant Virgilio San Agustin to appellants spouses, Isagani and Leticia
Belarmino[,] as valid and binding;
(4) Declaring appellants-spouses as buyers in good faith and for value and are the owners of the
subject property.
Page 60 of 150

No pronouncement as to costs.
SO ORDERED.[23]
Petitioners now come to this Court raising the following arguments:
I.
The Court of Appeals committed grave and reversible error when it did not apply the second
paragraph of Article 1317 of the New Civil Code insofar as ratification is concerned to the sale of the 4/8
portion of the subject property executed by respondents San Agustin in favor of petitioners;

expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. For the
principal to confer the right upon an agent to sell real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be given the document.[27]
In several cases, we have repeatedly held that the absence of a written authority to sell a piece of land
is, ipso jure, void,[28] precisely to protect the interest of an unsuspecting owner from being prejudiced by
the unwarranted act of another.

II.
The Court of Appeals committed grave and reversible error in holding that respondents
spouses Belarminos are in good faith when they bought the subject property from respondent Virgilio
San Agustin despite the findings of fact by the court a quo that they were in bad faith which clearly
contravenes the presence of long line of case laws upholding the task of giving utmost weight and value
to the factual findings of the trial court during appeals; [and]

Based on the foregoing, it is not difficult to conclude, in principle, that the sale made by Eufemia,
Isabelita and her two brothers to the Pahuds sometime in 1992 should be valid only with respect to the
4/8 portion of the subject property. The sale with respect to the 3/8 portion, representing the shares of
Zenaida, Milagros, and Minerva, is void because Eufemia could not dispose of the interest of her coheirs in the said lot absent any written authority from the latter, as explicitly required by law. This was, in
fact, the ruling of the CA.

III.
The Court of Appeals committed grave and reversible error in holding that respondents spouses
Belarminos have superior rights over the property in question than petitioners despite the fact that the
latter were prior in possession thereby misapplying the provisions of Article 1544 of the New Civil Code.
[24]

Still, in their petition, the Pahuds argue that the sale with respect to the 3/8 portion of the land should
have been deemed ratified when the three co-heirs, namely: Milagros, Minerva, and Zenaida, executed
their respective special power of attorneys[29] authorizing Eufemia to represent them in the sale of their
shares in the subject property.[30]

The focal issue to be resolved is the status of the sale of the subject property by Eufemia and her coheirs to the Pahuds. We find the transaction to be valid and enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void.
Also, under Article 1878,[25] a special power of attorney is necessary for an agent to enter into a
contract by which the ownership of an immovable property is transmitted or acquired, either gratuitously
or for a valuable consideration. Such stringent statutory requirement has been explained in Cosmic
Lumber Corporation v. Court of Appeals:[26]
[T]he authority of an agent to execute a contract [of] sale of real estate must be conferred in writing and
must give him specific authority, either to conduct the general business of the principal or to execute a
binding contract containing terms and conditions which are in the contract he did execute. A special
power of attorney is necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required
by law to enable an appointee of an agency (couched) in general terms to sell must be one that
PAT CASE: AGENCY

While the sale with respect to the 3/8 portion is void by express provision of law and not susceptible to
ratification,[31] we nevertheless uphold its validity on the basis of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds, Eufemia was not armed with the requisite special power of
attorney to dispose of the 3/8 portion of the property. Initially, in their answer to the complaint in
intervention,[32] Eufemia and her other co-heirs denied having sold their shares to the Pahuds. During
the pre-trial conference, however, they admitted that they had indeed sold 7/8 of the property to the
Pahuds sometime in 1992.[33] Thus, the previous denial was superseded, if not accordingly amended,
by their subsequent admission.[34] Moreover, in their Comment,[35] the said co-heirs again admitted the
sale made to petitioners.[36]
Interestingly, in no instance did the three (3) heirs concerned assail the validity of the transaction made
by Eufemia to the Pahuds on the basis of want of written authority to sell. They could have easily filed a
case for annulment of the sale of their respective shares against Eufemia and the Pahuds. Instead, they
opted to remain silent and left the task of raising the validity of the sale as an issue to their co-heir,
Page 61 of 150

Virgilio, who is not privy to the said transaction. They cannot be allowed to rely on Eufemia, their
attorney-in-fact, to impugn the validity of the first transaction because to allow them to do so would be
tantamount to giving premium to their sisters dishonest and fraudulent deed. Undeniably, therefore, the
silence and passivity of the three co-heirs on the issue bar them from making a contrary claim.
It is a basic rule in the law of agency that a principal is subject to liability for loss caused to another by
the latters reliance upon a deceitful representation by an agent in the course of his employment (1) if the
representation is authorized; (2) if it is within the implied authority of the agent to make for the principal;
or (3) if it is apparently authorized, regardless of whether the agent was authorized by him or not to make
the representation.[37]
By their continued silence, Zenaida, Milagros and Minerva have caused the Pahuds to believe that they
have indeed clothed Eufemia with the authority to transact on their behalf. Clearly, the three co-heirs are
now estopped from impugning the validity of the sale from assailing the authority of Eufemia to enter into
such transaction.
Accordingly, the subsequent sale made by the seven co-heirs to Virgilio was void because they no longer
had any interest over the subject property which they could alienate at the time of the second
transaction.[38] Nemo dat quod non habet. Virgilio, however, could still alienate his 1/8 undivided share
to the Belarminos.
The Belarminos, for their part, cannot argue that they purchased the property from Virgilio in good faith.
As a general rule, a purchaser of a real property is not required to make any further inquiry beyond what
the certificate of title indicates on its face.[39] But the rule excludes those who purchase with knowledge
of the defect in the title of the vendor or of facts sufficient to induce a reasonable and prudent person to
inquire into the status of the property.[40] Such purchaser cannot close his eyes to facts which should
put a reasonable man on guard, and later claim that he acted in good faith on the belief that there was
no defect in the title of the vendor. His mere refusal to believe that such defect exists, or his obvious
neglect by closing his eyes to the possibility of the existence of a defect in the vendors title, will not make
him an innocent purchaser for value, if afterwards it turns out that the title was, in fact, defective. In such
a case, he is deemed to have bought the property at his own risk, and any injury or prejudice occasioned
by such transaction must be borne by him.[41]
In the case at bar, the Belarminos were fully aware that the property was registered not in the name of
the immediate transferor, Virgilio, but remained in the name of Pedro San Agustin and Agatona Genil.[42]
This fact alone is sufficient impetus to make further inquiry and, thus, negate their claim that they are
purchasers for value in good faith.[43] They knew that the property was still subject of partition
proceedings before the trial court, and that the compromise agreement signed by the heirs was not
approved by the RTC following the opposition of the counsel for Eufemia and her six other co-heirs.[44]
The Belarminos, being transferees pendente lite, are deemed buyers in mala fide, and they stand exactly
in the shoes of the transferor and are bound by any judgment or decree which may be rendered for or
against the transferor.[45] Furthermore, had they verified the status of the property by asking the
neighboring residents, they would have been able to talk to the Pahuds who occupy an adjoining
business establishment[46] and would have known that a portion of the property had already been sold.
PAT CASE: AGENCY

All these existing and readily verifiable facts are sufficient to suggest that the Belarminos knew that they
were buying the property at their own risk.
WHEREFORE, premises considered, the April 23, 2003 Decision of the Court of Appeals as well as its
October 8, 2003 Resolution in CA-G.R. CV No. 59426, are REVERSED and SET ASIDE. Accordingly,
the January 14, 1998 Decision of Branch 92 of the Regional Trial Court of Calamba, Laguna is
REINSTATED with the MODIFICATION that the sale made by respondent Virgilio San Agustin to
respondent spouses Isagani Belarmino and Leticia Ocampo is valid only with respect to the 1/8 portion
of the subject property. The trial court is ordered to proceed with the partition of the property with
dispatch.
SO ORDERED.
G.R. No. 111448

January 16, 2002

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners,

vs.
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT
CORPORATION, respondents.
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari assailing the Decision dated December 10, 1992 and the Resolution
(Amending Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a registered owner
of a parcel of commercial lot consisting of 2,094 square meters, located at 104 E. Rodriguez Avenue,
Barrio Ugong, Pasig City, Metro Manila. The property is covered by Transfer Certificate of Title No.
39849 issued by the Registry of Deeds of the Province of Rizal.1
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter
denominated as "Authority To Sell Real Estate"2 to Cristeta N. Polintan, a real estate broker of the CNP
Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers and negotiate the sale"
of the lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority
from Dieselman to sell the lot.
In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, authorized Felicisima ("Mimi") Noble4 to
sell the same lot.
Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at
P2,500.00 per square meter.5 Zenaida Ranullo, board member and vice-president of AF Realty,
accepted the offer and issued a check in the amount of P300,000.00 payable to the order of Dieselman.
Polintan received the check and signed an "Acknowledgement Receipt"6 indicating that the amount of
Page 62 of 150

P300,000.00 represents the partial payment of the property but refundable within two weeks should AF
Realty disapprove Ranullo's action on the matter.
On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan for the
board resolution of Dieselman authorizing the sale of the property. However, Polintan could only give
Ranullo the original copy of TCT No. 39849, the tax declaration and tax receipt for the lot, and a
photocopy of the Articles of Incorporation of Dieselman.7

The dispositive portion of the trial court's Decision reads:

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to execute and
deliver to plaintiffs the final deed of sale of the property covered by the Transfer Certificate of Title No.
39849 of the Registry of Deed of Rizal, Metro Manila District II, including the improvements thereon, and
ordering defendants to pay plaintiffs attorney's fees in the amount of P50,000.00 and to pay the costs.
"The counterclaim of defendants is necessarily dismissed.

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said
P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square
meter.8 AF Realty replied that it has paid an initial down payment of P300,000.00 and is willing to pay
the balance.9
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the
return of the title of the lot earlier delivered by Polintan.10
Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional
Trial Court, Branch 160, Pasig City a complaint for specific performance (Civil Case No. 56278) against
Dieselman and Cruz, Jr.. The complaint prays that Dieselman be ordered to execute and deliver a final
deed of sale in favor of AF Realty.11 In its amended complaint,12 AF Realty asked for payment of
P1,500,000.00 as compensatory damages; P400,000.00 as attorney's fees; and P500,000.00 as
exemplary damages.
In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the sale
of the property and that it did not authorize any person to enter into such transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed a Deed
of Absolute Sale13 of the same property. The agreed price was P2,800.00 per square meter. Midas
delivered to Dieselman P500,000.00 as down payment and deposited the balance of P5,300,000.00 in
escrow account with the PCIBank.
Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave to
Intervene in Civil Case No. 56278. Midas alleged that it has purchased the property and took possession
thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty. The trial court granted
Midas' motion.
After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound
Dieselman in the sale of the lot to AF Realty.14 Consequently, the perfected contract of sale between
Dieselman and AF Realty bars Midas' intervention. The trial court also held that Midas acted in bad faith
when it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property.
Moreover, the notarial report of the sale was not submitted to the Clerk of Court of the Quezon City RTC
and the balance of P5,300,000.00 purportedly deposited in escrow by Midas with a bank was not
established.1wphi1.nt
PAT CASE: AGENCY

"The counterclaim and/or the complaint in intervention are likewise dismissed

"SO ORDERED."15
Dissatisfied, all the parties appealed to the Court of Appeals.
AF Realty alleged that the trial court erred in not holding Dieselman liable for moral, compensatory and
exemplary damages, and in dismissing its counterclaim against Midas.
Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a contract of
sale between Dieselman and AF Realty was perfected. Midas further averred that there was no bad faith
on its part when it purchased the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the trial court
holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the subject property to AF
Realty, the sale was not perfected; and that the Deed of Absolute Sale between Dieselman and Midas is
valid, there being no bad faith on the part of the latter. The Court of Appeals then declared Dieselman
and Cruz, Jr. jointly and severally liable to AF Realty for P100,000.00 as moral damages; P100,000.00
as exemplary damages; and P100,000.00 as attorney's fees.16
On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties,
promulgated an Amending Decision, the dispositive portion of which reads:
"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the sense that
only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the damages and
attorney's fees awarded therein, plus the amount of P300,000.00 unless, in the case of the said
P300,000.00, the same is still deposited with the Court which should be restituted to plaintiffs.
"SO ORDERED."17
AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals committed
errors of law.
The focal issue for consideration by this Court is who between petitioner AF Realty and respondent
Midas has a right over the subject lot.
Page 63 of 150

The Court of Appeals, in reversing the judgment of the trial court, made the following ratiocination:
"From the foregoing scenario, the fact that the board of directors of Dieselman never authorized, verbally
and in writing, Cruz, Jr. to sell the property in question or to look for buyers and negotiate the sale of the
subject property is undeniable.
"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate the sale of
the subject property, it should be noted that Cruz, Jr. could not confer on Polintan any authority which he
himself did not have. Nemo dat quod non habet. In the same manner, Felicisima Noble could not have
possessed authority broader in scope, being a mere extension of Polintan's purported authority, for it is a
legal truism in our jurisdiction that a spring cannot rise higher than its source. Succinctly stated, the
alleged sale of the subject property was effected through persons who were absolutely without any
authority whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial payment of
the purchase price of the subject property is equally untenable. The sale of land through an agent
without any written authority is void.
xxx

xxx

xxx

"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the records
bear out that Midas purchased the same from Dieselman on 30 July 1988. The notice of lis pendens was
subsequently annotated on the title of the property by plaintiffs on 15 August 1988. However, this
subsequent annotation of the notice of lis pendens certainly operated prospectively and did not retroact
to make the previous sale of the property to Midas a conveyance in bad faith. A subsequently registered
notice of lis pendens surely is not proof of bad faith. It must therefore be borne in mind that the 30 July
1988 deed of sale between Midas and Dieselman is a document duly certified by notary public under his
hand and seal. x x x. Such a deed of sale being public document acknowledged before a notary public is
admissible as to the date and fact of its execution without further proof of its due execution and delivery
(Bael vs. Intermediate Appellate Court, 169 SCRA617; Joson vs. Baltazar, 194 SCRA 114) and to prove
the defects and lack of consent in the execution thereof, the evidence must be strong and not merely
preponderant x x x."18

In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the board of
directors of respondent Dieselman to sell or to negotiate the sale of the lot, much less to appoint other
persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority precludes him from
conferring any authority to Polintan involving the subject realty. Necessarily, neither could Polintan
authorize Felicisima Noble. Clearly, the collective acts of respondent Cruz, Jr., Polintan and Noble
cannot bind Dieselman in the purported contract of sale.
Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified where, as
here, there is acceptance of the benefits involved. In this case the receipt by respondent Cruz, Jr. from
AF Realty of the P300,000.00 as partial payment of the lot effectively binds respondent Dieselman.22
We are not persuaded.
Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code
takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals:23
"Since a corporation, such as the private respondent, can act only through its officers and agents, all
acts within the powers of said corporation may be performed by agents of its selection; and, except so
far as limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the
same general principles of law which govern the relation of agency for a natural person govern the
officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the
corporation; and agents when once appointed, or members acting in their stead, are subject to the same
rules, liabilities, and incapacities as are agents of individuals and private persons." (Emphasis supplied)
Pertinently, Article 1874 of the same Code provides:
"ART. 1874. When a sale of piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void." (Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by
respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not
susceptible of ratification by clear mandate of Article 1409 of the Civil Code, thus:

We agree with the Court of Appeals.

"ART. 1409. The following contracts are inexistent and void from the very beginning:

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall
be exercised by the board of directors. Just as a natural person may authorize another to do certain acts
in his behalf, so may the board of directors of a corporation validly delegate some of its functions to
individual officers or agents appointed by it.19 Thus, contracts or acts of a corporation must be made
either by the board of directors or by a corporate agent duly authorized by the board.20 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 held not binding on the corporation.21

xxx

PAT CASE: AGENCY

(7) Those expressly prohibited or declared void by law.

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived."
(Emphasis supplied)

Page 64 of 150

Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable. As
aptly noted by the Court of Appeals,24 the sale was authorized by a board resolution of respondent
Dieselman dated May 27, 1988.1wphi1.nt
The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of petitioner
AF Realty and against respondent Cruz, Jr.. The award was made by reason of a breach of contract
imputable to respondent Cruz, Jr. for having acted in bad faith. We are no persuaded. It bears stressing
that petitioner Zenaida Ranullo, board member and vice-president of petitioner AF Realty who accepted
the offer to sell the property, admitted in her testimony25that a board resolution from respondent
Dieselman authorizing the sale is necessary to bind the latter in the transaction; and that respondent
Cruz, Jr. has no such written authority. In fact, despite demand, such written authority was not presented
to her.26 This notwithstanding, petitioner Ranullo tendered a partial payment for the unauthorized
transaction. Clearly, respondent Cruz, Jr. should not be held liable for damages and attorney's fees.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED with
MODIFICATION in the sense that the award of damages and attorney's fees is deleted. Respondent
Dieselman is ordered to return to petitioner AF Realty its partial payment of P300,000.00. Costs against
petitioners.

1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer Rodolfo dela Cruz the
area at present occupied by defendant wherein his house is located is 333 square meters on the
easternmost part of lot 443 and which portion has been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-fact the sum of
P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the defendant by virtue of this
compromise agreement over said portion of 333 square m. of lot 443 which portion will be located on the
easternmost part as indicated in the sketch as annex A;
4. Whatever expenses of subdivision, registration, and other incidental expenses shall be shouldered by
the defendant.[3]
On 27 November 1985 the Compromise Agreement was approved by the trial court and judgment was
rendered in accordance therewith.[4]

SO ORDERED.
[G.R. No. 114311. November 29, 1996]
COSMIC LUMBER CORPORATION, petitioner, vs. COURT OF APPEALS and ISIDRO PEREZ,
respondents.
DECISION
BELLOSILLO, J.:
COSMIC LUMBER CORPORATION through its General Manager executed on 28 January 1985 a
Special Power of Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact x x x to initiate, institute and file any court action for the ejectment of third persons and/or squatters of the
entire lot 9127 and 443 and covered by TCT Nos. 37648 and 37649, for the said squatters to remove
their houses and vacate the premises in order that the corporation may take material possession of the
entire lot, and for this purpose, to appear at the pre-trial conference and enter into any stipulation of facts
and/or compromise agreement so far as it shall protect the rights and interest of the corporation in the
aforementioned lots.[1]
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an action for the
ejectment of private respondent Isidro Perez and recover the possession of a portion of Lot No. 443
before the Regional Trial Court of Dagupan, docketed as Civil Case No. D-7750.[2]
PAT CASE: AGENCY

On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with respondent Perez,
the terms of which follow:

Although the decision became final and executory it was not executed within the 5-year period from date
of its finality allegedly due to the failure of petitioner to produce the owners duplicate copy of Title No.
37649 needed to segregate from Lot No. 443 the portion sold by the attorney-in-fact, Paz G. VillamilEstrada, to private respondent under the compromise agreement. Thus on 25 January 1993 respondent
filed a complaint to revive the judgment, docketed as Civil Case No. D-10459.[5]
Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the revival of
judgment was served upon it that it came to know of the compromise agreement entered into between
Paz G. Villamil-Estrada and respondent Isidro Perez upon which the trial court based its decision of 26
July 1993 in Civil Case No. D-7750. Forthwith, upon learning of the fraudulent transaction, petitioner
sought annulment of the decision of the trial court before respondent Court of Appeals on the ground that
the compromise agreement was void because: (a) the attorney-in-fact did not have the authority to
dispose of, sell, encumber or divest the plaintiff of its ownership over its real property or any portion
thereof; (b) the authority of the attorney-in-fact was confined to the institution and filing of an ejectment
case against third persons/squatters on the property of the plaintiff, and to cause their eviction therefrom;
(c) while the special power of attorney made mention of an authority to enter into a compromise
agreement, such authority was in connection with, and limited to, the eviction of third persons/squatters
thereat, in order that the corporation may take material possession of the entire lot; (d) the amount of
P26,640.00 alluded to as alleged consideration of said agreement was never received by the plaintiff; (e)
the private defendant acted in bad faith in the execution of said agreement knowing fully well the want of
authority of the attorney-in-fact to sell, encumber or dispose of the real property of plaintiff; and, (f) the
disposal of a corporate property indispensably requires a Board Resolution of its Directors, a fact which
Page 65 of 150

is wanting in said Civil Case No. D-7750, and the General Manager is not the proper officer to encumber
a corporate property.[6]
On 29 October 1993 respondent court dismissed the complaint on the basis of its finding that not one of
the grounds for annulment, namely, lack of jurisdiction, fraud or illegality was shown to exist.[7] It also
denied the motion for reconsideration filed by petitioner, discoursing that the alleged nullity of the
compromise judgment on the ground that petitioners attorney in fact Villamit-Estrada was not authorized
to sell the subject property may be raised as a defense in the execution of the compromise judgment as
it does not bind petitioner, but not as a ground for annulment of judgment because it does not affect the
jurisdiction of the trial court over the action nor does it amount to extrinsic fraud.[8]
Petitioner challenges this verdict. It argues that the decision of the trial court is void because the
compromise agreement upon which it was based is void. Attorney-in-fact Villamil-Estrada did not
possess the authority to sell or was she armed with a Board Resolution authorizing the sale of its
property. She was merely empowered to enter into a compromise agreement in the recovery suit she
was authorized to file against persons squatting on Lot No. 443, such authority being expressly confined
to the ejectment of third persons or squatters of x x x lot x x x (No.) 443 x x x for the said squatters to
remove their houses and vacate the premises in order that the corporation may take material possession
of the entire lot x x x x
We agree with petitioner. The authority granted Villamil-Estrada under the special power of attorney was
explicit and exclusionary: for her to institute any action in court to eject all persons found on Lots Nos.
9127 and 443 so that petitioner could take material possession thereof, and for this purpose, to appear
at the pre-trial and enter into any stipulation of facts and/or compromise agreement but only insofar as
this was protective of the rights and interests of petitioner in the property. Nowhere in this authorization
was Villamil-Estrada granted expressly or impliedly any power to sell the subject property nor a portion
thereof. Neither can a conferment of the power to sell be validly inferred from the specific authority to
enter into a compromise agreement because of the explicit limitation fixed by the grantor that the
compromise entered into shall only be so far as it shall protect the rights and interest of the corporation
in the aforementioned lots. In the context of the specific investiture of powers to Villamil-Estrada,
alienation by sale of an immovable certainly cannot be deemed protective of the right of petitioner to
physically possess the same, more so when the land was being sold for a price of P80.00 per square
meter, very much less than its assessed value of P250.00 per square meter, and considering further that
petitioner never received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter
shall be in writing; otherwise, the sale shall be void.[9] Thus the authority of an agent to execute a
contract for the sale of real estate must be conferred in writing and must give him specific authority,
either to conduct the general business of the principal or to execute a binding contract containing terms
and conditions which are in the contract he did execute.[10] A special power of attorney is necessary to
enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration.[11] The express mandate required by law to enable an
appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or
that includes a sale as a necessary ingredient of the act mentioned.[12] For the principal to confer the
PAT CASE: AGENCY

right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in
clear and unmistakable language. When there is any reasonable doubt that the language so used
conveys such power, no such construction shall be given the document.[13]
It is therefore clear that by selling to respondent Perez a portion of petitioners land through a
compromise agreement, Villamil-Estrada acted without or in obvious authority. The sale ipso jure is
consequently void. So is the compromise agreement. This being the case, the judgment based thereon
is necessarily void. Antipodal to the opinion expressed by respondent court in resolving petitioners
motion for reconsideration, the nullity of the settlement between Villamil-Estrada and Perez impaired the
jurisdiction of the trial court to render its decision based on the compromise agreement. In Alviar v. Court
of First Instance of La Union,[14] the Court held x x x x this court does not hesitate to hold that the judgment in question is null and void ab initio. It is not
binding upon and cannot be executed against the petitioners. It is evident that the compromise upon
which the judgment was based was not subscribed by them x x x x Neither could Attorney Ortega bind
them validly in the compromise because he had no special authority x x x x
As the judgment in question is null and void ab initio, it is evident that the court acquired no jurisdiction to
render it, much less to order the execution thereof x x x
x x x x A judgment, which is null and void ab initio, rendered by a court without jurisdiction to do so, is
without legal efficacy and may properly be impugned in any proceeding by the party against whom it is
sought to be enforced x x x x
This ruling was adopted in Jacinto v. Montesa,[15] by Mr. Justice J.B.L. Reyes, a much-respected
authority on civil law, where the Court declared that a judgment based on a compromise entered into by
an attorney without specific authority from the client is void. Such judgment may be impugned and its
execution restrained in any proceeding by the party against whom it is sought to be enforced. The Court
also observed that a defendant against whom a judgment based on a compromise is sought to be
enforced may file a petition for certiorari to quash the execution. He could not move to have the
compromise set aside and then appeal from the order of denial since he was not a party to the
compromise. Thus it would appear that the obiter of the appellate court that the alleged nullity of the
compromise agreement should be raised as a defense against its enforcement is not legally feasible.
Petitioner could not be in a position to question the compromise agreement in the action to revive the
compromise judgment since it was never privy to such agreement. Villamil-Estrada who signed the
compromise agreement may have been the attorney-in-fact but she could not legally bind petitioner
thereto as she was not entrusted with a special authority to sell the land, as required in Art. 1878, par.
(5), of the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals to
annul and set aside judgments of Regional Trial Courts.[16] Thus, the Intermediate Appellate Court (now
Court of Appeals) shall exercise x x x x (2) Exclusive original jurisdiction over action for annulment of
judgments of the Regional Trial Courts x x x x However, certain requisites must first be established
Page 66 of 150

before a final and executory judgment can be the subject of an action for annulment. It must either be
void for want of jurisdiction or for lack of due process of law, or it has been obtained by fraud.[17]
Conformably with law and the above-cited authorities, the petition to annul the decision of the trial court
in Civil Case No. D-7750 before the Court of Appeals was proper. Emanating as it did from a void
compromise agreement, the trial court had no jurisdiction to render a judgment based thereon.[18]
It would also appear, and quite contrary to the finding of the appellate court that the highly reprehensible
conduct of attorney-in-fact Villamil-Estrada in Civil Case No. 7750 constituted an extrinsic or collateral
fraud by reason of which the judgment rendered thereon should have been struck down. Not all the legal
semantics in the world can becloud the unassailable fact that petitioner was deceived and betrayed by its
attorney-in-fact. Villamil-Estrada deliberately concealed from petitioner, her principal, that a compromise
agreement had been forged with the end-result that a portion of petitioners property was sold to the
deforciant, literally for a song. Thus completely kept unaware of its agents artifice, petitioner was not
accorded even a fighting chance to repudiate the settlement so much so that the judgment based
thereon became final and executory.
For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow limits. Fraud
may assume different shapes and be committed in as many different ways and here lies the danger of
attempting to define fraud. For man in his ingenuity and fertile imagination will always contrive new
schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is one the effect
of which prevents a party from hearing a trial, or real contest, or from presenting all of his case to the
court, or where it operates upon matters, not pertaining to the judgment itself, but to the manner in which
it was procured so that there is not a fair submission of the controversy. In other words, extrinsic fraud
refers to any fraudulent act of the prevailing party in the litigation which is committed outside of the trial
of the case, whereby the defeated party has been prevented from exhibiting fully his side of the case by
fraud or deception practiced on him by his opponent.[19] Fraud is extrinsic where the unsuccessful party
has been prevented from exhibiting fully his case, by fraud or deception practiced on him by his
opponent, as by keeping him away from court, a false promise of a compromise; or where the defendant
never had knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney
fraudulently or without authority connives at his defeat; these and similar cases which show that there
has never been a real contest in the trial or hearing of the case are reasons for which a new suit may be
sustained to set aside and annul the former judgment and open the case for a new and fair hearing.[20]
It may be argued that petitioner knew of the compromise agreement since the principal is chargeable
with and bound by the knowledge of or notice to his agent received while the agent was acting as such.
But the general rule is intended to protect those who exercise good faith and not as a shield for unfair
dealing. Hence there is a well-established exception to the general rule as where the conduct and
dealings of the agent are such as to raise a clear presumption that he will not communicate to the
principal the facts in controversy.[21] The logical reason for this exception is that where the agent is
committing a fraud, it would be contrary to common sense to presume or to expect that he would
communicate the facts to the principal. Verily, when an agent is engaged in the perpetration of a fraud
PAT CASE: AGENCY

upon his principal for his own exclusive benefit, he is not really acting for the principal but is really acting
for himself, entirely outside the scope of his agency.[22] Indeed, the basic tenets of agency rest on the
highest considerations of justice, equity and fair play, and an agent will not be permitted to pervert his
authority to his own personal advantage, and his act in secret hostility to the interests of his principal
transcends the power afforded him.[23]
WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court of Appeals
dated 29 October 1993 and 10 March 1994, respectively, as well as the decision of the Regional Trial
Court of Dagupan City in Civil Case No. D-7750 dated 27 November 1985, are NULLIFIED and SET
ASIDE. The Compromise Agreement entered into between Attorney-in-fact Paz G. Villamil-Estrada and
respondent Isidro Perez is declared VOID. This is without prejudice to the right of petitioner to pursue its
complaint against private respondent Isidro Perez in Civil Case No. D-7750 for the recovery of
possession of a portion of Lot No. 443.
SO ORDERED.
G.R. No. 171464

November 27, 2013

SPOUSES ELISEO R. BAUTISTA AND EMPERA TRIZ C. BAUTISTA, Petitioners,

vs.
SPOUSES MILA JALANDONI AND ANTONIO JALANDONI AND MANILA CREDIT CORPORATION,
Respondents.
x-----------------------x
G.R. No. 199341
MANILA CREDIT CORPORATION, Petitioner,
vs.
SPOUSES MILA AND ANTONIO JALANDONI, and SPOUSES ELISEO AND EMPERATRIZ C.
BAUTISTA, Respondents.
DECISION
MENDOZA, J.:
Before the Court are two consolidated petitions for review under Rule 45 assailing the January 27, 2006
Amended Decision1 of the Court of Appeals CA) in CA G.R. CV No. 84648 and its October 12, 2011
Resolution2 denying the motion for reconsideration filed by Manila Credit Corporation (MCC). The
controversy stemmed from a complaint3 for cancellation of titles with damages filed by Spouses Mila and
Antonio Jalandoni (Spouses Jalandoni) against Spouses Eliseo and Emperatriz Bautista (Spouses
Baustista), the Register of Deeds of Makati City,4 Spouses Eduardo and Ma. Teresa Tongco (Spouses
Tongco). and Manila Credit Corporation MCC).
Spouses Jalandoni were the registered owners of two (2) parcels of land, covered by Transfer Certificate
of Title (TCT) Nos. 2010485 and 201049.6 The two lots were located in Muntinlupa City, each parcel of
Page 67 of 150

land containing an area of Six Hundred (600) square meters, more or less, amounting to P1,320,000.00
per lot.

properties; and that its mortgage lien could not be prejudiced by the alleged falsification claimed by
Spouses Jalandoni.9

In May 1997, the Spouses Jalandoni applied for a loan with a commercial bank and, as a security
thereof, they offered to constitute a real estate mortgage over their two lots. After a routine credit
investigation, it was discovered that their titles over the two lots had been cancelled and new TCT Nos.
206091 and 205624 were issued in the names of Spouses Baustista. Upon further investigation, they
found out that the bases for the cancellation of their titles were two deeds of absolute sale,7 dated April
4, 1996 and May 4, 1996, purportedly executed and signed by them in favor of Spouses Baustista.

On December 17, 2004, the RTC rendered judgment10 declaring the sale of the subject lots void. The
RTC explained that Nasino had no authority to negotiate for the Spouses Jalandoni, much less to
receive the consideration of the sale. Spouses Bautista were not innocent purchasers in good faith and
for value for their failure to personally verify the original copies of the titles of the subject properties and
to ascertain the authority of Nasino since they were not dealing with the registered owner. The RTC,
nonetheless, found MCC a mortgagee in good faith and upheld the validity of the mortgage contract
between Spouses Bautista and MCC. The dispositive portion reads:

Aggrieved, Spouses Jalandoni filed a complaint for cancellation of titles and damages claiming that they
did not sell the subject lots and denied having executed the deeds of absolute sale. They asserted that
the owner's duplicate certificates of title were still in their possession; that their signatures appearing on
the deeds of absolute sale were forged and that said deeds were null and void and transferred no title in
favor of Spouses Bautista; that they never met the Spouses Bautista; that they did not appear before the
notary public who notarized the deeds of absolute sale; that the community tax certificates indicated in
the deeds of absolute sale were not issued to them and that the entries therein were forged and falsified;
that Spouses Bautista paid a grossly inadequate price of only P600,000.00 per lot; and that the Spouses
Bautista were aware of the true value of the lots because they mortgaged one lot to Spouses Tongco for
P1,700,000.00 and the other lot for P3,493,379.82 to MCC.

WHEREFORE, in view of all the foregoing, the Court hereby renders judgment declaring:
1. The mortgage lien of defendant Manila Credit Corp. over the Transfer Certificate of Title No. 205624
and 206091 and/or Transfer Certificates of Title No. 201048 and 201049 valid, legal and enforceable;
2. Ordering defendant Eliseo and Emperatriz Bautista jointly and severally to pay the plaintiff Antonio and
Mila Jalandoni the amount of P1,320,000.00 for each lot by way of actual damages; 3. Ordering
defendant Eliseo and Emperatriz Bautista jointly and severally to pay the plaintiff Antonio and Mila J
alandoni the amount of P100,000.00 by way of moral damages;

In their answer,8 Spouses Bautista claimed that in March 1996, a certain Teresita Nasino (Nasino)
offered to Eliseo Baustista (Eliseo) two parcels of land located in Muntinlupa City; that the parcels of land
were sold at a bargain price because the owners were in dire need of money; that upon their request,
Nasino showed them the photocopies of the titles covering the subject lands; that Nasino told them that
she would negotiate with the Spouses Jalandoni, prepare the necessary documents and cause the
registration of the sale with the Register of Deeds; and that since Nasino was a wife of a friend, Spouses
Baustista trusted her and gave her the authority to negotiate with Spouses Jalandoni on their behalf.

4. Ordering defendant Eliseo and Emperatriz Bautista jointly and severally to pay the plaintiff Antonio and
Mila J alandoni the amount of P50,000.00 by way of exemplary damages;and

Spouses Bautista further alleged that in April 1996, Nasino informed Eliseo that the deeds of sale had
been prepared and signed by Spouses Jalandoni; that they, in turn, signed the deeds of sale and gave
Nasino the amount of P1,200,000.00; that TCT Nos. 206091 and 205624 were issued to them; that since
they needed funds for a new project, Eliseo contracted a loan with Spouses Tongco using as a security
the parcel of land covered by TCT No. 205624; that he also contracted a loan with MCC in the amount of
P3,493,3 79.82 and used as a security the lot covered by TCT No. 206091; that they eventually paid the
loan with the Spouses Tongco, thus, the real estate mortgage was cancelled; and that since they were
having difficulty paying the interests of their loan with the MCC, they also mortgaged the lot covered by
TCT No. 205624.

SO ORDERED.11

For its part, MCC reiterated its claim in its motion to dismiss that the venue of the case was improperly
laid and that the complaint failed to state a cause of action against it as there was no allegation made in
the complaint as to its participation in the alleged falsification. MCC averred that they found no indication
of any defect in the titles of Spouses Bautista; that it exercised due diligence and prudence in the
conduct of its business and conducted the proper investigation and inspection of the mortgaged
PAT CASE: AGENCY

5 Ordering defendant Eliseo and Emperatriz Bautista jointly and severally to pay plaintiff Antonio and
Mila Jalandoni the amount of P50,000.00 by way of attorney s fees.
6. No pronouncement as to costs.

Both not satisfied, Spouses Jalandoni and Spouses Bautista appealed the RTC decision before the CA.
In their appellants brief,12 Spouses Jalandoni prayed that (1) the TCT Nos. 205624 and 201061 in the
names of Spouses Bautista be declared null and void; (2) the real estate mortgage constituted on TCT
Nos. 205624 and 201061 in favor of Manila Credit Corporation be nullified; and (3) the Register of Deeds
of Muntinlupa City be ordered to reinstate TCT Nos. 201048 and 201049 in their names.
On the other hand, Spouses Bautista asked for the reversal of the R TC decision and the dismissal of
the complaint for lack of merit.13
With leave of court,14 MCC filed its Brief15 praying for the affirmation of the RTC decision or in the event
that the title of Spouses Bautista over the subject lots would be cancelled, they be adjudged to pay MCC
their total obligation under the promissory notes.
Page 68 of 150

The CA, in its Decision,16 dated September 30, 2005, modified the RTC decision, ordering Spouses
Bautista to pay Spouses Jalandoni actual damages in the amount of P1,700,000.00 for the property
covered by TCT No. 205624 and P3,493,379.82 for the property covered by TCT No. 206091.
Spouses Bautista filed a motion for reconsideration, whereas Spouses Jalandoni filed a partial motion for
reconsideration.
On January 27, 2006, the CA, in an Amended Decision,17 denied Spouses Bautista s motion for
reconsideration and ruled in favor of Spouses Jalandoni. The CA held that MCC s purported right over
the subject properties could not be greater than that of Spouses Jalandoni, who remained the lawful
owners of the subject lots. The dispositive portion reads:
WHEREFORE, except for the dismissal of the appeal instituted by defendants-appellants spouses Eliseo
Bautista and Emperatriz Bautista, the dispositive portion of Our Decision dated September 30 2005 is
hereby amended to read as follows:
1. Declaring null and void Transfer Certificates of Titles Nos. 205624 and 201061 in the name of
defendants- appellants Spouses Eliseo Bautista and Emperatriz Bautista;
2. Nullifying the Real Estate Mortgages constituted on the lots covered by Transfer Certificates of Titles
Nos. 205624 and 201061 by defendant-appellant Eliseo Bautista in favor of defendant-appellee Manila
Credit Corporation;
3. Ordering the Register of Deeds of Muntinlupa City to reinstate Transfer Certificates of Title Nos.
201048 and 201049 in the name of plaintiffs-appellants Spouses Mila J alandoni and Antonio J alandoni,
free from any mortgage or lien;
4. Defendants-appellants Spouses Eliseo Bautista and Emperatriz Bautista are liable to pay their
obligation under the Promissory Notes they executed in favor of defendant-appellee Manila Credit
Corporation;
5. Ordering defendants-appellants jointly and severally to pay plaintiffs-appellants the amount of Fifty
Thousand Pesos (P50,000.00) by way of moral damages;
6. Ordering defendants-appellants jointly and severally to pay plaintiffs-appellants the amount of Twenty
Five Thousand Pesos (P25,000.00) by way of exemplary damages; and
7. Ordering defendants-appellants jointly and severally to pay plaintiffs-appellants the amount of Twenty
Five Thousand Pesos (P25,000.00) by way of attorney's fees.
SO ORDERED.18

PAT CASE: AGENCY

On February 24, 2006, MCC filed a motion for reconsideration19 praying for the reinstatement of the CA
s September 30, 2005 decision.
The Spouses Bautista, in turn, filed a petition for review before the Court docketed as G.R. No. 171464.
In view thereof, the CA held in abeyance the resolution on MCC s motion for reconsideration.20
On September 26, 2007, the Court gave due course to the petition.21 Seeing the need, however, to first
resolve the motion for reconsideration of the MCC, the Court directed the CA to resolve the motion.
Consequently, the CA, in a Resolution,22 dated October 12, 2011, denied the petition.
On December 6, 2011, the MCC filed a petition for review before this Court assailing the January 27,
2006 Amended Decision and October 12, 2011 Resolution of the CA in CA G.R. CV No. 84648.
Considering that G.R. No. 171464 and G.R. No. 199341 are both questioning the January 27, 2006
Amended Decision and October 12, 2011 Resolution of the CA and that the issues raised are
intertwined, the Cou1i consolidated the two petitions.
In G.R. No. 171464, Spouses Bautista anchored their petition on the following
ARGUMENTS:
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN FINDING THAT PETITIONERS ARE NOT
BUYERS IN GOOD FAITH.
THE COURT OF APPEALS ERRED IN RULING THAT (A) THE TCTs ISSUED UNDER PETITIONERS
NAMES SHOULD BE ANNULLED; AND (B) THEY ARE LIABLE TO THE SPOUSES JALANDONI FOR
ACTUAL, MORAL AND EXEMPLARY DAMAGES, AND ATTORNEY'S FEES.23
Whereas, in G.R. No. 199341, MCC presented the following
ASSIGNMENT OF ERRORS/
GROUNDS/ISSUES
WHETHER OR NOT THE COURT OF APPEALS COMMITTED AN ERROR IN NULLIFYING THE REAL
MORTGAGE CONSTITUTED ON THE SUBJECT PROPERTIES.
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY COMMITTED AN ERROR IN FAILING
TO APPLY THE CASES OF PINEDA VS. COURT OF APPEALS, CABUHAT VS. COURT OF APPEALS,
REPUBLIC VS. UMALI, PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS, PENULLAR VS.
PHILIPPINE NATIONAL BANK AND SUCH OTHER CASES UPHOLDING THE RIGHT OF AN
INNOCENT MORTGAGEE FOR VALUE.

Page 69 of 150

WHETHER OR NOT THE COURT OF APPEALS COMMITTED AN ERROR IN APPLYING THE CASE
OF TORRES VS. COURT OF APPEALS.24

were regularly and validly issued in their names. Moreover, they aver that they were not privy to any
fraud committed in the sale of the subject properties.28

The issues to be resolved are (1) whether or not the Spouses Bautista were buyers in good faith and for
value; and, (2) in case they were not, whether or not Spouses Jalandoni have a better right than MCC.

The Court finds no merit in their arguments.

Before resolving the issue on whether Spouses Bautista were purchasers in good faith for value, the
Court shall first discuss the validity of the sale.
Articles 1874 of the Civil Code provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void.
Likewise, A1iicle 1878 paragraph 5 of the Civil Code specifically mandates that the authority of the agent
to sell a real property must be conferred in writing, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
(1) x x x
xxx
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
x x x.
The foregoing provisions explicitly require a written authority when the sale of a piece of land is through
an agent, whether the sale is gratuitously or for a valuable consideration. Absent such authority in
writing, the sale is null and void.25
In the case at bar, it is undisputed that the sale of the subject lots to Spouses Bautista was void. Based
on the records, Nasino had no written authority from Spouses Jalandoni to sell the subject lots. The
testimony of Eliseo that Nasino was empowered by a special power of attorney to sell the subject lots
was bereft of merit as the alleged special power attorney was neither presented in court nor was it
referred to in the deeds of absolute sale.26 Bare allegations, unsubstantiated by evidence, are not
equivalent to proof under the Rules of Court.27
Spouses Bautista insist that they were innocent purchasers for value, entitled to the protection of the law.
They stress that their purchase of the subject properties were all coursed through Nasino, who
represented that she knew Spouses Jalandoni and that they were selling their properties at a bargain
price because they were in dire need of money. Considering that the Register of Deeds cancelled the
titles of Spouses Jalandoni and subsequently issued new titles in their names, they assert that these
PAT CASE: AGENCY

"A buyer in good faith is one who buys the property of another without notice that some other person has
a right to or interest in such property. He is a buyer for value if he pays a full and fair price at the time of
the purchase or before he has notice of the claim or interest of some other person in the property."29
"Good faith connotes an honest intention to abstain from taking unconscientious advantage of
another."30 To prove good faith, the following conditions must be present: (a) the seller is the registered
owner of the land; (b) the owner is in possession thereof; and (3) at the time of the sale, the buyer was
not aware of any claim or interest of some other person in the property, or of any defect or restriction in
the title of the seller or in his capacity to convey title to the property. All these conditions must be present,
otherwise, the buyer is under obligation to exercise extra ordinary diligence by scrutinizing the
certificates of title and examining all factual circumstances to enable him to ascertain the seller's title and
capacity to transfer any interest in the property.31
Tested by these conditions, Spouses Bautista cannot be deemed purchasers in good faith.1wphi1
There were several circumstances that should have placed them on guard and prompted them to
conduct an investigation that went beyond the face of the title of the subject lots. Their failure to take the
necessary steps to determine the status of the subject lots and the extent of Nasino's authority puts them
into bad light. As correctly observed by the RTC:
As a general rule, every person dealing with registered land may safely rely on the correctness of the
certificate of title and is under no obligation to look beyond the certificate itself to determine the actual
owner or the circumstances of its ownership. However, there might be circumstance apparent on the
face of the certificate of title or situation availing which would excite suspicion as a reasonable prudent
man to promptly inquire as in the instant case where the transfer is being facilitated by a person other
than the registered owner.
In his testimony, defendant Eliseo Bautista admitted not having met the plaintiffs except when the instant
case was filed in court (TSN, July 17, 2003, p. 32.). He also testified that a Special Power of Attorney
was executed by the plaintiffs in favor of Nasino. However, such Special Power of Attorney was not
presented in evidence much less the tenor thereof referred to in the Deeds of Sale purportedly executed
by the plaintiffs with Bautista. Hence, this Court cannot sustain Bautista's allegation that Nasino was
specifically authorized to transact for and in behalf of the plaintiffs over the vehement denial of the latter
to the contrary.
The foregoing fact alone would have prompted suspicion over the transaction considering that the same
involves a valuable consideration. In addition, the following circumstances would have placed Bautista
on guard and should have behooved himself to inquire further considering: (1) the non-presentation of
the owner's duplicate certificate, where only photocopies of the certificates of title were presented to
defendant Bautista; (2) the price at which the subject lots were being sold; and (2) the continued failure
and/or refusal of the supposed sellers to meet and communicate with him.
Page 70 of 150

While it may be true that Bautista's participation over the transaction was merely limited to the signing of
the Deeds of Sale, and there is no evidence on record that he was party to the forgery or the simulation
of the questioned contracts. Nevertheless, failing to make the necessary inquiry under circumstances as
would prompt a reasonably prudent man to do so as in the instant case, is hardly consistent with any
pretense of good faith, which defendant Bautista invokes to claim the right to be protected as innocent
purchaser for value.32
Spouses Bautistas claim of good faith is negated by their failure to verify the extent and nature of
Nasinos authority. Since Spouses Bautista did not deal with the registered owners but with Nasino, who
merely represented herself to be their agent, they should have scrutinized all factual circumstances
necessary to determine her authority to insure that there are no flaws in her title or her capacity to
transfer the land.33 They should not have merely relied on her verbal representation that she was selling
the subject lots on behalf of Spouses Jalandoni. Moreover, Eliseos claim that he did not require Nasino
to give him a copy of the special power of attorney because he trusted her is unacceptable. Well settled
is the rule that persons dealing with an assumed agency 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.34 As stated, Spouses
Bautista's failure to observe the required degree of caution in ascertaining the genuineness and extent of
Nasino's authority is tantamount to bad faith that precludes them from claiming the rights of a purchaser
in good faith.35
Spouses Bautista next argue that they could not be held liable for moral and exemplary damages. In light
of the foregoing circumstances, the Court finds the award of moral and exemplary damages in order.
Moral damages are treated as compensation to alleviate physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury resulting from a wrong.36 Though moral damages are not capable of pecuniary estimation, the
amount should be proportional to and in approximation of the suffering inflicted.37
On the other hand, exemplary damages may be imposed by way of example or correction for the public
good.38 They are "imposed not to enrich one party or impoverish another, but to serve as a deterrent
against or as a negative incentive to curb socially deleterious actions."39
Coming now to the petition of MCC, it claims to be a mortgagee in good faith and asserts that it had no
participation in the forgery of the deeds of sale. It argues that since the mortgaged lots were registered
lands, it is not required to go beyond their titles to determine the condition of the property and may rely
on the correctness of the certificates of title.
Generally, the law does not require a person dealing with registered land to go beyond the certificate of
title to determine the liabilities attaching to the property.40 In the absence of suspicion, a purchaser or
mortgagee has a right to rely in good faith on the certificates of title of the mortgagor and is not obligated
to undertake further investigation.41 For indeed the Court in several cases declared that a void title may
be the source of a valid title in the hands of an innocent purchaser for value.42
PAT CASE: AGENCY

Where the owner, however, could not be charged with negligence in the keeping of its duplicate
certificates of title or with any act which could have brought about the issuance of another title relied
upon by the purchaser or mortgagee for value, then the innocent registered owner has a better right over
the mortgagee in good faith.43 For "the law protects and prefers the lawful holder of registered title over
the transferee of a vendor bereft of any transmissible rights."44
In the case of C.N. Hodges v. Dy Buncio Co. Inc.45 which was relied upon by the Court in the cases of
Baltazar v. Court of Appeals.46 Torres v. Court of Appeals.47 and in the more recent case of Sanchez v.
Quinio.48 the Court held that:
The claim of indefeasibility of the petitioner's title under the Torrens land title system would be correct if
previous valid title to the same parcel of land did not exist. The respondent had a valid title x x x It never
parted with it; it never handed or delivered to anyone its owner's duplicate of the transfer certificate of
title; it could not be charged with negligence in the keeping of its duplicate certificate of title or with any
act which could have brought about the issuance of another certificate upon which a purchaser in good
faith and for value could rely. If the petitioner's contention as to indefeasibility of his title should be
upheld, then registered owners without the least fault on their part could be divested of their title and
deprived of their property. Such disastrous results which would shake and destroy the stability of land
titles had not been foreseen by those who had endowed with indefeasibility land titles issued under the
Torrens system. [Emphases supplied]
Thus, in the case of Tomas v. Philippine National Bank,49 the Court stated that:
We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the innocent
original registered owner who obtained his certificate of title through perfectly legal and regular
proceedings, than one who obtains his certificate from a totally void one, as to prevail over judicial
pronouncements to the effect that one dealing with a registered land, such as a purchaser, is under no
obligation to look beyond the certificate of title of the vendor, for in the latter case, good faith has yet to
be established by the vendee or transferee, being the most essential condition, coupled with valuable
consideration, to entitle him to respect for his newly acquired title even as against the holder of an earlier
and perfectly valid title.
Similarly, Spouses Jalandoni had not been negligent in any manner and indeed had not performed any
act which gave rise to any claim by a third person. As a matter of fact, Spouses Jalandoni never
relinquished their title over the subject lots. They had in their possession the owner s duplicate of title all
this time and they never handed it to anyone. Imagine their surprise when they learned that the copy of
their certificates of title with the Registry of Deeds had been cancelled and new ones issued in the
names of Spouses Bautista. Thus, whatever rights MCC may have acquired over the subject lots cannot
prevail over, but must yield to the superior rights of Spouses Jalandoni as no one can acquire a better
right that the transferor has.50
Accordingly, the CA was correct and fair when it ordered Spouses Bautista to pay its obligation to MCC.
At any rate, in its petition before the CA, MCC precisely asked, in the alternative, that Spouses Bautista
Page 71 of 150

be adjudged to pay its total obligation under the promissory note.51 WHEREFORE, the petitions of
Spouses Bautista in G.R. No. 171464 and the Manila Credit Corporation in G.R. No. 199341 are both
DENIED. The January 27, 2006 Amended Decision and October 12, 2011 Resolution of the Court of
Appeals in CA G.R. CV No. 84648 are AFFIRMED.
SO ORDERED.
GENEVIEVE LIM, G.R. No. 163720
Petitioner
- versus AUSTRIA-MARTINEZ, CALLEJO, SR., TINGA, and FLORENCIO SABAN, CHICO-NAZARIO, JJ.
Respondent.
Promulgated December 16, 2004
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before the Court is a Petition for Review on Certiorari assailing the Decision[1] dated October 27, 2003
of the Court of Appeals, Seventh Division, in CA-G.R. V No. 60392.[2]
The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the lot), entered
into an Agreement and Authority to Negotiate and Sell (Agency Agreement) with respondent Florencio
Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybaez authorized Saban to look for
a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to
include the amounts needed for payment of taxes, transfer of title and other expenses incident to the
sale, as well as Sabans commission for the sale.[3]
Through Sabans efforts, Ybaez and his wife were able to sell the lot to the petitioner Genevieve Lim
(Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of
the lot as indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).[4] It
appears, however, that the vendees agreed to purchase the lot at the price of Six Hundred Thousand
Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale. After the sale, Lim
remitted to Saban the amounts of One Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos
(P113,257.00) for payment of taxes due on the transaction as well as Fifty Thousand Pesos
(P50,000.00) as brokers commission.[5] Lim also issued in the name of Saban four postdated checks in
the aggregate amount of Two Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos
(P236,743.00). These checks were Bank of the Philippine Islands (BPI) Check No. 1112645 dated June
12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check No.
1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank Check No. 021491B dated June
20, 1994 for P168,000.00.
PAT CASE: AGENCY

Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez asked Lim
to cancel all the checks issued by her in Sabans favor and to extend another partial payment for the lot
in his (Ybaezs) favor.[6]
After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for
collection of sum of money and damages against Ybaez and Lim with the Regional Trial Court (RTC) of
Cebu City on August 3, 1994.[7] The case was assigned to Branch 20 of the RTC.
In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot for
P600,000.00, i.e., with a mark-up of Four Hundred Thousand Pesos (P400,000.00) from the price set by
Ybaez. Of the total purchase price of P600,000.00, P200,000.00 went to Ybaez, P50,000.00 allegedly
went to Lims agent, and P113,257.00 was given to Saban to cover taxes and other expenses incidental
to the sale. Lim also issued four (4) postdated checks[8] in favor of Saban for the remaining
P236,743.00.[9]
Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any commission for the sale since
he concealed the actual selling price of the lot from Ybaez and because he was not a licensed real
estate broker. Ybaez was able to convince Lim to cancel all four checks.
Saban further averred that Ybaez and Lim connived to deprive him of his sales commission by
withholding payment of the first three checks. He also claimed that Lim failed to make good the fourth
check which was dishonored because the account against which it was drawn was closed.
In his Answer, Ybaez claimed that Saban was not entitled to any commission because he concealed the
actual selling price from him and because he was not a licensed real estate broker.
Lim, for her part, argued that she was not privy to the agreement between Ybaez and Saban, and that
she issued stop payment orders for the three checks because Ybaez requested her to pay the purchase
price directly to him, instead of coursing it through Saban. She also alleged that she agreed with Ybaez
that the purchase price of the lot was only P200,000.00.
Ybaez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial court
dismissed the case only against him without any objection from the other parties.[10]
On May 14, 1997, the RTC rendered its Decision[11] dismissing Sabans complaint, declaring the four (4)
checks issued by Lim as stale and non-negotiable, and absolving Lim from any liability towards Saban.
Saban appealed the trial courts Decision to the Court of Appeals.
On October 27, 2003, the appellate court promulgated its Decision[12] reversing the trial courts ruling. It
held that Saban was entitled to his commission amounting to P236,743.00.[13]
The Court of Appeals ruled that Ybaezs revocation of his contract of agency with Saban was invalid
because the agency was coupled with an interest and Ybaez effected the revocation in bad faith in order
to deprive Saban of his commission and to keep the profits for himself.[14]
Page 72 of 150

The appellate court found that Ybaez and Lim connived to deprive Saban of his commission. It declared
that Lim is liable to pay Saban the amount of the purchase price of the lot corresponding to his
commission because she issued the four checks knowing that the total amount thereof corresponded to
Sabans commission for the sale, as the agent of Ybaez. The appellate court further ruled that, in issuing
the checks in payment of Sabans commission, Lim acted as an accommodation party. She signed the
checks as drawer, without receiving value therefor, for the purpose of lending her name to a third person.
As such, she is liable to pay Saban as the holder for value of the checks.[15]
Lim filed a Motion for Reconsideration of the appellate courts Decision, but her Motion was denied by the
Court of Appeals in a Resolution dated May 6, 2004.[16]
Not satisfied with the decision of the Court of Appeals, Lim filed the present petition.
Lim argues that the appellate court ignored the fact that after paying her agent and remitting to Saban
the amounts due for taxes and transfer of title, she paid the balance of the purchase price directly to
Ybaez.[17]
She further contends that she is not liable for Ybaezs debt to Saban under the Agency Agreement as she
is not privy thereto, and that Saban has no one but himself to blame for consenting to the dismissal of
the case against Ybaez and not moving for his substitution by his heirs.[18]
Lim also assails the findings of the appellate court that she issued the checks as an accommodation
party for Ybaez and that she connived with the latter to deprive Saban of his commission.[19]
Lim prays that should she be found liable to pay Saban the amount of his commission, she should only
be held liable to the extent of one-third (1/3) of the amount, since she had two co-vendees (the Spouses
Lim) who should share such liability.[20]
In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which consisted
of the P200,000.00 which would be paid to Ybaez, the P50,000.00 due to her broker, the P113,257.00
earmarked for taxes and other expenses incidental to the sale and Sabans commission as broker for
Ybaez. According to Saban, Lim assumed the obligation to pay him his commission. He insists that Lim
and Ybaez connived to unjustly deprive him of his commission from the negotiation of the sale.[21]
The issues for the Courts resolution are whether Saban is entitled to receive his commission from the
sale; and, assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban his sales
commission.
The Court gives due course to the petition, but agrees with the result reached by the Court of Appeals.

PAT CASE: AGENCY

The Court affirms the appellate courts finding that the agency was not revoked since Ybaez requested
that Lim make stop payment orders for the checks payable to Saban only after the consummation of the
sale on March 10, 1994. At that time, Saban had already performed his obligation as Ybaezs agent
when, through his (Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the lot with Lim and
the Spouses Lim.
To deprive Saban of his commission subsequent to the sale which was consummated through his efforts
would be a breach of his contract of agency with Ybaez which expressly states that Saban would be
entitled to any excess in the purchase price after deducting the P200,000.00 due to Ybaez and the
transfer taxes and other incidental expenses of the sale.[22]
In Macondray & Co. v. Sellner,[23] the Court recognized the right of a broker to his commission for
finding a suitable buyer for the sellers property even though the seller himself consummated the sale
with the buyer.[24] The Court held that it would be in the height of injustice to permit the principal to
terminate the contract of agency to the prejudice of the broker when he had already reaped the benefits
of the brokers efforts.
In Infante v. Cunanan, et al.,[25] the Court upheld the right of the brokers to their commissions although
the seller revoked their authority to act in his behalf after they had found a buyer for his properties and
negotiated the sale directly with the buyer whom he met through the brokers efforts. The Court ruled that
the sellers withdrawal in bad faith of the brokers authority cannot unjustly deprive the brokers of their
commissions as the sellers duly constituted agents.
The pronouncements of the Court in the aforecited cases are applicable to the present case, especially
considering that Saban had completely performed his obligations under his contract of agency with
Ybaez by finding a suitable buyer to preparing the Deed of Absolute Sale between Ybaez and Lim and
her co-vendees. Moreover, the contract of agency very clearly states that Saban is entitled to the excess
of the mark-up of the price of the lot after deducting Ybaezs share of P200,000.00 and the taxes and
other incidental expenses of the sale.
However, the Court does not agree with the appellate courts pronouncement that Sabans agency was
one coupled with an interest. Under Article 1927 of the Civil Code, an agency cannot be revoked if a
bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a
partner is appointed manager of a partnership in the contract of partnership and his removal from the
management is unjustifiable. Stated differently, an agency is deemed as one coupled with an interest
where it is established for the mutual benefit of the principal and of the agent, or for the interest of the
principal and of third persons, and it cannot be revoked by the principal so long as the interest of the
agent or of a third person subsists. In an agency coupled with an interest, the agents interest must be in
the subject matter of the power conferred and not merely an interest in the exercise of the power
because it entitles him to compensation. When an agents interest is confined to earning his agreed
compensation, the agency is not one coupled with an interest, since an agents interest in obtaining his
compensation as such agent is an ordinary incident of the agency relationship.[26]
Sabans entitlement to his commission having been settled, the Court must now determine whether Lim
is the proper party against whom Saban should address his claim.
Page 73 of 150

Sabans right to receive compensation for negotiating as broker for Ybaez arises from the Agency
Agreement between them. Lim is not a party to the contract. However, the record reveals that she had
knowledge of the fact that Ybaez set the price of the lot at P200,000.00 and that the P600,000.00the
price agreed upon by her and Sabanwas more than the amount set by Ybaez because it included the
amount for payment of taxes and for Sabans commission as broker for Ybaez.
According to the trial court, Lim made the following payments for the lot: P113,257.00 for taxes,
P50,000.00 for her broker, and P400.000.00 directly to Ybaez, or a total of Five Hundred Sixty Three
Thousand Two Hundred Fifty Seven Pesos (P563,257.00).[27] Lim, on the other hand, claims that on
March 10, 1994, the date of execution of the Deed of Absolute Sale, she paid directly to Ybaez the
amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for
payment of taxes and P50,000.00 as his commission,[28] and One Hundred Thirty Thousand Pesos
(P130,000.00) on June 28, 1994,[29] or a total of Three Hundred Ninety Three Thousand Two Hundred
Fifty Seven Pesos (P393,257.00). Ybaez, for his part, acknowledged that Lim and her co-vendees paid
him P400,000.00 which he said was the full amount for the sale of the lot.[30] It thus appears that he
received P100,000.00 on March 10, 1994, acknowledged receipt (through Saban) of the P113,257.00
earmarked for taxes and P50,000.00 for commission, and received the balance of P130,000.00 on June
28, 1994. Thus, a total of P230,000.00 went directly to Ybaez. Apparently, although the amount actually
paid by Lim was P393,257.00, Ybaez rounded off the amount to P400,000.00 and waived the difference.
Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor belies her claim that she
and her co-vendees did not agree to purchase the lot at P600,000.00. If she did not agree thereto, there
would be no reason for her to issue those checks which is the balance of P600,000.00 less the amounts
of P200,000.00 (due to Ybaez), P50,000.00 (commission), and the P113,257.00 (taxes). The only logical
conclusion is that Lim changed her mind about agreeing to purchase the lot at P600,000.00 after talking
to Ybaez and ultimately realizing that Sabans commission is even more than what Ybaez received as his
share of the purchase price as vendor. Obviously, this change of mind resulted to the prejudice of Saban
whose efforts led to the completion of the sale between the latter, and Lim and her co-vendees. This the
Court cannot countenance.
The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts therein are
similar to the circumstances of the present case. In that case, Consejo Infante asked Jose Cunanan and
Juan Mijares to find a buyer for her two lots and the house built thereon for Thirty Thousand Pesos
(P30,000.00) . She promised to pay them five percent (5%) of the purchase price plus whatever
overprice they may obtain for the property. Cunanan and Mijares offered the properties to Pio Noche who
in turn expressed willingness to purchase the properties. Cunanan and Mijares thereafter introduced
Noche to Infante. However, the latter told Cunanan and Mijares that she was no longer interested in
selling the property and asked them to sign a document stating that their written authority to act as her
agents for the sale of the properties was already cancelled. Subsequently, Infante sold the properties
directly to Noche for Thirty One Thousand Pesos (P31,000.00). The Court upheld the right of Cunanan
and Mijares to their commission, explaining that
[Infante] had changed her mind even if respondent had found a buyer who was willing to close the deal,
is a matter that would not give rise to a legal consequence if [Cunanan and Mijares] agreed to call off the
PAT CASE: AGENCY

transaction in deference to the request of [Infante]. But the situation varies if one of the parties takes
advantage of the benevolence of the other and acts in a manner that would promote his own selfish
interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without according
the party prejudiced the reward which is due him. This is the situation in which [Cunanan and Mijares]
were placed by [Infante]. [Infante] took advantage of the services rendered by [Cunanan and Mijares],
but believing that she could evade payment of their commission, she made use of a ruse by inducing
them to sign the deed of cancellation.This act of subversion cannot be sanctioned and cannot serve as
basis for [Infante] to escape payment of the commission agreed upon.[31]
The appellate court therefore had sufficient basis for concluding that Ybaez and Lim connived to deprive
Saban of his commission by dealing with each other directly and reducing the purchase price of the lot
and leaving nothing to compensate Saban for his efforts.
Considering the circumstances surrounding the case, and the undisputed fact that Lim had not yet paid
the balance of P200,000.00 of the purchase price of P600,000.00, it is just and proper for her to pay
Saban the balance of P200,000.00.
Furthermore, since Ybaez received a total of P230,000.00 from Lim, or an excess of P30,000.00 from his
asking price of P200,000.00, Saban may claim such excess from Ybaezs estate, if that remedy is still
available,[32] in view of the trial courts dismissal of Sabans complaint as against Ybaez, with Sabans
express consent, due to the latters demise on November 11, 1994.[33]
The appellate court however erred in ruling that Lim is liable on the checks because she issued them as
an accommodation party. Section 29 of the Negotiable Instruments Law defines an accommodation party
as a person who has signed the negotiable instrument as maker, drawer, acceptor or indorser, without
receiving value therefor, for the purpose of lending his name to some other person. The accommodation
party is liable on the instrument to a holder for value even though the holder at the time of taking the
instrument knew him or her to be merely an accommodation party. The accommodation party may of
course seek reimbursement from the party accommodated.[34]
As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is
one who meets all these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or
indorser; (2) he did not receive value for the signature; and (3) he signed for the purpose of lending his
name to some other person. In the case at bar, while Lim signed as drawer of the checks she did not
satisfy the two other remaining requisites.
The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued the
checks in question on account of her transaction, along with the other purchasers, with Ybaez which was
a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in payment of the balance
of the purchase price of the lot subject of the transaction. And she had to pay the agreed purchase price
in consideration for the sale of the lot to her and her co-vendees. In other words, the amounts covered
by the checks form part of the cause or consideration from Ybaezs end, as vendor, while the lot
represented the cause or consideration on the side of Lim, as vendee.[35] Ergo, Lim received value for
her signature on the checks.
Page 74 of 150

Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, or any
other person for that matter, to obtain credit or to raise money, thereby totally debunking the presence of
the third requisite of an accommodation party.
WHEREFORE, in view of the foregoing, the petition is DISMISSED.
SO ORDERED.
[G.R. No. 148116. April 14, 2004]
ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR., petitioners, vs. MARY ANN GRACE
FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by GREGORIO T. ELEOSIDA,
HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA
TICZON, EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA
LUISA PIAMONTE, JOHN DOES and JANE DOES, respondents.
DECISION
CALLEJO, SR., J.:

P150 per square meter, or the total sum of P5,098,500. They also agreed that the owners would
shoulder the capital gains tax, transfer tax and the expenses for the documentation of the sale. The
petitioners and respondent Fernandez also agreed to meet on December 8, 1995 to finalize the sale. It
was also agreed upon that on the said date, respondent Fernandez would present a special power of
attorney executed by the owners of the property, authorizing her to sell the property for and in their
behalf, and to execute a deed of absolute sale thereon. The petitioners would also remit the purchase
price to the owners, through respondent Fernandez. However, only Agapito Fisico attended the meeting.
He informed the petitioners that respondent Fernandez was encountering some problems with the
tenants and was trying to work out a settlement with them.[7] After a few weeks of waiting, the petitioners
wrote respondent Fernandez on January 5, 1995, demanding that their transaction be finalized by
January 30, 1996.[8]
When the petitioners received no response from respondent Fernandez, the petitioners sent her another
Letter[9] dated February 1, 1996, asking that the Deed of Absolute Sale covering the property be
executed in accordance with their verbal agreement dated November 27, 1995. The petitioners also
demanded the turnover of the subject properties to them within fifteen days from receipt of the said letter;
otherwise, they would have no option but to protect their interest through legal means.
Upon receipt of the above letter, respondent Fernandez wrote the petitioners on February 14, 1996[10]
and clarified her stand on the matter in this wise:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No.
64940, which reversed and set aside the June 23, 1999 Decision[2] of the Regional Trial Court of Pasig
City, Branch 68, in Civil Case No. 65629, as well as its Resolution dated April 30, 2001 denying the
petitioners motion for reconsideration of the aforesaid decision.

1) It is not true I agreed to shoulder registration fees and other miscellaneous expenses, etc. I do not
recall we ever discussed about them. Nonetheless, I made an assurance at that time that there was no
liens/encumbrances and tenants on my property (TCT 36755).

The heirs of Domingo B. Ticzon[3] are the owners of a parcel of land located in San Pablo City, covered
by Transfer Certificate of Title (TCT) No. T-36766 of the Register of Deeds of San Pablo City.[4] On the
other hand, the heirs of Paz Ticzon Eleosida, represented by Gregorio T. Eleosida, are the owners of a
parcel of land located in San Pablo City, covered by TCT No. 36754, also of the Register of Deeds of
San Pablo City.[5]

2) It is not true that we agreed to meet on December 8, 1995 in order to sign the Deed of Absolute Sale.
The truth of the matter is that you were the one who emphatically stated that you would prepare a
Contract to Sell and requested us to come back first week of December as you would be leaving the
country then. In fact, what you were demanding from us was to apprise you of the status of the property,
whether we would be able to ascertain that there are really no tenants. Ms. Alimario and I left your office,
but we did not assure you that we would be back on the first week of December.

The Case for the Petitioners

Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico who worked as brokers, offered
to sell to the petitioners, Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the parcels of land covered by
TCT Nos. 36754 and 36766. The petitioners were shown a locator plan and copies of the titles showing
that the owners of the properties were represented by Mary Mediatrix Fernandez and Gregorio T.
Eleosida, respectively. The brokers told the petitioners that they were authorized by respondent
Fernandez to offer the property for sale. The petitioners, thereafter, made two ocular inspections of the
property, in the course of which they saw some people gathering coconuts.
In the afternoon of November 27, 1995, the petitioners met with respondent Fernandez and the two
brokers at the petitioners office in Mandaluyong City.[6] The petitioners and respondent Fernandez
agreed that the petitioners would buy the property consisting of 36,742 square meters, for the price of
PAT CASE: AGENCY

Unfortunately, some people suddenly appeared and claiming to be tenants for the entire properties
(including those belonging to my other relatives.) Another thing, the Barangay Captain now refuses to
give a certification that our properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr. Agapito that due to the appearance of
alleged tenants who are demanding for a one-hectare share, my cousin and I have thereby changed our
mind and that the sale will no longer push through. I specifically instructed her to inform you thru your
broker that we will not be attending the meeting to be held sometime first week of December.
In view thereof, I regret to formally inform you now that we are no longer selling the property until all
problems are fully settled. We have not demanded and received from you any earnest money, thereby,
Page 75 of 150

no obligations exist. In the meantime, we hope that in the future we will eventually be able to transact
business since we still have other properties in San Pablo City.[11]

Paragraph 6 thereof unquestionably shows defendants previous agreement as above-mentioned and

their unjustified breach of their obligations under it.

Appended thereto was a copy of respondent Fernandez letter to the petitioners dated January 16, 1996,
in response to the latters January 5, 1996 letter.[12]

10. Defendants cannot unilaterally, whimsically and capriciously cancel a perfected contract to sell.

On April 12, 1996, the petitioners filed the instant Complaint for specific performance with damages[13]
against respondent Fernandez and the registered owners of the property. In their complaint, the
petitioners alleged, inter alia, the following:
4. On 27 November 1995, defendants offered to sell to plaintiffs two (2) parcels of land covered by
Transfer Certificates of Title Nos. 36766 and 36754 measuring a total of 36,742 square meters in Barrio
Concepcion, San Pablo City. After a brief negotiation, defendants committed and specifically agreed to
sell to plaintiffs 33,990 square meters of the two (2) aforementioned parcels of land at P150.00 per
square meter.
5. The parties also unequivocally agreed to the following:
(a) The transfer tax and all the other fees and expenses for the titling of the subject property in plaintiffs
names would be for defendants account.

11. Plaintiffs intended to use the subject property for their subdivision project to support plaintiffs quarry
operations, processing of aggregate products and manufacture of construction materials. Consequently,
by reason of defendants failure to honor their just obligations, plaintiffs suffered, and continue to suffer,
actual damages, consisting in unrealized profits and cost of money, in the amount of at least P5 Million.
12. Plaintiffs also suffered sleepless nights and mental anxiety on account of defendants fraudulent
actuations for which reason defendants are liable to plaintiffs for moral damages in the amount of at least
P1.5 Million.
13. By reason of defendants above-described fraudulent actuations, plaintiffs, despite their willingness
and ability to pay the agreed purchase price, have to date been unable to take delivery of the title to the
subject property. Defendants acted in a wanton, fraudulent and malevolent manner in violating the
contract to sell. By way of example or correction for the public good, defendants are liable to plaintiff for
exemplary damages in the amount of P500,000.00.

(b) The plaintiffs would pay the entire purchase price of P5,098,500.00 for the aforementioned 33,990
square meters of land in plaintiffs office on 8 December 1995.

14. Defendants bad faith and refusal to honor their just obligations to plaintiffs constrained the latter to
litigate and to engage the services of undersigned counsel for a fee in the amount of at least
P250,000.00.[14]

6. Defendants repeatedly assured plaintiffs that the two (2) subject parcels of land were free from all
liens and encumbrances and that no squatters or tenants occupied them.

The petitioners prayed that, after due hearing, judgment be rendered in their favor ordering the
respondents to

7. Plaintiffs, true to their word, and relying in good faith on the commitment of defendants, pursued the
purchase of the subject parcels of lands. On 5 January 1996, plaintiffs sent a letter of even date to
defendants, setting the date of sale and payment on 30 January 1996.

(a) Secure at defendants expense all clearances from the appropriate government agencies that will
enable defendants to comply with their obligations under the Contract to Sell;
(b) Execute a Contract to Sell with terms agreed upon by the parties;

7.1 Defendants received the letter on 12 January 1996 but did not reply to it.
(c) Solidarily pay the plaintiffs the following amounts:
8. On 1 February 1996, plaintiffs again sent a letter of even date to defendants demanding execution of
the Deed of Sale.
8.1 Defendants received the same on 6 February 1996. Again, there was no reply. Defendants thus
reneged on their commitment a second time.

1. P5,000,000.00 in actual damages;

2. P1,500,000.00 in moral damages;
3. P500,000.00 in exemplary damages;

9. On 14 February 1996, defendant Fernandez sent a written communication of the same date to
plaintiffs enclosing therein a copy of her 16 January 1996 letter to plaintiffs which plaintiffs never
received before. Defendant Fernandez stated in her 16 January 1996 letter that despite the meeting of
minds among the parties over the 33,990 square meters of land for P150.00 per square meter on 27
November 1995, defendants suddenly had a change of heart and no longer wished to sell the same.
PAT CASE: AGENCY

4. P250,000.00 in attorneys fees.[15]

On July 5, 1996, respondent Fernandez filed her Answer to the complaint.[16] She claimed that while the
petitioners offered to buy the property during the meeting of November 27, 1995, she did not accept the
Page 76 of 150

offer; thus, no verbal contract to sell was ever perfected. She specifically alleged that the said contract to
sell was unenforceable for failure to comply with the statute of frauds. She also maintained that even
assuming arguendo that she had, indeed, made a commitment or promise to sell the property to the
petitioners, the same was not binding upon her in the absence of any consideration distinct and separate
from the price. She, thus, prayed that judgment be rendered as follows:
1. Dismissing the Complaint, with costs against the plaintiffs;
2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moral damages in the amount of not
less than P2,000,000.00 and exemplary damages in the amount of not less than P500,000.00 and
attorneys fees and reimbursement expenses of litigation in the amount of P300,000.00.[17]

FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC

TICZON, JOSEFINA LUISA PIAMONTE, JOHN DOES and JANE DOES, ordering defendants to:
1. execute a Contract of Sale and/or Absolute Deed of Sale with the terms agreed upon by the parties
and to secure all clearances from the concerned government agencies and removal of any tenants from
the subject property at their expense to enable defendants to comply with their obligations under the
perfected agreement to sell; and
2. pay to plaintiffs the sum of Two Hundred Thousand (P200,000.00) Pesos as and by way of attorneys
fees.[21]
On appeal to the Court of Appeals, the respondents ascribed the following errors to the court a quo:

On September 24, 1997, the trial court, upon motion of the petitioners, declared the other respondents in
default for failure to file their responsive pleading within the reglementary period.[18] At the pre-trial
conference held on March 2, 1998, the parties agreed that the following issues were to be resolved by
the trial court: (1) whether or not there was a perfected contract to sell; (2) in the event that there was,
indeed, a perfected contract to sell, whether or not the respondents breached the said contract to sell;
and (3) the corollary issue of damages.[19]
Respondent Fernandez testified that she requested Lourdes Alimario to look for a buyer of the properties
in San Pablo City on a best offer basis. She was later informed by Alimario that the petitioners were
interested to buy the properties. On November 27, 1995, along with Alimario and another person, she
met with the petitioners in the latters office and told them that she was at the conference merely to hear
their offer, that she could not bind the owners of the properties as she had no written authority to sell the
same. The petitioners offered to buy the property at P150 per square meter. After the meeting,
respondent Fernandez requested Joy Marquez to secure a barangay clearance stating that the property
was free of any tenants. She was surprised to learn that the clearance could not be secured. She
contacted a cousin of hers, also one of the owners of the property, and informed him that there was a
prospective buyer of the property but that there were tenants thereon. Her cousin told her that he was
not selling his share of the property and that he was not agreeable to the price of P150 per square meter.
She no longer informed the other owners of the petitioners offer. Respondent Fernandez then asked
Alimario to apprise the petitioners of the foregoing developments, through their agent, Agapito Fisico.
She was surprised to receive a letter from the petitioners dated January 5, 1996. Nonetheless, she
informed the petitioners that she had changed her mind in pursuing the negotiations in a Letter dated
January 18, 1996. When she received petitioners February 1, 1996 Letter, she sent a Reply-Letter dated
February 14, 1996.

I. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS A PERFECTED CONTRACT OF
SALE OF THE TWO LOTS ON NOVEMBER 27, 1995.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT THE VERBAL CONTRACT OF SALE AS
CLAIMED BY PLAINTIFFS-APPELLEES ANTONIO LITONJUA AND AURELIO LITONJUA WAS
UNENFORCEABLE.
III. THE LOWER COURT ERRED IN HOLDING THAT THE LETTER OF DEFENDANT-APPELLANT
FERNANDEZ DATED JANUARY 16, 1996 WAS A CONFIRMATION OF THE PERFECTED SALE AND
CONSTITUTED AS WRITTEN EVIDENCE THEREOF.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A SPECIAL POWER OF ATTORNEY WAS
REQUIRED IN ORDER THAT DEFENDANT-APPELLANT FERNANDEZ COULD NEGOTIATE THE
SALE ON BEHALF OF THE OTHER REGISTERED CO-OWNERS OF THE TWO LOTS.
V. THE LOWER COURT ERRED IN AWARDING ATTORNEYS FEES IN THE DISPOSITIVE PORTION
OF THE DECISION WITHOUT STATING THE BASIS IN THE TEXT OF SAID DECISION.[22]
On February 28, 2001, the appellate court promulgated its decision reversing and setting aside the
judgment of the trial court and dismissing the petitioners complaint, as well as the respondents
counterclaim.[23] The appellate court ruled that the petitioners failed to prove that a sale or a contract to
sell over the property between the petitioners and the private respondent had been perfected.
Hence, the instant petition for review on certiorari under Rule 45 of the Revised Rules of Court.

After trial on the merits, the trial court rendered judgment in favor of the petitioners on June 23, 1999,[20]
the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of plaintiffs
ANTONIO K. LITONJUA and AURELIO K. LITONJUA and against defendants MARY MEDIATRIX T.
FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by GREGORIO T. ELEOSIDA, JOHN
DOES and JANE DOES; HEIRS OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T.
PAT CASE: AGENCY

The petitioners submit the following issues for the Courts resolution:
A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE COVERAGE OF THE STATUTE OF
FRAUDS.
Page 77 of 150

Art. 1403. The following contracts are unenforceable, unless they are ratified:
C. WHETHER OR NOT THE DEFENDANTS DECLARED IN DEFAULT ARE BENEFITED BY THE
ASSAILED DECISION OF THE COURT OF APPEALS.[24]
The petition has no merit.
The general rule is that the Courts jurisdiction under Rule 45 of the Rules of Court is limited to the review
of errors of law committed by the appellate court. As the findings of fact of the appellate court are
deemed continued, this Court is not duty-bound to analyze and calibrate all over again the evidence
adduced by the parties in the court a quo.[25] This rule, however, is not without exceptions, such as
where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory.[26]
Indeed, in this case, the findings of the trial court and its conclusion based on the said findings contradict
those of the appellate court. However, upon careful review of the records of this case, we find no
justification to grant the petition. We, thus, affirm the decision of the appellate court.
On the first and second assignment of errors, the petitioners assert that there was a perfected contract of
sale between the petitioners as buyers and the respondents-owners, through respondent Fernandez, as
sellers. The petitioners contend that the perfection of the said contract is evidenced by the January 16,
1996 Letter of respondent Fernandez.[27] The pertinent portions of the said letter are as follows:
[M]y cousin and I have thereby changed our mind and that the sale will no longer push through. I
specifically instructed her to inform you thru your broker that we will not be attending the meeting to be
held sometime first week of December.
In view thereof, I regret to formally inform you now that we are no longer selling the property until all
problems are fully settled. We have not demanded and received from you any earnest money, thereby,
no obligations exist[28]
The petitioners argue that the letter is a sufficient note or memorandum of the perfected contract, thus,
removing it from the coverage of the statute of frauds. The letter specifically makes reference to a sale
which respondent Fernandez agreed to initially, but which the latter withdrew because of the emergence
of some people who claimed to be tenants on both parcels of land. According to the petitioners, the
respondents-owners, in their answer to the complaint, as well as respondent Fernandez when she
testified, admitted the authenticity and due execution of the said letter. Besides, when the petitioner
Antonio Litonjua testified on the contract of sale entered into between themselves and the respondentsowners, the latter did not object thereto. Consequently, the respondents-owners thereby ratified the said
contract of sale. The petitioners thus contend that the appellate courts declaration that there was no
perfected contract of sale between the petitioners and the respondents-owners is belied by the evidence,
the pleadings of the parties, and the law.
The petitioners contention is bereft of merit. In its decision, the appellate court ruled that the Letter of
respondent Fernandez dated January 16, 1996 is hardly the note or memorandum contemplated under
Article 1403(2)(e) of the New Civil Code, which reads:
PAT CASE: AGENCY

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases
an agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or secondary evidence of its
contents:
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an
interest therein.[29]
The appellate court based its ruling on the following disquisitions:
In the case at bar, the letter dated January 16, 1996 of defendant-appellant can hardly be said to
constitute the note or memorandum evidencing the agreement of the parties to enter into a contract of
sale as it is very clear that defendant-appellant as seller did not accept the condition that she will be the
one to pay the registration fees and miscellaneous expenses and therein also categorically denied she
had already committed to execute the deed of sale as claimed by the plaintiffs-appellees. The letter, in
fact, stated the reasons beyond the control of the defendant-appellant, why the sale could no longer
push through because of the problem with tenants. The trial court zeroed in on the statement of the
defendant-appellant that she and her cousin changed their minds, thereby concluding that defendantappellant had unilaterally cancelled the sale or backed out of her previous commitment. However, the
tenor of the letter actually reveals a consistent denial that there was any such commitment on the part of
defendant-appellant to sell the subject lands to plaintiffs-appellees. When defendant-appellant used the
words changed our mind, she was clearly referring to the decision to sell the property at all (not
necessarily to plaintiffs-appellees) and not in selling the property to herein plaintiffs-appellees as
defendant-appellant had not yet made the final decision to sell the property to said plaintiffs-appellees.
This conclusion is buttressed by the last paragraph of the subject letter stating that we are no longer
selling the property until all problems are fully settled. To read a definite previous agreement for the sale
of the property in favor of plaintiffs-appellees into the contents of this letter is to unduly restrict the
freedom of the contracting parties to negotiate and prejudice the right of every property owner to secure
the best possible offer and terms in such sale transactions. We believe, therefore, that the trial court
committed a reversible error in finding that there was a perfected contract of sale or contract to sell under
the foregoing circumstances. Hence, the defendant-appellant may not be held liable in this action for
specific performance with damages.[30]
In Rosencor Development Corporation vs. Court of Appeals,[31] the term statute of frauds is descriptive
of statutes which require certain classes of contracts to be in writing. The statute does not deprive the
parties of the right to contract with respect to the matters therein involved, but merely regulates the
formalities of the contract necessary to render it enforceable. The purpose of the statute is to prevent
fraud and perjury in the enforcement of obligations, depending for their existence on the unassisted
memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged. The statute is satisfied or, as it is often stated, a contract or
bargain is taken within the statute by making and executing a note or memorandum of the contract which
Page 78 of 150

is sufficient to state the requirements of the statute.[32] The application of such statute presupposes the
existence of a perfected contract. However, for a note or memorandum to satisfy the statute, it must be
complete in itself and cannot rest partly in writing and partly in parol. The note or memorandum must
contain the names of the parties, the terms and conditions of the contract and a description of the
property sufficient to render it capable of identification.[33] Such note or memorandum must contain the
essential elements of the contract expressed with certainty that may be ascertained from the note or
memorandum itself, or some other writing to which it refers or within which it is connected, without
resorting to parol evidence.[34] To be binding on the persons to be charged, such note or memorandum
must be signed by the said party or by his agent duly authorized in writing.[35]
In City of Cebu v. Heirs of Rubi,[36] we held that the exchange of written correspondence between the
parties may constitute sufficient writing to evidence the agreement for purposes of complying with the
statute of frauds.
In this case, we agree with the findings of the appellate court that there was no perfected contract of sale
between the respondents-owners, as sellers, and the petitioners, as buyers.
There is no documentary evidence on record that the respondents-owners specifically authorized
respondent Fernandez to sell their properties to another, including the petitioners. Article 1878 of the
New Civil Code provides that a special power of attorney is necessary to enter into any contract by which
the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration,[37] or to create or convey real rights over immovable property,[38] or for any other act of
strict dominion.[39] Any sale of real property by one purporting to be the agent of the registered owner
without any authority therefor in writing from the said owner is null and void.[40] The declarations of the
agent alone are generally insufficient to establish the fact or extent of her authority.[41] In this case, the
only evidence adduced by the petitioners to prove that respondent Fernandez was authorized by the
respondents-owners is the testimony of petitioner Antonio Litonjua that respondent Fernandez openly
represented herself to be the representative of the respondents-owners,[42] and that she promised to
present to the petitioners on December 8, 1996 a written authority to sell the properties.[43] However,
the petitioners claim was belied by respondent Fernandez when she testified, thus:
Q Madam Witness, what else did you tell to the plaintiffs?
A I told them that I was there representing myself as one of the owners of the properties, and I was just
there to listen to his proposal because that time, we were just looking for the best offer and I did not have
yet any written authorities from my brother and sisters and relatives. I cannot agree on anything yet since
it is just a preliminary meeting, and so, I have to secure authorities and relate the matters to my relatives,
brother and sisters, sir.
Q And what else was taken up?
A Mr. Antonio Litonjua told me that they will be leaving for another country and he requested me to come
back on the first week of December and in the meantime, I should make an assurance that there are no
tenants in our properties, sir.[44]
PAT CASE: AGENCY

The petitioners cannot feign ignorance of respondent Fernandez lack of authority to sell the properties
for the respondents-owners. It must be stressed that the petitioners are noted businessmen who ought to
be very familiar with the intricacies of business transactions, such as the sale of real property.
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.[45] In this case,
respondent Fernandez specifically denied that she was authorized by the respondents-owners to sell the
properties, both in her answer to the complaint and when she testified. The Letter dated January 16,
1996 relied upon by the petitioners was signed by respondent Fernandez alone, without any authority
from the respondents-owners. There is no evidence on record that the respondents-owners ratified all
the actuations of respondent Fernandez in connection with her dealings with the petitioners. As such,
said letter is not binding on the respondents as owners of the subject properties.
Contrary to the petitioners contention, the letter of January 16, 1996[46] is not a note or memorandum
within the context of Article 1403(2) because it does not contain the following: (a) all the essential terms
and conditions of the sale of the properties; (b) an accurate description of the property subject of the
sale; and, (c) the names of the respondents-owners of the properties. Furthermore, the letter made
reference to only one property, that covered by TCT No. T-36755.
We note that the petitioners themselves were uncertain as to the specific area of the properties they
were seeking to buy. In their complaint, they alleged to have agreed to buy from the respondents-owners
33,990 square meters of the total acreage of the two lots consisting of 36,742 square meters. In their
Letter to respondent Fernandez dated January 5, 1996, the petitioners stated that they agreed to buy the
two lots, with a total area of 36,742 square meters.[47] However, in their Letter dated February 1, 1996,
the petitioners declared that they agreed to buy a portion of the properties consisting of 33,990 square
meters.[48] When he testified, petitioner Antonio Litonjua declared that the petitioners agreed to buy from
the respondents-owners 36,742 square meters at P150 per square meter or for the total price of
P5,098,500.[49]
The failure of respondent Fernandez to object to parol evidence to prove (a) the essential terms and
conditions of the contract asserted by the petitioners and, (b) her authority to sell the properties for the
respondents-registered owners did not and should not prejudice the respondents-owners who had been
declared in default.[50]
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the appellate court is
AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.
CAROLINA HERNANDEZ-NIEVERA, DEMETRIO P. HERNANDEZ, JR., and MARGARITA H.
MALVAR,
Petitioners,
Page 79 of 150

of Title (TCT) Nos. T-3137, T-3138, T-3139 and T-3140 on the one hand, and on the other by TCT Nos.
T-3132, T-3133, T-3134, T-3135 and T-3136, all issued by the Register of Deeds of Laguna. The MOA
materially provides:

- versus
WILFREDO HERNANDEZ, HOME INSURANCE AND GUARANTY CORPORATION, PROJECT
MOVERS REALTY AND DEVELOPMENT CORPORATION, MARIO P. VILLAMOR and LAND BANK
OF THE PHILIPPINES,
Respondents.
G.R. No. 171165
x---------------------------------------------------------------------------------------x

February 14, 2011

DECISION
PERALTA, J.:
This Rule 45 petition for review assails the October 19, 2005 Decision[1] of the Court of Appeals in CAG.R. CV No. 83852,[2] as well as the January 11, 2006 Resolution[3] in the same case which denied
reconsideration. The said decision had reversed and set aside the August 30, 2004 judgment[4]
rendered by the Regional Trial Court (RTC) of San Pablo City, Laguna, Branch 32 in Civil Case No. SP5742(2000) one for rescission of a memorandum of agreement and declaration of nullity of a deed of
assignment and conveyance, with prayer for preliminary injunction and damages.
The facts follow.
Project Movers Realty & Development Corporation (PMRDC), one of the respondents herein, is a duly
organized domestic corporation engaged in real estate development. Sometime in 1995, it entered
through its president, respondent Mario Villamor (Villamor), into various agreements with co-respondents
Home Insurance & Guaranty Corporation (HIGC)[5] and Land Bank of the Philippines (LBP), in
connection with the construction of the Isabel Homes housing project in Batangas and of the Monumento
Plaza commercial and recreation complex in Caloocan City. In its Asset Pool Formation Agreement,
PMRDC conveyed to HIGC the constituent assets of the two projects,[6] whereas LBP agreed to act as
trustee of the resulting Asset Pool[7] for a consideration.[8] The execution of the projects would be
funded largely through securitization, a method of sourcing development funds by the issuance of
participation certificates against the direct backing assets of the projects,[9] whereby LBP would act as
the nominal issuer of such certificates with the Asset Pool itself acting as the real issuer.[10] HIGC, in
turn, would provide guaranty coverage to these participation certificates in accordance with its Contract
of Guaranty with PMRDC and LBP. [11]
On November 13, 1997, PMRDC entered into a Memorandum of Agreement (MOA) whereby it was
given the option to buy pieces of land owned by petitioners Carolina Hernandez-Nievera (Carolina),
Margarita H. Malvar (Margarita) and Demetrio P. Hernandez, Jr. (Demetrio). Demetrio, under authority of
a Special Power of Attorney to Sell or Mortgage,[12] signed the MOA also in behalf of Carolina and
Margarita. In the aggregate, the realty measured 4,580,451 square meters and was segregated by
agreement into Area I and Area II, respectively pertaining to the parcels covered by Transfer Certificate
PAT CASE: AGENCY

1.
THAT, the consideration for the sale of the parcels of land (Areas I and II) shall be
TWENTY-FIVE PESOS (Php 25.00) per square meter or a total of PESOS: ONE HUNDRED
FOURTEEN MILLION FIVE HUNDRED ELEVEN TWO HUNDRED SEVENTY (Php114,511,270.00);
1.
THAT, the VENDEE shall have the option to purchase the above-described parcels of land
within a period of twelve (12) months from the date of this instrument and that the VENDEE shall pay the
vendor option money in the following amounts and on the dates herein specified:
Area I
PESOS: SIX MILLION (Php6,000,000.00) payable in two (2) equal installments of PESOS: THREE
MILLION (Php3,000,000.00), the first installment due on or before November 20, 1997; the second
installment due on or before December 15, 1997, both installments to be covered by postdated checks
upon signing of this Agreement.
Area II
Option money of PESOS: EIGHT MILLION FIVE HUNDRED THOUSAND (Php8,500,000.00) payable
within thirty (30) days after conveyance to the Isabel Homes Asset Pool.
2.
THAT, should the VENDEE exercise the option to purchase the parcels of land within the
stipulated period, the VENDEE shall complete the TWENTY-FIVE (25%) PERCENT downpayment
inclusive of the option money within the said stipulated period. Balance of the TWENTY FIVE (25%)
PERCENT downpayment exclusive of the option money for Area I is PESOS: TEN MILLION FOUR
HUNDRED EIGHTY-TWO THOUSAND TWO HUNDRED SIXTY-TWO (Php10,482,262.00) and for Area
II is PESOS: THREE MILLION SIX HUNDRED FORTY-FIVE THOUSAND FIVE HUNDRED FIFTY- SIX
(Php3,645,556.00).
The balance of the purchase price in the amount of PESOS: EIGHTY-FIVE MILLION EIGHT HUNDRED
EIGHTY-THREE FOUR HUNDRED FIFTY-SIX (Php85,883,456.00) shall be payable within two (2) years
in eight (8) quarterly installments covered by postdated checks. Schedule of payments shall be as
follows:
January 31, 1999 Php 10,735,432.00
April 30, 1999 10,735,432.00
July 31, 1999 10,735,432.00
October 31, 1999 10,735,432.00
January 31, 2000 10,735,432.00
April 30, 2000 10,735,432.00
July 30, 2000 10,735,432.00
October 31, 2000 10,735,432.00
Page 80 of 150

3.
THAT, should the VENDEE fail to exercise its option to purchase the said described parcels
of land within the stipulated period, the option money shall be forfeited in favor of the VENDOR and that
the VENDEE shall return to the VENDOR all the Transfer Certificates of Title covering the said described
parcels of land within a period of THIRTY (30) DAYS from the stipulated period, FREE FROM ALL LIENS
AND ENCUMBRANCES;
4.
THAT, the VENDOR, at the request of the VENDEE, shall agree to convey the parcels of
land to any bank or financial institution by way of mortgage or to a Trustee by way of a Trust Agreement
at any time from the date of this instrument, PROVIDED, HOWEVER, that the VENDOR is not liable for
any mortgage or loans or obligations that will be incurred by way of mortgage of Trust Agreement that
the VENDEE might enter into;
5.
It is agreed that the VENDOR shall have the sole responsibility in the settlement of the
tenants and eviction of the tenants and eviction of the occupants of the described parcels of land after all
consideration have been fully paid by the VENDEE to the VENDOR;
6.
THAT, all taxes including capital gains tax, transfer tax and documentary stamps tax shall
be for the account of the VENDOR;
7.
THAT, the VENDOR hereby warrants valid title to, and peaceful possession of the said
described parcels of land after all considerations have been fully paid.[13]
As an implementation of the MOA, the lands within Area I were then mortgaged to Solid Bank for which
petitioners received consideration from PMRDC.[14]
Later on, PMRDC saw the need to convey additional properties to and augment the value of its Asset
Pool to support the collateralization of additional participation certificates to be issued.[15] Thus, on
March 23, 1998, it entered with LBP and Demetrio the latter purportedly acting under authority of the
same special power of attorney as in the MOA into a Deed of Assignment and Conveyance (DAC)[16]
whereby the lands within Area II covered by TCT Nos. T-3132, T-3133, T-3134, T-3135 and T-3136 were
transferred and assigned to the Asset Pool in exchange for a number of shares of stock which
supposedly had already been issued in the name and in favor of Demetrio. These pieces of land are the
subject of the present controversy as far as they are affected by the explicit provision in the DAC which
dispensed with the stipulated obligation of PMRDC in the MOA to pay option money should it opt to buy
the properties.[17]
PMRDC admittedly did not avail of its option to purchase the lands in Area II in the twelve months that
passed after the execution of the MOA. Although PMRDC delivered to petitioners certain checks
representing the money, the same however allegedly bounced.[18] Hence, on January 8, 1999,
petitioners demanded the return of the corresponding TCTs.[19] In its January 21, 1999 letter to
Demetrio, however, PMRDC, through Villamor, stated that the TCTs could no longer be delivered back to
petitioners as the covered properties had already been conveyed and assigned to the Asset Pool
pursuant to the March 23, 1998 DAC. In the correspondence that ensued, petitioners disowned
PAT CASE: AGENCY

Demetrios signature in the DAC and labeled it a mere forgery. They explained that Demetrio could not
have entered into the said agreement as his power of attorney was limited only to selling or mortgaging
the properties and not conveying the same to the Asset Pool. Boldly, they asserted that the fraudulent
execution of the DAC was made possible through the connivance of all the respondents.[20]
With that final word, petitioners instituted an action before the RTC of San Pablo City, Laguna, Branch 32
for the rescission of the MOA, as well as for the declaration of nullity of the DAC. They prayed for the
issuance of a writ of preliminary injunction and for the payment of damages.[21]
Ruling for petitioners, the trial court, on August 30, 2004, declared the MOA to be an option contract and
ordered its rescission. It, likewise, declared the DAC null and void as it made a definite finding of forgery
of Demetrios signature as well as fraud in its execution, and accordingly, adjudged respondents PMRDC
and Villamor liable to petitioner for damages.[22] The dispositive portion of the decision reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in the favor of the plaintiffs and
against the defendants as follows:
1. Rescinding the Memorandum of Agreement (MOA) executed between the plaintiffs and Project
Movers Realty [&] Development Corporation (PMRDC);
2. Declaring null and void the Deed of Assignment and Conveyance (DAC) executed between Project
Movers Realty [&] Development Corporation, Land Bank of the Philippines and Demetrio Hernandez
whose signature is forged;
3. Ordering Transfer Certificate of Title Nos. T-3132, T-3133, T-3134 and T-3135, all in the names of the
plaintiffs, which are in the custody of the Court, to be delivered to plaintiffs immediately and the plaintiffs
are ordered to issue a corresponding receipt of said certificates of title signed by all the plaintiffs to be
submitted to the OIC-Branch Clerk of Court of this Court within five (5) days from receipt of said titles;
4. Ordering defendants Mario Villamor and Wilfredo Hernandez to pay plaintiffs, jointly and severally, the
following:
a. Actual damages of P500,000.00;
b. Moral damages of P200,000.00;
c. Exemplary damages of P200,000.00;
d. Attorneys fees in the amount of P300,000.00;
e. And the costs of the suit.
SO ORDERED.[23]
Aggrieved, respondents filed a notice of appeal and elevated the matter to the Court of Appeals. On
October 19, 2005, the Court of Appeals issued the assailed Decision reversing and setting aside the trial
courts decision as follows:
Page 81 of 150

WHEREFORE, based on the foregoing, the appeal is GRANTED. The decision dated August 30, 2004 of
the Regional Trial Court, Branch 32, San Pablo City in Civil Case No. SP-5742 (2000) is REVERSED
and SET ASIDE and a new one is entered declaring the Deed of Conveyance valid and thus, the
Transfer Certificates of Title subject of this case are ordered returned to HIGC. No costs.
SO ORDERED.[24]
Central to the ruling of the Court of Appeals is its contrary finding that the allegation of forgery of
Demetrios signature in the DAC was not established by the evidence and, hence, following the legal
presumption of regularity in the execution of notarized deeds, it upheld the validity of the DAC.[25] The
Court of Appeals noted that the incompatibility in the terms of the MOA and the DAC clearly signified the
intention of the parties to have the MOA novated by subsequent agreement and have the properties
conveyed to the Asset Pool in exchange for PMRDC shares to be issued to Demetrio. This, according to
the appellate court, completely changed the original obligations of PMRDC as provided in the MOA. It
noted further that it was premature to order the release of the subject TCTs to petitioners at this stage of
the proceedings, because that would amount to an execution of the decision.[26]
With the denial of their motion for reconsideration,[27] petitioners filed the instant petition for review
attributing error to the Court of Appeals in declining to rescind the MOA and declare the DAC null and
void.
Petitioners insist that the obligation of PMRDC to deliver back the TCTs arises on its failure to exercise
the option to purchase the lands according to the terms of the MOA, and that the deliberate refusal of
PMRDC to perform such obligation gives ground for the rescission of the MOA. This thesis is perched on
petitioners argument that the MOA could not have possibly been novated by the DAC because first,
Demetrios signature therein has been forged, and second, Demetrio could not have validly assented to
the DAC in behalf of Carolina and Margarita because his special power was limited only to selling or
mortgaging the properties and excludes conveying and assigning the said properties to the Asset Pool
for consideration.[28] They also point out that the DAC itself is infirm insofar as it stipulated to convey the
lands to the Asset Pool as the latter supposedly is neither a registered corporation nor a partnership and
does not possess a legal personality.[29]
Commenting on the petition, PMRDC and Villamor advance that petitioners allegation of fraud and
forgery are all factual matters that are inappropriate in a Rule 45 petition.[30] More importantly, they aver
that the novation of the MOA by the DAC is unmistakable as the DAC itself has made an express
reference to the MOA provisions on the payment of option money and, hence, has expressly modified
the pertinent terms thereof.[31]
HIGC and its president, Wilfredo Hernandez, both represented by the Office of the Government
Corporate Counsel (OGCC),[32] and LBP[33] are of the same view.[34] In addition, HIGC explains that
contrary to petitioners belief, the transfer of the properties under the DAC is valid as the conveyance has
been made to the Asset Pool with LBP, an entity with juridical entity, acting as trustee thereof.[35]
Addressing the issue of forgery and fraud in the execution of the DAC, HIGC maintains that these factual
PAT CASE: AGENCY

matters remain to be mere allegations which nothing in the records of the case could conclusively prove,
except the self-serving testimony of petitioners themselves.[36]
The Court denies the petition.
Petitioners cause stems from the failure of PMRDC to restore to petitioners the possession of the TCTs
of the lands within Area II upon its failure to exercise the option to purchase within the 12-month period
stipulated in the MOA. Respondents maintain, however, that said obligation, dependent as it is on the
exercise of the option to purchase, has altogether been expressly obliterated by the terms of the DAC
whereby petitioners, through Demetrio as attorney-in-fact, have agreed to novate the terms of the MOA
by extinguishing the core obligations of PMRDC on the payment of option money. This seems to suggest
that with the execution of the DAC, PMRDC has already entered into the exercise of its option except
that its obligation to deliver the option money has, by subsequent agreement embodied in the DAC, been
substituted instead by the obligation to issue participation certificates in Demetrios name but which,
likewise, has not yet been performed by PMRDC. But petitioners stand against the validity of the DAC on
the ground that the signature of Demetrio therein was spurious.
Firmly settled is the jurisprudential rule that forgery cannot be presumed from a mere allegation but
rather must be proved by clear, positive and convincing evidence by the party alleging the same.[37] The
burden to prove the allegation of forgery in this case has not been conclusively discharged by petitioners
because first, nothing in the records supports the allegation except only perhaps Demetrios explicit selfserving disavowal of his signature in open court.[38] Second, while in fact Demetrio at the trial of the
case had committed to have the subject signature examined by an expert,[39] nevertheless, the trial had
terminated without the results of the examination being submitted in evidence. Third, the claim of forgery,
unsubstantiated as it is, becomes even more unremarkable in light of the fact that the DAC involved in
this case is a notarized deed guaranteed by public attestation in accordance with law, such that the
execution thereof enjoys the legal presumption of regularity in the absence of compelling proof to the
contrary.[40]
Yet the inquiry on the validity of the DAC does not terminate with the finding alone of the genuineness of
Demetrios signature therein, because petitioners also stand against its validity on the ground of
Demetrios non-authority to execute the same. They claim that the execution of the DAC would be
beyond the power of Demetrio to perform as his authority is limited only to selling or mortgaging the
properties and does not include assigning and conveying said properties to the Asset Pool in
consideration of shares of stocks for his lone benefit. For their part, respondents, who believe Demetrios
power of attorney was broad enough to effectuate a novation of PMRDCs core obligations in the MOA or,
at the least, implement the provisions thereof through the DAC, invoke the 4th and 5th whereas-clauses
in the DAC which, in relation to each other, supposedly pertain to that certain provision in the MOA which
authorizes the conveyance of the properties to the Asset Pool in exchange for corporate shares.[41]
The 4th and 5th whereas-clauses in the DAC read as follows:

Page 82 of 150

WHEREAS, on November 3, 1997, PMRDC and LANDOWNER have entered into a Memorandum of
Agreement whereby the former agreed to convey to the Isabel Homes Asset Pool certain real properties
located at Sta. Maria, Laguna;

3. To further attain the authority herein given, to do and perform such acts and things that may be
necessary or incidental to fully carry out the authority herein granted.[44]

[WHEREAS], the LANDOWNER and PMRDC have agreed to revise and modify the said Memorandum
of Agreement, whereby the LANDOWNER shall dispense with the option money as a requisite to the
sale and purchase of the properties by PMRDC, and agreed to convey absolutely and unqualifiedly the
same properties directly to the Isabel Homes Asset Pool for and in exchange of shares of stock or equity
in PMRDC.[42]

It is in the context of this vesture of power that Demetrio, representing his shared interest with Carolina
and Margarita, entered into the MOA with PMRDC. It is likewise within this same context that Demetrio
later on entered into the DAC and accordingly extinguished the previously subsisting obligation of
PMRDC to deliver the stipulated option money and replaced said obligation with the delivery instead of
participation certificates in favor of Demetrio.
The powers conferred on Demetrio were exclusive only to selling and mortgaging the properties.
Between these two specific powers, the power to sell is quite controversial because it is the sale
transaction which bears close resemblance to the deal contemplated in the DAC. In fact, part of the
testimony of Atty. Danilo Javier, counsel for respondent HIGC and head of its legal department at the
time, is that in the execution of the DAC, respondents had relied on Demetrios special power of attorney
and also on his supposed agreement to be paid in kind, i.e., in shares of stock, as consideration for the
assignment and conveyance of the subject properties to the Asset Pool.[45] What petitioners miss,
however, is that the power conferred on Demetrio to sell for such price or amount[46] is broad enough to
cover the exchange contemplated in the DAC between the properties and the corresponding corporate
shares in PMRDC, with the latter replacing the cash equivalent of the option money initially agreed to be
paid by PMRDC under the MOA. Suffice it to say that price is understood to mean the cost at which
something is obtained, or something which one ordinarily accepts voluntarily in exchange for something
else, or the consideration given for the purchase of a thing.[47]

While indeed we find no provision in the MOA such as that alluded to in the aforequoted 4th whereasclause in the DAC which purportedly embodies an agreement by the parties to assign and convey the
subject properties to the Asset Pool, we surmise that the clause could be referring to paragraph 5 of the
MOA which stipulates a commitment on the part of petitioners to give their consent to an assignment and
conveyance of the properties to the Asset Pool but only once a request therefor is made by PMRDC.
Paragraph 5 reads:

5. THAT, the VENDOR at the request of the VENDEE shall agree to convey the parcels of land to any
bank or financial institution by way of mortgage or to a Trustee by way of a Trust Agreement at any time
from the date of this instrument, PROVIDED, HOWEVER, that the VENDOR is not liable for any
mortgage or loans or obligations that will be incurred by way of mortgage of Trust Agreement that the
VENDEE might enter into;[43]
Petitioners profess, however, that no such request was ever intimated to them at any time during the
subsistence of the PMRDCs right to exercise the option to buy. But respondents are quick to reason that
a request is unnecessary because Demetrio has been legally enabled by his special power to give such
consent and accordingly execute the DAC, effect a novation of the MOA, and extinguish the stipulated
obligations of PMRDC therein, or at least that he could assent to the implementation of the MOA
provisions in the way that transpired. We agree.
Demetrios special power of attorney granting the powers to sell and/or mortgage reads in part:
1. To sell and/or mortgage in favor of any person, corporation, partnership, private banking or financial
institution, government or semi-government banking or financial institution for such price or amount and
under such terms and conditions as our aforesaid attorney-in-fact may deem just and proper, parcels of
land more particularly described as follows:
xxx
2. To carry out the authority aforestated, to sign, execute and deliver such deeds, instruments and other
papers that may be required or necessary;
PAT CASE: AGENCY

Thus, it becomes clear that Demetrios special power of attorney to sell is sufficient to enable him to
make a binding commitment under the DAC in behalf of Carolina and Margarita. In particular, it does
include the authority to extinguish PMRDCs obligation under the MOA to deliver option money and agree
to a more flexible term by agreeing instead to receive shares of stock in lieu thereof and in consideration
of the assignment and conveyance of the properties to the Asset Pool. Indeed, the terms of his special
power of attorney allow much leeway to accommodate not only the terms of the MOA but also those of
the subsequent agreement in the DAC which, in this case, necessarily and consequently has resulted in
a novation of PMRDCs integral obligations. On this score, we quote with approval the decision of the
Court of Appeals, aptly citing the case of California Bus Lines, Inc. v. State Investment House, Inc.[48]
thus
There are two ways which could indicate, in fine, the presence of novation and thereby produce the
effect of extinguishing an obligation by another which substitutes the same. The first is when novation
has been explicitly stated and declared in unequivocal terms. The second is when the old and the new
obligations are incompatible on every point. The test of incompatibility is whether the two obligations can
stand together, each one having its independent existence. If they cannot, they are incompatible, and the
latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in
nature and not merely accidental. The incompatibility must take place in any of the essential elements of
the obligation such as its object, cause or principal conditions thereof; otherwise, the change would be
merely modificatory in nature and insufficient to extinguish the original obligation.[49]
Page 83 of 150

In view of the foregoing, the Court finds no useful purpose in addressing all the other issues raised in this
petition.
A final note. Section 10, Book IV, Title III, Chapter 3[50] of the Revised Administrative Code of 1987 has
designated the OGCC to act as the principal law office of government-owned or controlled corporations
(GOCCs) in connection with any judicial or quasi-judicial proceeding. Yet between the two respondents
GOCCs in this case LBP and HIGC it is only the latter for which the OGCC has entered its appearance.
Nowhere in the records is it shown that the OGCC has ever entered its appearance in this case as
principal legal counsel of respondent LBP, or that at the very least it has given express conformity to the
LBP legal departments representation.[51]
In Land Bank of the Philippines v. Martinez,[52] citing Land Bank of the Philippines v. Panlilio-Luciano,
[53] we explained that the legal department of LBP is not expressly authorized by its charter to appear in
behalf of the corporation in any proceeding as the mandate of the law is explicit enough to place the said
department under the OGCCs power of control and supervision. We held in that case:
[Section 10] mandates the OGCC, and not the LBP Legal Department, as the principal law office of the
LBP. Moreover, it establishes the proper hierarchical order in that the LBP Legal Department remains
under the control and supervision of the OGCC. x x x
At the same time, the existence of the OGCC does not render the LBP Legal Department a superfluity.
We do not doubt that the LBP Legal Department carries out vital legal services to LBP. However, the
performance of such functions cannot deprive the OGCCs role as overseer of the LBP Legal Department
and its mandate of exercising control and supervision over all GOCC legal departments. For the purpose
of filing petitions and making submissions before this Court, such control and supervision imply express
participation by the OGCC as principal legal counsel of LBP. x x x

position inconsistent with or detrimental to other GOCCs. Since GOCCs fall within the same
governmental framework, it would be detrimental to have GOCCs foisted into adversarial positions by
their respective legal departments. Hence, there is indubitable wisdom in having one overseer over all
these legal departments which would ensure that the legal positions adopted by the GOCCs would not
conflict with each other or the government.
x x x Certainly, Section 10, Book IV, Title III, Chapter 3 of the Administrative Code of 1987 can be
invoked by adverse parties or by the courts in citing as deficient the exclusive representation of LBP by
its Legal Department. Then again, if neither the adverse parties nor the courts of jurisdiction choose to
contest this point, there would be no impediment to the litigation to maintain. x x x[54]
WHEREFORE, the Petition is DENIED. The October 19, 2005 Decision and January 11, 2006 Resolution
of the Court of Appeals, in CA- G.R. CV No. 83852, are hereby AFFIRMED.
SO ORDERED.
G.R. No. 77638 July 12, 1990
MARITIME AGENCIES & SERVICES, INC., petitioner,
vs.
COURT OF APPEALS, and UNION INSURANCE SOCIETY OF CANTON, LTD., respondents.
G.R. No. 77674

UNION INSURANCE SOCIETY OF CANTON, LTD., petitioner,

vs.
COURT OF APPEALS, HONGKONG ISLAND CO., LTD., MARITIME AGENCIES & SERVICES, INC.,
and/or VIVA CUSTOMS BROKERAGE, respondents.

It should also be noted that the aforementioned Section 10, Book IV, Title III, Chapter 3 of the
Administrative Code of 1987 authorizes the OGCC to receive the attorney's fees adjudged in favor of
their client GOCCs, such fees accruing to a special fund of the OGCC. Evidently, the non-participation of
the OGCC in litigations pursued by GOCCs would deprive the former of its due funding as authorized by
law. Hence, this is another reason why we cannot sustain Attys. Beramo and Berbao's position that the
OGCC need not participate in litigations pursued by LBP.
It may strike as disruptive to the flow of a GOCCs daily grind to require the participation of the OGCC as
its principal law office, or the exercise of control and supervision by the OGCC over the acts of the
GOCCs legal departments. For reasons such as proximity and comfort, the GOCC may find it convenient
to rely instead on its in-house legal departments, or more irregularly, on private practitioners. Yet the
statutory role of the OGCC as principal law office of GOCCs is one of long-standing, and we have to
recognize such function as part of public policy. Since the jurisdiction of the OGCC includes all GOCCs,
its perspective is less myopic than that maintained by a particular legal department of a GOCC. It is not
inconceivable that left to its own devices, the legal department of a given GOCC may adopt a legal
PAT CASE: AGENCY

July 12, 1990

Del Rosario & Del Rosario for petitioner in G.R. No. 77638.
Zapa Aguillardo & Associates for petitioner in G.R. No. 77674.
Bito, Misa & Lozada for Hongkong Island Co. Ltd. and Macondray & Co., Inc.
CRUZ, J.:
Transcontinental Fertilizer Company of London chartered from Hongkong Island Shipping Company of
Hongkong the motor vessel named "Hongkong Island" for the shipment of 8073.35 MT (gross) bagged
urea from Novorossisk, Odessa, USSR to the Philippines, the parties signing for this purpose a Uniform
General Charter dated August 9, 1979. 1
Page 84 of 150

Of the total shipment, 5,400.04 MT was for the account of Atlas Fertilizer Company as consignee,
3,400.04 to be discharged in Manila and the remaining 2,000 MT in Cebu. 2 The goods were insured by
the consignee
with the Union Insurance Society of Canton, Ltd. for P6,779,214.00 against all risks. 3

In G.R. No. 77638, Maritime pleads non-liability on the ground that it was only the charterer's agent and
should not answer for whatever responsibility might have attached to the principal. It also argues that the
respondent court erred in applying Articles 1734 and 1735 of the Civil Code in determining the
charterer's liability.

Maritime Agencies & Services, Inc. was appointed as the charterer's agent and Macondray Company,
Inc. as the owner's agent. 4

In G.R. No. 77674, Union asks for the modification of the decision of the respondent court so as to make
Maritime solidarily and solely liable, its principal not having been impleaded and so not subject to the
jurisdiction of our courts.

The vessel arrived in Manila on October 3, 1979, and unloaded part of the consignee's goods, then
proceeded to Cebu on October 19, 1979, to discharge the rest of the cargo. On October 31, 1979, the
consignee filed a formal claim against Maritime, copy furnished Macondray, for the amount of
P87,163.54, representing C & F value of the 1,383 shortlanded bags. 5 On January 12, 1980, the
consignee filed another formal claim, this time against Viva Customs Brokerage, for the amount of
P36,030.23, representing the value of 574 bags of net unrecovered spillage. 6
These claims having been rejected, the consignee then went to Union, which on demand paid the total
indemnity of P113,123.86 pursuant to the insurance contract. As subrogee of the consignee, Union then
filed on September 19, 1980, a complaint for reimbursement of this amount, with legal interest and
attorney's fees, against Hongkong Island Company, Ltd., Maritime Agencies & Services, Inc. and/or Viva
Customs Brokerage. 7 On April 20, 1981, the complaint was amended to drop Viva and implead
Macondray Company, Inc. as a new defendant. 8

These two cases were consolidated and given due course, the parties being required to submit
simultaneous memoranda. All complied, including Hongkong Island Company, Ltd., and Macondray
Company, Inc., although they pointed out that they were not involved in the petitions.
There are three general categories of charters, to wit, the demise or "bareboat charter," the time charter
and the voyage charter.
A demise involves the transfer of full possession and control of the vessel for the period covered by the
contract, the charterer obtaining the right to use the vessel and carry whatever cargo it chooses, while
manning and supplying the ship as well. 11

On January 4, 1984, after trial, the trial court rendered judgment holding the defendants liable as follows:

A time charter is a contract to use a vessel for a particular period of time, the charterer obtaining the right
to direct the movements of the vessel during the chartering period, although the owner retains
possession and control. 12

(a)
defendants Hongkong Island Co., Ltd., and its local agent Macondray & Co., Inc. to pay the
plaintiff the sum of P87,163.54 plus 12% interest from April 20, 1981 until the whole amount is fully paid,
P1,000.00 as attorney's fees and to pay one-half (1/2) of the costs; and

A voyage charter is a contract for the hire of a vessel for one or a series of voyages usually for the
purpose of transporting goods for the charterer. The voyage charter is a contract of affreightment and is
considered a private carriage. 13

(b)
defendant Maritime Agencies & Services, Inc., to pay the plaintiff the sum of P36,030.23, plus
12% interest from April 20, 1981 until the whole amount is fully paid, P600.00 as attorney's fees and to
pay one-half (1/2) of the costs. 9

Tested by those definitions, the agreement entered into in the cases at bar should be considered. This
brings us to the basic question of who, in this kind of charter, shall be liable for the cargo.

Petitioner appealed the decision to the Court of Appeals, which rendered a decision on November 28,
1986, the dispositive portion of which reads:

A voyage charter being a private carriage, the parties may freely contract respecting liability for damage
to the goods and other matters. The basic principle is that "the responsibility for cargo loss falls on the
one who agreed to perform the duty involved" in accordance with the terms of most voyage charters. 14

WHEREFORE, the decision appealed from is modified, finding the charterer Transcontinental Fertilizer
Co., Ltd. represented by its agent Maritime Agencies & Services, Inc. liable for the amount of P87,163.54
plus interest at 12% plus attorney's fees of P1,000.00. Defendant Hongkong Island Co., Ltd. represented
by Macondray Co., Inc. are accordingly exempted from any liability. 10

This is true in the present cases where the charterer was responsible for loading, stowage and
discharging at the ports visited, while the owner was responsible for the care of the cargo during the
voyage. Thus, Par. 2 of the Uniform General Charter read:

Maritime and Union filed separate motions for reconsideration which were both denied. The movants are
now before us to question the decision of the respondent court.

2.
Owners are to be responsible for loss of or damage to the goods or for delay in delivery of the
goods only in case the loss, damage or delay has been caused by the improper or negligent stowage of
the goods or by personal want of due diligence on the part of the Owners or their Manager to make the

PAT CASE: AGENCY

Page 85 of 150

vessel in all respects seaworthy and to secure that she is properly manned, equipped and supplied or by
the personal act or default of the Owners or their Manager.
And the Owners are responsible for no loss or damage or delay arising from any other cause
whatsoever, even from the neglect or default of the Captain or crew or some other person employed by
the Owners onboard or ashore for whose acts they would, but for this clause, be responsible, or from
unseaworthiness of the vessel on loading or commencement of the voyage or at any time whatsoever.
Damage caused by contact with or leakage, smell or evaporation from other goods or by the inflammable
or explosive nature or insufficient package of other goods not to be considered as caused by improper or
negligent stowage, even if in fact so caused.
while Clause 17 of Additional Clauses to Charter party provided:

But we do agree that the period for filing the claim is one year, in accordance with the Carriage of Goods
by Sea Act. This was adopted and embodied by our legislature in Com. Act No. 65 which, as a special
law, prevails over the general provisions of the Civil Code on prescription of actions. Section 3(6) of that
Act provides as follows:
In any event, the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should have
been delivered; Provided, that if a notice of loss for damage; either apparent or concealed, is not given
as provided for in this section, that fact shall not effect or prejudice the right of the shipper to bring suit
within one year after the delivery of the goods or the date when the goods should have been delivered.
This period was applied by the Court in the case of Union Carbide, Philippines, Inc. v. Manila Railroad
Co., 17 where it was held:

The cargo shall be loaded, stowed and discharged free of expense to the vessel under the Master's
supervision. However, if required at loading and discharging ports the vessel is to give free use of
winches and power to drive them gear, runners and ropes. Also slings, as on board. Shore winchmen are
to be employed and they are to be for Charterers' or Shippers' or Receivers' account as the case may
be. Vessel is also to give free use of sufficient light, as on board, if required for night work. Time lost
through breakdown of winches or derricks is not to count as laytime.

Under the facts of this case, we held that the one-year period was correctly reckoned by the trial court
from December 19, 1961, when, as agreed upon by the parties and as shown in the tally sheets, the
cargo was discharged from the carrying vessel and delivered to the Manila Port Service. That one-year
period expired on December 19, 1962. Inasmuch as the action was filed on December 21, 1962, it was
barred by the statute of limitations.

In Home Insurance Co. v. American Steamship Agencies, Inc., 15 the trial court rejected similar
stipulations as contrary to public policy and, applying the provisions of the Civil Code on common
carriers and of the Code of Commerce on the duties of the ship captain, held the vessel liable in
damages for loss of part of the cargo it was carrying. This Court reversed, declaring as follows:

The one-year period in the cases at bar should commence on October 20, 1979, when the last item was
delivered to the consignee. 18 Union's complaint was filed against Hongkong on September 19, 1980,
but tardily against Macondray on April 20, 1981. The consequence is that the action is considered
prescribed as far as Macondray is concerned but not against its principal, which is what matters anyway.

The provisions of our Civil Code on common carriers were taken from Anglo-American law. Under
American jurisprudence, a common carrier undertaking to carry a special cargo or chartered to a special
person only, becomes a private carrier. As a private carrier, a stipulation exempting the owner from
liability for the negligence of its agent is not against public policy, and is deemed valid.

As regards the goods damaged or lost during unloading, the charterer is liable therefor, having assumed
this activity under the charter party "free of expense to the vessel." The difficulty is that Transcontinental
has not been impleaded in these cases and so is beyond our jurisdiction. The liability imposable upon it
cannot be borne by Maritime which, as a mere agent, is not answerable for injury caused by its principal.
It is a well-settled principle that the agent shall be liable for the act or omission of the principal only if the
latter is undisclosed. 19

Such doctrine we find reasonable. The Civil Code provisions on common carriers should not be applied
where the carrier is not acting as such but as a private carrier. The stipulation in the charter party
absolving the owner from liability for loss due to the negligence of its agent would be void only if the strict
public policy governing common carriers is applied. Such policy has no force where the public at large is
not involved, as in the case of a ship totally chartered for the use of a single party.
Nevertheless, this ruling cannot benefit Hongkong, because there was no showing in that case that the
vessel was at fault. In the cases at bar, the trial court found that 1,383 bags were shortlanded, which
could only mean that they were damaged or lost on board the vessel before unloading of the shipment. It
is not denied that the entire cargo shipped by the charterer in Odessa was covered by a clean bill of
lading. 16 As the bags were in good order when received in the vessel, the presumption is that they were
damaged or lost during the voyage as a result of their negligent improper stowage. For this the ship
owner should be held liable.
PAT CASE: AGENCY

Union seeks to hold Maritime liable as ship agent on the basis of the ruling of this Court in the case of
Switzerland General Insurance Co., Ltd. v. Ramirez. 20 However, we do not find that case is applicable.
In that case, the charterer represented itself on the face of the bill of lading as the carrier. The vessel
owner and the charterer did not stipulate in the Charter party on their separate respective liabilities for
the cargo. The loss/damage to the cargo was sustained while it was still on board or under the custody
of the vessel. As the charterer was itself the carrier, it was made liable for the acts of the ship captain
who was responsible for the cargo while under the custody of the vessel.
As for the charterer's agent, the evidence showed that it represented the vessel when it took charge of
the unloading of the cargo and issued cargo receipts (or tally sheets) in its own name. Claims against the
Page 86 of 150

vessel for the losses/damages sustained by that cargo were also received and processed by it. As a
result, the charterer's agent was also considered a ship agent and so was held to be solidarily liable with
its principal.
The facts in the cases at bar are different. The charterer did not represent itself as a carrier and indeed
assumed responsibility ability only for the unloading of the cargo, i.e, after the goods were already
outside the custody of the vessel. In supervising the unloading of the cargo and issuing Daily Operations
Report and Statement of Facts indicating and describing the day-to-day discharge of the cargo, Maritime
acted in representation of the charterer and not of the vessel. It thus cannot be considered a ship agent.
As a mere charterer's agent, it cannot be held solidarily liable with Transcontinental for the
losses/damages to the cargo outside the custody of the vessel. Notably, Transcontinental was disclosed
as the charterer's principal and there is no question that Maritime acted within the scope of its authority.
Hongkong and Macondray point out in their memorandum that the appealed decision is not assailed
insofar as it favors them and so has become final as to them. We do not think so. First of all, we note that
they were formally impleaded as respondents in G.R No. 77674 and submitted their comment and later
their memorandum, where they discussed at length their position vis-a-vis the claims of the other parties.
Secondly, we reiterate the rule that even if issues are not formally and specifically raised on appeal, they
may nevertheless be considered in the interest of justice for a proper decision of the case.itc-asl Thus,
we have held that:
Besides, an unassigned error closely related to the error properly assigned, or upon which the
determination of the question raised by the error properly assigned is dependent, will be considered by
the appellate court notwithstanding the failure to assign it as error.
At any rate, the Court is clothed with ample authority to review matters, even if they are not assigned as
errors in their appeal, if it finds that their consideration is necessary in arriving at a just decision of the
case. 21

In his decision dated January 4, 1984, Judge Artemon de Luna of the Regional Trial Court of Manila
held:
The Court, on the basis of the evidence, finds nothing to disprove the finding of the marine and cargo
surveyors that of the 66,390 bags of urea fertilizer, 65,547 bags were "discharged ex-vessel" and there
were "shortlanded" "1,383 bags", valued at P87,163.54. This sum should be the principal and primary
liability and responsibility of the carrying vessel. Under the contract for the transportation of goods, the
vessel's responsibility commence upon the actual delivery to, and receipt by the carrier or its authorized
agent, until its final discharge at the port of Manila. Defendant Hongkong Island Co., Ltd., as "shipowner"
and represented by the defendant Macondray & Co., Inc., as its local agent in the Philippines, should be
responsible for the value of the bags of urea fertilizer which were shortlanded.
The remainder of the claim in the amount of P36,030.23, representing the value of the 574 bags of
unrecovered spillages having occurred after the shipment was discharged from the vessel unto the exlighters as well as during the discharge from the lighters to the truck which transported the shipment to
the consignee's warehouses should be for the account of the defendant Maritime Agencies & Services,
Inc.
We affirm the factual findings but must modify the legal conclusions. As previously discussed, the liability
of Macondray can no longer be enforced because the claim against it has prescribed; and as for
Maritime, it cannot be held liable for the acts of its known principal resulting in injury to Union. The
interest must also be reduced to the legal rate of 6%, conformably to our ruling in Reformina v. Tomol 24
and Article 2209 of the Civil Code, and should commence, not on April 20, 1981, but on September 19,
1980, date of the filing of the original complaint.
WHEREFORE, the decision of the respondent court is SET ASIDE and that of the trial court is
REINSTATED as above modified. The parties shall bear their respective costs.
SO ORDERED.

xxx

xxx

xxx

Issues, though not specifically raised in the pleadings in the appellate court, may, in the interest of
justice, be properly considered by said court in deciding a case, if they are questions raised in the trial
court and are matters of record having some bearing on the issue submitted which the parties failed to
raise or the lower court ignore(d). 22
xxx

xxx

xxx

While an assignment of error which is required by law or rule of court has been held essential to
appellate review, and only those assigned will be considered, there are a number of cases which appear
to accord to the appellate court a broad discretionary power to waive this lack of proper assignment of
errors and consider errors not assigned. 23

PAT CASE: AGENCY

G.R. No. 167812

December 19, 2006

JESUS M. GOZUN, petitioner,

vs.
JOSE TEOFILO T. MERCADO a.k.a. DON PEPITO MERCADO, respondent.
DECISION
CARPIO MORALES, J.:
On challenge via petition for review on certiorari is the Court of Appeals Decision of December 8, 2004
and Resolution of April 14, 2005 in CA-G.R. CV No. 763091 reversing the trial courts decision2 against
Jose Teofilo T. Mercado a.k.a. Don Pepito Mercado (respondent) and accordingly dismissing the
complaint of Jesus M. Gozun (petitioner).
Page 87 of 150

In the local elections of 1995, respondent vied for the gubernatorial post in Pampanga. Upon
respondents request, petitioner, owner of JMG Publishing House, a printing shop located in San
Fernando, Pampanga, submitted to respondent draft samples and price quotation of campaign materials.
By petitioners claim, respondents wife had told him that respondent already approved his price
quotation and that he could start printing the campaign materials, hence, he did print campaign materials
like posters bearing respondents photograph,3 leaflets containing the slate of party candidates,4 sample
ballots,5 poll watcher identification cards,6 and stickers.
Given the urgency and limited time to do the job order, petitioner availed of the services and facilities of
Metro Angeles Printing and of St. Joseph Printing Press, owned by his daughter Jennifer Gozun and
mother Epifania Macalino Gozun, respectively.7
Petitioner delivered the campaign materials to respondents headquarters along Gapan-Olongapo Road
in San Fernando, Pampanga.8
Meanwhile, on March 31, 1995, respondents sister-in-law, Lilian Soriano (Lilian) obtained from petitioner
"cash advance" of P253,000 allegedly for the allowances of poll watchers who were attending a seminar
and for other related expenses. Lilian acknowledged on petitioners 1995 diary9 receipt of the amount.10
Petitioner later sent respondent a Statement of Account11 in the total amount of P2,177,906 itemized as
follows: P640,310 for JMG Publishing House; P837,696 for Metro Angeles Printing; P446,900 for St.
Joseph Printing Press; and P253,000, the "cash advance" obtained by Lilian.
On August 11, 1995, respondents wife partially paid P1,000,000 to petitioner who issued a receipt12
therefor.
Despite repeated demands and respondents promise to pay, respondent failed to settle the balance of
his account to petitioner.
Petitioner and respondent being compadres, they having been principal sponsors at the weddings of
their respective daughters, waited for more than three (3) years for respondent to honor his promise but
to no avail, compelling petitioner to endorse the matter to his counsel who sent respondent a demand
letter.13 Respondent, however, failed to heed the demand.14
Petitioner thus filed with the Regional Trial Court of Angeles City on November 25, 1998 a complaint15
against respondent to collect the remaining amount of P1,177,906 plus "inflationary adjustment" and
attorneys fees.
In his Answer with Compulsory Counterclaim,16 respondent denied having transacted with petitioner or
entering into any contract for the printing of campaign materials. He alleged that the various campaign
materials delivered to him were represented as donations from his family, friends and political
PAT CASE: AGENCY

supporters. He added that all contracts involving his personal expenses were coursed through and
signed by him to ensure compliance with pertinent election laws.
On petitioners claim that Lilian, on his (respondents) behalf, had obtained from him a cash advance of
P253,000, respondent denied having given her authority to do so and having received the same.
At the witness stand, respondent, reiterating his allegations in his Answer, claimed that petitioner was his
over-all coordinator in charge of the conduct of seminars for volunteers and the monitoring of other
matters bearing on his candidacy; and that while his campaign manager, Juanito "Johnny" Cabalu
(Cabalu), who was authorized to approve details with regard to printing materials, presented him some
campaign materials, those were partly donated.17
When confronted with the official receipt issued to his wife acknowledging her payment to JMG
Publishing House of the amount of P1,000,000, respondent claimed that it was his first time to see the
receipt, albeit he belatedly came to know from his wife and Cabalu that the P1,000,000 represented
"compensation [to petitioner] who helped a lot in the campaign as a gesture of goodwill."18
Acknowledging that petitioner is engaged in the printing business, respondent explained that he
sometimes discussed with petitioner strategies relating to his candidacy, he (petitioner) having actively
volunteered to help in his campaign; that his wife was not authorized to enter into a contract with
petitioner regarding campaign materials as she knew her limitations; that he no longer questioned the
P1,000,000 his wife gave petitioner as he thought that it was just proper to compensate him for a job well
done; and that he came to know about petitioners claim against him only after receiving a copy of the
complaint, which surprised him because he knew fully well that the campaign materials were
donations.19
Upon questioning by the trial court, respondent could not, however, confirm if it was his understanding
that the campaign materials delivered by petitioner were donations from third parties.20
Finally, respondent, disclaiming knowledge of the Comelec rule that if a campaign material is donated, it
must be so stated on its face, acknowledged that nothing of that sort was written on all the materials
made by petitioner.21
As adverted to earlier, the trial court rendered judgment in favor of petitioner, the dispositive portion of
which reads:
WHEREFORE, the plaintiff having proven its (sic) cause of action by preponderance of evidence, the
Court hereby renders a decision in favor of the plaintiff ordering the defendant as follows:
1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest per annum from the filing of this
complaint until fully paid;
2. To pay the sum of P50,000.00 as attorneys fees and the costs of suit.
Page 88 of 150

SO ORDERED.22
Also as earlier adverted to, the Court of Appeals reversed the trial courts decision and dismissed the
complaint for lack of cause of action.
In reversing the trial courts decision, the Court of Appeals held that other than petitioners testimony,
there was no evidence to support his claim that Lilian was authorized by respondent to borrow money on
his behalf. It noted that the acknowledgment receipt23 signed by Lilian did not specify in what capacity
she received the money. Thus, applying Article 131724 of the Civil Code, it held that petitioners claim for
P253,000 is unenforceable.
On the accounts claimed to be due JMG Publishing House P640,310, Metro Angeles Printing
P837,696, and St. Joseph Printing Press P446,900, the appellate court, noting that since the owners of
the last two printing presses were not impleaded as parties to the case and it was not shown that
petitioner was authorized to prosecute the same in their behalf, held that petitioner could not collect the
amounts due them.
Finally, the appellate court, noting that respondents wife had paid P1,000,000 to petitioner, the latters
claim of P640,310 (after excluding the P253,000) had already been settled.
Hence, the present petition, faulting the appellate court to have erred:
1. . . . when it dismissed the complaint on the ground that there is no evidence, other than petitioners
own testimony, to prove that Lilian R. Soriano was authorized by the respondent to receive the cash
advance from the petitioner in the amount of P253,000.00.

Lim Pin v. Liao Tian, et al.30 held that the requirement of a special power of attorney refers to the nature
of the authorization and not to its form.
. . . The requirements are met if there is a clear mandate from the principal specifically authorizing the
performance of the act. As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated
that such a mandate may be either oral or written. The one thing vital being that it shall be express. And
more recently, We stated that, if the special authority is not written, then it must be duly established by
evidence:
"the Rules require, for attorneys to compromise the litigation of their clients, a special authority. And
while the same does not state that the special authority be in writing the Court has every reason to
expect that, if not in writing, the same be duly established by evidence other than the self-serving
assertion of counsel himself that such authority was verbally given him."31 (Emphasis and underscoring
supplied)
Petitioner submits that his following testimony suffices to establish that respondent had authorized Lilian
to obtain a loan from him, viz:
Q : Another caption appearing on Exhibit "A" is cash advance, it states given on 3-31-95 received by
Mrs. Lilian Soriano in behalf of Mrs. Annie Mercado, amount P253,000.00, will you kindly tell the Court
and explain what does that caption means?

xxxx

A : It is the amount representing the money borrowed from me by the defendant when one morning they
came very early and talked to me and told me that they were not able to go to the bank to get money for
the allowances of Poll Watchers who were having a seminar at the headquarters plus other election
related expenses during that day, sir.

2. . . . when it dismissed the complaint, with respect to the amounts due to the Metro Angeles Press and
St. Joseph Printing Press on the ground that the complaint was not brought by the real party in interest.

Q : Considering that this is a substantial amount which according to you was taken by Lilian Soriano, did
you happen to make her acknowledge the amount at that time?

x x x x25

A : Yes, sir.32 (Emphasis supplied)

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.26 Contracts entered
into in the name of another person by one who has been given no authority or legal representation or
who has acted beyond his powers are classified as unauthorized contracts and are declared
unenforceable, unless they are ratified.27

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

Generally, the agency may be oral, unless the law requires a specific form.28 However, a special power
of attorney is necessary for an agent to, as in this case, borrow money, unless it be urgent and
indispensable for the preservation of the things which are under administration.29 Since nothing in this
case involves the preservation of things under administration, a determination of whether Soriano had
the special authority to borrow money on behalf of respondent is in order.
PAT CASE: AGENCY

Invoking Article 187333 of the Civil Code, petitioner submits that respondent informed him that he had
authorized Lilian to obtain the loan, hence, following Macke v. Camps34 which holds that one who
clothes another with apparent authority as his agent, and holds him out to the public as such, respondent
cannot be permitted to deny the authority.
Petitioners submission does not persuade. As the appellate court observed:
Page 89 of 150

. . . Exhibit "B" [the receipt issued by petitioner] presented by plaintiff-appellee to support his claim
unfortunately only indicates the Two Hundred Fifty Three Thousand Pesos (P253,0000.00) was received
by one Lilian R. Soriano on 31 March 1995, but without specifying for what reason the said amount was
delivered and in what capacity did Lilian R. Soriano received [sic] the money. The note reads:
"3-31-95
261,120 ADVANCE MONEY FOR TRAINEE

The parties to a contract are the real parties in interest in an action upon it, as consistently held by the
Court. Only the contracting parties are bound by the stipulations in the contract; they are the ones who
would benefit from and could violate it. Thus, one who is not a party to a contract, and for whose benefit
it was not expressly made, cannot maintain an action on it. One cannot do so, even if the contract
performed by the contracting parties would incidentally inure to one's benefit.38 (Underscoring supplied)
In light thereof, petitioner is the real party in interest in this case. The trial courts findings on the matter
were affirmed by the appellate court.39 It erred, however, in not declaring petitioner as a real party in
interest insofar as recovery of the cost of campaign materials made by petitioners mother and sister are
concerned, upon the wrong notion that they should have been, but were not, impleaded as plaintiffs.

RECEIVED BY
RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO HUNDRED FIFTY THREE THOUSAND
PESOS
(SIGNED)
LILIAN R. SORIANO
3-31-95"
Nowhere in the note can it be inferred that defendant-appellant was connected with the said transaction.
Under Article 1317 of the New Civil Code, a person cannot be bound by contracts he did not authorize to
be entered into his behalf.35 (Underscoring supplied)
It bears noting that Lilian signed in the receipt in her name alone, without indicating therein that she was
acting for and in behalf of respondent. She thus bound herself in her personal capacity and not as an
agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property
executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the
principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted in the name of the principal. x x x36 (Emphasis and
underscoring supplied)
On the amount due him and the other two printing presses, petitioner explains that he was the one who
personally and directly contracted with respondent and he merely sub-contracted the two printing
establishments in order to deliver on time the campaign materials ordered by respondent.
Respondent counters that the claim of sub-contracting is a change in petitioners theory of the case
which is not allowed on appeal.
In Oco v. Limbaring,37 this Court ruled:
PAT CASE: AGENCY

In sum, respondent has the obligation to pay the total cost of printing his campaign materials delivered
by petitioner in the total of P1,924,906, less the partial payment of P1,000,000, or P924,906.
WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2004 and the Resolution
dated April 14, 2005 of the Court of Appeals are hereby REVERSED and SET ASIDE.
The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch 57, is REINSTATED
mutatis mutandis, in light of the foregoing discussions. The trial courts decision is modified in that the
amount payable by respondent to petitioner is reduced to P924,906.
SO ORDERED.
G.R. No. 95703

August 3, 1992

RURAL BANK OF BOMBON (CAMARINES SUR), INC., petitioner,

vs.
HON. COURT OF APPEALS, EDERLINDA M. GALLARDO, DANIEL MANZO and RUFINO S.
AQUINO, respondents.
L.M. Maggay & Associates for petitioner.
GRIO-AQUINO, J.:
This petition for review seeks reversal of the decision dated September 18, 1990 of the Court of Appeals,
reversing the decision of the Regional Trial Court of Makati, Branch 150, which dismissed the private
respondents' complaint and awarded damages to the petitioner, Rural Bank of Bombon.
On January 12, 1981, Ederlinda M. Gallardo, married to Daniel Manzo, executed a special power of
attorney in favor of Rufina S. Aquino authorizing him:
1.
To secure a loan from any bank or lending institution for any amount or otherwise mortgage the
property covered by Transfer Certificate of Title No. S-79238 situated at Las Pias, Rizal, the same
being my paraphernal property, and in that connection, to sign, or execute any deed of mortgage and
Page 90 of 150

sign other document requisite and necessary in securing said loan and to receive the proceeds thereof in
cash or in check and to sign the receipt therefor and thereafter endorse the check representing the
proceeds of loan. (p. 10, Rollo.)
Thereupon, Gallardo delivered to Aquino both the special power of attorney and her owner's copy of
Transfer Certificate of Title No. S-79238 (19963-A).
On August 26, 1981, a Deed of Real Estate Mortgage was executed by Rufino S. Aquino in favor of the
Rural Bank of Bombon (Camarines Sur), Inc. (hereafter, defendant Rural Bank) over the three parcels of
land covered by TCT No. S-79238. The deed stated that the property was being given as security for the
payment of "certain loans, advances, or other accommodations obtained by the mortgagor from the
mortgagee in the total sum of Three Hundred Fifty Thousand Pesos only (P350,000.00), plus interest at
the rate of fourteen (14%) per annum . . ." (p. 11, Rollo).

Meanwhile, on August 30, 1984, the Bank filed a complaint against Ederlinda Gallardo and Rufino
Aquino for "Foreclosure of Mortgage" docketed as Civil Case No. 8330 in Branch 141, RTC Makati. On
motion of the plaintiff, the foreclosure case and the annulment case (Civil Case No. 6062) were
consolidated.
On January 16, 1986, the trial court rendered a summary judgment in Civil Case No. 6062, dismissing
the complaint for annulment of mortgage and declaring the Rural Bank entitled to damages the amount
of which will be determined in appropriate proceedings. The court lifted the writ of preliminary injunction it
previously issued.
On April 23, 1986, the trial court, in Civil Case No. 8330, issued an order suspending the foreclosure
proceedings until after the decision in the annulment case (Civil Case No. 6062) shall have become final
and executory.

On January 6, 1984, the spouses Ederlinda Gallardo and Daniel Manzo filed an action against Rufino
Aquino and the Bank because Aquino allegedly left his residence at San Pascual, Hagonoy, Bulacan,
and transferred to an unknown place in Bicol. She discovered that Aquino first resided at Sta. Isabel,
Calabanga, Camarines Sur, and then later, at San Vicente, Calabanga, Camarines Sur, and that they
(plaintiffs) were allegedly surprised to discover that the property was mortgaged to pay personal loans
obtained by Aquino from the Bank solely for personal use and benefit of Aquino; that the mortgagor in
the deed was defendant Aquino instead of plaintiff Gallardo whose address up to now is Manuyo, Las
Pias, M.M., per the title (TCT No. S-79238) and in the deed vesting power of attorney to Aquino; that
correspondence relative to the mortgage was sent to Aquino's address at "Sta. Isabel, Calabanga,
Camarines Sur" instead of Gallardo's postal address at Las Pias, Metro Manila; and that defendant
Aquino, in the real estate mortgage, appointed defendant Rural Bank as attorney in fact, and in case of
judicial foreclosure as receiver with corresponding power to sell and that although without any express
authority from Gallardo, defendant Aquino waived Gallardo's rights under Section 12, Rule 39, of the
Rules of Court and the proper venue of the foreclosure suit.

The plaintiff in Civil Case No. 6062 appealed to the Court of Appeals, which on September 18, 1990,
reversed the trial court. The dispositive portion of the decision reads:

On January 23, 1984, the trial court, thru the Honorable Fernando P. Agdamag, temporarily restrained
the Rural Bank "from enforcing the real estate mortgage and from foreclosing it either judicially or
extrajudicially until further orders from the court" (p.36, Rollo).

1.
in declaring that the Deed of Real Estate Mortgage was unauthorized, void, and unenforceable
against the private respondent Ederlinda Gallardo; and

Rufino S. Aquino in his answer said that the plaintiff authorized him to mortgage her property to a bank
so that he could use the proceeds to liquidate her obligation of P350,000 to him. The obligation to pay
the Rural Bank devolved on Gallardo. Of late, however, she asked him to pay the Bank but defendant
Aquino set terms and conditions which plaintiff did not agree to. Aquino asked for payment to him of
moral damages in the sum of P50,000 and lawyer's fees of P35,000.
The Bank moved to dismiss the complaint and filed counter-claims for litigation expenses, exemplary
damages, and attorney's fees. It also filed a crossclaim against Aquino for P350,000 with interest, other
bank charges and damages if the mortgage be declared unauthorized.

PAT CASE: AGENCY

UPON ALL THESE, the summary judgment entered by the lower court is hereby REVERSED and in lieu
thereof, judgment is hereby RENDERED, declaring the deed of real estate mortgage dated August 26,
1981, executed between Rufino S. Aquino with the marital consent of his wife Bibiana Aquino with the
appellee Rural Bank of Bombon, Camarines Sur, unauthorized, void and unenforceable against plaintiff
Ederlinda Gallardo; ordering the reinstatement of the preliminary injunction issued at the onset of the
case and at the same time, ordering said injunction made permanent.
Appellee Rural Bank to pay the costs. (p. 46, Rollo.)
Hence, this petition for review by the Rural Bank of Bombon, Camarines Sur, alleging that the Court of
Appeals erred:

2.
in not upholding the validity of the Real Estate Mortgage executed by Rufino S. Aquino as
attorney-in-fact for Gallardo, in favor of the Rural Bank of Bombon, (Cam. Sur), Inc.
Both assignments of error boil down to the lone issue of the validity of the Deed of Real Estate Mortgage
dated August 26, 1981, executed by Rufino S. Aquino, as attorney-in-fact of Ederlinda Gallardo, in favor
of the Rural Bank of Bombon (Cam. Sur), Inc.
The Rural Bank contends that the real estate mortgage executed by respondent Aquino is valid because
he was expressly authorized by Gallardo to mortgage her property under the special power of attorney
she made in his favor which was duly registered and annotated on Gallardo's title. Since the Special
Page 91 of 150

Power of Attorney did not specify or indicate that the loan would be for Gallardo's benefit, then it could be
for the use and benefit of the attorney-in-fact, Aquino.
However, the Court of Appeals ruled otherwise. It held:
The Special Power of Attorney above quoted shows the extent of authority given by the plaintiff to
defendant Aquino. But defendant Aquino in executing the deed of Real Estate Mortgage in favor of the
rural bank over the three parcels of land covered by Gallardo's title named himself as the mortgagor
without stating that his signature on the deed was for and in behalf of Ederlinda Gallardo in his capacity
as her attorney-in-fact.
At the beginning of the deed mention was made of "attorney-in-fact of Ederlinda H. Gallardo," thus: "
(T)his MORTGAGE executed by Rufino S. Aquino attorney in fact of Ederlinda H. Gallardo, of legal age,
Filipino, married to Bibiana Panganiban with postal address at Sta. Isabel . . .," but which of itself, was
merely descriptive of the person of defendant Aquino. Defendant Aquino even signed it plainly as
mortgagor with the marital consent yet of his wife Bibiana P. Aquino who signed the deed as "wife of
mortgagor."
xxx

xxx

xxx

The three (3) promissory notes respectively dated August 31, 1981, September 23, 1981 and October
26, 1981, were each signed by Rufino Aquino on top of a line beneath which is written "signature of
mortgagor" and by Bibiana P. Aquino on top of a line under which is written "signature of spouse,"
without any mention that execution thereof was for and in behalf of the plaintiff as mortgagor. It results,
borne out from what were written on the deed, that the amounts were the personal loans of defendant
Aquino. As pointed out by the appellant, Aquino's wife has not been appointed co-agent of defendant
Aquino and her signature on the deed and on the promissory notes can only mean that the obligation
was personally incurred by them and for their own personal account.
The deed of mortgage stipulated that the amount obtained from the loans shall be used or applied only
for "fishpond (bangus and sugpo production)." As pointed out by the plaintiff, the defendant Rural Bank in
its Answer had not categorically denied the allegation in the complaint that defendant Aquino in the deed
of mortgage was the intended user and beneficiary of the loans and not the plaintiff. And the special
power of attorney could not be stretched to include the authority to obtain a loan in said defendant
Aquino's own benefit. (pp. 40-41, Rollo.)
The decision of the Court of Appeals is correct. This case is governed by the general rule in the law of
agency which this Court, applied in "Philippine Sugar Estates Development Co. vs. Poizat," 48 Phil. 536,
538:
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property
executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the
principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact
authorized to make the mortgage, if he has not acted in the name of the principal. Neither is it ordinarily
PAT CASE: AGENCY

sufficient that in the mortgage the agent describes himself as acting by virtue of a power of attorney, if in
fact the agent has acted in his own name and has set his own hand and seal to the mortgage. This is
especially true where the agent himself is a party to the instrument. However clearly the body of the
mortgage may show and intend that it shall be the act of the principal, yet, unless in fact it is executed by
the agent for and on behalf of his principal and as the act and deed of the principal, it is not valid as to
the principal.
In view of this rule, Aquino's act of signing the Deed of Real Estate Mortgage in his name alone as
mortgagor, without any indication that he was signing for and in behalf of the property owner, Ederlinda
Gallardo, bound himself alone in his personal capacity as a debtor of the petitioner Bank and not as the
agent or attorney-in-fact of Gallardo. The Court of Appeals further observed:
It will also be observed that the deed of mortgage was executed on August 26, 1981 therein clearly
stipulating that it was being executed "as security for the payment of certain loans, advances or other
accommodation obtained by the Mortgagor from the Mortgagee in the total sum of Three Hundred Fifty
Thousand Pesos only (P350,000.00)" although at the time no such loan or advance had been obtained.
The promissory notes were dated August 31, September 23 and October 26, 1981 which were
subsequent to the execution of the deed of mortgage. The appellant is correct in claiming that the
defendant Rural Bank should not have agreed to extend or constitute the mortgage on the properties of
Gallardo who had no existing indebtedness with it at the time.
Under the facts the defendant Rural Bank appeared to have ignored the representative capacity of
Aquino and dealt with him and his wife in their personal capacities. Said appellee Rural Bank also did not
conduct an inquiry on whether the subject loans were to benefit the interest of the principal (plaintiff
Gallardo) rather than that of the agent although the deed of mortgage was explicit that the loan was for
purpose of the bangus and sugpo production of defendant Aquino.
In effect, with the execution of the mortgage under the circumstances and assuming it to be valid but
because the loan taken was to be used exclusively for Aquino's business in the "bangus" and "sugpo"
production, Gallardo in effect becomes a surety who is made primarily answerable for loans taken by
Aquino in his personal capacity in the event Aquino defaults in such payment. Under Art. 1878 of the
Civil Code, to obligate the principal as a guarantor or surety, a special power of attorney is required. No
such special power of attorney for Gallardo to be a surety of Aquino had been executed. (pp. 42-43,
Rollo.)
Petitioner claims that the Deed of Real Estate Mortgage is enforceable against Gallardo since it was
executed in accordance with Article 1883 which provides:
Art. 1883.
If an agent acts in his own name, the principal has no right of action against the
persons with whom the agent has contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the person with whom he has contracted, as
if the transaction were his own, except when the contract involves things belonging to the principal.
Page 92 of 150

The above provision of the Civil Code relied upon by the petitioner Bank, is not applicable to the case at
bar. Herein respondent Aquino acted purportedly as an agent of Gallardo, but actually acted in his
personal capacity. Involved herein are properties titled in the name of respondent Gallardo against which
the Bank proposes to foreclose the mortgage constituted by an agent (Aquino) acting in his personal
capacity. Under these circumstances, we hold, as we did in Philippine Sugar Estates Development Co.
vs. Poizat, supra, that Gallardo's property is not liable on the real estate mortgage:
There is no principle of law by which a person can become liable on a real mortgage which she never
executed either in person or by attorney in fact. It should be noted that this is a mortgage upon real
property, the title to which cannot be divested except by sale on execution or the formalities of a will or
deed. For such reasons, the law requires that a power of attorney to mortgage or sell real property
should be executed with all of the formalities required in a deed. For the same reason that the personal
signature of Poizat, standing alone, would not convey the title of his wife in her own real property, such a
signature would not bind her as a mortgagor in real property, the title to which was in her name. (p. 548.)
WHEREFORE, finding no reversible error in the decision of the Court of Appeals, we AFFIRM it in toto.
Costs against the petitioner.
SO ORDERED.
G.R. No. 82040

August 27, 1991

BA FINANCE CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS, Hon. Presiding Judge of Regional Trial Court of Manila, Branch 43,
MANUEL CUADY and LILIA CUADY, respondents.
Valera, Urmeneta & Associates for petitioner.
Pompeyo L. Bautista for private respondents.
PARAS, J.:p
This is a petition for review on certiorari which seeks to reverse and set aside (1) the decision of the
Court of Appeals dated July 21, 1987 in CA-G.R. No. CV-06522 entitled "B.A. Finance Corporation,
Plaintiff-Appellant, vs. Manuel Cuady and Lilia Cuady, Defendants-Appellees," affirming the decision of
the Regional Trial Court of Manila, Branch 43, which dismissed the complaint in Civil Case No. 8210478, and (2) the resolution dated February 9, 1988 denying petitioner's motion for reconsideration.
As gathered from the records, the facts are as follows:
On July 15, 1977, private respondents Manuel Cuady and Lilia Cuady obtained from Supercars, Inc. a
credit of P39,574.80, which amount covered the cost of one unit of Ford Escort 1300, four-door sedan.
Said obligation was evidenced by a promissory note executed by private respondents in favor of
Supercars, Inc., obligating themselves to pay the latter or order the sum of P39,574.80, inclusive of
PAT CASE: AGENCY

interest at 14% per annum, payable on monthly installments of P1,098.00 starting August 16, 1977, and
on the 16th day of the next 35 months from September 16, 1977 until full payment thereof. There was
also stipulated a penalty of P10.00 for every month of late installment payment. To secure the faithful
and prompt compliance of the obligation under the said promissory note, the Cuady spouses constituted
a chattel mortage on the aforementioned motor vehicle. On July 25, 1977, Supercars, Inc. assigned the
promissory note, together with the chattel mortgage, to B.A. Finance Corporation. The Cuadys paid a
total of P36,730.15 to the B.A. Finance Corporation, thus leaving an unpaid balance of P2,344.65 as of
July 18, 1980. In addition thereto, the Cuadys owe B.A. Finance Corporation P460.00 representing
penalties or surcharges for tardy monthly installments (Rollo, pp. 27-29).
Parenthetically, the B.A. Finance Corporation, as the assignee of the mortgage lien obtained the renewal
of the insurance coverage over the aforementioned motor vehicle for the year 1980 with Zenith
Insurance Corporation, when the Cuadys failed to renew said insurance coverage themselves. Under the
terms and conditions of the said insurance coverage, any loss under the policy shall be payable to the
B.A. Finance Corporation (Memorandum for Private Respondents, pp. 3-4).
On April 18, 1980, the aforementioned motor vehicle figured in an accident and was badly damaged. The
unfortunate happening was reported to the B.A. Finance Corporation and to the insurer, Zenith Insurance
Corporation. The Cuadys asked the B.A. Finance Corporation to consider the same as a total loss, and
to claim from the insurer the face value of the car insurance policy and apply the same to the payment of
their remaining account and give them the surplus thereof, if any. But instead of heeding the request of
the Cuadys, B.A. Finance Corporation prevailed upon the former to just have the car repaired. Not long
thereafter, however, the car bogged down. The Cuadys wrote B.A. Finance Corporation requesting the
latter to pursue their prior instruction of enforcing the total loss provision in the insurance coverage.
When B.A. Finance Corporation did not respond favorably to their request, the Cuadys stopped paying
their monthly installments on the promissory note (Ibid., pp. 45).
On June 29, 1982, in view of the failure of the Cuadys to pay the remaining installments on the note,
B.A. Finance Corporation sued them in the Regional Trial Court of Manila, Branch 43, for the recovery of
the said remaining installments (Memorandum for the Petitioner, p. 1).
After the termination of the pre-trial conference, the case was set for trial on the merits on April 25, 1984.
B.A. Finance Corporation's evidence was presented on even date and the presentation of Cuady's
evidence was set on August 15, 1984. On August 7,1984, Atty. Noel Ebarle, counsel for the petitioner,
filed a motion for postponement, the reason being that the "handling" counsel, Atty. Ferdinand Macibay
was temporarily assigned in Cebu City and would not be back until after August 15, 1984. Said motion
was, however, denied by the trial court on August 10, 1984. On August 15, 1984, the date of hearing, the
trial court allowed private respondents to adduce evidence ex-parte in the form of an affidavit to be
sworn to before any authorized officer. B.A. Finance Corporation filed a motion for reconsideration of the
order of the trial court denying its motion for postponement. Said motion was granted in an order dated
September 26, 1984, thus:

Page 93 of 150

The Court grants plaintiff's motion for reconsideration dated August 22, 1984, in the sense that plaintiff is
allowed to adduce evidence in the form of counter-affidavits of its witnesses, to be sworn to before any
person authorized to administer oaths, within ten days from notice hereof. (Ibid., pp. 1-2).

be payable to BA FINANCE CORP., as their respective rights and interest may appear" (Rollo, p. 91) but
also the remaining balance on the promissory note (Memorandum for the Respondents, pp. 16-17).
The petition is devoid of merit.

B.A. Finance Corporation, however, never complied with the above-mentioned order, paving the way for
the trial court to render its decision on January 18, 1985, the dispositive portion of which reads as
follows:
IN VIEW WHEREOF, the Court DISMISSES the complaint without costs.
SO ORDERED. (Rollo, p. 143)
On appeal, the respondent appellate court * affirmed the decision of the trial court. The decretal portion
of the said decision reads as follows:
WHEREFORE, after consultation among the undersigned members of this Division, in compliance with
the provision of Section 13, Article VIII of the Constitution; and finding no reversible error in the judgment
appealed from, the same is hereby AFFIRMED, without any pronouncement as to costs. (Ibid., p. 33)
B.A. Finance Corporation moved for the reconsideration of the above decision, but the motion was
denied by the respondent appellate court in a resolution dated February 9, 1988 (Ibid., p. 38).
Hence, this present recourse.
On July 11, 1990, this Court gave due course to the petition and required the parties to submit their
respective memoranda. The parties having complied with the submission of their memoranda, the case
was submitted for decision.
The real issue to be resolved in the case at bar is whether or not B.A. Finance Corporation has waived
its right to collect the unpaid balance of the Cuady spouses on the promissory note for failure of the
former to enforce the total loss provision in the insurance coverage of the motor vehicle subject of the
chattel mortgage.
It is the contention of B.A. Finance Corporation that even if it failed to enforce the total loss provision in
the insurance policy of the motor vehicle subject of the chattel mortgage, said failure does not operate to
extinguish the unpaid balance on the promissory note, considering that the circumstances obtaining in
the case at bar do not fall under Article 1231 of the Civil Code relative to the modes of extinguishment of
obligations (Memorandum for the Petitioner, p. 11).
On the other hand, the Cuadys insist that owing to its failure to enforce the total loss provision in the
insurance policy, B.A. Finance Corporation lost not only its opportunity to collect the insurance proceeds
on the mortgaged motor vehicle in its capacity as the assignee of the said insurance proceeds pursuant
to the memorandum in the insurance policy which states that the "LOSS: IF ANY, under this policy shall
PAT CASE: AGENCY

B.A. Finance Corporation was deemed subrogated to the rights and obligations of Supercars, Inc. when
the latter assigned the promissory note, together with the chattel mortgage constituted on the motor
vehicle in question in favor of the former. Consequently, B.A. Finance Corporation is bound by the terms
and conditions of the chattel mortgage executed between the Cuadys and Supercars, Inc. Under the
deed of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact with full power and
authority to file, follow-up, prosecute, compromise or settle insurance claims; to sign execute and deliver
the corresponding papers, receipts and documents to the Insurance Company as may be necessary to
prove the claim, and to collect from the latter the proceeds of insurance to the extent of its interests, in
the event that the mortgaged car suffers any loss or damage (Rollo, p. 89). In granting B.A. Finance
Corporation the aforementioned powers and prerogatives, the Cuady spouses created in the former's
favor an agency. Thus, under Article 1884 of the Civil Code of the Philippines, B.A. Finance Corporation
is bound by its acceptance to carry out the agency, and is liable for damages which, through its nonperformance, the Cuadys, the principal in the case at bar, may suffer.
Unquestionably, the Cuadys suffered pecuniary loss in the form of salvage value of the motor vehicle in
question, not to mention the amount equivalent to the unpaid balance on the promissory note, when B.A.
Finance Corporation steadfastly refused and refrained from proceeding against the insurer for the
payment of a clearly valid insurance claim, and continued to ignore the yearning of the Cuadys to
enforce the total loss provision in the insurance policy, despite the undeniable fact that Rea Auto Center,
the auto repair shop chosen by the insurer itself to repair the aforementioned motor vehicle, misrepaired
and rendered it completely useless and unserviceable (Ibid., p. 31).
Accordingly, there is no reason to depart from the ruling set down by the respondent appellate court. In
this connection, the Court of Appeals said:
... Under the established facts and circumstances, it is unjust, unfair and inequitable to require the chattel
mortgagors, appellees herein, to still pay the unpaid balance of their mortgage debt on the said car, the
non-payment of which account was due to the stubborn refusal and failure of appellant mortgagee to
avail of the insurance money which became due and demandable after the insured motor vehicle was
badly damaged in a vehicular accident covered by the insurance risk. ... (Ibid.)
On the allegation that the respondent court's findings that B.A. Finance Corporation failed to claim for the
damage to the car was not supported by evidence, the records show that instead of acting on the
instruction of the Cuadys to enforce the total loss provision in the insurance policy, the petitioner insisted
on just having the motor vehicle repaired, to which private respondents reluctantly acceded. As
heretofore mentioned, the repair shop chosen was not able to restore the aforementioned motor vehicle
to its condition prior to the accident. Thus, the said vehicle bogged down shortly thereafter. The
subsequent request of the Cuadys for the B.A. Finance Corporation to file a claim for total loss with the
Page 94 of 150

insurer fell on deaf ears, prompting the Cuadys to stop paying the remaining balance on the promissory
note (Memorandum for the Respondents, pp. 4-5).
Moreover, B.A. Finance Corporation would have this Court review and reverse the factual findings of the
respondent appellate court. This, of course, the Court cannot and will not generally do. It is axiomatic
that the judgment of the Court of Appeals is conclusive as to the facts and may not ordinarily be
reviewed by the Supreme Court. The doctrine is, to be sure, subject to certain specific exceptions none
of which, however, obtains in the instant case (Luzon Brokerage Corporation v. Court of Appeals, 176
SCRA 483 [1989]).
Finally, B.A. Finance Corporation contends that respondent trial court committed grave abuses of
discretion in two instances: First, when it denied the petitioner's motion for reconsideration praying that
the counsel be allowed to cross-examine the affiant, and; second, when it seriously considered the
evidence adduced ex-parte by the Cuadys, and heavily relied thereon, when in truth and in fact, the
same was not formally admitted as part of the evidence for the private respondents (Memorandum for
the Petitioner, p. 10). This Court does not have to unduly dwell on this issue which was only raised by
B.A. Finance Corporation for the first time on appeal. A review of the records of the case shows that B.A.
Finance Corporation failed to directly raise or ventilate in the trial court nor in the respondent appellate
court the validity of the evidence adduced ex-parte by private respondents. It was only when the
petitioner filed the instant petition with this Court that it later raised the aforementioned issue. As ruled by
this Court in a long line of cases, issues not raised and/or ventilated in the trial court, let alone in the
Court of Appeals, cannot be raised for the first time on appeal as it would be offensive to the basic rules
of fair play, justice and due process (Galicia v. Polo, 179 SCRA 375 [1989]; Ramos v. Intermediate
Appellate Court, 175 SCRA 70 [1989]; Dulos Realty & Development Corporation v. Court of Appeals, 157
SCRA 425 [1988]; Dihiansan, et al. v. Court of Appeals, et al., 153 SCRA 712 [1987]; De la Santa v.
Court of Appeals, et al., 140 SCRA 44 [1985]).
PREMISES CONSIDERED, the instant petition is DENIED, and the decision appealed from is
AFFIRMED.
SO ORDERED.
January 24, 2007

CORAZON L. ESCUETA, assisted by her husband EDGAR ESCUETA, IGNACIO E. RUBIO, THE
HEIRS OF LUZ R. BALOLOY, namely, ALEJANDRINO R. BALOLOY and BAYANI R. BALOLOY,
Petitioners,
vs.
RUFINA LIM, Respondent.
DECISION

PAT CASE: AGENCY

The facts2 appear as follows:

Respondent Rufina Lim filed an action to remove cloud on, or quiet title to, real property, with preliminary
injunction and issuance of [a hold-departure order] from the Philippines against Ignacio E. Rubio.
Respondent amended her complaint to include specific performance and damages.
In her amended complaint, respondent averred inter alia that she bought the hereditary shares
(consisting of 10 lots) of Ignacio Rubio [and] the heirs of Luz Baloloy, namely: Alejandrino, Bayani, and
other co-heirs; that said vendors executed a contract of sale dated April 10, 1990 in her favor; that
Ignacio Rubio and the heirs of Luz Baloloy received [a down payment] or earnest money in the amount
of P102,169.86 and P450,000, respectively; that it was agreed in the contract of sale that the vendors
would secure certificates of title covering their respective hereditary shares; that the balance of the
purchase price would be paid to each heir upon presentation of their individual certificate[s] of [title]; that
Ignacio Rubio refused to receive the other half of the down payment which is P[100,000]; that Ignacio
Rubio refused and still refuses to deliver to [respondent] the certificates of title covering his share on the
two lots; that with respect to the heirs of Luz Baloloy, they also refused and still refuse to perform the
delivery of the two certificates of title covering their share in the disputed lots; that respondent was and is
ready and willing to pay Ignacio Rubio and the heirs of Luz Baloloy upon presentation of their individual
certificates of title, free from whatever lien and encumbrance;
As to petitioner Corazon Escueta, in spite of her knowledge that the disputed lots have already been sold
by Ignacio Rubio to respondent, it is alleged that a simulated deed of sale involving said lots was
effected by Ignacio Rubio in her favor; and that the simulated deed of sale by Rubio to Escueta has
raised doubts and clouds over respondents title.
In their separate amended answers, petitioners denied the material allegations of the complaint and
alleged inter alia the following:

G.R. No. 137162

AZCUNA, J.:

This is an appeal by certiorari1 to annul and set aside the Decision and Resolution of the Court of
Appeals (CA) dated October 26, 1998 and January 11, 1999, respectively, in CA-G.R. CV No. 48282,
entitled "Rufina Lim v. Corazon L. Escueta, etc., et. al."

For the heirs of Luz Baloloy (Baloloys for brevity):

Respondent has no cause of action, because the subject contract of sale has no more force and effect
as far as the Baloloys are concerned, since they have withdrawn their offer to sell for the reason that
respondent failed to pay the balance of the purchase price as orally promised on or before May 1, 1990.
For petitioners Ignacio Rubio (Rubio for brevity) and Corazon Escueta (Escueta for brevity):
Respondent has no cause of action, because Rubio has not entered into a contract of sale with her; that
he has appointed his daughter Patricia Llamas to be his attorney-in-fact and not in favor of Virginia Rubio
Laygo Lim (Lim for brevity) who was the one who represented him in the sale of the disputed lots in favor
Page 95 of 150

of respondent; that the P100,000 respondent claimed he received as down payment for the lots is a
simple transaction by way of a loan with Lim.
The Baloloys failed to appear at the pre-trial. Upon motion of respondent, the trial court declared the
Baloloys in default. They then filed a motion to lift the order declaring them in default, which was denied
by the trial court in an order dated November 27, 1991. Consequently, respondent was allowed to
adduce evidence ex parte. Thereafter, the trial court rendered a partial decision dated July 23, 1993
against the Baloloys, the dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of [respondent] and against
[petitioners, heirs] of Luz R. Balolo[y], namely: Alejandrino Baloloy and Bayani Baloloy. The [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to immediately execute an [Absolute] Deed of Sale
over their hereditary share in the properties covered by TCT No. 74392 and TCT No. 74394, after
payment to them by [respondent] the amount of P[1,050,000] or consignation of said amount in Court.
[For] failure of [petitioners] Alejandrino Baloloy and Bayani Baloloy to execute the Absolute Deed of Sale
over their hereditary share in the property covered by TCT No. T-74392 and TCT No. T-74394 in favor of
[respondent], the Clerk of Court is ordered to execute the necessary Absolute Deed of Sale in behalf of
the Baloloys in favor of [respondent,] with a consideration of P[1,500,000]. Further[,] [petitioners]
Alejandrino Baloloy and Bayani Baloloy are ordered to jointly and severally pay [respondent] moral
damages in the amount of P[50,000] and P[20,000] for attorneys fees. The adverse claim annotated at
the back of TCT No. T-74392 and TCT No. T-74394[,] insofar as the shares of Alejandrino Baloloy and
Bayani Baloloy are concerned[,] [is] ordered cancelled.

WHEREFORE, upon all the foregoing premises considered, this Court rules:
1. the appeal of the Baloloys from the Order denying the Petition for Relief from Judgment and Orders
dated July 4, 1994 and Supplemental Petition dated July 7, 1994 is DISMISSED. The Order appealed
from is AFFIRMED.
2. the Decision dismissing [respondents] complaint is REVERSED and SET ASIDE and a new one is
entered. Accordingly,
a. the validity of the subject contract of sale in favor of [respondent] is upheld.
b. Rubio is directed to execute a Deed of Absolute Sale conditioned upon the payment of the balance of
the purchase price by [respondent] within 30 days from the receipt of the entry of judgment of this
Decision.
c. the contracts of sale between Rubio and Escueta involving Rubios share in the disputed properties is
declared NULL and VOID.
d. Rubio and Escueta are ordered to pay jointly and severally the [respondent] the amount of P[20,000]
as moral damages and P[20,000] as attorneys fees.
3. the appeal of Rubio and Escueta on the denial of their counterclaim is DISMISSED.

With costs against [petitioners] Alejandrino Baloloy and Bayani Baloloy.

SO ORDERED.5
SO ORDERED.3
Petitioners Motion for Reconsideration of the CA Decision was denied. Hence, this petition.
The Baloloys filed a petition for relief from judgment and order dated July 4, 1994 and supplemental
petition dated July 7, 1994. This was denied by the trial court in an order dated September 16, 1994.
Hence, appeal to the Court of Appeals was taken challenging the order denying the petition for relief.

The issues are:

I

Trial on the merits ensued between respondent and Rubio and Escueta. After trial, the trial court
rendered its assailed Decision, as follows:
IN VIEW OF THE FOREGOING, the complaint [and] amended complaint are dismissed against
[petitioners] Corazon L. Escueta, Ignacio E. Rubio[,] and the Register of Deeds. The counterclaim of
[petitioners] [is] also dismissed. However, [petitioner] Ignacio E. Rubio is ordered to return to the
[respondent], Rufina Lim[,] the amount of P102,169.80[,] with interest at the rate of six percent (6%) per
annum from April 10, [1990] until the same is fully paid. Without pronouncement as to costs.

THE HONORABLE COURT OF APPEALS ERRED IN DENYING THE PETITION FOR RELIEF FROM
JUDGMENT FILED BY THE BALOLOYS.
II
THE HONORABLE COURT OF APPEALS ERRED IN REINSTATING THE COMPLAINT AND IN
AWARDING MORAL DAMAGES AND ATTORNEYS FEES IN FAVOR OF RESPONDENT RUFINA L.
LIM CONSIDERING THAT:

SO ORDERED.4
On appeal, the CA affirmed the trial courts order and partial decision, but reversed the later decision.
The dispositive portion of its assailed Decision reads:
PAT CASE: AGENCY

A. IGNACIO E. RUBIO IS NOT BOUND BY THE CONTRACT OF SALE BETWEEN VIRGINIA LAYGOLIM AND RUFINA LIM.
Page 96 of 150

B. THE CONTRACT ENTERED INTO BETWEEN RUFINA LIM AND VIRGINIA LAYGO-LIM IS A
CONTRACT TO SELL AND NOT A CONTRACT OF SALE.

The amount encashed by Rubio represented not the down payment, but the payment of respondents
debt. His acceptance and encashment of the check was not a ratification of the contract of sale.

C. RUFINA LIM FAILED TO FAITHFULLY COMPLY WITH HER OBLIGATIONS UNDER THE
CONTRACT TO SELL THEREBY WARRANTING THE CANCELLATION THEREOF.

Third, the contract between respondent and Virginia is a contract to sell, not a contract of sale. The real
character of the contract is not the title given, but the intention of the parties. They intended to reserve
ownership of the property to petitioners pending full payment of the purchase price. Together with taxes
and other fees due on the properties, these are conditions precedent for the perfection of the sale. Even
assuming that the contract is ambiguous, the same must be resolved against respondent, the party who
caused the same.

D. CORAZON L. ESCUETA ACTED IN UTMOST GOOD FAITH IN ENTERING INTO THE CONTRACT
OF SALE WITH IGNACIO E. RUBIO.
III
THE CONTRACT OF SALE EXECUTED BETWEEN IGNACIO E. RUBIO AND CORAZON L. ESCUETA
IS VALID.

Fourth, Respondent failed to faithfully fulfill her part of the obligation. Thus, Rubio had the right to sell his
properties to Escueta who exercised due diligence in ascertaining ownership of the properties sold to
her. Besides, a purchaser need not inquire beyond what appears in a Torrens title.

IV

The petition lacks merit. The contract of sale between petitioners and respondent is valid.lawphil.net

THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS COUNTERCLAIMS.

Bayani Baloloy was represented by his attorney-in-fact, Alejandrino Baloloy. In the Baloloys answer to
the original complaint and amended complaint, the allegations relating to the personal circumstances of
the Baloloys are clearly admitted.

Briefly, the issue is whether the contract of sale between petitioners and respondent is valid.
Petitioners argue, as follows:
First, the CA did not consider the circumstances surrounding petitioners failure to appear at the pre-trial
and to file the petition for relief on time.
As to the failure to appear at the pre-trial, there was fraud, accident and/or excusable neglect, because
petitioner Bayani was in the United States. There was no service of the notice of pre-trial or order.
Neither did the former counsel of record inform him. Consequently, the order declaring him in default is
void, and all subsequent proceedings, orders, or decision are void.
Furthermore, petitioner Alejandrino was not clothed with a power of attorney to appear on behalf of
Bayani at the pre-trial conference.
Second, the sale by Virginia to respondent is not binding. Petitioner Rubio did not authorize Virginia to
transact business in his behalf pertaining to the property. The Special Power of Attorney was constituted
in favor of Llamas, and the latter was not empowered to designate a substitute attorney-in-fact. Llamas
even disowned her signature appearing on the "Joint Special Power of Attorney," which constituted
Virginia as her true and lawful attorney-in-fact in selling Rubios properties.

"An admission, verbal or written, made by a party in the course of the proceedings in the same case,
does not require proof."6 The "factual admission in the pleadings on record [dispenses] with the need x x
x to present evidence to prove the admitted fact."7 It cannot, therefore, "be controverted by the party
making such admission, and [is] conclusive"8 as to them. All proofs submitted by them "contrary thereto
or inconsistent therewith should be ignored whether objection is interposed by a party or not."9 Besides,
there is no showing that a palpable mistake has been committed in their admission or that no admission
has been made by them.
Pre-trial is mandatory.10 The notices of pre-trial had been sent to both the Baloloys and their former
counsel of record. Being served with notice, he is "charged with the duty of notifying the party
represented by him."11 He must "see to it that his client receives such notice and attends the pretrial."12 What the Baloloys and their former counsel have alleged instead in their Motion to Lift Order of
As In Default dated December 11, 1991 is the belated receipt of Bayani Baloloys special power of
attorney in favor of their former counsel, not that they have not received the notice or been informed of
the scheduled pre-trial. Not having raised the ground of lack of a special power of attorney in their
motion, they are now deemed to have waived it. Certainly, they cannot raise it at this late stage of the
proceedings. For lack of representation, Bayani Baloloy was properly declared in default.
Section 3 of Rule 38 of the Rules of Court states:

Dealing with an assumed agent, respondent should ascertain not only the fact of agency, but also the
nature and extent of the formers authority. Besides, Virginia exceeded the authority for failing to comply
with her obligations under the "Joint Special Power of Attorney."

PAT CASE: AGENCY

SEC. 3. Time for filing petition; contents and verification. A petition provided for in either of the
preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner learns of
the judgment, final order, or other proceeding to be set aside, and not more than six (6) months after
such judgment or final order was entered, or such proceeding was taken; and must be accompanied with
Page 97 of 150

affidavits showing the fraud, accident, mistake, or excusable negligence relied upon, and the facts
constituting the petitioners good and substantial cause of action or defense, as the case may be.

authority given by her father, but she will have to be "responsible for the acts of the sub-agent,"19 among
which is precisely the sale of the subject properties in favor of respondent.

There is no reason for the Baloloys to ignore the effects of the above-cited rule. "The 60-day period is
reckoned from the time the party acquired knowledge of the order, judgment or proceedings and not from
the date he actually read the same."13 As aptly put by the appellate court:

Even assuming that Virginia Lim has no authority to sell the subject properties, the contract she
executed in favor of respondent is not void, but simply unenforceable, under the second paragraph of
Article 1317 of the Civil Code which reads:

The evidence on record as far as this issue is concerned shows that Atty. Arsenio Villalon, Jr., the former
counsel of record of the Baloloys received a copy of the partial decision dated June 23, 1993 on April 5,
1994. At that time, said former counsel is still their counsel of record. The reckoning of the 60 day period
therefore is the date when the said counsel of record received a copy of the partial decision which was
on April 5, 1994. The petition for relief was filed by the new counsel on July 4, 1994 which means that 90
days have already lapsed or 30 days beyond the 60 day period. Moreover, the records further show that
the Baloloys received the partial decision on September 13, 1993 as evidenced by Registry return cards
which bear the numbers 02597 and 02598 signed by Mr. Alejandrino Baloloy.

Art. 1317. x x x

The Baloloys[,] apparently in an attempt to cure the lapse of the aforesaid reglementary period to file a
petition for relief from judgment[,] included in its petition the two Orders dated May 6, 1994 and June 29,
1994. The first Order denied Baloloys motion to fix the period within which plaintiffs-appellants pay the
balance of the purchase price. The second Order refers to the grant of partial execution, i.e. on the
aspect of damages. These Orders are only consequences of the partial decision subject of the petition
for relief, and thus, cannot be considered in the determination of the reglementary period within which to
file the said petition for relief.
Furthermore, no fraud, accident, mistake, or excusable negligence exists in order that the petition for
relief may be granted.14 There is no proof of extrinsic fraud that "prevents a party from having a trial x x
x or from presenting all of his case to the court"15 or an "accident x x x which ordinary prudence could
not have guarded against, and by reason of which the party applying has probably been impaired in his
rights."16 There is also no proof of either a "mistake x x x of law"17 or an excusable negligence "caused
by failure to receive notice of x x x the trial x x x that it would not be necessary for him to take an active
part in the case x x x by relying on another person to attend to the case for him, when such other person
x x x was chargeable with that duty x x x, or by other circumstances not involving fault of the moving
party."18
Article 1892 of the Civil Code provides:
Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but
he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one x x x.
Applying the above-quoted provision to the special power of attorney executed by Ignacio Rubio in favor
of his daughter Patricia Llamas, it is clear that she is not prohibited from appointing a substitute. By
authorizing Virginia Lim to sell the subject properties, Patricia merely acted within the limits of the
PAT CASE: AGENCY

A contract entered into in the name of another by one who has no authority or legal representation, or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.
Ignacio Rubio merely denies the contract of sale. He claims, without substantiation, that what he
received was a loan, not the down payment for the sale of the subject properties. His acceptance and
encashment of the check, however, constitute ratification of the contract of sale and "produce the effects
of an express power of agency."20 "[H]is action necessarily implies that he waived his right of action to
avoid the contract, and, consequently, it also implies the tacit, if not express, confirmation of the said sale
effected" by Virginia Lim in favor of respondent.
Similarly, the Baloloys have ratified the contract of sale when they accepted and enjoyed its benefits.
"The doctrine of estoppel applicable to petitioners here is not only that which prohibits a party from
assuming inconsistent positions, based on the principle of election, but that which precludes him from
repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To countenance
such repudiation would be contrary to equity, and would put a premium on fraud or misrepresentation."21
Indeed, Virginia Lim and respondent have entered into a contract of sale. Not only has the title to the
subject properties passed to the latter upon delivery of the thing sold, but there is also no stipulation in
the contract that states the ownership is to be reserved in or "retained by the vendor until full payment of
the price."22
Applying Article 1544 of the Civil Code, a second buyer of the property who may have had actual or
constructive knowledge of such defect in the sellers title, or at least was charged with the obligation to
discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first
buyers title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the
property subject of the sale.23 Even the argument that a purchaser need not inquire beyond what
appears in a Torrens title does not hold water. A perusal of the certificates of title alone will reveal that the
subject properties are registered in common, not in the individual names of the heirs.
Nothing in the contract "prevents the obligation of the vendor to convey title from becoming effective"24
or gives "the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within
a fixed period."25 Petitioners themselves have failed to deliver their individual certificates of title, for
which reason it is obvious that respondent cannot be expected to pay the stipulated taxes, fees, and
expenses.
Page 98 of 150

"[A]ll the elements of a valid contract of sale under Article 1458 of the Civil Code are present, such as:
(1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its
equivalent."26 Ignacio Rubio, the Baloloys, and their co-heirs sold their hereditary shares for a price
certain to which respondent agreed to buy and pay for the subject properties. "The offer and the
acceptance are concurrent, since the minds of the contracting parties meet in the terms of the
agreement."27
In fact, earnest money has been given by respondent. "[I]t shall be considered as part of the price and as
proof of the perfection of the contract.28 It constitutes an advance payment to "be deducted from the
total price."29
Article 1477 of the same Code also states that "[t]he ownership of the thing sold shall be transferred to
the vendee upon actual or constructive delivery thereof."30 In the present case, there is actual delivery
as manifested by acts simultaneous with and subsequent to the contract of sale when respondent not
only took possession of the subject properties but also allowed their use as parking terminal for jeepneys
and buses. Moreover, the execution itself of the contract of sale is constructive delivery.

During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of jewelry to
petitioner Virgie Serona to be sold on commission basis. By oral agreement of the parties, petitioner shall
remit payment or return the pieces of jewelry if not sold to Quilatan, both within 30 days from receipt of
the items.
Upon petitioners failure to pay on September 24, 1992, Quilatan required her to execute an
acknowledgment receipt (Exhibit B) indicating their agreement and the total amount due, to wit:
Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay Gng.
Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako magkakomisyon at
ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing alahas kung hindi mabibili sa
loob ng 30 araw.
Las Pinas, September 24, 1992.1
The receipt was signed by petitioner and a witness, Rufina G. Navarette.

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

Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu Labrador for the latter to
sell on commission basis. Petitioner was not able to collect payment from Labrador, which caused her to
likewise fail to pay her obligation to Quilatan.

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

That on or about and sometime during the period from July 1992 up to September 1992, in the
Municipality of Las Pinas, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court,
the said accused received in trust from the complainant Leonida E. Quilatan various pieces of jewelry in
the total value of P567,750.00 to be sold on commission basis under the express duty and obligation of
remitting the proceeds thereof to the said complainant if sold or returning the same to the latter if unsold
but the said accused once in possession of said various pieces of jewelry, with unfaithfulness and abuse
of confidence and with intent to defraud, did then and there willfully, unlawfully and feloniously
misappropriate and convert the same for her own personal use and benefit and despite oral and written
demands, she failed and refused to account for said jewelry or the proceeds of sale thereof, to the
damage and prejudice of complainant Leonida E. Quilatan in the aforestated total amount of
P567,750.00.

October 26, 1998 and January 11, 1999, respectively, are hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. 130423

November 18, 2002

VIRGIE SERONA, petitioner,

vs.
HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.
DECISION

Subsequently, Quilatan, through counsel, sent a formal letter of demand2 to petitioner for failure to settle
her obligation. Quilatan executed a complaint affidavit3 against petitioner before the Office of the
Assistant Provincial Prosecutor. Thereafter, an information for estafa under Article 315, paragraph 1(b)4
of the Revised Penal Code was filed against petitioner, which was raffled to Branch 255 of the Regional
Trial Court of Las Pinas. The information alleged:

CONTRARY TO LAW.5
Petitioner pleaded not guilty to the charge upon arraignment.6 Trial on the merits thereafter ensued.

YNARES-SANTIAGO, J.:
PAT CASE: AGENCY

Page 99 of 150

Quilatan testified that petitioner was able to remit P100,000.00 and returned P43,000.00 worth of
jewelriy;7 that at the start, petitioner was prompt in settling her obligation; however, subsequently the
payments were remitted late;8 that petitioner still owed her in the amount of P424,750.00.9

SO ORDERED.15
Upon denial of her motion for reconsideration,16 petitioner filed the instant petition under Rule 45,
alleging that:

On the other hand, petitioner admitted that she received several pieces of jewelry from Quilatan and that
she indeed failed to pay for the same. She claimed that she entrusted the pieces of jewelry to Marichu
Labrador who failed to pay for the same, thereby causing her to default in paying Quilatan.10 She
presented handwritten receipts (Exhibits 1 & 2)11 evidencing payments made to Quilatan prior to the
filing of the criminal case.

I
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS AN
ABUSE OF CONFIDENCE ON THE PART OF PETITIONER IN ENTRUSTING THE SUBJECT
JEWELRIES (sic) TO HER SUB-AGENT FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS.

Marichu Labrador confirmed that she received pieces of jewelry from petitioner worth P441,035.00. She
identified an acknowledgment receipt (Exhibit 3)12 signed by her dated July 5, 1992 and testified that
she sold the jewelry to a person who absconded without paying her. Labrador also explained that in the
past, she too had directly transacted with Quilatan for the sale of jewelry on commission basis; however,
due to her outstanding account with the latter, she got jewelry from petitioner instead.13

II
RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS
MISAPPROPRIATION OR CONVERSION ON THE PART OF PETITIONER WHEN SHE FAILED TO
RETURN THE SUBJECT JEWELRIES (sic) TO PRIVATE COMPLAINANT.17

On November 17, 1994, the trial court rendered a decision finding petitioner guilty of estafa, the
dispositive portion of which reads:

Petitioner argues that the prosecution failed to establish the elements of estafa as penalized under
Article 315, par. 1(b) of the Revised Penal Code. In particular, she submits that she neither abused the
confidence reposed upon her by Quilatan nor converted or misappropriated the subject jewelry; that her
giving the pieces of jewelry to a sub-agent for sale on commission basis did not violate her undertaking
with Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the same terms upon which it
was originally entrusted to her. It was established that petitioner had not derived any personal benefit
from the loss of the jewelry. Consequently, it cannot be said that she misappropriated or converted the
same.

WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond
reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty provided under the
first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be in the
maximum period plus one (1) year for every additional P10,000.00.
Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the penalty of
imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision correccional as minimum to
TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the sum of P424,750.00 as
cost for the unreturned jewelries; to suffer the accessory penalties provided by law; and to pay the costs.

We find merit in the petition.

The elements of estafa through misappropriation or conversion as defined in Article 315, par. 1(b) of the
Revised Penal Code are: (1) that the money, good or other personal property is received by the offender
in trust, or on commission, or for administration, or under any other obligation involving the duty to make
delivery of, or to return, the same; (2) that there be misappropriation or conversion of such money or
property by the offender or denial on his part of such receipt; (3) that such misappropriation or
conversion or denial is to the prejudice of another; and (4) that there is a demand made by the offended
party on the offender.18 While the first, third and fourth elements are concededly present, we find the
second element of misappropriation or conversion to be lacking in the case at bar.

SO ORDERED.14
Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but modified the
penalty as follows:
WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable doubt of
the crime of estafa is hereby AFFIRMED with the following MODIFICATION:
Considering that the amount involved is P424,750.00, the penalty should be imposed in its maximum
period adding one (1) year for each additional P10,000.00 albeit the total penalty should not exceed
Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to suffer the penalty of
imprisonment ranging from Four (4) Years and One (1) Day of Prision Correccional as minimum to
Twenty (20) Years of Reclusion Temporal.

Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation by
delivering the jewelry to a sub-agent for sale on commission basis. We are unable to agree with the
lower courts conclusion that this fact alone is sufficient ground for holding that petitioner disposed of the
jewelry "as if it were hers, thereby committing conversion and a clear breach of trust."19
Page 100 of

PAT CASE: AGENCY

150

It must be pointed out that the law on agency in our jurisdiction allows the appointment by an agent of a
substitute or sub-agent in the absence of an express agreement to the contrary between the agent and
the principal.20 In the case at bar, the appointment of Labrador as petitioners sub-agent was not
expressly prohibited by Quilatan, as the acknowledgment receipt, Exhibit B, does not contain any such
limitation. Neither does it appear that petitioner was verbally forbidden by Quilatan from passing on the
jewelry to another person before the acknowledgment receipt was executed or at any other time. Thus, it
cannot be said that petitioners act of entrusting the jewelry to Labrador is characterized by abuse of
confidence because such an act was not proscribed and is, in fact, legally sanctioned.

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

The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money or
property received to the prejudice of the owner. The words "convert" and "misappropriated" connote an
act of using or disposing of anothers property as if it were ones own, or of devoting it to a purpose or
use different from that agreed upon. To misappropriate for ones own use includes not only conversion to
ones personal advantage, but also every attempt to dispose of the property of another without right.21

Furthermore, in Lim v. Court of Appeals,26 the Court, citing Nepomuceno and the case of People v.
Trinidad,27 held that:
In cases of estafa the profit or gain must be obtained by the accused personally, through his own acts,
and his mere negligence in permitting another to take advantage or benefit from the entrusted chattel
cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code; unless of course
the evidence should disclose that the agent acted in conspiracy or connivance with the one who carried
out the actual misappropriation, then the accused would be answerable for the acts of his coconspirators. If there is no such evidence, direct or circumstantial, and if the proof is clear that the
accused herself was the innocent victim of her sub-agents faithlessness, her acquittal is in order.28
(Italics copied)

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

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

Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them to Labrador
"without right." Aside from the fact that no condition or limitation was imposed on the mode or manner by
which petitioner was to effect the sale, it is also consistent with usual practice for the seller to necessarily
part with the valuables in order to find a buyer and allow inspection of the items for sale.

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

In People v. Nepomuceno,22 the accused-appellant was acquitted of estafa on facts similar to the instant
case. Accused-appellant therein undertook to sell two diamond rings in behalf of the complainant on
commission basis, with the obligation to return the same in a few days if not sold. However, by reason of
the fact that the rings were delivered also for sale on commission to sub-agents who failed to account for
the rings or the proceeds of its sale, accused-appellant likewise failed to make good his obligation to the
complainant thereby giving rise to the charge of estafa. In absolving the accused-appellant of the crime
charged, we held:

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

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

SO ORDERED.
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a letter dated 17 June 1997, of the purported loss of the subject equipment sometime in June 1997; and
(e) despite demands, Soriamont and Ronas failed to pay the rental fees for the subject equipment, and
to replace or return the same to Sprint.

SORIAMONT STEAMSHIP AGENCIES, INC., and PATRICK RONAS,

Petitioners,
- versus -

Sprint, thus, prayed for the RTC to render judgment:

1. Ordering [Soriamont and Ronas] to pay [Sprint], jointly and severally, actual damages, in the
amount of Five Hundred Thirty-Seven Thousand Eight Hundred Pesos (P537,800.00) representing
unpaid rentals and the replacement cost for the lost chassis units.

SPRINT TRANSPORT SERVICES, INC., RICARDO CRUZ PAPA, doing business under the style
PAPA TRANSPORT SERVICES,
Respondents.
G.R. No. 174610
July 14, 2009
x---------------------------------------------------x
DECISION

2. Ordering [Soriamont and Ronas], jointly and severally, to pay [Sprint] the amount of Fifty-Three
Thousand Five Hundred Four Pesos and Forty-Two centavos (P53,504.42) as interest and penalties
accrued as of March 31, 1998 and until full satisfaction thereof.

CHICO-NAZARIO, J.:

3. Ordering [Soriamont and Ronas], jointly and severally, to pay [Sprint] the amount equivalent to
twenty-five percent (25%) of the total amount claimed for and as attorneys fees plus Two Thousand
Pesos (P2,000.00) per court appearance.

Assailed in this Petition for Review on Certiorari, under Rule 45 of the Revised Rules of Court, is the
Decision[1] dated 22 June 2006 and Resolution[2] dated 7 September 2006 of the Court of Appeals in
CA-G.R. CV No. 74987. The appellate court affirmed with modification the Decision[3] dated 22 April
2002 of the Regional Trial Court (RTC), Branch 46, of Manila, in Civil Case No. 98-89047, granting the
Complaint for Sum of Money of herein respondent Sprint Transport Services, Inc. (Sprint) after the
alleged failure of herein petitioner Soriamont Steamship Agencies, Inc. (Soriamont) to return the chassis
units it leased from Sprint and pay the accumulated rentals for the same.

4.

Ordering [Soriamont and Ronas] to pay the cost of the suit.[6]

Soriamont and Ronas filed with the RTC their Answer with Compulsory Counterclaim.[7] Soriamont
admitted therein to having a lease agreement with Sprint, but only for the period 21 October 1993 to 21
January 1994. It denied entering into an ELA with respondent Sprint on 17 December 1993 as alleged in
the Complaint. Soriamont further argued that it was not a party-in-interest in Civil Case No. 98-89047,
since it was PTS and Rebson Trucking that withdrew the subject equipment from the container yard of
Sprint. Ronas was likewise not a party-in-interest in the case since his actions, assailed in the Complaint,
were executed as part of his regular functions as an officer of Soriamont.

The following are the factual and procedural antecedents:

Soriamont is a domestic corporation providing services as a receiving agent for line load contractor
vessels. Patrick Ronas (Ronas) is its general manager.
On the other hand, Sprint is a domestic corporation engaged in transport services. Its co-respondent
Ricardo Cruz Papa (Papa) is engaged in the trucking business under the business name Papa Transport
Services (PTS).

Consistent with their stance, Soriamont and Ronas filed a Third-Party Complaint[8] against Papa, who
was doing business under the name PTS. Soriamont and Ronas averred in their Third-Party Complaint
that it was PTS and Rebson Trucking that withdrew the subject equipments from the container yard of
Sprint, and failed to return the same. Since Papa failed to file an answer to the Third-Party Complaint, he
was declared by the RTC to be in default.[9]

Sprint filed with the RTC on 2 June 1998 a Complaint[4] for Sum of Money against Soriamont and
Ronas, docketed as Civil Case No. 98-89047. Sprint alleged in its Complaint that: (a) on 17 December
1993, it entered into a lease agreement, denominated as Equipment Lease Agreement (ELA) with
Soriamont, wherein the former agreed to lease a number of chassis units to the latter for the transport of
container vans; (b) with authorization letters dated 19 June 1996 issued by Ronas on behalf of
Soriamont, PTS and another trucker, Rebson Trucking, were able to withdraw on 22 and 25 June 1996,
from the container yard of Sprint, two chassis units (subject equipment),[5] evidenced by Equipment
Interchange Receipts No. 14215 and No. 14222; (c) Soriamont and Ronas failed to pay rental fees for
the subject equipment since 15 January 1997; (d) Sprint was subsequently informed by Ronas, through

After trial, the RTC rendered its Decision in Civil Case No. 98-89047 on 22 April 2002, finding Soriamont
liable for the claim of Sprint, while absolving Ronas and Papa from any liability. According to the RTC,
Soriamont authorized PTS to withdraw the subject equipment. The dispositive portion of the RTC
Decision reads:

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WHEREFORE, judgment is hereby rendered in favor of [herein respondent] Sprint Transport Services,
Inc. and against [herein petitioner] Soriamont Steamship Agencies, Inc., ordering the latter to pay the
former the following:

In a Resolution dated 7 September 2006, the Court of Appeals denied the Motion for Reconsideration of
Soriamont for failing to present any cogent and substantial matter that would warrant a reversal or
modification of its earlier Decision.

Three hundred twenty thousand pesos (P320,000) representing the value of the two chassis units
with interest at the legal rate from the filing of the complaint;

Aggrieved, Soriamont[12] filed the present Petition for Review with the following assignment of errors:
I.

Two hundred seventy thousand one hundred twenty four & 42/100 pesos (P270,124.42) representing
unpaid rentals with interest at the legal rate from the filing of the complaint;

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN LIMITING AS SOLE

ISSUE FOR RESOLUTION OF WHETHER OR NOT AN AGENCY RELATIONSHIP EXISTED
BETWEEN PRIVATE RESPONDENT SPRINT TRANSPORT AND HEREIN PETITIONERS
SORIAMONT STEAMSHIP AGENCIES AND PRIVATE RESPONDENT PAPA TRUCKING BUT
TOTALLY DISREGARDING AND FAILING TO RULE ON THE LIABILITY OF PRIVATE RESPONDENT
PAPA TRUCKING TO HEREIN PETITIONERS. THE LIABILITY OF PRIVATE RESPONDENT PAPA
TRUCKING TO HEREIN PETITIONERS SUBJECT OF THE THIRD-PARTY COMPLAINT WAS
TOTALLY IGNORED;

P20,000.00 as attorneys fees.

The rate of interest shall be increased to 12% per annum once this decision becomes final and
executory.
Defendant Patrick Ronas and [herein respondent] Ricardo Cruz Papa are absolved from liability.[10]

II.
Soriamont filed an appeal of the foregoing RTC Decision to the Court of Appeals, docketed as CA-G.R.
CV No. 74987.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING HEREIN

PETITIONERS STEAMSHIP AGENCIES SOLELY LIABLE. EVIDENCE ON RECORD SHOW THAT IT
WAS PRIVATE RESPONDENT PAPA TRUCKING WHICH WITHDREW THE SUBJECT CHASSIS.
PRIVATE RESPONDENT PAPA TRUCKING WAS THE LAST IN POSSESSION OF THE SAID
SUBJECT CHASSIS AND IT SHOULD BE HELD SOLELY LIABLE FOR THE LOSS THEREOF;

The Court of Appeals, in its Decision dated 22 June 2006, found the following facts to be borne out by
the records: (1) Sprint and Soriamont entered into an ELA whereby the former leased chassis units to
the latter for the specified daily rates. The ELA covered the period 21 October 1993 to 21 January 1994,
but it contained an automatic renewal clause; (2) on 22 and 25 June 1996, Soriamont, through PTS and
Rebson Trucking, withdrew Sprint Chassis 2-07 with Plate No. NUP-261 Serial No. ICAZ-165118, and
Sprint Chassis 2-55 with Plate No. NUP-533 Serial MOTZ-160080, from the container yard of Sprint; (3)
Soriamont authorized the withdrawal by PTS and Rebson Trucking of the subject equipment from the
container yard of Sprint; and (4) the subject pieces of equipment were never returned to Sprint. In a letter
to Sprint dated 19 June 1997, Soriamont relayed that it was still trying to locate the subject equipment,
and requested the former to refrain from releasing more equipment to respondent PTS and Rebson
Trucking.

III.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT IGNORED A
MATERIAL INCONSISTENCY IN THE TESTIMONY OF PRIVATE RESPONDENT SPRINT
TRANSPORTS WITNESS, MR. ENRICO G. VALENCIA. THE TESTIMONY OF MR. VALENCIA WAS
ERRONEOUSLY MADE THE BASIS FOR HOLDING HEREIN PETITIONERS LIABLE FOR THE LOSS
OF THE SUBJECT CHASSIS.

Hence, the Court of Appeals decreed:

We find the Petition to be without merit.
WHEREFORE, the appealed Decision dated April 22, 2002 of the trial court is affirmed, subject to the
modification that the specific rate of legal interest per annum on both the P320,000.00 representing the
value of the two chassis units, and on the P270,124.42 representing the unpaid rentals, is six percent
(6%), to be increased to twelve percent (12%) from the finality of this Decision until its full satisfaction.
[11]

The Court of Appeals and the RTC sustained the contention of Sprint that PTS was authorized by
Soriamont to secure possession of the subject equipment from Sprint, pursuant to the existing ELA
between Soriamont and Sprint. The authorization issued by Soriamont to PTS established an agency
relationship, with Soriamont as the principal and PTS as an agent. Resultantly, the actions taken by PTS
as regards the subject equipment were binding on Soriamont, making the latter liable to Sprint for the
unpaid rentals for the use, and damages for the subsequent loss, of the subject equipment.
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In civil cases, the party having the burden of proof must establish his case by a preponderance of
evidence. Stated differently, the general rule in civil cases is that a party having the burden of proof of an
essential fact must produce a preponderance of evidence thereon (I Moore on Facts, 4, cited in Vicente
J. Francisco, The Revised Rules of Court in the Philippines, Vol. VII, Part II, p. 542, 1973 Edition). By
preponderance of evidence is meant simply evidence which is of greater weight, or more convincing than
that which is offered in opposition to it (32 C.J.S., 1051), The term 'preponderance of evidence' means
the weight, credit and value of the aggregate evidence on either side and is usually considered to be
synonymous with the terms `greater weight of evidence' or 'greater weight, of the credible evidence.'
Preponderance of the evidence is a phrase which, in the last analysis, means probability of the truth.
Preponderance of the evidence means evidence which is more convincing to the court as worthy of
belief than that which is offered in opposition thereto. x x x." (20 Am. Jur., 1100-1101)

Soriamont anchors its defense on its denial that it issued an authorization to PTS to withdraw the subject
equipment from the container yard of Sprint. Although Soriamont admits that the authorization letter
dated 19 June 1996 was under its letterhead, said letter was actually meant for and sent to Harman
Foods as shipper. It was then Harman Foods that tasked PTS to withdraw the subject equipment from
Sprint. Soriamont insists that the Court of Appeals merely presumed that an agency relationship existed
between Soriamont and PTS, since there was nothing in the records to evidence the same. Meanwhile,
there is undisputed evidence that it was PTS that withdrew and was last in possession of the subject
equipment. Soriamont further calls attention to the testimony of Enrico Valencia (Valencia), a witness for
Sprint, actually supporting the position of Soriamont that PTS did not present any authorization from
Soriamont when it withdrew the subject equipment from the container yard of Sprint. Assuming, for the
sake of argument that an agency relationship did exist between Soriamont and PTS, the latter should not
have been exonerated from any liability. The acts of PTS that resulted in the loss of the subject
equipment were beyond the scope of its authority as supposed agent of Soriamont. Soriamont never
ratified, expressly or impliedly, such acts of PTS.

After a review of the evidence on record, we rule that the preponderance of evidence indeed supports
the existence of an agency relationship between Soriamont and PTS.

Soriamont is essentially challenging the sufficiency of the evidence on which the Court of Appeals based
its conclusion that PTS withdrew the subject equipment from the container yard of Sprint as an agent of
Soriamont. In effect, Soriamont is raising questions of fact, the resolution of which requires us to reexamine and re-evaluate the evidence presented by the parties below.

It is true that a person dealing with an agent is not authorized, under any circumstances, to trust blindly
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.
The settled rule is that persons dealing with an assumed agent are bound at their peril; and if they would
hold the principal liable, they must 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. Sprint has
successfully discharged this burden.

Basic is the rule in this jurisdiction that only questions of law may be raised in a petition for review under
Rule 45 of the Revised Rules of Court. The jurisdiction of the Supreme Court in cases brought to it from
the Court of Appeals is limited to reviewing errors of law, the findings of fact of the appellate court being
conclusive. We have emphatically declared that it is not the function of this Court to analyze or weigh
such evidence all over again, its jurisdiction being limited to reviewing errors of law that may have been
committed by the lower court.[13]

The ELA executed on 17 December 1993 between Sprint, as lessor, and Soriamont, as lessee, of
chassis units, explicitly authorized the latter to appoint a representative who shall withdraw and return
the leased chassis units to Sprint, to wit:

These questions of fact were threshed out and decided by the trial court, which had the firsthand
opportunity to hear the parties conflicting claims and to carefully weigh their respective sets of evidence.
The findings of the trial court were subsequently affirmed by the Court of Appeals. Where the factual
findings of both the trial court and the Court of Appeals coincide, the same are binding on this Court. We
stress that, subject to some exceptional instances, only questions of law not questions of fact may be
raised before this Court in a petition for review under Rule 45 of the Revised Rules of Court.[14]

EQUIPMENT LEASE AGREEMENT

between
SPRINT TRANSPORT SERVICES, INC. (LESSOR)
And
SORIAMONT STEAMSHIP AGENCIES, INC.
(LESSEE)
TERMS and CONDITIONS

Given that Soriamont is precisely asserting in the instant Petition that the findings of fact of the Court of
Appeals are premised on the absence of evidence and are contradicted by the evidence on record,[15]
we accommodate Soriamont by going over the same evidence considered by the Court of Appeals and
the RTC.

xxxx
4. Equipment Interchange Receipt (EIR) as mentioned herein is a document accomplished every time a
chassis is withdrawn and returned to a designated depot. The EIR relates the condition of the chassis at
the point of on-hire/off-hire duly acknowledged by the LESSOR, Property Custodian and the LESSEES
authorized representative.

In Republic v. Court of Appeals,[16] we explained that:

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A. The representative of Soriamont Steamship Agencies, Inc., Your Honor.

xxxx
Atty. Porciuncula:
5. Chassis Withdrawal/Return Slip as mentioned herein is that document where the LESSEE authorizes
his representative to withdraw/return the chassis on his behalf. Only persons with a duly accomplished
and signed authorization slip shall be entertained by the LESSOR for purposes of withdrawal/return of
the chassis. The signatory in the Withdrawal/Return Slip has to be the signatory of the corresponding
Lease Agreement or the LESSEEs duly authorized representative(s).[17] (Emphases ours.)

Q. And when were these chassis withdrawn, Mr. Witness?

A. June 1996, Sir.
Q. Will you kindly tell this Honorable Court what do you mean by withdrawing the chassis units from your
container yard?

Soriamont, though, avers that the aforequoted ELA was only for 21 October 1993 to 21 January 1994,
and no longer in effect at the time the subject pieces of equipment were reportedly withdrawn and lost by
PTS. This contention of Soriamont is without merit, given that the same ELA expressly provides for the
automatic renewal thereof in paragraph 24, which reads:
There shall be an automatic renewal of the contract subject to the same terms and conditions as
stipulated in the original contract unless terminated by either party in accordance with paragraph no. 23
hereof. However, in this case, termination will take effect immediately.[18]

Witness:
Before they can withdraw the chassis they have to present withdrawal authority, Sir.
Atty. Porciuncula:
And what is this withdrawal authority?

There being no showing that the ELA was terminated by either party, then it was being automatically
renewed in accordance with the afore-quoted paragraph 24.

A. This is to prove that they are authorizing their representative to get from us a chassis unit.
Q. And who is this authorization send to you, Mr. Witness?

It was, therefore, totally regular and in conformity with the ELA that PTS and Rebson Trucking should
appear before Sprint in June 1996 with authorization letters, issued by Soriamont, for the withdrawal of
the subject equipment.[19] On the witness stand, Valencia testified, as the operations manager of Sprint,
as follows:

A. Sometime a representative bring to our office the letter or the authorization or sometime thru fax, Sir.
Q. In this particular incident, Mr. Witness, how was it sent?

Atty. Porciuncula:

A. By fax, Sir.

Q. Mr. Witness, as operation manager, are you aware of any transactions between Sprint Transport
Services, Inc. and the defendant Soriamont Steamship Agencies, Inc.?

Q. Is this standard operating procedure of Sprint Transport Services, Inc.?

A. Yes, Sir.

A. Yes, Sir, if the trucking could not bring to our office the original copy of the authorization they have to
send us thru fax, but the original copy of the authorization will be followed.

Q. What transactions are these, Mr. Witness?

Atty. Porciuncula:

A. They got from us chassis, Sir.

Court:

Q. Mr. Witness, I am showing to you two documents of Soriamont Steamship Agencies, Inc. letter head
with the headings Authorization, are these the same withdrawal authority that you mentioned awhile
ago?

Q. Who among the two, who withdrew?

A. Yes, Sir.
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Q. Mr. Witness, after this what happened next?

Atty. Porciuncula:
Your Honor, at this point may we request that these documents identified by the witness be marked as
Exhibits JJ and KK, Your Honor.

A. After they presented to us the withdrawal authority, we called up Soriamont Steamship Agencies, Inc.
to verify whether the one sent to us through truck and the one sent to us through fax are one and the
same.

Court:

Q. Then what happened next, Mr. Witness?

Mark them.

A. Then after the verification whether it is true, then we asked them to choose the chassis units then my
checker would see to it whether the chassis units are in good condition, then after that we prepared the
outgoing Equipment Interchange Receipt, Sir.

xxxx
Q. Way back Mr. Witness, who withdrew the chassis units 2-07 and 2-55?

Q. Mr. Witness, could you tell this Honorable Court what an outgoing Equipment Interchange Receipt
means?

A. The representative of Soriamont Steamship Agencies, Inc., the Papa Trucking, Sir.

A. This is a document proving that the representative of Soriamont Steamship Agencies, Inc. really
withdraw (sic) the chassis units, Sir.

Q. And are these trucking companies authorized to withdraw these chassis units?
A. Yes, Sir, it was stated in the withdrawal authority.

xxxx

Atty. Porciuncula:

Atty. Porciuncula:

Q. Showing you again Mr. Witness, this authorization previously marked as Exhibits JJ and KK, could
you please go over the same and tell this Honorable Court where states there that the trucking
companies which you mentioned awhile ago authorized to withdraw?

Q. Going back Mr. Witness, you mentioned awhile ago that your company issued outgoing Equipment
Interchange Receipt?

A. Yes, Sir, it is stated in this withdrawal authority.

A. Yes, Sir.

Atty. Porciuncula:

Q. Are there incoming Equipment Interchange Receipt Mr. Witness?

At this juncture, Your Honor, may we request that the Papa trucking and Rebson trucking identified by
the witness be bracketed and mark as our Exhibits JJ-1 and KK-1, Your Honor.

A. We have not made Incoming Equipment Interchange Receipt with respect to Soriamont Steamship
Agencies, Inc., Sir.

Court:

Q. And why not, Mr. Witness?

Mark them. Are these documents have dates?

A. Because they have not returned to us the two chassis units.[20]

Atty. Porciuncula:

In his candid and straightforward testimony, Valencia was able to clearly describe the standard operating
procedure followed in the withdrawal by Soriamont or its authorized representative of the leased chassis
units from the container yard of Sprint. In the transaction involved herein, authorization letters dated 19
June 1996 in favor of PTS and Rebson Trucking were faxed by Sprint to Soriamont, and were further

Yes, Your Honor, both documents are dated June 19, 1996.

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verified by Sprint through a telephone call to Soriamont. Valencias testimony established that Sprint
exercised due diligence in its dealings with PTS, as the agent of Soriamont.

principal, Soriamont, this Court cannot merely presume PTS liable to Soriamont as its agent. The only
thing proven was that Soriamont, through PTS, withdrew the two chassis units from Sprint, and that
these have never been returned to Sprint.

Soriamont cannot rely on the outgoing Equipment Interchange Receipts as proof that the withdrawal of
the subject equipment was not authorized by it, but by the shipper/consignee, Harman Foods, which
actually designated PTS and Rebson Trucking as truckers. However, a scrutiny of the Equipment
Interchange Receipts will show that these documents merely identified Harman Foods as the
shipper/consignee, and the location of said shipping line. It bears to stress that it was Soriamont that had
an existing ELA with Sprint, not Harman Foods, for the lease of the subject equipment. Moreover, as
stated in the ELA, the outgoing Equipment Interchange Receipts shall be signed, upon the withdrawal of
the leased chassis units, by the lessee, Soriamont, or its authorized representative. In this case, we can
only hold that the driver of PTS signed the receipts for the subject equipment as the authorized
representative of Soriamont, and no other.

Considering our preceding discussion, there is no reason for us to depart from the general rule that the
findings of fact of the Court of Appeals and the RTC are already conclusive and binding upon us.
Finally, the adjustment by the Court of Appeals with respect to the applicable rate of legal interest on the
P320,000.00, representing the value of the subject equipment, and on the P270,124.42, representing the
unpaid rentals awarded in favor of Sprint, is proper and with legal basis. Under Article 2209 of the Civil
Code, when an obligation not constituting a loan or forbearance of money is breached, then an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. Clearly, the monetary judgment in favor of Sprint does not involve a loan or forbearance of
money; hence, the proper imposable rate of interest is six (6%) percent. Further, as declared in Eastern
Shipping Lines, Inc. v. Court of Appeals,[22] the interim period from the finality of the judgment awarding
a monetary claim until payment thereof is deemed to be equivalent to a forbearance of credit. Eastern
Shipping Lines, Inc. v. Court of Appeals[23] explained, to wit:

Finally, the letter[21] dated 17 June 1997, sent to Sprint by Ronas, on behalf of Soriamont, which stated:
As we are currently having a problem with regards to the whereabouts of the subject trailers, may we
request your kind assistance in refraining from issuing any equipment to the above trucking companies.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
Damages of the Civil Code govern in determining the measure of recoverable damages.

reveals that PTS did have previous authority from Soriamont to withdraw the leased chassis units from
Sprint, hence, necessitating an express request from Soriamont for Sprint to discontinue recognizing
said authority.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

Alternatively, if PTS is found to be its agent, Soriamont argues that PTS is liable for the loss of the
subject equipment, since PTS acted beyond its authority as agent. Soriamont cites Article 1897 of the
Civil Code, which provides:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

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.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

The burden falls upon Soriamont to prove its affirmative allegation that PTS acted in any manner in
excess of its authority as agent, thus, resulting in the loss of the subject equipment. To recall, the subject
equipment was withdrawn and used by PTS with the authority of Soriamont. And for PTS to be
personally liable, as agent, it is vital that Soriamont be able to prove that PTS damaged or lost the said
equipment because it acted contrary to or in excess of the authority granted to it by Soriamont. As the
Court of Appeals and the RTC found, however, Soriamont did not adduce any evidence at all to prove
said allegation. Given the lack of evidence that PTS was in any way responsible for the loss of the
subject equipment, then, it cannot be held liable to Sprint, or even to Soriamont as its agent. In the
absence of evidence showing that PTS acted contrary to or in excess of the authority granted to it by its

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3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

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.

Consistent with the foregoing jurisprudence, and later on affirmed in more recent cases,[24] when the
judgment awarding a sum of money becomes final and executory, the rate of legal interest shall be 12%
per annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent of a forbearance of credit. Thus, from the time the judgment becomes final until its full
satisfaction, the applicable rate of legal interest shall be twelve percent (12%).

N.I.O.P. Contract, Rule 54 If the financial condition of either party to a contract subject to these rules
becomes so impaired as to create a reasonable doubt as to the ability of such party to perform its
obligations under the contract, the other party may from time to time demand marginal deposits to be
made within forty-eight (48) hours after receipt of such demand, such deposits not to exceed the
difference between the contract price and the market price of the goods covered by the contract on the
day upon which such demand is made, such deposit to bear interest at the prime rate plus one percent
(1%) per annum. Failure to make such deposit within the time specified shall constitute a breach of
contract by the party upon whom demand for deposit is made, and all losses and expenses resulting
from such breach shall be for the account of the party upon whom such demand is made. (Underscoring
ours.)[1]

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:

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is hereby DENIED.
The Decision dated 22 June 2006 and Resolution dated 7 September 2006 of the Court of Appeals in
CA-G.R. CV No. 74987 are hereby AFFIRMED. Costs against petitioner Soriamont Steamship Agencies,
Inc. SO ORDERED.
[G.R. No. 126751. March 28, 2001]

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]

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.

Hence, Safic prayed that IVO be ordered to pay the sums of US$293,500.00 and US$391,593.62, plus
attorneys fees and litigation expenses. The complaint also included an application for a writ of
preliminary attachment against the properties of IVO.
Upon Safics 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.

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

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 IVOs then President, Dominador Monteverde, in
contravention of the prohibition by the Board of Directors against engaging in speculative paper trading,
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and despite IVOs 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.

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.

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

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]

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 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.

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:

For its part, Safic argued that:

THE TRIAL COURT ERRED IN HOLDING THAT IVOS 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.

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.

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:
a. it declared that the 1986 forward contracts (i.e., Contracts Nos. A601446 and A60155 (sic) involving
2,000 long tons of crude coconut oil, and Contracts Nos. 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 IVOs 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

The trial court ruled that Safic failed to substantiate its claim for actual damages. Likewise, it rejected
IVOs counterclaim and supplemental counterclaim.
Thus, on August 28, 1992, the trial court rendered judgment as follows:

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forward contracts despite the fact that the Manila RTC has struck down IVOs objection to the 1986
forward contracts (i.e. that they were highly speculative paper trading which the IVO Board of Directors
had prohibited Dominador Monteverde from engaging in because it is a form of gambling where the
parties do not intend actual delivery of the coconut oil sold) and instead found that the 1986 forward
contracts were not gambling; (iii) it relied on the testimony of Mr. Rodrigo Monteverde in concluding that
the IVO Board of Directors did not authorize its President, Dominador Monteverde, to enter into the 1986
forward contracts; and (iv) it did not find IVO, in any case, estopped from denying responsibility for, and
liability under, the 1986 forward contracts because IVO had recognized itself bound to similar forward
contracts which Dominador Monteverde entered into (for and on behalf of IVO) with Safic in 1985
notwithstanding that Dominador Monteverde was (like in the 1986 forward contracts) not expressly
authorized by the IVO Board of Directors to enter into such forward contracts;

knew nothing of the 1986 contracts[6] and that it did not authorize Monteverde to enter into speculative
contracts.[7] In fact, Monteverde had earlier proposed that the company engage in such transactions but
the IVO Board rejected his proposal.[8] Since the 1986 contracts marked a sharp departure from past
IVO transactions, Safic should have obtained from Monteverde the prior authorization of the IVO Board.
Safic can not rely on the doctrine of implied agency because before the controversial 1986 contracts,
IVO did not enter into identical contracts with Safic. The basis for agency is representation and a person
dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.[9] In
the case of Bacaltos Coal Mines v. Court of Appeals,[10] we elucidated the rule on dealing with an agent
thus:

b. it declared that Safic was not able to prove damages suffered by it, despite the fact that Safic had
presented not only testimonial, but also documentary, evidence which proved the higher amount it had to
pay for crude coconut oil (vis--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

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 agents 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]

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

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.

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

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 principals ratification.[13]

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 IVOs 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
PAT CASE: AGENCY

There was no such ratification in this case. When Monteverde entered into the speculative contracts with
Safic, he did not secure the Boards 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 IVOs 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, Monteverdes 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 Monteverdes 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.
Page 110 of 150

Be that as it may, Safics belated contention that the IVO Board of Directors did not set limitations on
Monteverdes 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:

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.

Q. Now you said that IVO is engaged in trading. With whom does it usually trade its oil?

Q. Who established the so-called physical trading in IVO?

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.

A. The Board of Directors, sir.

Atty. Abad

Atty. Abad.
Q. As far as you know, what kind of trading was IVO engaged with?
Q. How did you know that?
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.

A. There was a meeting held in the office at the factory and it was brought out and suggested by our
former president, Dominador Monteverde, that the company should engaged (sic) in future[s] contract[s]
but it was rejected by the Board of Directors. It was only Ador Monteverde who then wanted to engaged
(sic) in this future[s] contract[s].
Q. Do you know where this meeting took place?
A. As far as I know it was sometime in 1985.

Q. 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. 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

Q. And what is the other form of trading?

Objection, your Honor, no basis.
Atty. Fernando
Court
No basis, your Honor.
Why dont you lay the basis?
Atty. Abad
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.

Q. Were you a member of the board at the time?

Court

A. In 1975, I am already a stockholder and a member.

Witness may answer if he knows.

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

Witness

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

PAT CASE: AGENCY

Page 111 of 150

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

xxxxxxxxx

A. Yes, sir.

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

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. 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.

A. Because this future[s] contract is too risky and it partakes of gambling.

Q. What else?

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

A. And a resolution was passed disowning the illegal activities of the former president.[21]

A. Yes, sir.

Petitioner next argues that there was actually no difference between the 1985 physical contracts and the
1986 futures contracts.

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?

The contention is unpersuasive for, as aptly pointed out by the trial court and sustained by the appellate
court
Rejecting IVOs 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 IVOs 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.

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 companys Board of Directors?
A. Dominador Monteverde never records those transactions he entered into in connection with these
future[s] contracts in the companys 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?
PAT CASE: AGENCY

Subjecting the evidence on both sides to close scrutiny, the Court has found some remarkable
distinctions between the 1985 and 1986 contracts. x x x
1. The 1985 contracts were performed within an average of two months from the date of the sale. On the
other hand, the 1986 contracts were to be performed within an average of eight and a half months from
the dates of the sale. All the supposed performances fell in 1987. Indeed, the contract covered by Exhibit
J was to be performed 11 to 12 months from the execution of the contract. These pattern (sic) belies
plaintiffs contention that the lead time merely allowed for milling and building up of oil inventory. It is
evident that the 1986 contracts constituted trading in futures or in mere expectations. In all likelihood, the
coconuts that were supposed to be milled for oil were not yet on their trees when Dominador Monteverde
sold the crude oil to SAFIC.
2. The mode of payment agreed on by the parties in their 1985 contracts was uniformly thru the opening
of a letter of credit LC by SAFIC in favor of IVO. Since the buyers letter of credit guarantees payment to
Page 112 of 150

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]
buyers 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.
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 IVOs 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 Safics 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?
PAT CASE: AGENCY

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 defendants move: firstly, plaintiff seeks to recover damages from the defendant
and these are intimately related to plaintiffs alleged losses which it attributes to the default of the
defendant in its contractual commitments; secondly, the documents are specified in the amended
motion. As such, plaintiff would entertain no confusion as to what, which documents to locate and
produce considering plaintiff to be (without doubt) a reputable going concern in the management of the
affairs which is serviced by competent, industrious, hardworking and diligent personnel; thirdly, the
desired production and inspection of the documents was precipitated by the testimony of plaintiffs
witness (Donald OMeara) who admitted, in open court, that they are available. If the said witness
represented that the documents, as generally described, are available, reason there would be none for
the same witness to say later that they could not be produced, even after they have been clearly
described.
Besides, if the Court may additionally dwell on the issue of damages, the production and inspection of
the desired documents would be of tremendous help in the ultimate resolution thereof. Plaintiff claims for
the award of liquidated or actual damages to the tune of US$391,593.62 which, certainly, is a huge
amount in terms of pesos, and which defendant disputes. As the defendant cannot be precluded in
taking exceptions to the correctness and validity of such claim which plaintiffs witness (Donald OMeara)
testified to, and as, by this nature of the plaintiffs claim for damages, proof thereof is a must which can
be better served, if not amply ascertained by examining the records of the related sales admitted to be in
plaintiffs possession, the amended motion for production and inspection of the defendant is in order.
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 Safics
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
Page 113 of 150

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 attorneys 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.
[G.R. No. 118982. February 19, 2001]
LORETA BRAVO CERVANTES, LOIDA CERVANTES, LEAH CERVANTES, CHRISTY CERVANTES,
CHARME CERVANTES, SPS. ARMANDO ABAD and ADORACION ORDUNA, petitioners, vs. HON.
COURT OF APPEALS, GUILLERMO (GIL) FRANCISCO, VENANCIO FRANCISCO, APOLONIA
FRANCISCO and VIRGINIA FRANCISCO, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated August 25,
1994 affirming the decision[2] of the Regional Trial Court of Pangasinan in Civil Case No. 16211 (for
Recovery of Land with Damages) ordering herein petitioners to vacate the respective parcel of land
which they are occupying and to recognize private respondents ownership thereof.
In dispute are certain portions of a parcel of land (Parcel 1, Lot No. 1, plan Psu-131830) situated in
Poblacion, Bugallon, Pangasinan, with an area of seven thousand seven hundred thirty-three (7,733)
square meters, covered and described in TCT No. 2200-Pangasinan and registered in the name of
Antonio G. Francisco.[3] A portion with an area of 3,768 square meters was earlier ceded to the
Municipality of Bugallon, Pangasinan.[4]
On July 8, 1985, plaintiffs, herein private respondents, filed an amended complaint alleging that they
were the heirs of the late Antonio G. Francisco who was the registered owner of the subject property, and
that they recently discovered that the defendants, herein petitioners, were illegally occupying and had
declared in their names portions of said property as follows:
Antonio Cervantes 398 square meters, declared under Tax Declaration No. 316, now Tax Declaration No.
445;
Armando Abad and Adoracion Ordua - 442 square meters, declared under Tax Declaration No. 473 and
assessed at P2,480.00.
PAT CASE: AGENCY

Plaintiffs demanded that the defendants vacate the subject premises, but the latter refused to do so.[5]
Hence, this action for recovery of land wherein the plaintiffs prayed that the defendants be ordered to (1)
vacate immediately the portions of land that they are occupying and to recognize plaintiffs ownership
thereof; (2) pay reasonable rentals from the time this complaint was filed up to the time they vacate the
land; (3) pay actual damages amounting to P4,000.00 as reasonable attorneys fees, moral damages and
the costs.[6]
In his answer, defendant Antonio Cervantes, herein petitioner, denied the material allegations of the
complaint, and in defense claimed legal possession over one of the parcels of land in question alleging
that he, together with his brother Claro and sister Macrina-Teresita, inherited the land from their late
father Tranquilino Cervantes who purchased the same on January 22, 1947 from Juan Abad, now
deceased, who in turn earlier purchased the property from plaintiffs predecessors-in-interest. During his
lifetime, Tranquilino Cervantes introduced improvements in the land without any objection from the
plaintiffs or their predecessors-in-interest. By virtue of the Deed of Extrajudicial Partition executed by the
heirs of Tranquilino Cervantes, the ownership of the contested premises were allegedly transmitted to
them. In his counterclaim, Cervantes prayed that judgment be rendered: (1) dismissing the complaint
against him for lack of cause of action; (2) declaring the validity of the Deed of Sale dated January 22,
1947; (3) ordering the plaintiffs, jointly and severally, to pay him the sum of P5,000.00 as attorneys fees;
P5,000.00 as litigating expenses; P5,000.00 as moral damages; P5,000.00 as exemplary damages, plus
costs.[7]
Defendants spouses Armando and Adoracion Abad, on the other hand, alleged that their possession,
together with that of their predecessors-in-interest, over the questioned parcel of land was lawful and in
the concept of owner. Their possession was for more than 70 years, even dating back before the year
1920. The questioned parcel was a portion of the land jointly purchased by their parent, the late Juan
Abad, and Marcelino Nievera from Estefania Ignacio Vda. De F. Totaez, who purchased the same from
Antonio Fernandez, who in turn purchased the property from Vicente Espino, whose possession and
ownership of the property was public, exclusive, notorious, open and continuous long before the alleged
registration of the subject property in the name of Antonio Francisco, under Act No. 496, the latter being
known as a mere trustee or overseer. When Juan Abad died, the defendant spouses acquired the
subject property partly by inheritance and partly by purchase.[8]
Defendants Abad alleged that the imprescriptibility and indefeasibility of the Torrens Title do not apply to
the case at bar because registration by the applicant-registrant was done in bad faith and by way of
actual fraudulent acts; that Act No. 496 as amended by P.D. No. 1529 was never intended to shield the
fraudulent and unlawful acts of the applicant-registrant in order to divest the actual owner and possessor
thereof before the registration; and that between the actual owners-possessors before the registration
under Act No. 496 and a usurper-trustee who applied and successfully registered the same land in his
name, the former should prevail over the latter.[9]
As counterclaim, defendants Abad prayed that the plaintiffs be ordered to pay them P10,000.00 as
attorneys fees; appearance fees computed at P300.00 per hearing; P20,000.00 as actual and other
incidental expenses; P50,000.00 as moral damages; P50,000.00 as exemplary damages and costs of
suit.[10]
Page 114 of 150

Based on the Pre-trial Order dated July 8, 1985, the parties agreed that the issues are the following:

3. IT IS AN ERROR NOT TO RECOGNIZE THE DEFENDANTS, HEREIN PETITIONERS, AS LAWFUL

OWNERS OF THEIR RESPECTIVE RESIDENTIAL LOTS.[14]

1. Who are the lawful owners of the parcels of land in question?

2. Whether or not the parties are entitled for damages as claimed in their respective pleadings.[11]
On October 28, 1987, the trial court rendered judgment in favor of the plaintiffs, which in part reads:
Thus, this Court hereby declares that the plaintiffs are the owners of the parcels of land subject of this
action having acquired it from their late father, Antonio Francisco by hereditary succession. Prescription
and laches cannot be raised against the plaintiffs. If there is/are somebody who is/are guilty of laches in
this case, it would be the defendants. Because for a considerable long period of time, they failed to
obtain a title over the parcels in question.
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, to wit:
a) ordering the defendants to vacate immediately the parcel of land they are occupying, and to recognize
the plaintiffs ownership thereof; and
b) ordering the defendants to pay actual damages in the amount of P4,000.00 by way of reasonable
attorneys fees and P10,000.00 by way of moral damages and to pay the costs.
SO ORDERED.[12]
The Court of Appeals affirmed the decision of the trial court in its Decision promulgated on August 25,
1994, the dispositive portion of which reads:
WHEREFORE, finding no reversible error in the decision appealed herefrom the same is hereby
AFFIRMED in toto.
SO ORDERED.[13]
Petitioners motion for reconsideration was denied by the Court of Appeals in a Resolution dated
February 13, 1995.
Petitioners ascribe to the Court of Appeals the following errors:
1. IT IS AN ERROR TO CONCLUDE THAT THE PLAINTIFFS, HEREIN PRIVATE RESPONDENTS, ARE
THE LAWFUL OWNERS OF THE LANDS IN QUESTION BASED ON A DOUBTFUL MUTILATED
ENTRY IN TCT NO. 2200.
2. IT IS AN ERROR (NOT) TO CONSIDER SUBSEQUENT ACTS OF THE PARTIES AFTER THE SALE
TO ASCERTAIN THE IDENTITY OF THE LAND SUBJECT OF THE SALE.
PAT CASE: AGENCY

Petitioners faulted the Court of Appeals for concluding that private respondents are the lawful owners of
the parcels of land in question based on a doubtful mutilated entry in TCT No. 2200. Contrary to the
conclusion of the Court of Appeals, petitioners asserted that as shown in the pre-trial order, they did not
admit the authenticity of Exhibits D, D-1 and D-2, which were the photocopy of TCT No. 2200 in the
name of Antonio Francisco. Further, the resolution of the issue of ownership of the subject premises
called for examination of the respective evidence of the parties. It is in this connection that they
questioned the correctness and authenticity of the mutilated portion on page 3 of TCT No. 2200 (Exhibit
D) showing that their predecessor-in-interest, Vicente Espino, purchased parcel 2 of Lot No. 3 instead of
parcel 1 of Lot No. 1, where their respective houses were erected fifty (50) years ago. They argued that
under the entry compraventa Vicente Espino on said page, the true identity of the land sold was
mutilated and it was made to appear in handwriting that Vicente Espino purchased parcel 2 of Lot No. 3.
There was no evidence adduced to show that the handwritten words were the correct words before the
mutilation, considering that the next entry showed that one Pablo Zalazar also purchased the same
parcel 2 of Lot No. 3.
As observed by the Court of Appeals, petitioners did not raise in issue the authenticity of the now
contested TCT No. 2200 or a portion thereof during the pre-trial and trial on the merits in the trial court.
An issue which was neither raised in the complaint nor ventilated during the trial in the court below
cannot be raised for the first time on appeal as it would be offensive to the basic rule of fair play, justice
and due process.[15] Moreover, the determination of issues at the pre-trial conference bars the
consideration of other questions on appeal.[16] Further, petitioners did not object to the formal offer in
evidence of TCT No. 2200 as Exhibit D and Series[17] and Exhibit F and Series;[18] hence, there is a
waiver of any objection to its admissibility.[19]
Nevertheless, an examination of the evidence on record particularly Exhibits D-2 and F-2, which
contained the encumbrances affecting TCT No. 2200, showed that the sale to Vicente Espino involved
Lot No. 3, while the sale to Pablo Zalazar involved Lot No. 7.[20] Clearly, the sale to Vicente Espino, the
alleged predecessor-in-interest of the Abad spouses did not involve the parcel of land, subject matter of
this case, which is parcel 1, Lot 1, Plan Psu-131830.
Petitioners further argued that the private respondents inaction for 50 years showed that they were not
the owners of the subject parcels of land, and realty taxes were not paid by them. On the other hand,
petitioners, who are in physical possession of the lots have been paying their obligation as landowners
as shown by their respective tax declarations and tax receipts.
The argument of petitioners is without merit. It is a fundamental principle in land registration that the
certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor
of the person whose name appears therein,[21] in this case the private respondents father, Antonio
Francisco. A title once registered under the Torrens System cannot be defeated even by adverse, open
and notorious possession; neither can it be defeated by prescription.[22] Petitioners cannot prove their
Page 115 of 150

ownership of the subject parcels of land through tax declarations and corresponding tax receipts
inasmuch as they are not conclusive evidence of ownership.[23]

decree of registration upon which it is based, it becomes incontrovertible (Pamintuan vs. San Agustin, 43
Phil. 558).[25]

Further, the trial court found that defendant, herein petitioner Cervantes, had no right to the parcel of
land which he and his siblings were occupying, thus:

The Court of Appeals affirmed the decision of the trial court in toto, the same being in accordance with
law and the evidence. Hence, the assailed Decision of the Court of Appeals should be as it is hereby
affirmed.

Taking into consideration the documentary evidence presented by the plaintiffs, particularly that of TCT
No. 2200 (Exhibit A) which the parcel in question is included, among others, that the sale of the parcel in
question was made by Juan Abad to Tranquilino Cervantes (father of defendant Antonio Cervantes) on
January 22, 1947 took place when the said TCT No. 2200 was already existing in the name of Antonio
Francisco, the late father of the herein plaintiffs. Said TCT No. 2200 was issued on November 8, 1924,
or more than twenty-two (22) years before the aforesaid sale between Juan Abad and Tranquilino
Cervantes. This clearly shows that what Juan Abad sold to Tranquilino Cervantes on January 22, 1947
was a parcel of land that did not belong to the former. It is because said parcel of land already belonged
to Antonio Francisco for having obtained a title over said parcel of land covered by TCT No. 2200. Not
being the owner of the parcel in question, Juan Abad did not transmit any right whatsoever with respect
to the parcel in question. Well-settled is the rule that one cannot sell what he does not own and this rule
has much force when the subject of the sale is a titled land that belongs to another person. Simply put,
the sale of the parcel in question made by Juan Abad to Tranquilino Cervantes did not affect the title of
Antonio Francisco over said parcel.[24]
Likewise, the trial court correctly held that defendants Abad had no right to the parcel of land they were
occupying, thus:
The purchases alleged by the defendants-spouses on the questioned parcel of land beginning from their
alleged primitive predecessor-in-interest Vicente Espino to Estefania Ignacio Vda. De F. Totaez to Juan
Abad and Marcelino Nievera were never proven in court. The documentary evidence they presented
before this Court were not sufficient to establish their right over the parcel in question. The Deed of
Extra-Judicial Partition of Real and Personal Property with Sale has no probative value because it is selfserving. Besides, it sought to partition the parcel of land which is already covered by TCT No. 2200
issued in the name of Antonio Francisco. Simply stated, there was no property that they could partition
among themselves because said property subject of the partition did not belong to their late father Juan
Abad but to the late Antonio Francisco, the father of the plaintiffs.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision of the Court of Appeals
and its Resolution denying the motion for reconsideration are hereby AFFIRMED.
SO ORDERED.
G.R. No. L-109937

March 21, 1994

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by CANDIDA G.
DANS, and the DBP MORTGAGE REDEMPTION INSURANCE POOL, respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse and set
aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution denying
reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I

The Deed of Absolute Sale (Exhibit 2) entered between Juan Abad and Tranquilino Cervantes, has no
probative value also for being irrelevant. Besides, this is the same deed wherein this Court has already
passed upon concerning its efficacy and ruled in the early part of this decision that it has no effect
whatsoever to TCT No. 2200 issued in the name of the late Antonio Francisco.

In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a
loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the
principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption
insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).

The Tax Declaration issued in the name of the defendants-spouses and the corresponding Tax Receipts
have no probative value also as against the TCT No. 2200 issued in the name of the late Antonio
Francisco. It is because they are not proofs of ownership. TCT No. 2200, on the other hand, serves as
evidence of an indefeasible title to the property in favor of the person whose name appears
thereinAntonio Francisco. Further, after the expiration of the one year period from the issuance of the

A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and released
on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment
for the MRI premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application for
Insurance" and the "Health Statement for DBP MRI Pool."

PAT CASE: AGENCY

Page 116 of 150

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

2.
To consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise
to have been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans;
3.

On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to
the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible
for MRI coverage, being over the acceptance age limit of 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI
application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but
Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an
amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00,
which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a complaint
with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for "Collection of
Sum of Money with Damages." Respondent Estate alleged that Dans became insured by the DBP MRI
Pool when DBP, with full knowledge of Dans' age at the time of application, required him to apply for
MRI, and later collected the insurance premium thereon. Respondent Estate therefore prayed: (1) that
the sum of P139,500.00, which it paid under protest for the loan, be reimbursed; (2) that the mortgage
debt of the deceased be declared fully paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a cross-claim
against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted by
respondent Estate. As a result of these admissions, the trial court narrowed down the issues and, without
opposition from the parties, found the case ripe for summary judgment. Consequently, the trial court
ordered the parties to submit their respective position papers and documentary evidence, which may
serve as basis for the judgment.

To pay plaintiff the amount of P10,000.00 as attorney's fees;

4.
To pay plaintiff in the amount of P10,000.00 as costs of litigation and other expenses, and other
relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby dismissed. The Cross-claim of
Defendant DBP is likewise dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate court
affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in a
resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool"
(Exh. "5-Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained herein are true, complete and
correct to the best of my knowledge and belief and form part of my application for insurance. It is
understood and agreed that no insurance coverage shall be effected unless and until this application is
approved and the full premium is paid during my continued good health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall
be approved by the insurance pool; and (2) when the full premium is paid during the continued good
health of the applicant. These two conditions, being joined conjunctively, must concur.

On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against DBP.
The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract
between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying
for MRI and actually collecting the premium and the service fee, despite knowledge of his age ineligibility.
The dispositive portion of the decision read as follows:

Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool,
however, did not approve the application of Dans. There is also no showing that it accepted the sum of
P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's premium.
There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held
liable on a contract that does not exist.

WHEREFORE, in view of the foregoing consideration and in the furtherance of justice and equity, the
Court finds judgment for the plaintiff and against Defendant DBP, ordering the latter:

The liability of DBP is another matter.

1.
To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of interest as
amortization payment paid under protest;

PAT CASE: AGENCY

It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage.
Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy,
DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released
on August 11, 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days
latter, DBP made Dans fill up and sign his application for MRI, as well as his health statement. The DBP
Page 117 of 150

later submitted both the application form and health statement to the DBP MRI Pool at the DBP Main
Building, Makati Metro Manila. As service fee, DBP deducted 10 percent of the premium collected by it
from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an
insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby
leading him and his family to believe that they had already fulfilled all the requirements for the MRI and
that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's
application was never going to be approved. The maximum age for MRI acceptance is 60 years as
clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed
in 1984 by all the insurance companies concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "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."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age
(Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage because of his
advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by
collecting the insurance premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third person
is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on
DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal
on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then
the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on the Civil Code
of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The rule that the agent
is liable when he acts without authority is founded upon the supposition that there has been some wrong
or omission on his part either in misrepresenting, or in affirming, or concealing the authority under which
he assumes to act (Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75).
Inasmuch as the non-disclosure of the limits of the agency carries with it the implication that a deception
was perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code of
the Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the performance of his duties, act with justice give
everyone his due and observe honesty and good faith.

Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the
latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were
it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another
insurance company, and therefore would have been fully insured by the time he died, is highly
speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an
insurance coverage from another company. It must also be noted that Dans died almost immediately,
i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of
release of his loan.
One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly
proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not only be capable
of proof, but must be actually proved with a reasonable degree of certainty (Refractories Corporation v.
Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee v. Philippine Publishing Co., 34 Phil.
447 [1916]). Speculative damages are too remote to be included in an accurate estimate of damages
(Sun Life Assurance v. Rueda Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof of
pecuniary loss is required in the assessment of said kind of damages (Civil Code of Philippines, Art.
2216). The same may be recovered in acts referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the court according to the circumstances of
each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had offered to pay P30,000.00
to respondent Estate in ex gratia settlement of its claim and that DBP's non-disclosure of the limits of its
authority amounted to a deception to its client, an award of moral damages in the amount of P50,000.00
would be reasonable.
The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the
Philippines, Article 2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of
Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of the complaint until
fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral
damages and the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees. With costs against
petitioner.

Article 20 provides:
PAT CASE: AGENCY

Page 118 of 150

SO ORDERED.
G.R. No. 103737 December 15, 1994
NORA S. EUGENIO and ALFREDO Y. EUGENIO, petitioners,
vs.
HON. COURT OF APPEALS and PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC.,
respondents.
Public Attorney's Office for petitioners.
Romualdo M. Jubay for private respondent.
REGALADO, J.:
Private respondent Pepsi-Cola Bottling Company of the Philippines, Inc. is engaged in the business of
manufacturing, making bottling and selling soft drinks and beverages to the general public. Petitioner
Nora S. Eugenio was a dealer of the soft drink products of private respondent corporation. Although she
had only one store located at 27 Diamond Street, Emerald Village, Marikina, Metro Manila, Eugenio had
a regular charge account in both the Quezon City plant (under the name "Abigail Minimart" *) as well as
in the Muntinlupa plant (under the name "Nora Store") of respondent corporation. Her husband and copetitioner, Alfredo Y. Eugenio, used to be a route manager of private respondent in its Quezon City plant.
On March 17, 1982, private respondent filed a complaint for a sum of money against petitioners Nora S.
Eugenio and Alfredo Y. Eugenio, docketed as Civil Case No. Q-34718 of the then Court of First Instance
of Quezon City, Branch 9 (now Regional Trial Court, Quezon City, Branch 97). In its complaint,
respondent corporation alleged that on several occasions in 1979 and 1980, petitioners purchased and
received on credit various products from its Quezon City plant. As of December 31, 1980, petitioners
allegedly had an outstanding balance of P20,437.40 therein. Likewise, on various occasions in 1980,
petitioners also purchased and received on credit various products from respondent's Muntinlupa plant
and, as of December 31, 1989, petitioners supposedly had an outstanding balance of P38,357.20 there.
In addition, it was claimed that petitioners had an unpaid obligation for the loaned "empties" from the
same plant in the amount of P35,856.40 as of July 11, 1980. Altogether, petitioners had an outstanding
account of P94,651.00 which, so the complaint alleged, they failed to pay despite oral and written
demands. 1
In their defense, petitioners presented four trade provisional receipts (TPRs) allegedly issued to and
received by them from private respondent's Route Manager Jovencio Estrada of its Malate Warehouse
(Division 57), showing payments in the total sum of P80,500.00 made by Abigail's Store. Petitioners
contended that had the amounts in the TPRs been credited in their favor, they would not be indebted to
Pepsi-Cola. The details of said receipts are as follows:
TPR No. Date of Issue

Amount

500320 600 Fulls returned 5/6/80

PAT CASE: AGENCY

P23,520.00

500326 600 Fulls returned 5/10/80 23,520.00

500344 600 Fulls returned 5/14/80 23,520.00
500346 Cash
5/15/80 10,000.00 2

Total
P80,560.00
Further, petitioners maintain that the signature purporting to be that of petitioner Nora S. Eugenio in
Sales Invoice No. 85366 dated May 15, 1980 in the amount of P5,631.00, 3 which was included in the
computation of their alleged debt, is a falsification. In sum, petitioners argue that if the aforementioned
amounts were credited in their favor, it would be respondent corporation which would be indebted to
them in the sum of P3,546.02 representing overpayment.
After trial on the merits, the court a quo rendered a decision on February 17, 1986, ordering petitioners,
as defendants therein to jointly and severally pay private respondent the amount of P74,849.00, plus
12% interest per annum until the principal amount shall have been fully paid, as well as P20,000.00 as
attorney's fees. 4 On appeal in CA-G.R. CV No. 10623, the Court of Appeals declared said decision a
nullity for failure to comply with the requirement in Section 14, Article VIII of the 1987 Constitution that
decisions of courts should clearly and distinctly state the facts and the law on which they are based. The
Court of Appeals accordingly remanded the records of the case to the trial court, directing it to render
another decision in accordance with the requirements of the Constitution. 5
In compliance with the directive of the Court of Appeals, the lower court rendered a second decision on
September 29, 1989. In this new decision, petitioners were this time ordered to pay, jointly and severally,
the reduced amount of P64,188.60, plus legal interest of 6% per annum from the filing of the action until
full payment of the amount adjudged. 6 On appeal therefrom, the Court of Appeals affirmed the judgment
of the trial court in a decision promulgated on September 27, 1991. 7 A motion for the reconsideration of
said judgment of respondent court was subsequently denied in a resolution dated January 23, 1992. 8
We agree with petitioners and respondent court that the crux of the dispute in the case at bar is whether
or not the amounts in the aforementioned trade provisional receipts should be credited in favor of herein
petitioner spouses.
In a so-called encyclopedic sense, however, our course of action in this case and the denouement of the
controversy therein takes into account the jurisprudential rule that in the present recourse we would
normally have restricted ourselves to questions of law and eschewed questions of fact were it not for our
perception that the lower courts manifestly overlooked certain relevant factual considerations resulting in
a misapprehension thereof. Consequentially, that position shall necessarily affect our analysis of the
rules on the burden of proof and the burden of evidence, and ultimately, whether the proponent of the
corresponding claim has preponderated or rested on an equipoise or fallen short of preponderance.
First, the backdrop. It appears that on August 1, 1981, private respondent through the head of its Legal
Department, Atty. Antonio N. Rosario, sent an inter-office correspondence to petitioner Alfredo Eugenio
inviting him for an interview/interrogation on August 3, 1981 regarding alleged "non-payment of debts to
Page 119 of 150

the company, inefficiency, and loss of trust and confidence." 9 The interview was reset to August 4, 1981
to enable said petitioner to bring along with him their union president, Luis Isip. On said date, a
statement of overdue accounts were prepared showing that petitioners owed respondent corporation the
following amounts:

manager, to conduct an investigation to verify this claim of petitioners. According to Azurin, during the
investigation on December 4, 1981, Estrada allegedly denied that he issued and signed the aforesaid
TPRs. 19 He also presented a supposed affidavit which Estrada allegedly executed during that
investigation to affirm his verbal statements therein. Surprisingly, however, said supposed affidavit is
inexplicably dated February 5, 1982. 20 At this point, it should be noted that Estrada never testified
thereafter in court and what he is supposed to have done or said was merely related by Azurin.

Muntinlupa Plant
Nora's Store
Trade Account
P38,357.20 (as of 12/3/80) 10
Loaned Empties P35,856.40 (as of 7/11/81) 11

Now, on this point, respondent court disagreed with herein petitioners that the testimony on the alleged
denial of Jovencio Estrada regarding his signatures on the disputed TPRs, as well as his affidavit dated
February 5, 1982 21 wherein he affirmed his denial, are hearsay evidence because Estrada was not
presented as a witness to testify and be cross-examined thereon. Except for the terse statement of
respondent court that since petitioner Alfredo Eugenio was supposedly present on December 4, 1981,
"(t)he testimony of Jovencio Estrada at the aforementioned investigation categorically denying that he
issued and signed the disputed TPRs is, therefore, not hearsay," 22 there was no further explanation on
this unusual doctrinal departure.

Quezon City Plant

Abigail Minimart
Regular Account P20,437.40 (as of 1980) 12

Total
P94,651.00
A reconciliation of petitioners' account was then conducted. The liability of petitioners as to the loaned
empties (Muntinlupa plant, Nora Store) was reduced to P21,686.00 after a reevaluation of the value of
the loaned empties. 13 Likewise, the amount of P5,631.00 under Invoice No. 85366, which was a
spurious document, was deducted from their liability in their trade account with the Muntinlupa plant. 14
Thereafter, Eugenio and Isip signed the reconciliation sheets reflecting these items:

The rule is clear and explicit. Under the hearsay evidence rule, a witness can testify only to those facts
which he knows of his personal knowledge; that is, which are derived from his own perception, except as
otherwise provided in the Rules. 23 In the present case, Estrada failed to appear as a witness at the trial.
It was only Azurin who testified that during the investigation he conducted, Estrada supposedly denied
having signed the TPRs. It is elementary that under the measure on hearsay evidence, Azurin's
testimony cannot constitute legal proof as to the truth of Estrada's denial. For that matter, it is not
admissible in evidence, petitioners' counsel having seasonably objected at the trial to such testimony of
Azurin as hearsay. And, even if not objected to and thereby admissible, such hearsay evidence has no
probative value whatsoever. 24

Muntinlupa Plant
Nora Store
Trade Account
P32,726.20 15
Loaned Empties P21,686.00 16

It is true that the testimony or deposition of a witness deceased or unable to testify, given in a former
case or proceeding, judicial or administrative, involving the same parties and subject matter, may be
given in evidence against the adverse party who had the opportunity to cross-examine him. 25 Private
respondent cannot, however, seek sanctuary in this exception to the hearsay evidence rule.

Quezon City Plant

Abigail Minimart
Trade Account
P20,437.20 17

Total
P74,849.40

Firstly, the supposed investigation conducted by Azurin was neither a judicial trial nor an administrative
hearing under statutory regulations and safeguards. It was merely an inter-office interview conducted by
a personnel officer through an ad hoc arrangement. Secondly, a perusal of the alleged stenographic
notes, assuming arguendo that these notes are admissible in evidence, would show that the
"investigation" was more of a free-flowing question and answer type of discussion wherein Estrada was
asked some questions, after which Eugenio was likewise asked other questions. Indeed, there was no
opportunity for Eugenio to object, much less to cross-examine Estrada. Even in a formal prior trial itself,
if the opportunity for
cross-examination did not exist therein or if the accused was not afforded opportunity to fully crossexamine the witness when the testimony was offered, evidence relating to the testimony given therein is
thereafter inadmissible in another proceeding, absent any conduct on the part of the accused amounting
to a waiver of his right to cross-examine. 26

After the meeting, private respondent alleged that petitioner Alfredo Y. Eugenio requested that he be
allowed to retire and the existing accounts be deducted from his retirement pay, but that he later
withdrew his retirement plan. Said petitioner disputed that allegation and, in fact, he subsequently filed a
complaint for illegal dismissal. The finding of labor arbiter, later affirmed by the Supreme Court, showed
that this petitioner was indeed illegally dismissed, and that he never filed an application for retirement. In
fact, this Court made a finding that the retirement papers allegedly filed in the name of this petitioner
were forged. 18 This makes two falsified documents to be foisted against petitioners.
With their aforesaid accounts still unpaid, petitioner Alfredo Y. Eugenio submitted to Atty. Rosario the
aforementioned four TPRs. Thereafter, Atty. Rosario ordered Daniel Azurin, assistant personnel

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In fact, although formally offered, it was merely introduced by the private respondent "in order to show
that Jovencio Estrada had been investigated and categorically denied having collected from Abigail
Minimart and denying having signed the receipts claimed by Alfredo Eugenio to be his payment," 34 and
not for the purpose of presenting any alleged signature of Estrada on the document as a basis for
comparison.

Thirdly, the stenographer was not even presented to authenticate the stenographic notes submitted to
the trial court. A copy of the stenographic report of the entire testimony at the former trial must be
supported by the oath of the stenographer that it is a correct transcript of his notes of the testimony of
the witness as a sine qua non for its competency and admissibility in evidence. 27 The supposed
stenographic notes on which respondent corporation relies is unauthenticated and necessarily
inadmissible for the purpose intended.

This is a situation that irresistibly arouses judicial curiosity, if not suspicion. Respondent corporation was
fully aware that its case rested, as it were, on the issue of whether the TPRs were authentic and which
issue, in turn, turned on the genuineness of Estrada's signatures thereon. Yet, aside from cursorily
dismissing the non-presentation of Estrada in court by the glib assertion that he could not be found, and
necessarily aware that his alleged denial of his signatures on said TPRs and his affidavit rendered the
same vulnerable to the challenge that they are hearsay and inadmissible, respondent corporation did
nothing more. In fact, Estrada's disappearance has not been explained up to the present.

Lastly, although herein private respondent insinuated that Estrada was not presented as a witness
because he had disappeared, no evidence whatsoever was offered to show or even intimate that this
was due to any machination or instigation of petitioners. There is no showing that his absence was
procured, or that he was eloigned, through acts imputable to petitioners. In the case at bar, except for the
self-serving statement that Estrada had disappeared, no plausible explanation was given by respondent
corporation. Estrada was an employee of private respondent, hence it can be assumed that it could
easily trace or ascertain his whereabouts. It had the resources to do so, in contradistinction to petitioners
who even had to seek the help of the Public Attorney's Office to defend them here. Private respondent
could not have been unaware of the importance of Estrada's testimony and the consequent legal
necessity for presenting him in the trial court, through coercive process if necessary.

The next inquiry then would be as to what exactly is the nature of the TPRs insofar as they are used in
the day-to-day business transactions of the company. These trade provisional receipts are bound and
given in booklets to the company sales representatives, under proper acknowledgment by them and with
a record of the distribution thereof. After every transaction, when a collection is made the customer is
given by the sales representative a copy of the trade provisional receipt, that is, the triplicate copy or
customer's copy, properly filled up to reflect the completed transaction. All unused TPRs, as well as the
collections made, are turned over by the sales representative to the appropriate company officer. 35

Obviously, neither is the affidavit of Estrada admissible; it is likewise barred as evidence by the hearsay
evidence rule. 28 This is aside from the fact that, by their nature, affidavits are generally not prepared by
the affiants themselves but by another who uses his own language in writing the affiant's statements,
which may thus be either omitted or misunderstood by the one writing them. 29 The dubiety of that
affidavit, as earlier explained, is further underscored by the fact that it was executed more than two
months after the investigation, presumably for curative purposes as it were.

According to respondent court, "the questioned TPR's are merely 'provisional' and were, as printed at the
bottom of said receipts, to be officially confirmed by plaintiff within fifteen (15) days by delivering the
original copy thereof stamped paid and signed by its cashier to the customer. . . . Defendants-appellants
(herein petitioners) failed to present the original copies of the TPRs in question, showing that they were
never confirmed by the plaintiff, nor did they demand from plaintiff the confirmed original copies thereof."
36

Now, the authenticity of a handwriting may be proven, among other means, by its comparison made by
the witness or the court with writings admitted or treated as genuine by the party against whom the
evidence is offered or proved to be genuine to the satisfaction of the judge. 30 The alleged affidavit of
Estrada states". . . that the comparison that was made as to the authenticity of the signature appearing in
the TPRs and that of my signature showed that there was an apparent dissimilarity between the two
signatures, xerox copy of my 201 File is attached hereto as Annex 'F' of this affidavit. 31 However, a
search of the Folder of Exhibits in this case does not reveal that private respondent ever submitted any
document, not even the aforementioned 201 File, containing a specimen of the signature of Estrada
which the Court can use as a basis for comparison. Neither was any document containing a specimen of
Estrada's signature presented by private respondent in the formal offer of its exhibits. 32

We do not agree with the strained implication intended to be adverse to petitioners. The TPRs presented
in evidence by petitioners are disputably presumed as evidentiary of payments made on account of
petitioners. There are presumptions juris tantum in law that private transactions have been fair and
regular and that the ordinary course of business has been followed. 37 The role of presumptions in the
law on evidence is to relieve the party enjoying the same of the evidential burden to prove the
proposition that he contends for, and to shift the burden of evidence to the adverse party. Private
respondent having failed to rebut the aforestated presumptions in favor of valid payment by petitioners,
these would necessarily continue to stand in their favor in this case.

Respondent court made the further observation that "Estrada was even asked by Atty. Azurin at said
investigation to sign three times to provide specimens of his genuine signature." 33 There is, however,
no showing that he did, but assuming that Estrada signed the stenographic notes, the Court would still
be unable to make the necessary comparison because two signatures appear on the right margin of
each and every page of the stenographic notes, without any indication whatsoever as to which of the
signatures is Estrada's. The whole document was marked for identification but the signatures were not.

Besides, even assuming arguendo that herein private respondent's cashier never received the amounts
reflected in the TPRs, still private respondent failed to prove that Estrada, who is its duly authorized
agent with respect to petitioners, did not receive those amounts from the latter. As correctly explained by
petitioners, "in so far as the private respondent's customers are concerned, for as long as they pay their
obligations to the sales representative of the private respondent using the latter's official receipt, said
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payment extinguishes their obligations." 38 Otherwise, it would unreasonably cast the burden of
supervision over its employees from respondent corporation to its customers.

respondent corporation did not take proper action if indeed some receipts were actually lost, such as the
publication of the fact of loss of the receipts, with the corresponding investigation into the matter.

The substantive law is that payment shall be made to the person in whose favor the obligation has been
constituted, or his successor-in-interest or any person authorized to receive it. 39 As far as third persons
are concerned, an act is deemed to have been performed within the scope of the agent's authority, if
such is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between the principal and his agent. 40 In fact, Atty.
Rosario, private respondent's own witness, admitted that "it is the responsibility of the collector to turn
over the collection." 41

We, therefore, reject as attenuated the comment of the trial court that the TPRs, which Eugenio
submitted after the reconciliation meeting, "smacks too much of an afterthought." 44 The reconciliation
meeting was held on August 4, 1981. Three months later, on November, 1981, petitioner Alfredo Y.
Eugenio submitted the four TPRs. He explained, and this was not disputed, that at the time the
reconciliation meeting was held, his daughter Nanette, who was helping his wife manage the store, had
eloped and she had possession of the TPRs. 45 It was only in November, 1981 when petitioners were
able to talk to Nanette that they were able to find and retrieve said TPRs. He added that during the
reconciliation meeting, Atty. Rosario assured him that any receipt he may submit later will be credited in
his favor, hence he signed the reconciliation documents. Accordingly, when he presented the TPRs to
private respondent, Atty. Rosario directed Mr. Azurin to verify the TPRs. Thus, the amount stated in the
reconciliation sheet was not final, as it was still subject to such receipts as may thereafter be presented
by petitioners.

Still pursuing its ruling in favor of respondent corporation, the Court of Appeals makes the following
observation:
. . . Having allegedly returned 600 Fulls to the plaintiff's representative on May 6, 10, and 14, 1980,
appellant-wife's Abigail Store must have received more than 1,800 cases of soft drinks from plaintiff
before those dates. Yet the Statement of Overdue Account pertaining to Abigail Minimart (Exhs. "D", "D1" to "D-3") which appellant-husband and his representative Luis Isip signed on August 3, 1981 does
now show more than 1,800 cases of soft drinks were delivered to Abigail Minimart by plaintiff's Quezon
City Plant (which supposedly issued the disputed TPRs) in May, 1980 or the month before." 42

On the other hand, petitioners claimed that the signature of petitioner Nora S. Eugenio in Sales Invoice
No. 85366, in the amount of P5,631.00 is spurious and should accordingly be deducted from the
disputed amount of P74,849.40. A scrutiny of the reconciliation sheet shows that said amount had
already been deducted upon the instruction of one Mr. Coloma, Plant Controller of Pepsi-Cola ,
Muntinlupa Plant. 46 That amount is not disputed by respondent corporation and should no longer be
deducted from the total liability of petitioner in the sum of P74,849.40. Since petitioners had made a
payment of P80,560.00, there was consequently an overpayment of P5,710.60.

We regret the inaccuracy in said theory of respondent court which was impelled by its sole and limited
reliance on a mere statement of overdue amounts. Unlike a statement of account which truly reflects the
day-to-day movement of an account, a statement of an overdue amount is only a summary of the
account, simply reflecting the balance due thereon. A statement of account, being more specific and
detailed in nature, allows one to readily see and verify if indeed deliveries were made during a specific
period of time, unlike a bare statement of overdue payments. Respondent court cannot make its
aforequoted categorical deduction unless supporting documents accompanying the statement of
overdue amounts were submitted to enable easy and accurate verification of the facts.

All told, we are constrained to hold that respondent corporation has dismally failed to comply with the
pertinent rules for the admission of the evidence by which it sought to prove its contentions.
Furthermore, there are questions left unanswered and begging for cogent explanations why said
respondent did not or could not comply with the evidentiary rules. Its default inevitably depletes the
weight of its evidence which cannot just be taken in vacuo, with the result that for lack of the requisite
quantum of evidence, it has not discharged the burden of preponderant proof necessary to prevail in this
case.

A perusal of the statement of overdue accounts shows that, except for a reference number given for
each entry, no further details were volunteered nor offered. It is entirely possible that the statement of
overdue account merely reflects the outstanding debt of a particular client, and not the specific
particulars, such as deliveries made, particularly since the entries therein were surprisingly entered
irrespective of their chronological order. Obviously, therefore, one can not use the statement of overdue
amounts as conclusive proof of deliveries done within a particular time frame.

WHEREFORE, the judgment of respondent Court of Appeals in C.A. G.R. CV No. 26901, affirming that
of the trial court in Civil Case No. Q-34718, is ANNULLED and SET ASIDE. Private respondent PepsiCola Bottling Company of the Philippines, Inc. is hereby ORDERED to pay petitioners Nora and Alfredo
Eugenio the amount of P5,710.60 representing overpayment made to the former.

Except for its speculation that petitioner Alfredo Y. Eugenio could have had easy access to blank forms of
the TPRs because he was a former route manager no evidence whatsoever was presented by private
respondent in support of that theory. We are accordingly intrigued by such an unkind assertion of
respondent corporation since Azurin himself admitted that their accounting department could not even
inform them regarding the persons to whom the TPRs were issued. 43 In addition, it is significant that

SO ORDERED.
G.R. No. L-116650

May 23, 1995

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TOYOTA SHAW, INC., petitioner,

vs.
COURT OF APPEALS and LUNA L. SOSA, respondents.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his
family, and a balikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province,
where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his
hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit
would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted
"Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by
the parties that the balance of the purchase price would be paid by credit financing through B.A.
Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance
pertaining to the application for financing.

DAVIDE, JR., J.:

At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent,
which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The
document reads as follows:
4 June 1989

The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of
P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No.
928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the
customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Paraaque
II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is
by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as
follows:

AGREEMENTS BETWEEN MR. SOSA

& POPONG BERNARDO OF TOYOTA
SHAW, INC.
1.
all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a
week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the
19th of June.
2.

a) downpaymentP 53,148.00

the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989.

b)insuranceP 13,970.00
c)BLT registration feeP 1,067.00
CHMO feeP 2,715.00
service feeP 500.00
accessoriesP 29,000.00

3.
the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA
SHAW, INC. on the 17th of June at 10 a.m.
Very truly yours,

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms"
were not filled-up. It also contains the following pertinent provisions:

(Sgd.) POPONG BERNARDO.

Was this document, executed and signed by the petitioner's sales representative, a perfected contract of
sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and
attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner
disagrees. Hence, this petition for review on certiorari.

CONDITIONS OF SALES
1.

This sale is subject to availability of unit.

2.
Stated Price is subject to change without prior notice, Price prevailing and in effect at time of
selling will apply. . . .

The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as
in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa
(hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota
Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for
sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June
1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila.
There they met Popong Bernardo, a sales representative of Toyota.

Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not
be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00
p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them
that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that
the car could not be delivered because "nasulot ang unit ng ibang malakas."
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After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18
February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN
MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and
Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted
in bad faith in selling to another the unit already reserved for him.

Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by
B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had
already been reserved and earmarked for Sosa but could not be released due to the uncertainty of
payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by
paying the full purchase price in cash but Sosa refused.

As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held
that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante,
"they do not volunteer any information as to the company's sales policy and guidelines because they are
internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the
downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression
that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the
scope of an apparent authority holding him out to the public as possessing power to do these acts." 14
Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15
The court further declared that "Luna Sosa proved his social standing in the community and suffered
besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated."
16 Accordingly, it disposed as follows:

After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment
be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of
P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with
the reservation, "without prejudice to our future claims for damages."
Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he
demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest
from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do
so he would be constrained to take legal action. 6 The second, dated 4 November 1989 and signed by
M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest and damages, again,
with a warning that legal action would be taken if payment was not made within three days. 7 Toyota's
counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of
Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November
1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for
damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges,
inter alia, that:

WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and
against the defendant:

9.
As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered
embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family
were constrained to take the public transportation from Manila to Lucena City on their way to
Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid
the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and other
provincemates, continuously irked him about "his Brand-New Toyota Lite Ace that never was." Under
the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of
One Million Pesos (P1,000,000.00). 10

1.

ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages;

2.

ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages;

3.
ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's
transportation fare per trip in attending to the hearing of this case;
4.
ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of
the plaintiff in attending the hearing of this case; and
5.

In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that
Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in
his personal capacity. As special and affirmative defenses, it alleged that: the VSP did not state date of
delivery; Sosa had not completed the documents required by the financing company, and as a matter of
policy, the vehicle could not and would not be released prior to full compliance with financing
requirements, submission of all documents, and execution of the sales agreement/invoice; the
P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not
have a sufficient cause of action against it. It also interposed compulsory counterclaims.

ordering the defendant to pay the cost of suit.

SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was
docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of
Appeals affirmed in toto the appealed decision.
Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of
the ponencia and also the following related issues: (a) whether or not the standard VSP was the true and
documented understanding of the parties which would have led to the ultimate contract of sale, (b)
whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the nonPage 124 of

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payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether
or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not
Toyota may be held liable for damages.

AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC.
that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent
that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales
representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with
ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an
agent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent. 21

We find merit in the petition.

Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected
contract of sale.
Article 1458 of the Civil Code defines a contract of sale as follows:

At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation
stage of a contract of sale. There are three stages in the contract of sale, namely:

Art. 1458.
By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or
its equivalent.

(a)
preparation, conception, or generation, which is the period of negotiation and bargaining,
ending at the moment of agreement of the parties;

A contract of sale may be absolute or conditional.

(b)
perfection or birth of the contract, which is the moment when the parties come to agree on the
terms of the contract; and

and Article 1475 specifically provides when it is deemed perfected:

(c)
consummation or death, which is the fulfillment or performance of the terms agreed upon in the
contract. 22

Art. 1475.
The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.

The second phase of the generation or negotiation stage in this case was the execution of the VSP. It
must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the
balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be
assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A.
Finance in the VSP.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the
law governing the form of contracts.
What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a
contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa
and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The
provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was
intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the
following day confirmed. But nothing was mentioned about the full purchase price and the manner the
installments were to be paid.

Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and
P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the
Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily
organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or
agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or
by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by
leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and
equipment, appliances and other movable property." 23

This Court had already ruled that a definite agreement on the manner of payment of the price is an
essential element in the formation of a binding and enforceable contract of sale. 18 This is so because
the agreement as to the manner of payment goes into the price such that a disagreement on the manner
of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential
element of a binding agreement to sell personal property. 19

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are
thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing
purchased on installment, the seller who assigns the notes or discounts them with a financing company,
and the financing company which is subrogated in the place of the seller, as the creditor of the
installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no meeting
of minds on the sale on installment basis.

Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one
thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters,
viz.,

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We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which
reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota
cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled
because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not
inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya
kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the
delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa
solemnly states:

[G.R. No. L-57339. December 29, 1983.]

AIR FRANCE, Petitioner, v. 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.
Benjamin S. Valte for Petitioner.

On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong
Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for
pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to
defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant for
reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff.
Plaintiff demanded for an explanation, but nothing was given; . . .
The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP
created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery
did not cause any legally indemnifiable injury.

Napoleon Garcia for Private Respondents.

SYLLABUS
1.
CIVIL LAW; OBLIGATIONS AND CONTRACT; CONTRACT OF CARRIAGE; AIRPLANE
TICKET; NO LONGER VALID FOR TRAVEL IF IT HAS EXPIRED BEFORE COMPLETION OF TRIP.
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) That is the time allowed a passenger to begin and to complete his trip (parags.
3.2 and 3.3). . . . A ticket can no longer be used for travel if its validity has expired before the passenger
completes his trip (parag. 3.5.1). . . . To complete the trip, the passenger must purchase a new ticket for
the remaining portion of the journey."cralaw virtua1aw library

The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal
basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to
his friends, townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see
on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered.
The van became the subject matter of talks during his celebration that he may not have paid for it, and
this created an impression against his business standing and reputation. At the bottom of this claim is
nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace
knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment
upon himself by bragging about a thing which he did not own yet.

2.
ID.; ID.; ID.; ID.; DISHONOR OF TICKET UPON EXPIRATION NOT A BREACH OF
CONTRACT. 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.

Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or
compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the
Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public
good, in addition to moral, temperate, liquidated, or compensatory damages.

3.
ID.; AGENCY; NOTICE TO AGENT CONSIDERED NOTICE TO PRINCIPAL. 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.

Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the
decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees.
26 No such explicit determination thereon was made in the body of the decision of the trial court. No
reason thus exists for such an award.
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CAG.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case
No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED.
The counterclaim therein is likewise DISMISSED.No pronouncement as to costs. SO ORDERED.

DECISION
MELENCIO-HERRERA, J.:
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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.

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. v. Sociedad Nacionale Air France", which reversed the Trial Courts 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.

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 19 May 1971 for Jose Gana and 26 May
1971 for the rest of the family.

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 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.

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").chanrobles.com:cralaw:red

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 Ellas 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 conduct or bad faith.

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.

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 Courts judgment in
a Decision, which decreed:chanrobles.com.ph : virtual law library
"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."cralaw
virtua1aw library

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
May 1971. 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

"SO ORDERED." 2
Reconsideration sought by AIR FRANCE was denied, hence, petitioners 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.
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We are constrained to reverse respondent Appellate Courts affirmative ruling thereon.

"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.

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) . . . That is the time allowed a passenger to begin and to complete his trip
(parags. 3.2 and 3.3.). . . . A ticket can no longer be used for travel if its validity has expired before the
passenger completes his trip (parag. 3.5.1). . . . To complete the trip, the passenger must purchase a
new ticket for the remaining portion of the journey" (ibid.) 3

TARIFF RULES

"3.

APPLICABLE FARE ON THE DATE OF DEPARTURE

"3.1

General Rule.

You said so to Mrs. Manucdoc?

"A

Yes, sir.." . . 5

The ruling relied on by respondent Appellate Court, therefore, in KLM v. 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.chanrobles law library

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:jgc:chanrobles.com.ph
"6.

"Q

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 Teresitas
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?

"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

"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.

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.

"Q

What do you mean?

"A

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

"ATTY. VALTE

"Q

What arrangement?

"Q

"A
The arrangement for the airline because the tickets would expire on May 7, 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.

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

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"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. . . . 7

This petition for review on certiorari seeks the reversal of the Decision1 and Resolution,2 dated
November 29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568.
The appellate court had affirmed the Decision3 dated October 10, 1989 of the Regional Trial Court (RTC)
of Manila, Branch 3, finding petitioner as defendant and the co-defendants below jointly and severally
liable to the plaintiffs, now herein respondents.
The antecedent facts are as follows:

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 Ellas 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.

Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life insurance issued by

petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso claims Renato Valle was her
insurance agent since 1972 and Valle collected her monthly premiums. In the first week of January 1977,
Valle told her that the Filipinas Life Escolta Office was holding a promotional investment program for
policyholders. It was offering 8% prepaid interest a month for certain amounts deposited on a monthly
basis. Enticed, she initially invested and issued a post-dated check dated January 7, 1977 for P10,000.4
In return, Valle issued Pedroso his personal check for P800 for the 8%5 prepaid interest and a Filipinas
Life "Agents Receipt" No. 807838.6

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.

Subsequently, she called the Escolta office and talked to Francisco Alcantara, the administrative
assistant, who referred her to the branch manager, Angel Apetrior. Pedroso inquired about the
promotional investment and Apetrior confirmed that there was such a promotion. She was even told she
could "push through with the check" she issued. From the records, the check, with the endorsement of
Alcantara at the back, was deposited in the account of Filipinas Life with the Commercial Bank and Trust
Company (CBTC), Escolta Branch.
Relying on the representations made by the petitioners duly authorized representatives Apetrior and
Alcantara, as well as having known agent Valle for quite some time, Pedroso waited for the maturity of
her initial investment. A month after, her investment of P10,000 was returned to her after she made a
written request for its refund. The formal written request, dated February 3, 1977, was written on an interoffice memorandum form of Filipinas Life prepared by Alcantara.7 To collect the amount, Pedroso
personally went to the Escolta branch where Alcantara gave her the P10,000 in cash. After a second
investment, she made 7 to 8 more investments in varying amounts, totaling P37,000 but at a lower rate
of 5%8 prepaid interest a month. Upon maturity of Pedrosos subsequent investments, Valle would take
back from Pedroso the corresponding yellow-colored agents receipt he issued to the latter.

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.
G.R. No. 159489

February 4, 2008

FILIPINAS LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, INC.), petitioner,
vs.
CLEMENTE N. PEDROSO, TERESITA O. PEDROSO and JENNIFER N. PALACIO thru her Attorneyin-Fact PONCIANO C. MARQUEZ, respondents.

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

DECISION
QUISUMBING, J.:

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

Filipinas Life, as the principal, is liable for obligations contracted by its agent Valle. By the contract of
agency, a person binds himself to render some service or to do something in representation or on behalf
of another, with the consent or authority of the latter.12 The general rule is that the principal is
responsible for the acts of its agent done within the scope of its authority, and should bear the damage
caused to third persons.13 When the agent exceeds his authority, the agent becomes personally liable
for the damage.14 But even when the agent exceeds his authority, the principal is still solidarily liable
together with the agent if the principal allowed the agent to act as though the agent had full powers.15 In
other words, the acts of an agent beyond the scope of his authority do not bind the principal, unless the
principal ratifies them, expressly or impliedly.16 Ratification in agency is the adoption or confirmation by
one person of an act performed on his behalf by another without authority.17

On appeal, the Court of Appeals affirmed the trial courts ruling and subsequently denied the motion for
reconsideration.
Petitioner now comes before us raising a single issue:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR AND
GRAVELY ABUSED ITS DISCRETION IN AFFIRMING THE DECISION OF THE LOWER COURT
HOLDING FLAC [FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY LIABLE WITH ITS CODEFENDANTS ON THE CLAIM OF RESPONDENTS INSTEAD OF HOLDING ITS AGENT, RENATO
VALLE, SOLELY LIABLE TO THE RESPONDENTS.10

Filipinas Life cannot profess ignorance of Valles acts. Even if Valles representations were beyond his
authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior expressly and knowingly
ratified Valles acts. It cannot even be denied that Filipinas Life benefited from the investments deposited
by Valle in the account of Filipinas Life. In our considered view, Filipinas Life had clothed Valle with
apparent authority; hence, it is now estopped to deny said authority. Innocent third persons should not be
prejudiced if the principal failed to adopt the needed measures to prevent misrepresentation, much more
so if the principal ratified his agents acts beyond the latters authority. The act of the agent is considered
that of the principal itself. Qui per alium facit per seipsum facere videtur. "He who does a thing by an
agent is considered as doing it himself."18

Simply put, did the Court of Appeals err in holding petitioner and its co-defendants jointly and severally
liable to the herein respondents?
Filipinas Life does not dispute that Valle was its agent, but claims that it was only a life insurance
company and was not engaged in the business of collecting investment money. It contends that the
investment scheme offered to respondents by Valle, Apetrior and Alcantara was outside the scope of
their authority as agents of Filipinas Life such that, it cannot be held liable to the respondents.11

WHEREFORE, the petition is DENIED for lack of merit. The Decision and Resolution, dated November
29, 2002 and August 5, 2003, respectively, of the Court of Appeals in CA-G.R. CV No. 33568 are
AFFIRMED.

On the other hand, respondents contend that Filipinas Life authorized Valle to solicit investments from
them. In fact, Filipinas Lifes official documents and facilities were used in consummating the
transactions. These transactions, according to respondents, were confirmed by its officers Apetrior and
Alcantara. Respondents assert they exercised all the diligence required of them in ascertaining the
authority of petitioners agents; and it is Filipinas Life that failed in its duty to ensure that its agents act
within the scope of their authority.

Costs against the petitioner. SO ORDERED.

[G.R. No. 152122. July 30, 2003]

Considering the issue raised in the light of the submissions of the parties, we find that the petition lacks
merit. The Court of Appeals committed no reversible error nor abused gravely its discretion in rendering
the assailed decision and resolution.

CHINA AIRLINES, petitioner, vs. DANIEL CHIOK, respondent.

DECISION
PANGANIBAN, J.:

It appears indisputable that respondents Pedroso and Palacio had invested P47,000 and P49,550,
respectively. These were received by Valle and remitted to Filipinas Life, using Filipinas Lifes official
receipts, whose authenticity were not disputed. Valles authority to solicit and receive investments was
also established by the parties. When respondents sought confirmation, Alcantara, holding a supervisory
position, and Apetrior, the branch manager, confirmed that Valle had authority. While it is true that a
person dealing with an agent is put upon inquiry and must discover at his own peril the agents authority,
in this case, respondents did exercise due diligence in removing all doubts and in confirming the validity
of the representations made by Valle.

A common carrier has a peculiar relationship with and an exacting responsibility to its passengers. For
reasons of public interest and policy, the ticket-issuing airline acts as principal in a contract of carriage
and is thus liable for the acts and the omissions of any errant carrier to which it may have endorsed any
sector of the entire, continuous trip.
The Case

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Before the Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, seeking to
reverse the August 7, 2001 Decision[2] and the February 7, 2002 Resolution[3] of the Court of Appeals
(CA) in CA-GR CV No. 45832. The challenged Decision disposed as follows:

Meanwhile, Chiok requested Carmen to put into writing the alleged reason why he was not allowed to
take his flight. The latter then wrote the following, to wit: PAL STAFF CARMEN CHAN CHKD WITH R/C
KENNY AT 1005H NO SUCH NAME IN COMPUTER FOR 311/24 NOV AND 307/25 NOV. The latter
sought to recover his luggage but found only 2 which were placed at the end of the passengers line.
Realizing that his new Samsonite luggage was missing, which contained cosmetics worth
HK$14,128.80, he complained to Carmen.

WHEREFORE, premises considered, the assailed Decision dated July 5, 1991 of Branch 31, Regional
Trial Court, National Capital Judicial Region, Manila, in Civil Case No. 82-13690, is hereby MODIFIED by
deleting that portion regarding defendants-appellants liabilities for the payment of the actual damages
amounting to HK$14,128.80 and US$2,000.00 while all other respects are AFFIRMED. Costs against
defendants-appellants.[4]

Thereafter, Chiok proceeded to PALs Hongkong office and confronted PALs reservation officer, Carie
Chao (hereafter referred to as Chao), who previously confirmed his flight back to Manila. Chao told
Chiok that his name was on the list and pointed to the latter his computer number listed on the PAL
confirmation sticker attached to his plane ticket, which number was R/MN62.

The assailed Resolution denied Petitioners Motion for Partial Reconsideration.

The Facts

Chiok then decided to use another CAL ticket with No. 297:4402:004:370:5 and asked Chao if this ticket
could be used to book him for the said flight. The latter, once again, booked and confirmed the formers
trip, this time on board PAL Flight No. PR 311 scheduled to depart that evening. Later, Chiok went to the
PAL check-in counter and it was Carmen who attended to him. As this juncture, Chiok had already
placed his travel documents, including his clutch bag, on top of the PAL check-in counter.

The facts are narrated by the CA[5] as follows:

On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok) purchased from China Airlines,
Ltd. (CAL for brevity) airline passenger ticket number 297:4402:004:278:5 for air transportation covering
Manila-Taipei-Hongkong-Manila. Said ticket was exclusively endorseable to Philippine Airlines, Ltd. (PAL
for brevity).

Thereafter, Carmen directed PAL personnel to transfer counters. In the ensuing commotion, Chiok lost
his clutch bag containing the following, to wit: (a) $2,000.00; (b) HK$2,000.00; (c) Taipei $8,000.00; (d)
P2,000.00; (e) a three-piece set of gold (18 carats) cross pens valued at P3,500; (f) a Cartier watch
worth about P7,500.00; (g) a tie clip with a garnet birthstone and diamond worth P1,800.00; and (h) a
[pair of] Christian Dior reading glasses. Subsequently, he was placed on stand-by and at around 7:30
p.m., PAL personnel informed him that he could now check-in.

Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipei using [the] CAL ticket.
Before he left for said trip, the trips covered by the ticket were pre-scheduled and confirmed by the
former. When he arrived in Taipei, he went to the CAL office and confirmed his Hongkong to Manila trip
on board PAL Flight No. PR 311. The CAL office attached a yellow sticker appropriately indicating that
his flight status was OK.

Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982 for damages, against PAL and
CAL, as defendants, docketed as Civil Case No. 82-13690, with Branch 31, Regional Trial Court,
National Capital Judicial Region, Manila.

When Chiok reached Hongkong, he went to the PAL office and sought to reconfirm his flight back to
Manila. The PAL office confirmed his return trip on board Flight No. PR 311 and attached its own sticker.
On November 24, 1981, Chiok proceeded to Hongkong International Airport for his return trip to Manila.
However, upon reaching the PAL counter, Chiok saw a poster stating that PAL Flight No. PR 311 was
cancelled because of a typhoon in Manila. He was then informed that all the confirmed ticket holders of
PAL Flight No. PR 311 were automatically booked for its next flight, which was to leave the next day. He
then informed PAL personnel that, being the founding director of the Philippine Polysterene Paper
Corporation, he ha[d] to reach Manila on November 25, 1981 because of a business option which he
ha[d] to execute on said date.

He alleged therein that despite several confirmations of his flight, defendant PAL refused to
accommodate him in Flight No. 307, for which reason he lost the business option aforementioned. He
also alleged that PALs personnel, specifically Carmen, ridiculed and humiliated him in the presence of so
many people. Further, he alleged that defendants are solidarily liable for the damages he suffered, since
one is the agent of the other.[6]
The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and severally liable to respondent. It
did not, however, rule on their respective cross-claims. It disposed as follows:

On November 25, 1981, Chiok went to the airport. Cathay Pacific stewardess Lok Chan (hereafter
referred to as Lok) ha[d] taken and received Chioks plane ticket and his luggage. Lok called the attention
of Carmen Chan (hereafter referred to as Carmen), PALs terminal supervisor, and informed the latter that
Chioks name was not in the computer list of passengers. Subsequently, Carmen informed Chiok that his
name did not appear in PALs computer list of passengers and therefore could not be permitted to board
PAL Flight No. PR 307.

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants to jointly and
severally pay:
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1. Actual damages in the amount of HK$14,128.80 or its equivalent in Philippine Currency at the time of
the loss of the luggage consisting of cosmetic products;

responsibility for the entire trip and shall be held accountable for the breach of that guaranty whether the
breach occurred in its own lines or in those of the other carriers.[9]

2. US$2,000.00 or its equivalent at the time of the loss of the clutch bag containing the money;

On PALs appeal, the appellate court held that the carrier had reneged on its obligation to transport
respondent when, in spite of the confirmations he had secured for Flight PR 311, his name did not
appear in the computerized list of passengers. Ruling that the airlines negligence was the proximate
cause of his excoriating experience, the appellate court sustained the award of moral and exemplary
damages.

3. P200,000.00 by way of moral damages;

4. P50,000.00 by way of exemplary damages or corrective damages;
5. Attorney[]s fees equivalent to 10% of the amounts due and demandable and awarded in favor of the
plaintiff; and

The CA, however, deleted the RTCs award of actual damages amounting to HK$14,128.80 and
US$2,000.00, because the lost piece of luggage and clutch bag had not actually been checked in or
delivered to PAL for transportation to Manila.

6. The costs of this proceedings.[7]

On August 28, 2001, petitioner filed a Motion for Partial Reconsideration, contending that the appellate
court had erroneously relied on a mere syllabus of KLM v. CA, not on the actual ruling therein. Moreover,
it argued that respondent was fully aware that the booking for the PAL sector had been made only upon
his request; and that only PAL, not CAL, was liable for the actual carriage of that segment. Petitioner
likewise prayed for a ruling on its cross-claim against PAL, inasmuch as the latters employees had acted
negligently, as found by the trial court.

The two carriers appealed the RTC Decision to the CA.

Ruling of the Court of Appeals
Affirming the RTC, the Court of Appeals debunked petitioners claim that it had merely acted as an
issuing agent for the ticket covering the Hong Kong-Manila leg of respondents journey. In support of its
Decision, the CA quoted a purported ruling of this Court in KLM Royal Dutch Airlines v. Court of
Appeals[8] as follows:

Denying the Motion, the appellate court ruled that petitioner had failed to raise any new matter or issue
that would warrant a modification or a reversal of the Decision. As to the alleged misquotation, the CA
held that while the portion it had cited appeared to be different from the wording of the actual ruling, the
variance was more apparent than real since the difference [was] only in form and not in substance.[10]

Article 30 of the Warsaw providing that in case of transportation to be performed by various successive
carriers, the passenger can take action only against the carrier who performed the transportation during
which the accident or the delay occurred presupposes the occurrence of either an accident or delay in
the course of the air trip, and does not apply if the damage is caused by the willful misconduct on the
part of the carriers employee or agent acting within the scope of his employment.

CAL and PAL filed separate Petitions to assail the CA Decision. In its October 3, 2001 Resolution, this
Court denied PALs appeal, docketed as GR No. 149544, for failure to serve the CA a copy of the Petition
as required by Section 3, Rule 45, in relation to Section 5(d) of Rule 56 and paragraph 2 of Revised
Circular No. 1-88 of this Court. PALs Motion for Reconsideration was denied with finality on January 21,
2002.

It would be unfair and inequitable to charge a passenger with automatic knowledge or notice of a
condition which purportedly would excuse the carrier from liability, where the notice is written at the back
of the ticket in letters so small that one has to use a magnifying glass to read the words. To preclude any
doubt that the contract was fairly and freely agreed upon when the passenger accepted the passage
ticket, the carrier who issued the ticket must inform the passenger of the conditions prescribed in the
ticket or, in the very least, ascertain that the passenger read them before he accepted the passage
ticket. Absent any showing that the carriers officials or employees discharged this responsibility to the
passenger, the latter cannot be bound by the conditions by which the carrier assumed the role of a mere
ticket-issuing agent for other airlines and limited its liability only to untoward occurrences in its own lines.

Only the appeal of CAL[11] remains in this Court.

Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
1. The Court of Appeals committed judicial misconduct in finding liability against the petitioner on the
basis of a misquotation from KLM Royal Dutch Airlines vs. Court of Appeals, et al., 65 SCRA 237 and in
magnifying its misconduct by denying the petitioners Motion for Reconsideration on a mere syllabus,
unofficial at that.

Where the passage tickets provide that the carriage to be performed thereunder by several successive
carriers is to be regarded as a single operation, the carrier which issued the tickets for the entire trip in
effect guaranteed to the passenger that the latter shall have sure space in the various carriers which
would ferry him through the various segments of the trip, and the ticket-issuing carrier assumes full

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2. The Court of Appeals committed an error of law when it did not apply applicable precedents on the
case before it.

in Frankfurt, Germany, they obtained a confirmation from Aer Lingus of their seat reservations on its
Flight 861. On the day of their departure, however, the airline rudely off-loaded them.

3. The Court of Appeals committed a non sequitur when it did not rule on the cross-claim of the
petitioner.[12]

When sued for breach of contract, KLM sought to be excused for the wrongful conduct of Aer Lingus by
arguing that its liability for damages was limited only to occurrences on its own sectors. To support its
argument, it cited Article 30 of the Warsaw Convention, stating that when transportation was to be
performed by various successive carriers, the passenger could take action only against the carrier that
had performed the transportation when the accident or delay occurred.

The Courts Ruling

The Petition is not meritorious.

In holding KLM liable for damages, we ruled as follows:

First Issue:
Alleged Judicial Misconduct

1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be
sustained. That article presupposes the occurrence of either an accident or a delay, neither of which took
place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus, through its manager
there, refused to transport the respondents to their planned and contracted destination.

Petitioner charges the CA with judicial misconduct for quoting from and basing its ruling against the two
airlines on an unofficial syllabus of this Courts ruling in KLM v. CA. Moreover, such misconduct was
allegedly aggravated when the CA, in an attempt to justify its action, held that the difference between the
actual ruling and the syllabus was more apparent than real.[13]

2. The argument that the KLM should not be held accountable for the tortious conduct of Aer Lingus
because of the provision printed on the respondents' tickets expressly limiting the KLM's liability for
damages only to occurrences on its own lines is unacceptable. As noted by the Court of Appeals that
condition was printed in letters so small that one would have to use a magnifying glass to read the
words. Under the circumstances, it would be unfair and inequitable to charge the respondents with
automatic knowledge or notice of the said condition so as to preclude any doubt that it was fairly and
freely agreed upon by the respondents when they accepted the passage tickets issued to them by the
KLM. As the airline which issued those tickets with the knowledge that the respondents would be flown
on the various legs of their journey by different air carriers, the KLM was chargeable with the duty and
responsibility of specifically informing the respondents of conditions prescribed in their tickets or, in the
very least, to ascertain that the respondents read them before they accepted their passage tickets. A
thorough search of the record, however, inexplicably fails to show that any effort was exerted by the KLM
officials or employees to discharge in a proper manner this responsibility to the respondents.
Consequently, we hold that the respondents cannot be bound by the provision in question by which KLM
unilaterally assumed the role of a mere ticket-issuing agent for other airlines and limited its liability only
to untoward occurrences on its own lines.

We agree with petitioner that the CA committed a lapse when it relied merely on the unofficial syllabus of
our ruling in KLM v. CA. Indeed, lawyers and litigants are mandated to quote decisions of this Court
accurately.[14] By the same token, judges should do no less by strictly abiding by this rule when they
quote cases that support their judgments and decisions. Canon 3 of the Code of Judicial Conduct
enjoins them to perform official duties diligently by being faithful to the law and maintaining their
professional competence.
However, since this case is not administrative in nature, we cannot rule on the CA justices administrative
liability, if any, for this lapse. First, due process requires that in administrative proceedings, the
respondents must first be given an opportunity to be heard before sanctions can be imposed. Second,
the present action is an appeal from the CAs Decision, not an administrative case against the
magistrates concerned. These two suits are independent of and separate from each other and cannot be
mixed in the same proceedings.
By merely including the lapse as an assigned error here without any adequate and proper administrative
case therefor, petitioner cannot expect the imposition of an administrative sanction.

3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of the
respondents provide that the carriage to be performed thereunder by several successive carriers is to be
regarded as a single operation, which is diametrically incompatible with the theory of the KLM that the
respondents entered into a series of independent contracts with the carriers which took them on the
various segments of their trip. This position of KLM we reject. The respondents dealt exclusively with the
KLM which issued them tickets for their entire trip and which in effect guaranteed to them that they would
have sure space in Aer Lingus flight 861. The respondents, under that assurance of the internationally
prestigious KLM, naturally had the right to expect that their tickets would be honored by Aer Lingus to
which, in the legal sense, the KLM had indorsed and in effect guaranteed the performance of its principal

In the case at bar, we can only determine whether the error in quotation would be sufficient to reverse or
modify the CA Decision.
Applicability of KLM v. CA
In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for their world tour. The tour
included a Barcelona-Lourdes route, which was serviced by the Irish airline Aer Lingus. At the KLM office

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engagement to carry out the respondents' scheduled itinerary previously and mutually agreed upon
between the parties.

It is significant to note that the contract of air transportation was between petitioner and respondent, with
the former endorsing to PAL the Hong Kong-to-Manila segment of the journey. Such contract of carriage
has always been treated in this jurisdiction as a single operation. This jurisprudential rule is supported by
the Warsaw Convention,[22] to which the Philippines is a party, and by the existing practices of the
International Air Transport Association (IATA).

4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct of an
official of the Aer Lingus which the KLM had engaged to transport the respondents on the BarcelonaLourdes segment of their itinerary. It is but just and in full accord with the policy expressly embodied in
our civil law which enjoins courts to be more vigilant for the protection of a contracting party who
occupies an inferior position with respect to the other contracting party, that the KLM should be held
responsible for the abuse, injury and embarrassment suffered by the respondents at the hands of a
supercilious boor of the Aer Lingus.[15]

Article 1, Section 3 of the Warsaw Convention states:

Transportation to be performed by several successive air carriers shall be deemed, for the purposes of
this Convention, to be one undivided transportation, if it has been regarded by the parties as a single
operation, whether it has been agreed upon under the form of a single contract or of a series of
contracts, and it shall not lose its international character merely because one contract or a series of
contracts is to be performed entirely within a territory subject to the sovereignty, suzerainty, mandate, or
authority of the same High Contracting Party.[23]

In the instant case, the CA ruled that under the contract of transportation, petitioner -- as the ticketissuing carrier (like KLM) -- was liable regardless of the fact that PAL was to perform or had performed
the actual carriage. It elucidated on this point as follows:
By the very nature of their contract, defendant-appellant CAL is clearly liable under the contract of
carriage with [respondent] and remains to be so, regardless of those instances when actual carriage was
to be performed by another carrier. The issuance of a confirmed CAL ticket in favor of [respondent]
covering his entire trip abroad concretely attests to this. This also serves as proof that defendantappellant CAL, in effect guaranteed that the carrier, such as defendant-appellant PAL would honor his
ticket, assure him of a space therein and transport him on a particular segment of his trip.[16]

Article 15 of IATA-Recommended Practice similarly provides:

Carriage to be performed by several successive carriers under one ticket, or under a ticket and any
conjunction ticket issued therewith, is regarded as a single operation.
In American Airlines v. Court of Appeals,[24] we have noted that under a general pool partnership
agreement, the ticket-issuing airline is the principal in a contract of carriage, while the endorsee-airline is
the agent.

Notwithstanding the errant quotation, we have found after careful deliberation that the assailed Decision
is supported in substance by KLM v. CA. The misquotation by the CA cannot serve as basis for the
reversal of its ruling.

x x x Members of the IATA are under a general pool partnership agreement wherein they act as agent of
each other in the issuance of tickets to contracted passengers to boost ticket sales worldwide and at the
same time provide passengers easy access to airlines which are otherwise inaccessible in some parts of
the world. Booking and reservation among airline members are allowed even by telephone and it has
become an accepted practice among them. A member airline which enters into a contract of carriage
consisting of a series of trips to be performed by different carriers is authorized to receive the fare for the
whole trip and through the required process of interline settlement of accounts by way of the IATA
clearing house an airline is duly compensated for the segment of the trip serviced. Thus, when the
petitioner accepted the unused portion of the conjunction tickets, entered it in the IATA clearing house
and undertook to transport the private respondent over the route covered by the unused portion of the
conjunction tickets, i.e., Geneva to New York, the petitioner tacitly recognized its commitment under the
IATA pool arrangement to act as agent of the principal contracting airline, Singapore Airlines, as to the
segment of the trip the petitioner agreed to undertake. As such, the petitioner thereby assumed the
obligation to take the place of the carrier originally designated in the original conjunction ticket. The
petitioners argument that it is not a designated carrier in the original conjunction tickets and that it issued
its own ticket is not decisive of its liability. The new ticket was simply a replacement for the unused
portion of the conjunction ticket, both tickets being for the same amount of US$ 2,760 and having the
same points of departure and destination. By constituting itself as an agent of the principal carrier the

Nonetheless, to avert similar incidents in the future, this Court hereby exhorts members of the bar and
the bench to refer to and quote from the official repository of our decisions, the Philippine Reports,
whenever practicable.[17] In the absence of this primary source, which is still being updated, they may
resort to unofficial sources like the SCRA.[18] We remind them that the Courts ponencia, when used to
support a judgment or ruling, should be quoted accurately.[19]
Second Issue:
Liability of the Ticket-Issuing Airline
We now come to the main issue of whether CAL is liable for damages. Petitioner posits that the CA
Decision must be annulled, not only because it was rooted on an erroneous quotation, but also because
it disregarded jurisprudence, notably China Airlines v. Intermediate Appellate Court[20] and China
Airlines v. Court of Appeals.[21]
Jurisprudence Supports
CA Decision

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petitioners undertaking should be taken as part of a single operation under the contract of carriage
executed by the private respondent and Singapore Airlines in Manila.[25]

In the case at bar, the known duty of PAL was to transport herein respondent from Hong Kong to Manila.
That duty arose when its agent confirmed his reservation for Flight PR 311,[30] and it became
demandable when he presented himself for the trip on November 24, 1981.

Likewise, as the principal in the contract of carriage, the petitioner in British Airways v. Court of
Appeals[26] was held liable, even when the breach of contract had occurred, not on its own flight, but on
that of another airline. The Decision followed our ruling in Lufthansa German Airlines v. Court of Appeals,
[27] in which we had held that the obligation of the ticket-issuing airline remained and did not cease,
regardless of the fact that another airline had undertaken to carry the passengers to one of their
destinations.

It is true that due to a typhoon, PAL was unable to transport respondent on Flight PR 311 on November
24, 1981. This fact, however, did not terminate the carriers responsibility to its passengers. PAL
voluntarily obligated itself to automatically transfer all confirmed passengers of PR 311 to the next
available flight, PR 307, on the following day.[31] That responsibility was subsisting when respondent,
holding a confirmed ticket for the former flight, presented himself for the latter.

In the instant case, following the jurisprudence cited above, PAL acted as the carrying agent of CAL. In
the same way that we ruled against British Airways and Lufthansa in the aforementioned cases, we also
rule that CAL cannot evade liability to respondent, even though it may have been only a ticket issuer for
the Hong Kong-Manila sector.

The records amply establish that he secured repeated confirmations of his PR 311 flight on November
24, 1981. Hence, he had every reason to expect that he would be put on the replacement flight as a
confirmed passenger. Instead, he was harangued and prevented from boarding the original and the
replacement flights. Thus, PAL breached its duty to transport him. After he had been directed to pay the
terminal fee, his pieces of luggage were removed from the weighing-in counter despite his protestations.
[32]

Moral and Exemplary Damages

Both the trial and the appellate courts found that respondent had satisfactorily proven the existence of
the factual basis for the damages adjudged against petitioner and PAL. As a rule, the findings of fact of
the CA affirming those of the RTC will not be disturbed by this Court.[28] Indeed, the Supreme Court is
not a trier of facts. As a rule also, only questions of law -- as in the present recourse -- may be raised in
petitions for review under Rule 45.
Moral damages cannot be awarded in breaches of carriage contracts, except in the two instances
contemplated in Articles 1764 and 2220 of the Civil Code, which we quote:

It is relevant to point out that the employees of PAL were utterly insensitive to his need to be in Manila on
November 25, 1981, and to the likelihood that his business affairs in the city would be jeopardized
because of a mistake on their part. It was that mistake that had caused the omission of his name from
the passenger list despite his confirmed flight ticket. By merely looking at his ticket and validation sticker,
it is evident that the glitch was the airlines fault. However, no serious attempt was made by PAL to
secure the all-important transportation of respondent to Manila on the following day. To make matters
worse, PAL allowed a group of non-revenue passengers, who had no confirmed tickets or reservations,
to board Flight PR 307.[33]

Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title
XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger
caused by the breach of contract by a common carrier.

Time and time again, this Court has stressed that the business of common carriers is imbued with public
interest and duty; therefore, the law governing them imposes an exacting standard.[34] In Singson v.
Court of Appeals,[35] we said:

xxxxxxxxx

x x x [T]he carrier's utter lack of care and sensitivity to the needs of its passengers, clearly constitutive of
gross negligence, recklessness and wanton disregard of the rights of the latter, [are] acts evidently
indistinguishable or no different from fraud, malice and bad faith. As the rule now stands, where in
breaching the contract of carriage the defendant airline is shown to have acted fraudulently, with malice
or in bad faith, the award of moral and exemplary damages, in addition to actual damages, is proper.[36]
(Italics supplied)

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith. (Italics supplied)
There is no occasion for us to invoke Article 1764 here. We must therefore determine if CAL or its agent
(PAL) is guilty of bad faith that would entitle respondent to moral damages.

In Saludo v. Court of Appeals,[37] the Court reminded airline companies that due to the nature of their
business, they must not merely give cursory instructions to their personnel to be more accommodating
towards customers, passengers and the general public; they must require them to be so.

In Lopez v. Pan American World Airways,[29] we defined bad faith as a breach of a known duty through
some motive of interest or ill will.

The acts of PALs employees, particularly Chan, clearly fell short of the extraordinary standard of care
that the law requires of common carriers.[38] As narrated in Chans oral deposition,[39] the manner in
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which the airline discharged its responsibility to respondent and its other passengers manifested a lack
of the requisite diligence and due regard for their welfare. The pertinent portions of the Oral Deposition
are reproduced as follows:

A Yes, [are you] asking me whether I saw this ticket?

Atty. Fruto: Yes.

Q Now you said that flight PR 311 on 24th November was cancelled due to [a] typhoon and naturally the
passengers on said flight had to be accommodated on the first flight the following day or the first flight
subsequently. [W]ill you tell the Honorable Deposition Officer the procedure followed by Philippine
Airlines in the handling of passengers of cancelled flight[s] like that of PR 311 which was cancelled due
to [a] typhoon?

A I believe I saw it.

Q You saw it, O.K. Now of course you will agree with me Miss Chan that this yellow stub here which has
been marked as Exh. A-1-A, show[s] that the status on flight 311, 24th November, is O.K., correct?

A The procedure will be: all the confirmed passengers from [PR] 311 24th November [are] automatically
transfer[red] to [PR] 307, 25th November[,] as a protection for all disconfirmed passengers.

A Yes.
Q You agree with me. And you will also agree with me that in this ticket of flight 311, on this, another
sticker Exh. A-1-B for 24 November is O.K.?

Q Aside from this procedure[,] what do you do with the passengers on the cancelled flight who are
expected to check-in on the flights if this flight is cancelled or not operating due to typhoon or other
reasons[?] In other words, are they not notified of the cancellation?

A May I x x x look at them. Yes, it says O.K. x x x, but [there is] no validation.

A I think all these passengers were not notified because of a typhoon and Philippine Airlines Reservation
were [sic] not able to call every passenger by phone.

Q O.K. Miss Chan what do you understand by these entries here R bar M N 6 V?[41]
A This is what we call a computer reference.

Atty. Fruto:
Q Did you say were not notified?

Q I see. This is a computer reference showing that the name of Mr. Chiok has been entered in Philippine
Airlines computer, and this is his computer number.

A I believe they were not, but believe me, I was on day-off.

A Yes.

Atty. Calica:

Q Now you stated in your answer to the procedure taken, that all confirmed passengers on flight 311, 24
November[,] were automatically transferred to 307 as a protection for the passengers, correct?

Q Per procedure, what should have been done by Reservations Office when a flight is cancelled for one
reason or another?

A Correct.

A If there is enough time, of course, Reservations Office x x x call[s] up all the passengers and tell[s]
them the reason. But if there [is] no time[,] then the Reservations Office will not be able to do that.[40]

Q So that since following the O.K. status of Mr. Chioks reservation [on] flight 311, [he] was also
automatically transferred to flight 307 the following day?

xxxxxxxxx

A Should be.

Q I see. Miss Chan, I [will] show you a ticket which has been marked as Exh. A and A-1. Will you please
go over this ticket and tell the court whether this is the ticket that was used precisely by Mr. Chiok when
he checked-in at [F]light 307, 25 November 81?

Q Should be. O.K. Now do you remember how many passengers x x x were transferred from flight 311,
24 November to flight 307, 25 November 81?

A [Are you] now asking me whether he used this ticket with this sticker?

A I can only give you a very brief idea because that was supposed to be air bus so it should be able to
accommodate 246 people; but how many [exactly], I dont know.[42]

Q No, no, no. That was the ticket he used.

xxxxxxxxx
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reckless as to virtually amount to bad faith, in which case, the passenger likewise becomes entitled to
recover moral damages.

Q So, between six and eight oclock in the evening of 25 November 81, Mr. Chiok already told you that he
just [came] from the Swire Building where Philippine Airlines had [its] offices and that he told you that his
space for 311 25 November 81 was confirmed?

In the present case, we stress that respondent had repeatedly secured confirmations of his PR 311 flight
on November 24, 1981 -- initially from CAL and subsequently from the PAL office in Hong Kong. The
status of this flight was marked OK on a validating sticker placed on his ticket. That sticker also
contained the entry RMN6V. Ms Chan explicitly acknowledged that such entry was a computer reference
that meant that respondents name had been entered in PALs computer.

A Yes.
Q That is what he told you. He insisted on that flight?
A Yes.

A Swire House building is not directly under Philippine Airlines. it is just an agency for selling Philippine
Airlines ticket. And besides around six o clock theyre close[d] in Central.

Since the status of respondent on Flight PR 311 was OK, as a matter of right testified to by PALs
witness, he should have been automatically transferred to and allowed to board Flight 307 the following
day. Clearly resulting from negligence on the part of PAL was its claim that his name was not included in
its list of passengers for the November 24, 1981 PR 311 flight and, consequently, in the list of the
replacement flight PR 307. Since he had secured confirmation of his flight -- not only once, but twice -by personally going to the carriers offices where he was consistently assured of a seat thereon -- PALs
negligence was so gross and reckless that it amounted to bad faith.

Q So this Swire Building is an agency authorized by Philippine Airlines to issue tickets for and on behalf
of Philippine Airlines and also...

In view of the foregoing, we rule that moral and exemplary[50] damages were properly awarded by the
lower courts.[51]

A Yes.

Third Issue:
Propriety of the Cross-Claim

Q And did you not try to call up Swire Building-- Philippine Airlines and verify indeed if Mr. Chiok was
there?

Q And also to confirm spaces for and on behalf of Philippine Airlines.

We now look into the propriety of the ruling on CALs cross-claim against PAL. Petitioner submits that the
CA should have ruled on the cross-claim, considering that the RTC had found that it was PALs
employees who had acted negligently.

A Yes.[43]
Under the foregoing circumstances, we cannot apply our 1989 ruling in China Airlines v. Intermediate
Appellate Court,[44] which petitioner urges us to adopt. In that case, the breach of contract and the
negligence of the carrier in effecting the immediate flight connection for therein private respondent was
incurred in good faith.[45] Having found no gross negligence or recklessness, we thereby deleted the
award of moral and exemplary damages against it.[46]

Section 8 of Rule 6 of the Rules of Court reads:

Sec. 8. Cross-claim. - A cross claim is any claim by one party against a co-party arising out of the
transaction or occurrence that is the subject matter either of the original action or of a counterclaim
therein. Such cross-claim may include a claim that the party against whom it is asserted is or may be
liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.

This Courts 1992 ruling in China Airlines v. Court of Appeals[47] is likewise inapplicable. In that case, we
found no bad faith or malice in the airlines breach of its contractual obligation.[48] We held that, as
shown by the flow of telexes from one of the airlines offices to the others, petitioner therein had
exercised diligent efforts in assisting the private respondent change his flight schedule. In the instant
case, petitioner failed to exhibit the same care and sensitivity to respondents needs.

For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA Finance Corporation v.
CA,[52] the Court stated:
x x x. An indispensable party is one whose interest will be affected by the courts action in the litigation,
and without whom no final determination of the case can be had. The partys interest in the subject
matter of the suit and in the relief sought are so inextricably intertwined with the other parties that his
legal presence as a party to the proceeding is an absolute necessity. In his absence there cannot be a
resolution of the dispute of the parties before the court which is effective, complete, or equitable.

In Singson v. Court of Appeals,[49] we said:

x x x Although the rule is that moral damages predicated upon a breach of contract of carriage may only
be recoverable in instances where the mishap results in the death of a passenger, or where the carrier is
guilty of fraud or bad faith, there are situations where the negligence of the carrier is so gross and

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xxxxxxxxx
The uncontroverted facts in the present case may be briefly stated as follows. Because of the Pacific
War and by reason of the destruction and loss of animals of labor, farm implements, and damage to or
abandonment of farm lands, after liberation there was acute shortage of foodstuff. President Roxas in
order to foment and encourage food production, instructed the plaintiff Philippine National Bank to
extend special facilities to farmers in the form of crop loans in order to enable them to rehabilitate their
farms. In pursuance of said instructions and to cooperate with the Administration, the plaintiff Bank
passed the corresponding resolution (Exhibit B) authorizing the granting of ten-month special crop loans
to bona fide food producers, land-owners or their tenants, under certain conditions. Delfin Buencamino,
one of the Vice-President of the Bank and head of the Branches and Agencies Department of said
institution, was entrusted with the supervision of the granting of these loans. Juan Tueres, one of the
Assistant Managers of said Department drafted the corresponding rules and regulations regarding the
granting of said specials crops loans. After approval by Buencamino, these rules and regulations were
embodied in a circular letter (Exhibit C), a copy of which was personally delivered to defendant Ferrer.
These rules and regulations were later amplified by another circular letter (Exhibit D). Besides
circularizing its branches and agencies with these rules and regulations, on June 14, 1946, the Bank
held in Manila a conference in of all its manager and Agents. Defendant Ferrer, Assistant Agent of the
Cotabato Agency attended the conference in representation of said Agency. He arrived late but Tueres
explained to him what had been discussed during the conference, emphasizing to him the necessity of
exercising diligence and care in the granting of the crop loans to see to it that they are granted only to
bona fide planters, land-owners or tenants, as well as repeating to him the advice of Vicente Carmona,
President of the bank, that the Managers and Agents of the Bank should not allow themselves to be
fooled.

Without the presence of indispensable parties to a suit or proceeding, judgment of a court cannot attain
real finality.
PALs interest may be affected by any ruling of this Court on CALs cross-claim. Hence, it is imperative
and in accordance with due process and fair play that PAL should have been impleaded as a party in the
present proceedings, before this Court can make a final ruling on this matter.
Although PAL was petitioners co-party in the case before the RTC and the CA, petitioner failed to include
the airline in the present recourse. Hence, the Court has no jurisdiction over it. Consequently, to make
any ruling on the cross-claim in the present Petition would not be legally feasible because PAL, not being
a party in the present case, cannot be bound thereby.[53]
WHEREFORE, the Petition is DENIED. Costs against petitioner.
SO ORDERED.
G.R. No. L-3407

June 29, 1951

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
BERNARDO BAGAMASPAD and BIENVENIDO M. FERRER, defendants-appellants.
Jose G. Flores, for appellants.
Nemesio P. Labunao for appellee.

The Cotabato Agency under the management of the two defendants began granting these special crop
loans in July, 1946, and by March of the following year, 1947, said Agency had granted to over 5,000
borrowers, loans in the total amount of a little over eight and half million pesos.

MONTEMAYOR, J.:
On May 25, 1948, the plaintiff Philippine National Bank, a banking corporation organized and operating
under the laws of the Philippines, with main office in the City of Manila and agencies in different
provinces like the province of Cotabato, initiated this suit in the Court of First Instance of Cotabato for the
purpose of collecting from the defendants Bernardo Bagamaspad and Bienvenido M. Ferrer who, in the
years 1946 and 1947, were its Agent and Assistant Agent, respectively, in its Cotabato Agency, the sum
of P704,903.18, said to have been disbursed and released by them as special crop loans, without
authority and in a careless manner to manifestly insolvent, unqualified or fictitious borrowers, all contrary
to the rules and regulations of the plaintiff Bank. In the course of the trial, upon petition of plaintiff's
counsel, the amount of the claim was reduced to P699,803.57, due to payments made by some of the
borrowers. On March 31, 1949, the trial court rendered judgment in favor of the plaintiff, ordering both
defendants to pay jointly and severally to it the sum of P699,803.57, representing the uncollected
balance of the special crop loans improperly released by said defendants, with legal interest thereon
from the date of the filing of the complaint, plus costs. The two defendants appealed from that decision.
The appeal was first taken to the Court of Appeals but in view of the amount involved it was certified to
this Tribunal by the said Court of Appeals.

The theory on which the Bank's claim and complaint are based is that the two defendants Bagamaspad
and Ferrer acting as Agent and Assistant Agent of the Cotabato Agency, in granting new crop loans after
November 13, 1946, violated the instructions of the Bank, and that furthermore, in granting said crop
loans, they acted negligently and did not exercise the care and precaution required of them in order to
prevent the release of crop loans to persons who were neither qualified borrowers nor entitled to the
assistance being rendered by the Government and the Bank, all contrary to the rules and regulations
issued by the Bank.
Because of the form heavy disbursements made by the Cotabato Agency in the form of crop loans and
because of exhaustion of its funds, said agency sent a telegram, Exhibit 11, dated November 11, 1946,
requesting authority from the central office to secure cash from the Zamboanga Agency. Replying to this
telegram, Delfin Buencamino sent a letter, Exhibit E, dated November 13, 1946, addressed to the
Cotabato Agency stating among other things that the purposes of these funds (to be obtained from the
Zamboanga Agency was to meet the release of the second installment crop loans being granted which
according to the telegram aggregated P60,000 daily. The letter reminded the Agency's that the Central
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office had not yet received the Agency's monthly reports on special crop loans granted, as required by
the regulations, and it emphasized the necessity of performing inspection of the field to verify whether
the amount released as first installment was actually used for the purpose for which it was granted,
before releasing the second installment. In relation with the said letter, Exhibit F, dated November 18,
1946, to the central office making reference to said Exhibit E, reiterating the Agency's heavy
disbursements on second installments for crop loans and stating that Ferrer had been instructed to
proceed to Zamboanga to secure the needed cash, and that Ferrer was able to secure P300,000 from
the Zamboanga Agency. Then making reference to and quoting a portion of the letter of Buencamino,
Exhibit E, Bagamaspad in his letter said:

the Zamboanga Agency, with the statement that as soon as the said amount was exhausted, the
Cotabato Agency may again request for replenishment. This letter of the Central Office again
emphasized the necessity of strict compliance with the rules and regulations regarding the required field
inspection before releasing the second installment. The said letter, Exhibit G, ended with the following:
Concerning the new special crop loan applications numbering about 1,000, we would like to be informed
whether the farms of the said applicants have already been actually planted, considering that at this
period planting season in low-land palay region is now over. As the purpose for which special crop loans
are being granted by the Bank is to provide the farmers with funds to meet the expenses of their farms
and if said farms have already been planted, we believe that the farmers may not need said credit
facilities unless it has been found out by actual investigation and verification that said loans are needed
by them.

In connection with the following portion:

"In this connection, we would like to state that the purpose of these funds is to meet the release of the
second installment of crop loans being granted by that agency, which, according to your said telegram,
will run to P600,000 daily."

Please, therefore, let us hear from you regarding this matter. (Emphasis ours)
In answer to this letter, Exhibit G, defendants sent a telegram, Exhibit H, dated November 25, 1946 to
the central office in Manila, stating that for Cotabato, the planting season for second crops of December.
In answer to Exhibit H, the central office sent a telegram, Exhibit I, dated November 28, 1946, expressly
instructing the Cotabato Agency to discontinue granting new crop loans. The defendants claim that this
telegram, Exhibit I, was received by them by mail on December 7, 1946.

of your above mentioned letter, may we know if could still entertain new applicants on Special Crop
Loans? We are constrained to request for this matter because there are now on file no less than 1,000
new applicants which we could not entertain because of your above quoted statement. Yesterday they
held a demonstration and copy of the picture is hereto attached. In addition, there are about 5,000
settlers in Koronadal Valley who, according to your indorsement of Oct. 31, 1946 to the Technical
Assistant to the President of the Philippines, could be given crop loans. If we could not therefore
disburse from the funds taken from Zamboanga Agency against first installment of applicants on crop
loans, we shall appreciate if you could give us definite course of action towards the clarifications of our
stand to the public.

In their brief the appellant contend that the trial court erred in finding and holding that extending new
special crop loans after November 26, 1946, amounting to P726,680, as they as Agent and Assistant
Agent, respectively, of the of the Cotabato Agency, did so at their own risk and in violation of the
instructions received from the Manila office; also that the court erred in holding that they (appellants)
acted with extreme laxity, negligence and carelessness in granting said new special crops loans. On the
first assigned error appellants maintain that outside of the telegram, Exhibit I, which they claim to have
received only on December 7, 1946, there was no instruction by the central office stopping the granting
of new special crop loans.

We are again sending Asst. Agent B.M. Ferrer to Zamboanga to despatch this letter without delay and
wait there for whatever instruction that you may give with reference to our desire to secure more cash
from our Zamboanga Agency, say P1,000,000 and whether we shall continue granting special crop loans
or not.

It may be that there was no such express instruction couched in so many words directly ordering the
defendants to stop granting new special crop loans, but that said idea of the central office could be
gathered from its letter, Exhibit E, and that it was understood and clearly, by the defendants, is evident. If
defendants did not so understand it, namely, that they were no longer authorized to grant new special
crop loans, how else may we interpret the contents of the letter of Bagamaspad, Exhibit F, particularly
that portion wherein after quoting a portion of the central office letter Exhibit E, he asks if they
(defendants) could still entertain new applications for special crop loans? At least, they then doubted
their to grant new special crop loans and until that doubt was cleared up and determined by new
instructions from their superiors, it was their bounden duty to stop granting new loans. Appellant Ferrer
himself, in response to question asked by the trial court during the hearing, said that in case of doubt as
to whether or not to disburse funds of the bank, he should consult and await instructions. Appellants
asked for instructions as to whether or not they should grant new special crop loans. This request for
instructions is contained clearly in Bagamaspad's letter, Exhibit F, where in one paragraph he ask: "May

With reference to the cash that we desire to secure more, we could tell you with assurance that the same
shall arrive their safely under guard on a chartered plane which will cost not more than P300 only.
From this letter of Bagamaspad of which his co-defendant and Ferrer must have been aware, because
he himself prepared it upon order of Bagamaspad(pp. 340-344, t.s.n.), particularly the portion abovequoted, it will be seen that without waiting for authority to secure funds from the Zamboanga Agency,
Ferrer obtained P300,000 from said Agency, and that Bagamaspad again had sent Ferrer to Zamboanga
to await instruction from the central office regarding their desire and intention to secure in additional
P1,000,000 for the Cotabato Agency. As matter of fact, however, once in Zamboanga, and without
waiting for instructions, Ferrer again secured P500,000 from the Zamboanga Agency. It was while Ferrer
already carrying the P500,000 was about to board the plane that was to taken him to Cotabato, that he
received the answer from the central office, Exhibit G, authorizing him to obtain only P3,0000,000 from

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we know if we could still entertain new applications on special crop loans?" And, in another paragraph he
says? "We are again sending Asst. Agent B.M. Ferrer to Zamboanga . . . and wait there for further
instructions that you may give . . . and whether we shall continue granting special crops loans or not."
The trouble is that without waiting for said requested instructions, appellants proceeded to grant new
special crop loans from November 26, 1946, to January 4, 1947.

The lower court as may be seen, severely critcized and condemned the acts of laxity, negligence and
carelessness of the appellants. But the severity of this criticism and condemnation would appear to be
amply warranted by the evidence. Out of the numerous acts of laxity, negligence and carelessness
established by the record, a few cases may be cited. Exhibit C and D which contain instructions and
rules and regulations governing the granting of special crop loans, provide that before a crop is granted
the Agent or Sub-Agent of the Bank must be satisfied that the applicant is either landowner well known to
be possessing the particular property on which the crop is to be produced, the particular property on
which the crop ids to be produced, or if the applicant be tenant he must be recommended by the
landowner concerned or in the absence of said landowner must be properly identified that he is the bona
fide tenant actually tilling the land from which the crop to mortgage would be harvested.

Appellants not only granted new special crop loans after they were given to understand by the central
office that they should no longer grant said loans and before appellants received instructions as to what
they should do in that regard, but they also violated the express instructions of the Bank to the effect that
funds received from the Zamboanga Agency should be utilized only to pay second installments on
special crop loans. Of course, defendants contend that the total of P800,000 secured from the
Zamboanga Agency were all used in paying second installments, but the contrary is amply established
by Exhibit T, a statement prepared by Felicisimo Lopez, Chief Examiner of the Bank showing that out of
the P500,000 secured from the Zamboanga Agency on or about November 18, 1946, the amount of
P232,931.58 was paid on account of new special crop loans or first installments. The plaintiff-appellee
Bank in its brief explains in details this use of part of the Zamboanga funds in paying first installments on
new crop loans.

The evidence shows that in violation of these instructions and regulations, the defendants released large
loans aggregating P348,768.22 to about 103 borrowers who were neither landowners or tenants but only
public land sales applicants that is to say, persons who have merely filed applications to buy public
lands. It is a well known fact that when a person desires to apply for the purchase of public lands usually
containing trees, under brush, cogon or other wild vegetation, and never previously cultivated, he merely
goes over the land, takes it out and then files his application, tries to determine the location of the land,
its identity, proceeds to classify it to see if it is open to sale and if so, perhaps makes rough survey of it to
establish its exact location and fix boundaries with respect to the entire area of the public domain. The
application naturally carries no implication of occupancy, possession, much less cultivation and
dominion. And yet, in spite of all this, the applicants who were neither landowners or tenants.

As to the alleged error committed by the trial court in finding and holding that the appellants were
extremely lax, negligent and careless in granting new special crop loans, we quote with approval a
portion of the well considered decision of the trial Judge, Hon. Arsenio Solidum, on this point:
From the evidence of record, one cannot help but be amazed at the extreme laxity, negligence and
carelessness on the part of the defendants in the granting of the special crop loans. It seems that all
precautions to protect the interest of the Philippine National Bank as the principal of the defendants were
thrown overboard. From all appearances, the door of the Cotabato Agency was left wide open by the
defendants as an invitation for all persons to come in secure from them special crop loans regardless of
whether or not under the rules prescribed therefor they were rightfully entitled thereto. . . . (p. 165,
Record on Appeal)
xxx

xxx

The record further shows that Mr. Villamarzo, District Land Officer for Cotabato with whom these sale
applications had been filed, came to know that he had been issuing to the applicants, which were
nothing but acknowledgements of the filing of the applications, had been used by said applicants to
secure special crop loans, and so he went to see the appellants as early as the middle of August of 1946
and advised them that those certificates were issued merely to show that applications had been filed with
him but that it did not mean that said applications had already been investigated, much less that the
lands covered by them had been surveyed. Then about the end of the same month Villamarzo
accompanied by Almonte, a Division Land Inspector of the Bureau of Lands, again went to the
defendants and repeated the advice and warning. Despite all these, as already stated, appellants
granted new special crop loans to 103 of these public land sales applicants, knowing as they must have
known that the borrowers were neither landowners nor tenants. Furthermore, it should be remembered
that these special crop loans according to regulations were payable in ten (10) months, and were to be
secured by chattel mortgages on the crops to be produced. A virgin land, especially if covered with trees
or underbrush, needs to be cleared and placed in condition for cultivation before crops may produced.
That work of clearing would take some time. A public land sale applicant, even assuming that he
immediately began to clear the land applied for even before favorable action on his application is taken,
is hardly in a position to meet the requirements of the regulations governing the granting of special crop
loans, namely, to mortgage the crop he is going to produce, and pay the loan within ten months.

xxx

What really happened was that in those days of crop loan boom, the borrowers made a holiday of the
funds of the Cotabato Agency of the Philippine National Bank with indulgence and tolerance of the
defendants as the managing officials of the Agency. And the saddest part of it all was that the money did
not go to the farmers who needed it most but to unscrupulous persons, who, taking undue advantage of
the laxity and looseness of the defendants in doling out these loans, secured special crop loan funds
without the least idea of investing them in food production campaign for which they were primarily
intended. Part of the booty went to the pockets of those who acted as intermediaries in the procurement
of the loans under the very noses of the defendants fully knowing that such practice was prohibited by
the rules and regulations of the Philippine National Bank governing the operation of the provincial
agencies (Exhibits "W", "T-1", to "T-11", "U-1" to "U-2") . . . (pp. 176-177, Record on Appeal)

Appellants in their over-enthusiasm and seemingly inordinate desire to grant as many loans as possible
and in amounts disproportionate to the needs of the borrowers, admitted and passed upon more loan
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applications than they could properly handle. From July, 1946 to March, 1947 the total amount of about
eight and half (81/2) million pesos was released in the form of special crop loans to about 5,105
borrowers and this, in a relatively sparsely populated province like Cotabato. As a consequence of this
big volume of business the bookkeeper of the Agency could not keep up with the posting of the daily
transactions in his books and ledgers and he was several months behind. There were so many
applications acted upon and accepted that they could not all be carefully examined and many of them do
not even bear the initials or signatures of the appellants as required by regulations. Some of the chattel
mortgages given to secure the payments of the loans, contrary to regulations, do not show the number of
cavans of palay to be produced on the land and to be mortgaged in favor of the Bank.

Bagamaspad in his letter, Exhibit F, the plaintiff Bank wanted to know whether on that date, November
19th, the farmers in Cotabato had already planted their farms in which case there was no need for
obtaining crop loans to meet the expenses of planting. Answering this query, the Cotabato Agency under
the appellants, sent a telegram (Exhibit H) dated November 25, 1946, to the plaintiff Bank saying that the
planting season for Cotabato for second crops ends in December. This was evidently intended to justify
the granting of special crop loans even at the end of the year. The evidence however, belies the
correctness of this statement and information. Mr. Aniceto Padilla, Assistant Provincial Agricultural
Supervisor, a graduate of the College of Agriculture of the University of the Philippines, told the court that
his office, which is the Provincial Agricultural Station in Cotabato, has determined the proper period for
planting crops raised in that province and that for upland palay, the planting season is during the months
of March, April up to May; that for lowland palay is June and July; and that second crops may be planted
in September even as late as October. From this, one may conclude that it is not true as the appellants
informed the bank that the planting season for palay (second crop) in Cotabato ends in December.
Whether this incorrect information was given deliberately or thru negligence and carelessness, we deem
it unnecessary to determine.

Contrary to the Bank's rules and regulations regarding the granting of special crops loans, the
defendants allowed intermediaries to intervene in the granting of special crop loans. Many lawyers,
business agents and other persons intervened in the granting of the loans. We may have an idea of the
of the part played by these intermediaries by referring to a portion of the report, Exhibit V, prepared by
Mr. Lagdameo, one of the Assistant Managers of the Agencies and Branches Department of the plaintiff
Bank, sent to Cotabato to investigate the crop loan anomalies in the Cotabato Agency, which portion we
quote below:

To give a further idea of the confusion, lack of care and method with which the Cotabato Agency was
managed by the appellants, the record shows that in January, 1947, Mr. Simeon Intal, Traveling Auditor
of the Philippine National Bank, was sent to Cotabato with instructions to make an audit of the accounts
of the Cotabato Agency and to see for himself the reported irregularities being committed in said Agency
with respect to the granting of special crop loans. According to Mr. Intal he found the Cotabato Agency
like a market place full of people. He saw crop loan papers like promissory notes, loan applications and
chattel mortgages scattered all over the Agency, some on the desks of employees, on open shelves or
on top of filing cabinets, and others on the floor. He found that transactions which had taken place five
months before were not yet posted in the books of the Agency. In February, 1947, Mr. Amado Lagdameo,
then one of the Assistant Managers of the Branches and Agencies Department of the Bank, was also
sent to Cotabato and there he found the same condition found and reported by Intal. In order to make
thorough investigation of the anomalies reportedly obtaining in the Cotabato Agency, Felicisimo Lopez, a
certified public accountant and Chief Examiner of the plaintiff Bank, was sent to Cotabato in June, 1947.
He checked up the findings of Intal about the deplorable condition of the books and records of the
Agency and he agreed with said findings. Lopez and Intal and assisted by Benjamin de Guzman, Branch
Auditor of the Bank at the Davao Branch, Mr. Macuja (who later succeeded Benjamin de Guzman), Mr.
Juan B. Sanchez, now Branch Auditor in Legaspi, Mr. Antonio Cruz of the Head Office, Mr. Danao from
Oriental Misamis, Mr. Fernandez from Zamboanga and Mr. Romena of the Davao Branch, went to work
on the books and records of the books and records of the Cotabato Agency and it took them almost four
months to straighten out the special crop loan accounts and bring the books up-to-date, after which, they
found that as of June 10, 1947, the Cotabato Agency had released special crop loans in the aggregate
sum of P8,688,864.

On top of this, were the heavy expenses incurred by the borrowers to secure crop loans. The rush was
so unprecendented that applicants had to stay had to stay for weeks in hotels in Cotabato to lobby for
the approval of their applications. They even went to the extent of engaging intermediaries who in the
words of some borrowers were the best ones to fix things with the agency for the approval and
immediate release of the loan. These intermediaries are government employees and business agents
and particularly practicing attorneys who charged fees up to 5 per cent of the total loans approved.
Instances have been shown that the Agency itself collected the attorney's fees and delivered them to the
parties concerned. In other cases, the intermediaries themselves were the ones who received the
proceeds of the loans and distributed them to the borrowers. It has also been found that loan papers
including the preparation of promissory notes, debit tickets, etc., were prepared by said intermediaries
and submitted to the Agency already executed. . . ..
There is evidence to the effect that sometimes the fees of these intermediaries were collected by the
Agency itself and were later turned over to appellant Ferrer, perhaps to be later given by him to said
intermediaries.
One of the provisions of the rules and regulations concerning the granting of loans is to the effect that
loans to be released by a Provincial Agency like that of the appellant's should be approved by loan Board
to be composed of the Agent, like defendant Bagamaspad; the Assistant Agent, like defendant Ferrer or
the Inspector if there is no Assistant Agent; and the Municipal Treasurer where the borrower resides. The
evidence, however, shows that many of the special crop loans released by the appellants have not been
approved by this Board and others have not even been approved by anyone of them.

To us who have always had the impression and the idea that the business of a Bank is conducted in an
orderly, methodical and businesslike manner, that its papers, especially those relating to loans with their
corresponding securities, are properly filed, well-kept and in a safe place, its books kept up-to-date, and
that its funds are not given out in loans without careful and scrupulous scrutiny of the responsibility and

It will be remembered that in the letter of Vice President Buencamino, Exhibit G, dated November 19,
1946, speaking of the new special crop loan applications numbering about 1,000 mentioned by appellant

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solvency of the borrowers and the sufficiency of the security given by them, the conditions obtaining in
the Cotabato Agency due to the apparent indifference, carelessness or negligence of the appellants, is
indeed shocking. And it is because of these shortcomings of the appellants their disregard of the
elementary rules and practice of banking and their violation of instructions of their superiors, that these
anomalies resulting in financial losses to the Bank were made possible.

the same way that the original claim of P704,903.18, at the very instance of plaintiff was reduced to
P699,803.57. In other words, the act of the plaintiff Bank in the matter, far from being iniquitous, is really
beneficial to the appellants.
Appellants further contend that the present action is rather premature for the reason that there is no
showing that the borrowers to whom they allegedly gave loans without authority, are manifestly insolvent
or unqualified, and that the loans granted to them are uncollectible and have been written off the books
of the Bank as "bad debts". We find this contention untenable. It is not necessary for the plaintiff Bank to
first go against the individual borrowers, exhaust all remedies against them and then hold the defendants
liable only for the balance which cannot be collected. The case of Corsicana National Bank vs. Johnson,
64 L. ed. 141, cited by the trial court and by the plaintiff bank is in point. The issue in that case whether
or not a bank could proceed against one of its officials for losses which it had sustained in consequence
of the unauthorized loans released by said official, or whether it should first pursue its remedies against
the borrowers or await the liquidation of their estates. The Supreme Court of the United States in said
case held that the cause of action of the Bank accrued and the injury to it was complete on the very day
that the amounts of the unauthorized loans were released by the erring official. We quote a part of that
decision:

The trial court based the civil liability of the appellants herein on the provisions of Arts. 1718 and 1719 of
the Civil Code, defining and enumerating the duties and obligations of an agent and his liability for failure
to comply with such duties, and Art. 259 of the Code of Commerce which provides that an agent must
observe the provisions of law and regulations with respect to business transactions entrusted to him
otherwise he shall be responsible for the consequences resulting from their breach or omissions; and
also Art. 1902 of the Civil Code which provides for the liability of one for his tortious act, that is to say,
any act or omission which causes damage to another by his fault or negligence. Appellants while
agreeing with the meaning and scope of the legal provisions cited, nevertheless insist that those
provisions are not applicable to them inasmuch as they are not guilty of any violation of instructions or
regulations of the plaintiff Bank; and that neither are they guilty of negligence of carelessness as found
by the trial court. A careful study and consideration of the record, however, convinces us and we agree
with the trial court that the defendants-appellants have not only violated instructions of the plaintiff Bank,
including things which said Bank wanted done or not done, all of which were fully understood by them,
but they (appellants) also violated standing regulations regarding the granting of loans; and, what is
more, thru their carelessness, laxity and negligence, they allowed loans to be granted to persons who
were not entitled to receive loans.

Assuming the Fleming and Templeton notes were found to represent an excessive loan, knowingly
participated in or assented to by defendant as a director of the Bank, in our opinion the cause of action
against him accrued on or about June 10, 1907, when the Bank, through his act, parted with the money
loaned, receiving in return only negotiable paper that it could not lawfully accept because the transaction
was prohibited by section 5200, Rev. Stat. (Comp. Stat. section 9761, 6 Fed. Stat. Anno. 2d ed., p. 761).
The damage as well as the injury was complete at that time, and the Bank was not obliged to await the
maturity of the notes, because immediately it became the duty of the officers or directors who knowingly
participated in making the excessive loan to undo the wrong done by taking the notes off the hands of
the Bank and restoring to it the money that had been loaned. Of course, whatever of value the Bank
recovered from the borrowers on account of the loan would go in diminution of the damages; but the
responsible officials would have no right to require the Bank to pursue its remedies against the borrowers
or await the liquidation of their estates. The liability imposed by the statute upon the director is a direct
liability, not contingent or collateral.

It is the contention of the appellants that the act of plaintiff Bank in filling suits against the borrowers to
whom appellants were said to have granted loans without authority, which suits resulted in the payment
of part of said loans resulting in the reduction of the original claim of the plaintiff Bank from P704,903.18
to P699,803.57, should be interpreted and considered as a ratification of the acts of the appellants. What
is more, it is more, it is contended that it would be iniquitous for the plaintiff to go against the defendants
for whatever amounts may have been loaned by the latter and at the same time go against the individual
borrowers for collection of the respective sums borrowed by them. That would be enriching the plaintiff at
the expense of the defendants." We cannot subscribe to this theory. As pointed out by Counsel for
appellee, ordinarily, a principal who collects either judicially or extrajudicially a loan made by an agent
without authority, thereby ratifies the said act of the agent. In the present case, however, in filing suits
against some of the borrowers to collect at least part of the unauthorized loans, there was no intention
on the part of the plaintiff Bank to ratify the acts of appellants. Neither did the plaintiff receive any
substantial benefit by its act of filing these suits if we consider the fact that the collections so far made,
form a small or insignificant portion of the entire principal and interest. And, we fail to see any iniquity in
this act of the plaintiff in suing some of the borrowers to collect what it could at the same time holding the
appellants liable for the balance, because the plaintiff Bank is not trying to enrich itself at the expense of
the defendants but is merely trying to diminish as much as possible the loss to itself and automatically
decrease the financial liability of appellants. Considering the large amount for which appellants are found
liable, it is a matter of serious doubt if they are in a position to pay it. Moreover, whatever amount is
collected by the plaintiff Bank from borrowers, serves to diminish the financial liability of the appellants, in

In view of all the foregoing, and finding no reversible error in the decision appealed from, the same is
hereby affirmed with costs against the appellants. So ordered.
G.R. No. 107282 March 16, 1994
THE MANILA REMNANT CO., INC., petitioner,
vs.
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HON. COURT OF APPEALS, AND SPS. OSCAR C. VENTANILLA AND CARMEN GLORIA DIAZ,
respondents.

The lower court ruled further that if for any reason the transfer of the lots could not be effected, the
defendants would be solidarily liable to the Ventanillas for reimbursement of the sum of P73,122.35,
representing the amount paid for the two lots, and legal interest thereon from March 1970, plus the
decreed damages and attorney's fees. Valencia was also held liable to MRCI for moral and exemplary
damages and attorney's fees.

Tabalingcos & Associates Law Office for petitioner.

Oscar C. Ventanilla, Jr. and Augusto Garmaitan for private respondents.
CRUZ, J.:

From this decision, separate appeals were filed by Valencia and MRCI. The appellate court, however,
sustained the trial court in toto.

The present petition is an offshoot of our decision in Manila Remnant Co., Inc., (MRCI) v. Court of
Appeals, promulgated on November 22, 1990.

MRCI then filed before this Court a petition for certiorari to review the portion of the decision of the Court
of Appeals upholding the solidary liability of MRCI, AUVCI and Carlos Crisostomo for the payment of
moral and exemplary damages and attorney's fees to the Ventanillas.

That case involved parcels of land in Quezon City which were owned by petitioner MRCI and became
the subject of its agreement with A.U. Valencia and Co., Inc., (AUVCI) by virtue of which the latter was to
act as the petitioner's agent in the development and sale of the property. For a stipulated fee, AUVCI was
to convert the lands into a subdivision, manage the sale of the lots, execute contracts and issue official
receipts to the lot buyers. At the time of the agreement, the president of both MRCI and AUVCI was
Artemio U. Valencia.

On November 22, 1990, this Court affirmed the decision by the Court of Appeals and declared the
judgment of the trial court immediately executory.
The Present Case

Pursuant to the above agreement, AUVCI executed two contracts to sell dated March 3, 1970, covering
Lots 1 and 2, Block 17, in favor of spouses Oscar C. Ventanilla and Carmen Gloria Diaz for the
combined contract price of P66,571.00, payable monthly in ten years. After ten days and without the
knowledge of the Ventanilla couple, Valencia, as president of MRCI, resold the same parcels to Carlos
Crisostomo, one of his sales agents, without any consideration. Upon orders of Valencia, the monthly
payments of the Ventanillas were remitted to the MRCI as payments of Crisostomo, for which receipts
were issued in his name. The receipts were kept by Valencia without the knowledge of the Ventanillas
and Crisostomo. The Ventanillas continued paying their monthly installments.

On January 25, 1991, the spouses Ventanilla filed with the trial court a motion for the issuance of a writ
of execution in Civil Case No. 26411. The writ was issued on May 3, 1991, and served upon MRCI on
May 9, 1991.
In a manifestation and motion filed by MRCI with the trial court on May 24, 1991, the petitioner alleged
that the subject properties could not be delivered to the Ventanillas because they had already been sold
to Samuel Marquez on February 7, 1990, while their petition was pending in this Court. Nevertheless,
MRCI offered to reimburse the amount paid by the respondents, including legal interest plus the
aforestated damages. MRCI also prayed that its tender of payment be accepted and all garnishments on
their accounts lifted.

On May 30, 1973, MRCI informed AUVCI that it was terminating their agreement because of
discrepancies discovered in the latter's collections and remittances. On June 6, 1973, Valencia was
removed by the board of directors of MRCI as its president.

The Ventanillas accepted the amount of P210,000.00 as damages and attorney's fees but opposed the
reimbursement offered by MRCI in lieu of the execution of the absolute deed of sale. They contended
that the alleged sale to Samuel Marquez was void, fraudulent, and in contempt of court and that no claim
of ownership over the properties in question had ever been made by Marquez.

On November 21, 1978, the Ventanilla spouses, having learned of the supposed sale of their lots to
Crisostomo, commenced an action for specific performance, annulment of deeds, and damages against
Manila Remnant Co., Inc., A.U. Valencia and Co., Inc., and Carlos Crisostomo. It was docketed as Civil
Case No. 26411 in the Court of First Instance of Quezon City, Branch
7-B.

On July 19, 1991, Judge Elsie Ligot-Telan issued the following order:
To ensure that there is enough amount to cover the value of the lots involved if transfer thereof to plaintiff
may no longer be effected, pending litigation of said issue, the garnishment made by the Sheriff upon the
bank account of Manila Remnant may be lifted only upon the deposit to the Court of the amount of
P500,000.00 in cash.

On November 17, 1980, the trial court rendered a decision declaring the contracts to sell in favor of the
Ventanillas valid and subsisting, and annulling the contract to sell in favor of Crisostomo. It ordered the
MRCI to execute an absolute deed of sale in favor of the Ventanillas, free from all liens and
encumbrances. Damages and attorney's fees in the total amount of P210,000.00 were also awarded to
the Ventanillas for which the MRCI, AUVCI, and Crisostomo were held solidarily liable.

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MRCI then filed a manifestation and motion for reconsideration praying that it be ordered to reimburse
the Ventanillas in the amount of P263,074.10 and that the garnishment of its bank deposit be lifted. This
motion was denied by the trial court in its order dated September 30, 1991. A second manifestation and
motion filed by MRCI was denied on December 18, 1991. The trial court also required MRCI to show
cause why it should not be cited for contempt for disobedience of its judgment.

to the Supreme Court. There was no need then for an order enjoining the petitioner from re-selling the
property in litigation.
They also point to the unusual lack of interest of Marquez in protecting and asserting his right to the
disputed property, a clear indication that the alleged sale to him was merely a ploy of the petitioner to
evade the execution of the absolute deed of sale in their favor.

These orders were questioned by MRCI in a petition for certiorari before the respondent court on the
ground that they were issued with grave abuse of discretion.

The petition must fail.

The Court of Appeals ruled that the contract to sell in favor of Marquez did not constitute a legal
impediment to the immediate execution of the judgment. Furthermore, the cash bond fixed by the trial
court for the lifting of the garnishment was fair and reasonable because the value of the lot in question
had increased considerably. The appellate court also set aside the show-cause order and held that the
trial court should have proceeded under Section 10, Rule 39 of the Rules of Court and not Section 9
thereof. 1

The validity of the contract to sell in favor of the Ventanilla spouses is not disputed by the parties. Even
in the previous petition, the recognition of that contract was not assigned as error of either the trial court
or appellate court. The fact that the MRCI did not question the legality of the award for damages to the
Ventanillas also shows that it even then already acknowledged the validity of the contract to sell in favor
of the private respondents.
On top of all this, there are other circumstances that cast suspicion on the validity, not to say the very
existence, of the contract with Marquez.

In the petition now before us, it is submitted that the trial court and the Court of Appeals committed
certain reversible errors to the prejudice of MRCI.

First, the contract to sell in favor of Marquez was entered into after the lapse of almost ten years from the
rendition of the judgment of the trial court upholding the sale to the Ventanillas.

The petitioner contends that the trial court may not enforce it garnishment order after the monetary
judgment for damages had already been satisfied and the amount for reimbursement had already been
deposited with the sheriff. Garnishment as a remedy is intended to secure the payment of a judgment
debt when a well-founded belief exists that the erring party will abscond or deliberately render the
execution of the judgment nugatory. As there is no such situation in this case, there is no need for a
garnishment order.

Second, the petitioner did not invoke the contract with Marquez during the hearing on the motion for the
issuance of the writ of execution filed by the private respondents. It disclosed the contract only after the
writ of execution had been served upon it.
Third, in its manifestation and motion dated December 21, 1990, the petitioner said it was ready to
deliver the titles to the Ventanillas provided that their counterclaims against private respondents were
paid or offset first. There was no mention of the contract to sell with Marquez on February 7, 1990.

It is also averred that the trial court gravely abused its discretion when it arbitrarily fixed the amount of
the cash bond for the lifting of the garnishment order at P500,000.00.
MRCI further maintains that the sale to Samuel Marquez was valid and constitutes a legal impediment to
the execution of the absolute deed of sale to the Ventanillas. At the time of the sale to Marquez, the
issue of the validity of the sale to the Ventanillas had not yet been resolved. Furthermore, there was no
specific injunction against the petitioner re-selling the property.

Fourth, Marquez has not intervened in any of these proceedings to assert and protect his rights to the
subject property as an alleged purchaser in good faith.
At any rate, even if it be assumed that the contract to sell in favor of Marquez is valid, it cannot prevail
over the final and executory judgment ordering MRCI to execute an absolute deed of sale in favor of the
Ventanillas. No less importantly, the records do not show that Marquez has already paid the supposed
balance amounting to P616,000.00 of the original price of over P800,000.00. 2

Lastly, the petitioner insists that Marquez was a buyer in good faith and had a right to rely on the recitals
in the certificate of title. The subject matter of the controversy having passed to an innocent purchaser
for value, the respondent court erred in ordering the execution of the absolute deed of sale in favor of the
Ventanillas.

The Court notes that the petitioner stands to benefit more from the supposed contract with Marquez than
from the contract with the Ventanillas with the agreed price of only P66,571.00. Even if it paid the
P210,000.00 damages to the private respondents as decreed by the trial court, the petitioner would still
earn more profit if the Marquez contract were to be sustained.

For their part, the respondents argue that the validity of the sale to them had already been established
even while the previous petition was still pending resolution. That petition only questioned the solidary
liability of MRCI to the Ventanillas. The portion of the decision ordering the MRCI to execute an absolute
deed of sale in favor of the Ventanillas became final and executory when the petitioner failed to appeal it

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We come now to the order of the trial court requiring the posting of the sum of P500,000.00 for the lifting
of its garnishment order.

Regarding the refusal of the petitioner to execute the absolute deed of sale, Section 10 of Rule 39 of the
Rules of Court reads as follows:

While the petitioners have readily complied with the order of the trial court for the payment of damages to
the Ventanillas, they have, however, refused to execute the absolute deed of sale. It was for the purpose
of ensuring their compliance with this portion of the judgment that the trial court issued the garnishment
order which by its term could be lifted only upon the filling of a cash bond of P500,000.00.

Sec. 10. Judgment for specific act; vesting title If a judgment directs a party to execute a conveyance
of land, or to deliver deeds or other documents, or to perform any other specific act, and the party fails to
comply within the time specified, the court may direct the act to be done at the cost of the disobedient
party by some other person appointed by the court and the act when so done shall have like effect as if
done by the party. If real or personal property is within the Philippines, the court in lieu of directing a
conveyance thereof may enter judgment divesting the title of any party and vesting it in others and such
judgment shall have the force and effect of a conveyance executed in due form of law.

The petitioner questions the propriety of this order on the ground that it has already partially complied
with the judgment and that it has always expressed its willingness to reimburse the amount paid by the
respondents. It says that there is no need for a garnishment order because it is willing to reimburse the
Ventanillas in lieu of execution of the absolute deed of sale.

Against the unjustified refusal of the petitioner to accept payment of the balance of the contract price, the
remedy of the respondents is consignation, conformably to the following provisions of the Civil Code:

The alternative judgment of reimbursement is applicable only if the conveyance of the lots is not
possible, but it has not been shown that there is an obstacle to such conveyance. As the main obligation
of the petitioner is to execute the absolute deed of sale in favor of the Ventanillas, its unjustified refusal
to do so warranted the issuance of the garnishment order.

Art. 1256.
If the creditor to whom tender of payment has been made refuses without just cause
to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due. .
.

Garnishment is a species of attachment for reaching credits belonging to the judgment debtor and owing
to him from a stranger to the litigation. 3 It is an attachment by means of which the plaintiff seeks to
subject to his claim property of the defendant in the hands of a third person or money owed by such third
person or garnishee to the defendant. 4 The rules on attachment also apply to garnishment proceedings.

Art. 1258.
Consignation shall be made by depositing the things due at the disposal of the judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the announcement
of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof.

A garnishment order shall be lifted if it established that:

Art. 1260.
Once the consignation has been duly made, the debtor may ask the judge to order
the cancellation of the obligation.

(a)
the party whose accounts have been garnished has posted a counterbond or has made the
requisite cash deposit; 5

Accordingly, upon consignation by the Ventanillas of the sum due, the trial court may enter judgment
canceling the title of the petitioner over the property and transferring the same to the respondents. This
judgment shall have the same force and effect as conveyance duly executed in accordance with the
requirements of the law.

(b)
the order was improperly or irregularly issued 6 as where there is no ground for garnishment 7
or the affidavit and/or bond filed therefor are defective or insufficient; 8
(c)
or

the property attached is exempt from execution, hence exempt from preliminary attachment 9

(d)

the judgment is rendered against the attaching or garnishing creditor. 10

In sum, we find that:

1.
No legal impediment exists to the execution, either by the petitioner or the trial court, of an
absolute deed of sale of the subject property in favor of the respondent Ventanillas; and

Partial execution of the judgment is not included in the above enumeration of the legal grounds for the
discharge of a garnishment order. Neither does the petitioner's willingness to reimburse render the
garnishment order unnecessary. As for the counterbond, the lower court did not err when it fixed the
same at P500,000.00. As correctly pointed out by the respondent court, that amount corresponds to the
current fair market value of the property in litigation and was a reasonable basis for determining the
amount of the counterbond.

2.
The lower court did not abuse its discretion when it required the posting of a P500,000.00 cash
bond for the lifting of the garnishment order.
WHEREFORE, the petition is DENIED and the challenged decision of the Court of Appeals is
AFFIRMED in toto, with costs against the petitioner. It is so ordered.
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G.R. No. 137686

This is an action for mandamus with damages. On April 10, 1996, [herein petitioner] was declared in
default on motion of the [respondents] for failure to file an answer within the reglementary-period after it
was duly served with summons. On April 26, 1996, [herein petitioner] filed a motion to set aside the order
of default with objection thereto filed by [herein respondents].

February 8, 2000

RURAL BANK OF MILAOR (CAMARINES SUR), petitioner,

vs.
FRANCISCA OCFEMIA, ROWENA BARROGO, MARIFE O. NIO, FELICISIMO OCFEMIA, RENATO
OCFEMIA JR, and WINSTON OCFEMIA, respondents.

On June 17, 1996, an order was issued denying [petitioner's] motion to set aside the order of default. On
July 10, 1996, the defendant filed a motion for reconsideration of the order of June 17, 1996 with
objection thereto by [respondents]. On July 12, 1996, an order was issued denying [petitioner's] motion
for reconsideration. On July 31, 1996, [respondents] filed a motion to set case for hearing. A copy thereof
was duly furnished the [petitioner] but the latter did not file any opposition and so [respondents] were
allowed to present their evidence ex-parte. A certiorari case was filed by the [petitioner] with the Court of
Appeals docketed as CA GR No. 41497-SP but the petition was denied in a decision rendered on March
31, 1997 and the same is now final.

PANGANIBAN, J.:
When a bank, by its acts and failure to act, has clearly clothed its manager with apparent authority to sell
an acquired asset in the normal course of business, it is legally obliged to confirm the transaction by
issuing a board resolution to enable the buyers to register the property in their names. It has a duty to
perform necessary and lawful acts to enable the other parties to enjoy all benefits of the contract which it
had authorized.

The evidence presented by the [respondents] through the testimony of Marife O. Nio, one of the
[respondents] in this case, show[s] that she is the daughter of Francisca Ocfemia, a co-[respondent] in
this case, and the late Renato Ocfemia who died on July 23, 1994. The parents of her father, Renato
Ocfemia, were Juanita Arellano Ocfemia and Felicisimo Ocfemia. Her other co-[respondents] Rowena O.
Barrogo, Felicisimo Ocfemia, Renato Ocfemia, Jr. and Winston Ocfemia are her brothers and
sisters.1wphi1.nt

The Case
Before this Court is a Petition for Review on Certiorari challenging the December 18, 1998 Decision of
the Court of Appeals 1 (CA) in CA-GR SP No. 46246, which affirmed the May 20, 1997 Decision 2 of the
Regional Trial Court (RTC) of Naga City (Branch 28). The CA disposed as follows:

Marife O. Nio knows the five (5) parcels of land described in paragraph 6 of the petition which are
located in Bombon, Camarines Sur and that they are the ones possessing them which [were] originally
owned by her grandparents, Juanita Arellano Ocfemia and Felicisimo Ocfemia. During the lifetime of her
grandparents, [respondents] mortgaged the said five (5) parcels of land and two (2) others to the
[petitioner] Rural Bank of Milaor as shown by the Deed of Real Estate Mortgage (Exhs. A and A-1) and
the Promissory Note (Exh. B).

Wherefore, premises considered, the Judgment appealed from is hereby AFFIRMED. Costs against the
respondent-appellant. 3
The dispositive portion of the judgment affirmed by the CA ruled in this wise:
WHEREFORE, in view of all the foregoing findings, decision is hereby rendered whereby the [petitioner]
Rural Bank of Milaor (Camarines Sur), Inc. through its Board of Directors is hereby ordered to
immediately issue a Board Resolution confirming the Deed of Sale it executed in favor of Renato
Ocfemia marked Exhibits C, C-1 and C-2); to pay [respondents] the sum of FIVE HUNDRED (P500.00)
PESOS as actual damages; TEN THOUSAND (P10,000.00) PESOS as attorney's fees; THIRTY
THOUSAND (P30,000.00) PESOS as moral damages; THIRTY THOUSAND (P30,000.00) PESOS as
exemplary damages; and to pay the costs. 4

The spouses Felicisimo Ocfemia and Juanita Arellano Ocfemia were not able to redeem the mortgaged
properties consisting of seven (7) parcels of land and so the mortgage was foreclosed and thereafter
ownership thereof was transferred to the [petitioner] bank. Out of the seven (7) parcels that were
foreclosed, five (5) of them are in the possession of the [respondents] because these five (5) parcels of
land described in paragraph 6 of the petition were sold by the [petitioner] bank to the parents of Marife O.
Nio as evidenced by a Deed of Sale executed in January 1988 (Exhs. C, C-1 and C-2).
The aforementioned five (5) parcels of land subject of the deed of sale (Exh. C), have not been, however
transferred in the name of the parents of Merife O. Nio after they were sold to her parents by the
[petitioner] bank because according to the Assessor's Office the five (5) parcels of land, subject of the
sale, cannot be transferred in the name of the buyers as there is a need to have the document of sale
registered with the Register of Deeds of Camarines Sur.

Also assailed is the February 26, 1999 CA Resolution 5 which denied petitioner's Motion for
Reconsideration.
The Facts
The trial court's summary of the undisputed facts was reproduced in the CA Decision as follows:

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In view of the foregoing, Marife O. Nio went to the Register of Deeds of Camarines Sur with the Deed of
Sale (Exh. C) in order to have the same registered. The Register of Deeds, however, informed her that
the document of sale cannot be registered without a board resolution of the [petitioner] Bank. Marife Nio
then went to the bank, showed to if the Deed of Sale (Exh. C), the tax declaration and receipt of tax
payments and requested the [petitioner] for a board resolution so that the property can be transferred to
the name of Renato Ocfemia the husband of petitioner Francisca Ocfemia and the father of the other
[respondents] having died already.

The [respondents] are interested in having the property described in paragraph 6 of the petition
transferred to their names because their mother and co-petitioner, Francisca Ocfemia, is very sickly and
they want to mortgage the property for the medical expenses of Francisca Ocfemia. The illness of
Francisca Ocfemia beg[a]n after her husband died and her suffering from arthritis and pulmonary
disease already became serious before December 1995.
Marife O. Nio declared that her mother is now in serious condition and they could not have her
hospitalized for treatment as they do not have any money and this is causing the family sleepless nights
and mental anguish, thinking that their mother may die because they could not submit her for medication
as they do not have money. 6

The [petitioner] bank refused her request for a board resolution and made many alibi[s]. She was told
that the [petitioner] bank ha[d] a new manager and it had no record of the sale. She was asked and she
complied with the request of the [petitioner] for a copy of the deed of sale and receipt of payment. The
president of the [petitioner] bank told her to get an authority from her parents and other [respondents]
and receipts evidencing payment of the consideration appearing in the deed of sale. She complied with
said requirements and after she gave all these documents, Marife O. Nio was again told to wait for two
(2) weeks because the [petitioner] bank would still study the matter.

The trial court granted the Petition. As noted earlier, the CA affirmed the RTC Decision.
Hence, this recourse. 7 In a Resolution dated June 23, 1999, this Court issued a Temporary Restraining
Order directing the trial court "to refrain and desist from executing [pending appeal] the decision dated
May 20, 1997 in Civil Case No. RTC-96-3513, effective immediately until further orders from this Court."
8

After two (2) weeks, Marife O. Nio returned to the [petitioner] bank and she was told that the resolution
of the board would not be released because the [petitioner] bank ha[d] no records from the old manager.
Because of this, Marife O. Nio brought the matter to her lawyer and the latter wrote a letter on
December 22, 1995 to the [petitioner] bank inquiring why no action was taken by the board of the
request for the issuance of the resolution considering that the bank was already fully paid [for] the
consideration of the sale since January 1988 as shown by the deed of sale itself (Exh. D and D-1 ).

Ruling of the Court of Appeals

The CA held that herein respondents were "able to prove their present cause of action" against
petitioner. It ruled that the RTC had jurisdiction over the case, because (1) the Petition involved a matter
incapable of pecuniary estimation; (2) mandamus fell within the jurisdiction of RTC; and (3) assuming
that the action was for specific performance as argued by the petitioner, it was still cognizable by the said
court.

On January 15, 1996 the [petitioner] bank answered [respondents'] lawyer's letter (Exh. D and D-1)
informing the latter that the request for board resolution ha[d] already been referred to the board of
directors of the [petitioner] bank with another request that the latter should be furnished with a certified
machine copy of the receipt of payment covering the sale between the [respondents] and the [petitioner]
(Exh. E). This request of the [petitioner] bank was already complied [with] by Marife O. Nio even before
she brought the matter to her lawyer.

Issues
In its Memorandum, 9 the bank posed the following questions:

On January 23, 1996 [respondents'] lawyer wrote back the branch manager of the [petitioner] bank
informing the latter that they were already furnished the receipts the bank was asking [for] and that the
[respondents] want[ed] already to know the stand of the bank whether the board [would] issue the
required board resolution as the deed of sale itself already show[ed] that the [respondents were] clearly
entitled to the land subject of the sale (Exh. F). The manager of the [petitioner] bank received the letter
which was served personally to him and the latter told Marife O. Nio that since he was the one himself
who received the letter he would not sign anymore a copy showing him as having already received said
letter (Exh. F).

1. Question of Jurisdiction of the Regional Trial Court. Has a Regional Trial Court original jurisdiction
over an action involving title to real property with a total assessed value of less than P20,000.00?
2. Question of Law. May the board of directors of a rural banking corporation be compelled to confirm
a deed of absolute sale of real property owned by the corporation which deed of sale was executed by
the bank manager without prior authority of the board of directors of the rural banking corporation? 10
This Court's Ruling

After several days from receipt of the letter (Exh. F) when Marife O. Nio went to the [petitioner] again
and reiterated her request, the manager of the [petitioner] bank told her that they could not issue the
required board resolution as the [petitioner] bank ha[d] no records of the sale. Because of this Merife O.
Nio already went to their lawyer and ha[d] this petition filed.

The present Petition has no merit.

First Issue:
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Jurisdiction of the Regional Trial Court

Sec. 7. Action or defense based on document. Whenever an action or defense is based upon a
written instrument or document, the substance of such instrument or document shall be set forth in the
pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be
deemed to be a part of the pleading, or said copy may with like effect be set forth in the pleading.

Petitioner submits that the RTC had no jurisdiction over the case. Disputing the ruling of the appellate
court that the present action was incapable of pecuniary estimation, petitioner argues that the matter in
fact involved title to real property worth less than P20,000. Thus, under RA 7691, the case should have
been filed before a metropolitan trial court, a municipal trial court or a municipal circuit trial court.

Sec. 8. How to contest genuineness of such documents. When an action or defense is founded upon a
written instrument, copied in or attached to the corresponding pleading as provided in the preceding
section, the genuineness and due execution of the instrument shall be deemed admitted unless the
adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but this
provision does not apply when the adverse party does not appear to be a party to the instrument or when
compliance with an order for an inspection of the original instrument is refused. 12

We disagree. The well-settled rule is that jurisdiction is determined by the allegations of the complaint. 11
In the present case, the Petition for Mandamus filed by respondents before the trial court prayed that
petitioner-bank be compelled to issue a board resolution confirming the Deed of Sale covering five
parcels of unregistered land, which the bank manager had executed in their favor. The RTC has
jurisdiction over such action pursuant to Section 21 of BP 129, which provides:
Sec. 21. Original jurisdiction in other cases. Regional Trial Courts shall exercise original jurisdiction;

In failing to file its answer specifically denying under oath the Deed of Sale, the bank admitted the due
execution of the said contract. Such admission means that it acknowledged that Tena was authorized to
sign the Deed of Sale on its behalf. 13 Thus, defenses that are inconsistent with the due execution and
the genuineness of the written instrument are cut off by an admission implied from a failure to make a
verified specific denial.

(1) in the issuance of writ of certiorari, prohibition, mandamus, quo warranto, habeas corpus and
injunction which may be enforced in any part of their respective regions; and
(2) In actions affecting ambassadors and other public ministers and consuls.

Other Acts of the Bank

A perusal of the Petition shows that the respondents did not raise any question involving the title to the
property, but merely asked that petitioner's board of directors be directed to issue the subject resolution.
Moreover, the bank did not controvert the allegations in the said Petition. To repeat, the issue therein
was not the title to the property; it was respondents' right to compel the bank to issue a board resolution
confirming the Deed of Sale.

In any event, the bank acknowledged, by its own acts or failure to act, the authority of Fe S. Tena to
enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the
properties in dispute and paid the real estate taxes due thereon. If the bank management believed that it
had title to the property, it should have taken some measures to prevent the infringement or invasion of
its title thereto and possession thereof.

Second Issue:
Authority of the Bank Manager

Likewise, Tena had previously transacted business on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to innocent third persons where representation is made in
the course of its normal business by an agent like Manager Tena, even though such agent is abusing her
authority. 14 Clearly, persons dealing with her could not be blamed for believing that she was authorized
to transact business for and on behalf of the bank. Thus, this Court has ruled in Board of Liquidators v.
Kalaw: 15

Respondents initiated the present proceedings, so that they could transfer to their names the subject five
parcels of land; and subsequently, to mortgage said lots and to use the loan proceeds for the medical
expenses of their ailing mother. For the property to be transferred in their names, however, the register of
deeds required the submission of a board resolution from the bank confirming both the Deed of Sale and
the authority of the bank manager, Fe S. Tena, to enter into such transaction. Petitioner refused. After
being given the runaround by the bank, respondents sued in exasperation.

Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of
general practice, custom, and policy, the general manager may bind the company without formal
authorization of the board of directors. In varying language, existence of such authority is established, by
proof of the course of business, the usages and practices of the company and by the knowledge which
the board of directors has, or must be presumed to have, of acts and doings of its subordinates in and
about the affairs of the corporation. So also,

Allegations in the Petition for Mandamus Deemed Admitted

Respondents based their action before the trial court on the Deed of Sale, the substance of which was
alleged in and a copy thereof was attached to the Petition for Mandamus. The Deed named Fe S. Tena
as the representative of the bank. Petitioner, however, failed to specifically deny under oath the
allegations in that contract. In fact, it filed no answer at all, for which reason it was declared in default.
Pertinent provisions of the Rules of Court read:

. . . authority to act for and bind a corporation may be presumed from acts of recognition in other
instances where the power was in fact exercised.
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persistently and unjustifiably refused to perform its legal duty. Worse, it was less than candid in dealing
with respondents regarding this matter. In this light, the Court finds it proper to assess the bank treble
costs, in addition to the award of damages.

. . . Thus, when, in the usual course of business of a corporation, an officer has been allowed in his
official capacity to manage its affairs, his authority to represent the corporation may be implied from the
manner in which he has been permitted by the directors to manage its business.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED.
The Temporary Restraining Order issued by this Court is hereby LIFTED. Treble costs against petitioner.

Notwithstanding the putative authority of the manager to bind the bank in the Deed of Sale, petitioner
has failed to file an answer to the Petition below within the reglementary period, let alone present
evidence controverting such authority. Indeed, when one of herein respondents, Marife S. Nino, went to
the bank to ask for the board resolution, she was merely told to bring the receipts. The bank failed to
categorically declare that Tena had no authority. This Court stresses the following:

SO ORDERED.
Separate Opinions

. . . Corporate transactions would speedily come to a standstill were every person dealing with a
corporation held duty-bound to disbelieve every act of its responsible officers, no matter how regular they
should appear on their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634, 654655, that

VITUG, J., concurring opinion;

In passing upon the liability of a corporation in cases of this kind it is always well to keep in mind the
situation as it presents itself to the third party with whom the contract is made. Naturally he can have little
or no information as to what occurs in corporate meetings; and he must necessarily rely upon the
external manifestation of corporate consent. The integrity of commercial transactions can only be
maintained by holding the corporation strictly to the liability fixed upon it by its agents in accordance with
law; and we would be sorry to announce a doctrine which would permit the property of man in the city of
Paris to be whisked out of his hands and carried into a remote quarter of the earth without recourse
against the corporation whose name and authority had been used in the manner disclosed in this case.
As already observed, it is familiar doctrine that if a corporation knowingly permits one of its officers, or
any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public
as possessing power to do those acts, the corporation will, as against any one who has in good faith
dealt with the corporation through such agent, be estopped from denying his authority; and where it is
said "if the corporation permits this means the same as "if the thing is permitted by the directing power of
the corporation." 16

The Civil Code, being a law of general application, can be suppletory to special laws and certainly not
preclusive of those that govern commercial transactions. Indeed, in its generic sense, civil law can rightly
be said to encompass commercial law. Jus civile, in ancient Rome, was merely used to distinguish it
from jus gentium or the law common to all the nations within the empire and, at some time later, only in
contrast to international law. In more recent times, civil law is so referred to as private law in distinction
from public law and criminal law. Today, it may not be totally inaccurate to consider commercial law,
among some other special laws, as being a branch of civil law.

I share the views expressed in the ponencia written for the Court by our esteemed colleague Mr. Justice
Artemio V. Panganiban. There is just a brief clarificatory statement that I thought could be made.

Sec. 45 of the Corporation Code provides:

Sec. 45. Ultra vires acts of corporations. No corporation under this Code shall possess or exercise
any corporate powers except those conferred by this Code or by its articles of incorporation and except
such as are necessary or incidental to the exercise of the powers so conferred.
The language of the Code appears to confine the term ultra vires to an act outside or beyond express,
implied and incidental corporate powers. Nevertheless, the concept can also include those acts that may
ostensibly be within such powers but are, by general or special laws, either proscribed or declared
illegal. In general, although perhaps loosely, ultra vires has also been used to designate those acts of the
board of directors or of corporate officers when acting beyond their respective spheres of authority. In the
context that the law has used the term in Article 45 of the Corporation Code, an ultra vires act would be
void and not susceptible to ratification. 1 In determining whether or not a corporation may perform an act,
one considers the logical and necessary relation between the act assailed and the corporate purpose
expressed by the law or in the charter. For if the act were one which is lawful in itself or not otherwise
prohibited and done for the purpose of serving corporate ends or reasonably contributes to the
promotion of those ends in a substantial and not merely in a remote and fanciful sense, it may be fairly
considered within corporate powers. 2

In this light, the bank is estopped from questioning the authority of the bank manager to enter into the
contract of sale. If a corporation knowingly permits one of its officers or any other agent to act within the
scope of an apparent authority, it holds the agent out to the public as possessing the power to do those
acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent,
be estopped from denying the agent's authority. 17
Unquestionably, petitioner has authorized Tena to enter into the Deed of Sale. Accordingly, it has a clear
legal duty to issue the board resolution sought by respondent's. Having authorized her to sell the
property, it behooves the bank to confirm the Deed of Sale so that the buyers may enjoy its full use.
The board resolution is, in fact, mere paper work. Nonetheless, it is paper work necessary in the orderly
operations of the register of deeds and the full enjoyment of respondents' rights. Petitioner-bank

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Sec. 23 of the Corporation Code states that the corporate powers are to be exercised, all business
conducted, and all property of corporations controlled and held, by the Board of Directors. When the act
of the board is within corporate powers but it is done without the concurrence of the shareholders as and
when such approval is required by law 3 or when the act is beyond its competence to do, 4 the act has
been described as void 5 or, as unenforceable, 6 or as ineffective and not legally binding. 7 These
holdings notwithstanding, the act cannot accurately be likened to an ultra vires act of the corporation
itself defined in Section 45 of the Code. Where the act is within corporate powers but the board has
acted without being competent to independently do so, the action is not necessarily and totally devoid of
effects, and it may generally be ratified expressly or impliedly. Thus, an acceptance of benefits derived
by the shareholders from an outside investment made by the board without the required concurrence of
the stockholders may, nonetheless, be so considered as an effective investment. 8 It may be said,
however, that when the board resolution is yet executory, the act should aptly be deemed inoperative
and specific performance cannot be validly demanded but, if for any reason, the contemplated action is
carried out, such principles as ratification or prescription when applicable, normally unknown in void
contracts, can serve to negate a claim for the total nullity thereof.

corporate powers but it is done without any express or implied authority therefor from the by-laws, board
resolutions or corporate practices, such an act does not bind the corporation. The Board, however,
acting within its competence, may ratify the unauthorized act of the corporate officer. So, too, a
corporation may be held in estoppel from denying as against innocent third persons the authority of its
officers or agents who have been clothed by it with ostensible or apparent authority. 10
The Corporation Code itself has not been that explicit with respect to the consequences of ultra vires
acts; hence, the varied ascriptions to its effects heretofore expressed. It may well be to consider futile
any further attempt to have these situations bear any exact equivalence to the civil law precepts of
defective contracts. Nevertheless, general statements could be made. Here reiterated, while an act of
the corporation which is either illegal or outside of express, implied or incidental powers as so provided
by law or the charter would be void under Article 5 11 of the Civil Code, and the act is not susceptible to
ratification, an unauthorized act (if within corporate powers) of the board or a corporate officer, however,
would only be unenforceable conformably with Article 1403 12 of the Civil Code but, if the party with
whom the agent has contracted is aware of the latter's limits of powers, the unauthorized act is declared
void by Article 1898 13 of the same Code, although still susceptible thereunder to ratification by the
principal. Any person dealing with corporate boards and officers may be said to be charged with the
knowledge that the latter can only act within their respective limits of power, and he is put to notice
accordingly. Thus, it would generally behoove such a person to look into the extent of the authority of
corporate agents since the onus would ordinarily be with him.1wphi1.nt

Corporate officers, in their case, may act on such matters as may be authorized either expressly by the
By-laws or Board Resolutions or impliedly such as by general practice or policy or as are implied by
express powers. When officers are allowed to act in certain particular cases, their acts conformably
therewith can bind the company. Hence, a corporate officer entrusted with general management and
control of the business has the implied authority to act or contract for the corporation which may be
necessary or appropriate to conduct the ordinary business. 9 If the act of corporate officers comes within

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