AGENCY Cases

SECOND DIVISION

[G.R. No. 141485. June 30, 2005]

PABLITO MURAO and NELIO HUERTAZUELA, petitioners, vs.

PEOPLE OF THE PHILIPPINES, respondent.

DECISION
CHICO-NAZARIO, J.:

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court,
petitioners pray for the reversal of the Decision of the Court of Appeals in CA-G.R. CR
No. 21134, dated 31 May 1999,[1] affirming with modification the Judgment of the
Regional Trial Court (RTC) of Puerto Princesa City, Palawan, in Criminal Case No.
11943, dated 05 May 1997,[2] finding petitioners guilty beyond reasonable doubt of the
crime of estafa under Article 315(1)(b) of the Revised Penal Code.
Petitioner Pablito Murao is the sole owner of Lorna Murao Industrial Commercial
Enterprises (LMICE), a company engaged in the business of selling and refilling fire
extinguishers, with branches in Palawan, Naga, Legaspi, Mindoro, Aurora, Quezon,
Isabela, and Laguna. Petitioner Nelio Huertazuela is the Branch Manager of LMICE in
Puerto Princesa City, Palawan.[3]
On 01 September 1994, petitioner Murao and private complainant Chito Federico
entered into a Dealership Agreement for the marketing, distribution, and refilling of fire
extinguishers within Puerto Princesa City.[4] According to the Dealership Agreement,
private complainant Federico, as a dealer for LMICE, could obtain fire extinguishers
from LMICE at a 50% discount, provided that he sets up his own sales force, acquires
and issues his own sales invoice, and posts a bond with LMICE as security for the credit
line extended to him by LMICE. Failing to comply with the conditions under the said
Dealership Agreement, private complainant Federico, nonetheless, was still allowed to
act as a part-time sales agent for LMICE entitled to a percentage commission from the
sales of fire extinguishers.[5]
The amount of private complainant Federicos commission as sales agent for LMICE
was under contention. Private complainant Federico claimed that he was entitled to a
commission equivalent to 50% of the gross sales he had made on behalf of
LMICE,[6] while petitioners maintained that he should receive only 30% of the net sales.
Petitioners even contended that as company policy, part-time sales agents were entitled
to a commission of only 25% of the net sales, but since private complainant Federico
helped in establishing the LMICE branch office in Puerto Princesa City, he was to
receive the same commission as the full-time sales agents of LMICE, which was 30% of
the net sales.[7]
Private complainant Federicos first successful transaction as sales agent of LMICE
involved two fire extinguishers sold to Landbank of the Philippines (Landbank), Puerto
Princesa City Branch, for the price of P7,200.00. Landbank issued a check, dated 08
November 1993, pay to the order of L.M. Industrial Comml. Enterprises c/o Chito
Federico, for the amount of P5,936.40,[8] after deducting from the original sales price the
15% discount granted by private complainant Federico to Landbank and the 3%
withholding tax. Private complainant Federico encashed the check at Landbank and
remitted only P2,436.40 to LMICE, while he kept P3,500.00 for himself as his
commission from the sale.[9]
Petitioners alleged that it was contrary to the standard operating procedure of
LMICE that private complainant Federico was named payee of the Landbank check on
behalf of LMICE, and that private complainant Federico was not authorized to encash
the said check. Despite the supposed irregularities committed by private complainant
Federico in the collection of the payment from Landbank and in the premature
withholding of his commission from the said payment, petitioners forgave private
complainant Federico because the latter promised to make-up for his misdeeds in the
next transaction.[10]
Private complainant Federico, on behalf of LMICE, subsequently facilitated a
transaction with the City Government of Puerto Princesa for the refill of 202 fire
extinguishers. Because of the considerable cost, the City Government of Puerto
Princesa requested that the transaction be split into two purchase orders, and the City
Government of Puerto Princesa shall pay for each of the purchase orders
separately.[11] Pursuant to the two purchase orders, LMICE refilled and delivered all 202
fire extinguishers to the City Government of Puerto Princesa: 154 units on 06 January
1994, 43 more units on 12 January 1994, and the last five units on 13 January 1994. [12]
The subject of this Petition is limited to the first purchase order, Purchase Order No.
GSO-856, dated 03 January 1994, for the refill of 99 fire extinguishers, with a total cost
of P309,000.00.[13] On 16 June 1994, the City Government of Puerto Princesa issued
Check No. 611437 to LMICE to pay for Purchase Order No. GSO-856, in the amount
of P300,572.73, net of the 3% withholding tax.[14] Within the same day, petitioner
Huertazuela claimed Check No. 611437 from the City Government of Puerto Princesa
and deposited it under the current account of LMICE with PCIBank.[15]
On 17 June 1994, private complainant Federico went to see petitioner Huertazuela
at the LMICE branch office in Puerto Princesa City to demand for the amount
of P154,500.00 as his commission from the payment of Purchase Order No. GSO-856
by the City Government of Puerto Princesa. Petitioner Huertazuela, however, refused to
pay private complainant Federico his commission since the two of them could not agree
on the proper amount thereof.[16]
Also on 17 June 1994, private complainant Federico went to the police station to file
an Affidavit-Complaint for estafa against petitioners.[17] Petitioners submitted their Joint
Counter-Affidavit on 12 July 1994.[18] The City Prosecution Office of Puerto Princesa
City issued a Resolution, dated 15 August 1994, finding that a prima facie case for
estafa existed against the petitioners and recommending the filing of an information for
estafa against both of them.[19]
The Information, docketed as Criminal Case No. 11943 and raffled to the RTC of
Puerto Princesa City, Palawan, Branch 52, reads as follows

INFORMATION

The undersigned accuses PABLITO MURAO and NELIO C. HUERTAZUELA of

the crime of ESTAFA, committed as follows:

That on or about the 16th day of June, 1994, at Puerto Princesa City, Philippines, and
within the jurisdiction of this Honorable Court, the said accused, conspiring and
confederating together and mutually helping one another, after having received the
amount of P309,000.00 as payment of the 99 tanks of refilled fire extinguisher (sic)
from the City Government of Puerto Princesa, through deceit, fraud and
misrepresentation, did then and there willfully, unlawfully and feloniously defraud
one Chito Federico in the following manner, to wit: said accused, well knowing that
Chito Federico agent of LM Industrial Commercial Enterprises is entitled to 50%
commission of the gross sales as per their Dealership Contract or the amount
of P154,500.00 as his commission for his sale of 99 refilled fire extinguishers
worth P309,000.00, and accused once in possession of said amount of P309,000.00
misappropriate, misapply and convert the amount of P154,500.00 for their own
personal use and benefit and despite repeated demands made upon them by
complainant to deliver the amount of P154,500.00, accused failed and refused and still
fails and refuses to do so, to the damage and prejudice of said Chito Federico in the
amount of P154,500.00, Philippine Currency.[20]

After holding trial, the RTC rendered its Judgment on 05 May 1997 finding
petitioners guilty beyond reasonable doubt as co-principals of the crime of estafa
defined and penalized in Article 315(1)(b) of the Revised Penal Code. Estafa, under the
said provision, is committed by

ART. 315. Swindling (estafa). Any person who shall defraud another by any of the
means mentioned hereinbelow . . .

1. With unfaithfulness or abuse of confidence, namely:

(a)

(b) By misappropriating or converting, to the prejudice of another, money, goods, or

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

In the same Judgment, the RTC expounded on its finding of guilt, thus

For the afore-quoted provision of the Revised Penal Code to be committed, the
following requisites must concur:

1. That money, goods or other personal property be received by the offender

in trust, or on commission, or for administration, or under any other
obligation involving the duty to make delivery of, or to return, the same;

2. That there be misappropriation or conversion of such money or property by

the offender, or denial on his part of such receipt;

3. That such misappropriation or conversion or denial is to the prejudice of

another; and

4. That there is demand made by the offended party to the offender. (Reyes,
Revised Penal Code of the Philippines, p. 716; Manuel Manahan, Jr. vs.
Court of Appeals, Et Al., G.R. No. 111656, March 20, 1996)

All the foregoing elements are present in this case. The aborted testimony of Mrs.
Norma Dacuan, Cashier III of the Treasurers Office of the City of Puerto Princesa
established the fact that indeed, on June 16, 1994, co-accused Nelio Huertazuela took
delivery of Check No. 611437 with face value of P300,572.73, representing payment
for the refill of 99 cylinders of fire extinguishers. Although the relationship between
complaining witness Chito Federico and LMIC is not fiduciary in nature, still the
clause any other obligation involving the duty to make delivery of or to return
personal property is broad enough to include a civil obligation (Manahan vs. C.A., Et.
Al., Mar. 20, 1996).

The second element cannot be gainsaid. Both Pablito Murao and Nelio Huertazuela
categorically admitted that they did not give to Chito Federico his commission.
Instead, they deposited the full amount of the consideration, with the PCIBank in the
Current Account of LMIC.

The refusal by the accused to give Chito Federico what ever percentage his
commission necessarily caused him prejudice which constitute the third element of
estafa. Demand for payment, although not an essential element of estafa was
nonetheless made by the complainant but was rebuffed by the accused. The fraudulent
intent by the accused is indubitably indicated by their refusal to pay Chito Federico
any percentage of the gross sales as commission. If it were true that what the
dealer/sales Agent is entitled to by way of commission is only 30% of the gross sales,
then by all means the accused should have paid Chito Federico 30%. If he refused,
they could have it deposited in his name. In that way they may not be said to have
misappropriated for themselves what pertained to their Agent by way of commission.

WHEREFORE, premises considered judgment is hereby rendered finding the accused

PABLITO MURAO and NELIO HUERTAZUELA guilty beyond reasonable doubt as
co-principals, of the crime of estafa defined and penalized in Article 315 par. 1(b) of
the Revised Penal Code, and applying the provisions of the Indeterminate Sentence
Law, both accused are hereby sentenced to an indeterminate penalty ranging from a
minimum of TWO (2) YEARS, FOUR (4) MONTHS and ONE (1) DAY of prision
correccional in its medium period, to a maximum of TWENTY (20) YEARS of
reclusion temporal in its maximum period; to pay Chito Federico, jointly and
severally:

a. Sales Commission equivalent to

50% of P309,000.00 or ------------------- P154,500.00

with legal interest thereon from

June 17, 1994 until fully paid;

b. Attorneys fees ---------------------------- P 30,0000.00.[21]

Resolving the appeal filed by the petitioners before it, the Court of Appeals, in its
Decision, dated 31 May 1999, affirmed the aforementioned RTC Judgment, finding
petitioners guilty of estafa, but modifying the sentence imposed on the petitioners. The
dispositive portion of the Decision of the Court of Appeals reads

WHEREFORE, the appealed decision is hereby AFFIRMED with the

MODIFICATION that appellants PABLITO MURAO and NELIO HUERTAZUELA
are hereby each sentenced to an indeterminate penalty of eight (8) years and One (1)
day of prision mayor, as minimum, to Twenty (20) years of reclusion temporal, as
maximum. The award for attorneys fee of P30,000.00 is deleted because the
prosecution of criminal action is the task of the State prosecutors. All other aspects of
the appealed decision are maintained.[22]

When the Court of Appeals, in its Resolution, dated 19 January 2000, [23] denied
their Motion for Reconsideration, petitioners filed the present Petition for
Review[24] before this Court, raising the following errors allegedly committed by the
Court of Appeals in its Decision, dated 31 May 1999
 I

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS GRAVELY

ERRED WHEN IT RULED THAT PETITIONERS ARE LIABLE FOR ESTAFA
UNDER ARTICLE 315 1(B) OF THE REVISED PENAL CODE UNDER THE
FOREGOING SET OF FACTS, WHEN IT IS CLEAR FROM THE SAID
UNDISPUTED FACTS THAT THE LIABILITY IS CIVIL IN NATURE.

II

WITH DUE RESPECT, THE HONORABLE COURT ERRED WHEN IT UPHOLD

(sic) PRIVATE COMPLAINANTS CLAIM THAT HE IS ENTITLED TO A FIFTY
(50%) PERCENT COMMISSION WITHOUT EVIDENCE TO SUPPORT SUCH
CLAIM.

This Court finds the instant Petition impressed with merit. Absent herein are two
essential elements of the crime of estafa by misappropriation or conversion under
Article 315(1)(b) of the Revised Penal Code, namely: (1) That money, goods or other
personal property be received by the offender in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of, or to
return, the same; and (2) That there be a misappropriation or conversion of such money
or property by the offender.
The findings of the RTC and the Court of Appeals that petitioners committed estafa
rest on the erroneous belief that private complainant Federico, due to his right to
commission, already owned 50% of the amount paid by the City Government of Puerto
Princesa to LMICE by virtue of Check No. 611437, so that the collection and deposit of
the said check by petitioners under the account of LMICE constituted misappropriation
or conversion of private complainant Federicos commission.
However, his right to a commission does not make private complainant
Federico a joint owner of the money paid to LMICE by the City Government of Puerto
Princesa, but merely establishes the relation of agent and principal. [25] It is unequivocal
that an agency existed between LMICE and private complainant Federico. Article 1868
of the Civil Code defines agency as a special contract whereby a person binds himself
to render some service or to do something in representation or on behalf of another,
with the consent or authority of the latter. Although private complainant Federico never
had the opportunity to operate as a dealer for LMICE under the terms of the Dealership
Agreement, he was allowed to act as a sales agent for LMICE. He can negotiate for and
on behalf of LMICE for the refill and delivery of fire extinguishers, which he, in fact, did
on two occasions with Landbank and with the City Government of Puerto Princesa.
Unlike the Dealership Agreement, however, the agreement that private complainant
Federico may act as sales agent of LMICE was based on an oral agreement. [26]
As a sales agent, private complainant Federico entered into negotiations with
prospective clients for and on behalf of his principal, LMICE. When negotiations for the
sale or refill of fire extinguishers were successful, private complainant Federico
prepared the necessary documentation. Purchase orders, invoices, and receipts were
all in the name of LMICE. It was LMICE who had the primary duty of picking up the
empty fire extinguishers, filling them up, and delivering the refilled tanks to the clients,
even though private complainant Federico personally helped in hauling and carrying the
fire extinguishers during pick-up from and delivery to clients.
All profits made and any advantage gained by an agent in the execution of his
agency should belong to the principal.[27] In the instant case, whether the transactions
negotiated by the sales agent were for the sale of brand new fire extinguishers or for the
refill of empty tanks, evidently, the business belonged to LMICE. Consequently,
payments made by clients for the fire extinguishers pertained to LMICE. When petitioner
Huertazuela, as the Branch Manager of LMICE in Puerto Princesa City, with the
permission of petitioner Murao, the sole proprietor of LMICE, personally picked up
Check No. 611437 from the City Government of Puerto Princesa, and deposited the
same under the Current Account of LMICE with PCIBank, he was merely collecting
what rightfully belonged to LMICE. Indeed, Check No. 611437 named LMICE as the
lone payee. Private complainant Federico may claim commission, allegedly equivalent
to 50% of the payment received by LMICE from the City Government of Puerto
Princesa, based on his right to just compensation under his agency contract with
LMICE,[28] but not as the automatic owner of the 50% portion of the said payment.
Since LMICE is the lawful owner of the entire proceeds of the check payment from
the City Government of Puerto Princesa, then the petitioners who collected the payment
on behalf of LMICE did not receive the same or any part thereof in trust, or on
commission, or for administration, or under any other obligation involving the duty to
make delivery of, or to return, the same to private complainant Federico, thus, the RTC
correctly found that no fiduciary relationship existed between petitioners and private
complainant Federico. A fiduciary relationship between the complainant and the
accused is an essential element of estafa by misappropriation or conversion, without
which the accused could not have committed estafa.[29]
The RTC used the case of Manahan, Jr. v. Court of Appeals[30] to support its
position that even in the absence of a fiduciary relationship, the petitioners still had the
civil obligation to return and deliver to private complainant Federico his commission.
The RTC failed to discern the substantial differences in the factual background of
the Manahan case from the present Petition. The Manahan case involved the lease of a
dump truck. Although a contract of lease may not be fiduciary in character, the lessee
clearly had the civil obligation to return the truck to the lessor at the end of the lease
period; and failure of the lessee to return the truck as provided for in the contract may
constitute estafa. The phrase or any other obligation involving the duty to make delivery
of, or to return the same refers to contracts of bailment, such as, contract of lease of
personal property, contract of deposit, and commodatum, wherein juridical possession
of the thing was transferred to the lessee, depositary or borrower, and wherein the latter
is obligated to return the same thing.[31]
In contrast, the current Petition concerns an agency contract whereby the principal
already received payment from the client but refused to give the sales agent, who
negotiated the sale, his commission. As has been established by this Court in the
foregoing paragraphs, LMICE had a right to the full amount paid by the City
Government of Puerto Princesa. Since LMICE, through petitioners, directly collected the
payment, then it was already in possession of the amount, and no transfer of juridical
possession thereof was involved herein. Given that private complainant Federico could
not claim ownership over the said payment or any portion thereof, LMICE had nothing at
all to deliver and return to him. The obligation of LMICE to pay private complainant
Federico his commission does not arise from any duty to deliver or return the money to
its supposed owner, but rather from the duty of a principal to give just compensation to
its agent for the services rendered by the latter.
Furthermore, the Court of Appeals, in its Decision, dated 31 May 1999, defined the
words convert and misappropriate in the following manner

The High Court in Saddul v. Court of Appeals [192 SCRA 277] enunciated that the
words convert and misappropriate in the crime of estafa punished under Art. 315, par.
1(b) connote an act of using or disposing of anothers property as if it were ones own,
or if devoting it to a purpose or use different from that agreed upon. To
misappropriate to ones use includes, not only conversion to ones personal advantage,
but also every attempt to dispose of the property of another without right. [32]

Based on the very same definition, this Court finds that petitioners did not convert nor
misappropriate the proceeds from Check No. 611437 because the same belonged to
LMICE, and was not anothers property. Petitioners collected the said check from the
City Government of Puerto Princesa and deposited the same under the Current Account
of LMICE with PCIBank. Since the money was already with its owner, LMICE, it could
not be said that the same had been converted or misappropriated for one could not very
well fraudulently appropriate to himself money that is his own.[33]
Although petitioners refusal to pay private complainant Federico his commission
caused prejudice or damage to the latter, said act does not constitute a crime,
particularly estafa by conversion or misappropriation punishable under Article 315(1)(b)
of the Revised Penal Code. Without the essential elements for the commission thereof,
petitioners cannot be deemed to have committed the crime.
While petitioners may have no criminal liability, petitioners themselves admit their
civil liability to the private complainant Federico for the latters commission from the sale,
whether it be 30% of the net sales or 50% of the gross sales. However, this Court is
precluded from making a determination and an award of the civil liability for the reason
that the said civil liability of petitioners to pay private complainant Federico his
commission arises from a violation of the agency contract and not from a criminal
act.[34] It would be improper and unwarranted for this Court to impose in a criminal
action the civil liability arising from a civil contract, which should have been the subject
of a separate and independent civil action.[35]
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CR No.
21134, dated 31 May 1999, affirming with modification the Judgment of the RTC of
Puerto Princesa City, Palawan, in Criminal Case No. 11943, dated 05 May 1997, finding
petitioners guilty beyond reasonable doubt of estafa by conversion or misappropriation
under Article 315(1)(b) of the Revised Penal Code, and awarding the amount
of P154,500.00 as sales commission to private complainant Federico, is hereby
REVERSED and SET ASIDE. A new Judgment is hereby entered ACQUITTING
petitioners based on the foregoing findings of this Court that their actions did not
constitute the crime of estafa by conversion or misappropriation under Article 315(1)(b)
of the Revised Penal Code. The cash bonds posted by the petitioners for their
provisional liberty are hereby ordered RELEASED and the amounts thereof
RETURNED to the petitioners, subject to the usual accounting and auditing procedures.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

[1] Penned by Associate Justice Ruben T. Reyes, with Associate Justices Jainal D. Rasul and Eloy R.
Bello, Jr., concurring; Rollo, pp. 31-48.
[2] Penned by Judge Filomeno A. Vergara, Ibid., pp. 53-65.
[3] Ibid., p. 4.
[4] Records, p. 3.
[5] TSN, 08 June 1995, pp. 15-17.
[6] Records, p. 4.
[7] TSN, 14 September 1995, pp. 8-9; TSN, 19 October 1995, p. 9.
[8] Records, p. 90.
[9] TSN, 14 September 1995, pp. 9-13; TSN, 19 October 1995, pp. 5-8.
[10] TSN, 14 September 1995, pp. 13-15; TSN, 19 October 1995, pp. 8, 10-11.
[11] TSN, 07 March 1996, pp. 31-32.
[12] TSN, 19 October 1995, pp. 13-14.
[13] The Information filed against petitioners only involved the First Purchase Order. During the trial before
the RTC, it was established that the second Purchase Order was likewise paid. Respondent filed
a Motion to Amend the Pleadings to include therein the details of the second Purchase Order
(Records, pp. 127-130), but the RTC, in its Order, dated 23 October 1996 (Records, pp. 150-
153), denied said Motion since it would already constitute a substantial amendment of the
Information and the intended amended Information would already charge more than one offense.
[14] Records, pp. 80-81, 91.
[15] TSN, 14 September 1995, p. 18.
[16] Supra, note 6.
[17] Records, pp. 3-5.
[18] Records, pp. 10-12.
[19] Records, pp. 6-9.
[20] Rollo, pp. 51-52.
[21] Supra, note 2, pp. 60-65.
[22] Supra, note 1, p. 47.
[23] Penned by Associate Justice Ruben T. Reyes, with Associate Justices Ramon A. Barcelona and Eloy
R. Bello, Jr. concurring; Rollo, pp. 49-50.
[24] Rollo, pp. 3-30.
[25] United States v. Reyes, 36 Phil 791 (1917).
[26] Art. 1869 of the Civil Code recognizes an agency contracted orally.
[27] Pederson v. Johnson, 169 Wis. 320, 172 N.W. 723 (1919).
[28] Article 1875 of the Civil Code provides that Agency is presumed to be for a compensation, unless
there is proof to the contrary.
[29] Yong Chan Kim v. People, G.R. No. 84719, 25 January 1991, 193 SCRA 344, 353-354; Galvez v.
Court of Appeals, G.R. No. L-22760, 29 November 1971, 42 SCRA 278, 284.
[30] G.R. No. 111656, 20 March 1996, 255 SCRA 202.
[31] 2 Reyes, The Revised Penal Code 662 (1993 rev. ed.)
[32] Supra, note 21, p. 41.
[33] Yam v. Malik, G.R. No. L-50550-52, 31 October 1979, 94 SCRA 30, 35; United States v. Figueroa, 22
Phil 269, 271 (1912).
[34] People v. Miranda, G.R. No. L-17389, 31 August 1962, 5 SCRA 1067; People v. Pantig, G.R. No. L-
8325, 25 October 1955, 51 O.G. 5627.
[35] According to Article 31 of the Civil Code, When a civil action is based on an obligation not arising from
the act or omission complained of as a felony, such civil action may proceed independently of the
criminal proceedings and regardless of the result of the latter.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 85302 March 31, 1989

BICOL SAVINGS AND LOAN ASSOCIATION, petitioner,

vs.
HON. COURT OF APPEALS, CORAZON DE JESUS, LYDIA DE JESUS, NELIA DE JESUS,
JOSE DE JESUS, AND PABLO DE JESUS, respondents.

Contreras & Associates for petitioner.

Reynaldo A. Feliciano for private respondents.

MELENCIO-HERRERA, J.:

This Petition for Review on certiorari was filed by Bicol Savings and Loan Association, seeking the
reversal of the Decision ** of the respondent Court of Appeals in CA-G.R. CV No. 02213, dated 11
August 1 988, which ruled adversely against it. The pleadings disclose the following factual milieu:

Juan de Jesus was the owner of a parcel of land, containing an area of 6,870 sq. ms., more or less,
situated in Naga City. On 31 March 1976, he executed a Special Power of Attorney in favor of his
son, Jose de Jesus, "To negotiate, mortgage my real property in any bank either private or public
entity preferably in the Bicol Savings Bank, Naga City, in any amount that may be agreed upon
between the bank and my attorney-in-fact." (CA Decision, p. 44, Rollo)

By virtue thereof, Jose de Jesus obtained a loan of twenty thousand pesos (P20,000.00) from
petitioner bank on 13 April 1976. To secure payment, Jose de Jesus executed a deed of mortgage
on the real property referred to in the Special Power of Attorney, which mortgage contract
carried, inter alia, the following stipulation:

b) If at any time the Mortgagor shall refuse to pay the obligations

herein secured, or any of the amortizations of such indebtedness
when due, or to comply with any of the conditions and stipulations
herein agreed .... then all the obligations of the Mortgagor secured by
this Mortgage, all the amortizations thereof shall immediately become
due, payable and defaulted and the Mortgagee may immediately
foreclose this mortgage in accordance with the Rules of Court, or
extrajudicially in accordance with Act No. 3135, as amended, or Act
No. 1508. For the purpose of extrajudicial foreclosure, the Mortgagor
hereby appoints the Mortgagee his attorney-in-fact to sell the property
mortgaged. . . . (CA Decision, pp. 47-48, Rollo)

Juan de Jesus died in the meantime on a date that does not appear of record.
By reason of his failure to pay the loan obligation even during his lifetime, petitioner bank caused the
mortgage to be extrajudicially foreclosed on 16 November 1978. In the subsequent public auction,
the mortgaged property was sold to the bank as the highest bidder to whom a Provisional Certificate
of Sale was issued.

Private respondents herein, including Jose de Jesus, who are all the heirs of the late Juan de Jesus,
failed to redeem the property within one year from the date of the registration of the Provisional
Certificate of Sale on 21 November 1980. Hence, a Definite Certificate of Sale was issued in favor of
the bank on 7 September 1982.

Notwithstanding, private respondents still negotiated with the bank for the repurchase of the
property. Offers and counter-offers were made, but no agreement was reached, as a consequence
of which, the bank sold the property instead to other parties in installments. Conditional deeds of
sale were executed between the bank and these parties. A Writ of Possession prayed for by the
bank was granted by the Regional Trial Court.

On 31 January 1983 private respondents herein filed a Complaint with the then Court of First
Instance of Naga City for the annulment of the foreclosure sale or for the repurchase by them of the
property. That Court, noting that the action was principally for the annulment of the Definite Deed of
Sale issued to petitioner bank, dismissed the case, ruling that the title of the bank over the
mortgaged property had become absolute upon the issuance and registration of the said deed in its
favor in September 1982. The Trial Court also held that herein private respondents were guilty of
laches by failing to act until 31 January 1983 when they filed the instant Complaint.

On appeal, the Trial Court was reversed by respondent Court of Appeals. In so ruling, the Appellate
Court applied Article 1879 of the Civil Code and stated that since the special power to mortgage
granted to Jose de Jesus did not include the power to sell, it was error for the lower Court not to
have declared the foreclosure proceedings -and auction sale held in 1978 null and void because the
Special Power of Attorney given by Juan de Jesus to Jose de Jesus was merely to mortgage his
property, and not to extrajudicially foreclose the mortgage and sell the mortgaged property in the
said extrajudicial foreclosure. The Appellate Court was also of the opinion that petitioner bank should
have resorted to judicial foreclosure. A Decision was thus handed down annulling the extrajudicial
foreclosure sale, the Provisional and Definite Deeds of Sale, the registration thereof, and the Writ of
Possession issued to petitioner bank.

From this ruling, the bank filed this petition to which the Court gave due course.

The pivotal issue is the validity of the extrajudicial foreclosure sale of the mortgaged property
instituted by petitioner bank which, in turn hinges on whether or not the agent-son exceeded the
scope of his authority in agreeing to a stipulation in the mortgage deed that petitioner bank could
extrajudicially foreclose the mortgaged property.

Article 1879 of the Civil Code, relied on by the Appellate Court in ruling against the validity of the
extrajudicial foreclosure sale, reads:

Art. 1879. A special power to sell excludes the power to mortgage; and a special
power to mortgage does not include the power to sell.

We find the foregoing provision inapplicable herein.

The sale proscribed by a special power to mortgage under Article 1879 is a voluntary and
independent contract, and not an auction sale resulting from extrajudicial foreclosure, which is
precipitated by the default of a mortgagor. Absent that default, no foreclosure results. The stipulation
granting an authority to extrajudicially foreclose a mortgage is an ancillary stipulation supported by
the same cause or consideration for the mortgage and forms an essential or inseparable part of that
bilateral agreement (Perez v. Philippine National Bank, No. L-21813, July 30, 1966, 17 SCRA 833,
839).

The power to foreclose is not an ordinary agency that contemplates exclusively the representation of
the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's
own protection. That power survives the death of the mortgagor (Perez vs. PNB, supra). In fact, the
right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor
Juan de Jesus, acting through his attorney-in-fact, Jose de Jesus, did not depend on the
authorization in the deed of mortgage executed by the latter. That right existed independently of said
stipulation and is clearly recognized in Section 7, Rule 86 of the Rules of Court, which grants to a
mortgagee three remedies that can be alternatively pursued in case the mortgagor dies, to wit: (1) to
waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary claim;
(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and (3) to rely
on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription,
without right to file a claim for any deficiency. It is this right of extrajudicial foreclosure that petitioner
bank had availed of, a right that was expressly upheld in the same case of Perez v. Philippine
National Bank (supra), which explicitly reversed the decision in Pasno v. Ravina(54 Phil. 382)
requiring a judicial foreclosure in the same factual situation. The Court in the aforesaid PNB case
pointed out that the ruling in the Pasno case virtually wiped out the third alternative, which precisely
includes extrajudicial foreclosure, a result not warranted by the text of the Rule.

It matters not that the authority to extrajudicially foreclose was granted by an attorney-in-fact and not
by the mortgagor personally. The stipulation in that regard, although ancillary, forms an essential
part of the mortgage contract and is inseparable therefrom. No creditor will agree to enter into a
mortgage contract without that stipulation intended for its protection.

Petitioner bank, therefore, in effecting the extrajudicial foreclosure of the mortgaged property, merely
availed of a right conferred by law. The auction sale that followed in the wake of that foreclosure was
but a consequence thereof.

WHEREFORE, the Decision of respondent Court of Appeals in CA-G.R. CV No. 02213 is SET
ASIDE, and the extrajudicial foreclosure of the subject mortgaged property, as well as the Deeds of
Sale, the registration thereof, and the Writ of Possession in petitioner bank's favor, are hereby
declared VALID and EFFECTIVE.

SO ORDERED.

Paras, Padilla, Sarmiento and Regalado, JJ., concur.

 SPECIAL FIRST DIVISION

[G.R. No. 122544. January 28, 2003]

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, 2003]

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.

RESOLUTION
YNARES-SANTIAGO, J.:

On January 28, 1999, this Court rendered judgment in these consolidated cases as
follows:

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 Nos. 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 III 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.
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.

Private respondent filed a Motion for Reconsideration, Second Motion for

Reconsideration, and Motion to Suspend Procedural Rules in the Higher Interest of
Substantial Justice, all of which have been denied by this Court. This notwithstanding,
the cases were set for oral argument on March 21, 2001, on the following issues:

1. WHETHER THERE ARE CIRCUMSTANCES THAT WOULD JUSTIFY

SUSPENSION OF THE RULES OF COURT;

2. WHETHER THE SUM OF P300,000.00 RECEIVED BY ALICE DIZON FROM

PRIVATE RESPONDENT WAS INTENDED AS PARTIAL PAYMENT OF THE
PURCHASE PRICE OF THE PROPERTY, OR AS PAYMENT OF BACK
RENTALS ON THE PROPERTY;

3. WHETHER ALICE DIZON WAS AUTHORIZED TO RECEIVE THE SUM OF

P300,000.00 ON BEHALF OF PETITIONERS;

4. (A) IF SO, WHETHER PETITIONERS ARE ESTOPPED FROM QUESTIONING

THE BELATED EXERCISE BY PRIVATE RESPONDENT OF ITS OPTION TO
BUY WHEN THEY ACCEPTED THE SAID PARTIAL PAYMENT;

(B) IF SO, WHETHER ALICE DIZON CAN VALIDLY BIND PETITIONERS IN

THE ABSENCE OF A WRITTEN POWER OF ATTORNEY;

5. (A) WHETHER THERE WAS A PERFECTED CONTRACT OF SALE

BETWEEN THE PARTIES;

(B) WHETHER THERE WAS A CONTRACT OF SALE AT LEAST WITH

RESPECT TO THE SHARES OF FIDELA AND ALICE DIZON; AND

6. WHETHER PRIVATE RESPONDENTS ACTION FOR SPECIFIC

PERFORMANCE HAS PRESCRIBED.

In order to resolve the first issue, it is necessary to pass upon the other questions
which relate to the merits of the case. It is only where there exist strong compelling
reasons, such as serving the ends of justice and preventing a miscarriage thereof, that
this Court can suspend the rules.[1]
After reviewing the records, we find that, despite all of private respondents
protestations, there is absolutely no written proof of Alice Dizons authority to bind
petitioners. First of all, she was not even a co-owner of the property. Neither was she
empowered by the co-owners to act on their behalf.
The acceptance of the amount of P300,000.00, purportedly as partial payment of
the purchase price of the land, was an act integral to the sale of the land. As a matter of
fact, private respondent invokes such receipt of payment as giving rise to a perfected
contract of sale. In this connection, Article 1874 of the Civil Code is explicit that: 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.

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. 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. 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 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.[2]

It necessarily follows, therefore, that petitioners cannot be deemed to have received

partial payment of the supposed purchase price for the land through Alice Dizon. It
cannot even be said that Alice Dizons acceptance of the money bound at least the
share of Fidela Dizon, in the absence of a written power of attorney from the latter. It
should be borne in mind that the Receipt dated June 20, 1975, while made out in the
name of Fidela Dizon, was signed by Alice Dizon alone.
Moreover, there could not have been a perfected contract of sale. As we held in our
Decision dated January 28, 1999, the implied renewal of the contract of lease between
the parties affected only those terms and conditions which are germane to the lessees
right of continued enjoyment of the property. The option to purchase afforded private
respondent expired after the one-year period granted in the contract. Otherwise stated,
the implied renewal of the lease did not include the option to purchase. We see no
reason to disturb our ruling on this point, viz:

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 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 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.[3]

There being no merit in the arguments advanced by private respondent, there is no

need to suspend the Rules of Court and to admit the motion for reconsideration. While it
is within the power of the Court to suspend its own rules, or to except a particular case
from its operation, whenever the interest of justice require it, however, the movant must
show strong compelling reasons such as serving the ends of justice and preventing a
grave miscarriage thereof,[4] none of which obtains in this case.
Litigation must end sometime and somewhere. An effective and efficient
administration of justice requires that, once a judgment has become final, the winning
party be not, through a mere subterfuge, deprived of the fruits of the verdict. Courts
must, therefore, guard against any scheme calculated to bring about that
result. Constituted as they are to put an end to controversies, courts should frown upon
any attempt to prolong them.[5]
ACCORDINGLY, the Motion to Suspend Procedural Rules in the Higher Interest of
Substantial Justice filed by private respondent is DENIED WITH FINALITY. No further
pleadings will be entertained in these cases.
SO ORDERED.
Puno, J., concur.
Davide, Jr., C.J., (Chairman), see separate opinion, hereto attached.
[1] Public Estates Authority v. Yujuico, et al., G.R. No. 140486, February 6, 2001.
[2] Cosmic Lumber Corp. v. Court of Appeals, 265 SCRA 168, 176 [1996].
[3]
Dizon, et al. v. Court of Appeals, et al., 302 SCRA 288, 300-301 [1999], citing Dizon v. Magsaysay, 57
SCRA 250, 254 [1974].
[4] Equitable-PCI Bank v. Ku, G.R. No. 142950 March 26, 2001.
[5] Vda. de Cochingyan, et al. v. Court of Appeals, et al., G.R. No. 116092, June 29, 2001.
 FIRST DIVISION

FAR EAST BANK AND TRUST G.R. No. 179909

COMPANY (NOW BANK OF
THE PHILIPPINE ISLANDS) Present:
AND ROLANDO BORJA,
DEPUTY SHERIFF, PUNO, C.J., Chairperson,
Petitioners, CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
- versus - VILLARAMA, JR., JJ.

SPS. ERNESTO AND LEONOR Promulgated:

C. CAYETANO,
Respondents. January 25, 2010
x-----------------------------------------------------------------------------------------x

DECISION
VILLARAMA, JR., J.:

This is a petition for review[1] under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, of the December 8, 2006 Decision[2] of the Court of
Appeals in CA-G.R. CV No. 76382 which affirmed the May 24, 2002
Decision[3] of the Regional Trial Court (RTC) of Naga City, Branch 61 and
dismissed petitioner Far East Bank and Trust Companys appeal. The appellate
court likewise denied its motion for reconsideration in a
[4]
Resolution dated September 6, 2007.

The undisputed facts of the case are summarized as follows:

Respondent Leonor C. Cayetano (Cayetano) executed a special power of

attorney in favor of her daughter Teresita C. Tabing (Tabing) authorizing her to
contract a loan from petitioner in an amount not more than three hundred thousand
pesos (P300,000.00) and to mortgage her two (2) lots located in Barangay
Carolina, Naga City with Transfer Certificate of Title Nos. 12304 and 11621.[5] For
the approval of the loan, Cayetano also executed an affidavit of non-
tenancy.[6] Petitioner loaned Tabing one hundred thousand pesos (P100,000.00)
secured by two (2) promissory notes and a real estate mortgage over Cayetanos
two (2) properties.[7] The mortgage document was signed by Tabing and her
husband as mortgagors in their individual capacities, without stating that Tabing
was executing the mortgage contract for and in behalf of the owner (Cayetano).[8]

Petitioner foreclosed the mortgage for failure of the respondents and the
spouses Tabing to pay the loan. A notice of public auction sale, to be conducted
on September 18, 1991,[9] was sent to respondents. The latters lawyer responded
with a letter[10] to petitioner requesting that the public auction be postponed.
Respondents letter went unheeded and the public auction was held as scheduled
wherein the subject properties were sold to petitioner for one hundred sixty
thousand pesos (P160,000.00).[11] Subsequently, petitioner consolidated its title and
obtained new titles in its name after the redemption period lapsed without
respondents taking any action.

More than five (5) years later, Tabing, on behalf of Cayetano, sent a letter
dated September 10, 1996 to petitioner expressing the intent to repurchase the
properties for two hundred fifty thousand pesos (P250,000.00) with proposed terms
of payment.[12] Petitioner refused the offer stating that the minimum asking price
for the properties was five hundred thousand pesos (P500,000.00) and it was not
amenable to the proposed terms of payment. Petitioner nevertheless gave
respondents the chance to buy back the properties by joining a bidding to be set in
some future date.[13] However, respondents filed on December 18, 1996 a
complaint for annulment of mortgage and extrajudicial foreclosure of the
properties with damages in the RTC of Naga City. Respondents sought
nullification of the real estate mortgage and extrajudicial foreclosure sale, as well
as the cancellation of petitioners title over the properties.[14]

After trial, the RTC rendered judgment in favor of the respondents, holding
that the principal (Cayetano) cannot be bound by the real estate mortgage executed
by the agent (Tabing) unless it is shown that the same was made and signed in the
name of the principal; hence, the mortgage will bind the agent only. The trial court
also found that there was no compliance with the requirement of publication of the
foreclosure sale in a newspaper of general circulation as provided in Act No.
3135, as amended. Such requisite must be strictly complied with as any slight
deviation therefrom will render the sale voidable.[15]

The Court of Appeals affirmed the RTCs ruling. It held that it must be
shown that the real estate mortgage was executed by the agent on-behalf of the
principal, otherwise the agent may be deemed to have acted on his own and the
mortgage is void. However, the appellate court further declared that the principal
loan agreement was not affected, which had become an unsecured credit. The
Court of Appeals denied petitioners motion for reconsideration.[16]

Hence, the present petition.

The only issue before us is whether or not the principal is bound by the real estate
mortgage executed by the authorized agent in her own name without indicating the
principal.

The issue is not novel. The RTC and the Court of Appeals are both correct in
holding that our decision in The Philippine Sugar Estates Development Co., Ltd.,
Inc. v. Poizat, et al.[17] (Poizat Case), as reiterated in the case of Rural Bank of
Bombon (Camarines Sur), Inc. v. Court of Appeals[18] (Bombon Case), finds
application in the instant case. The factual circumstances of said cases are similar
to the case at bar, where an authorized agent executed a real estate mortgage on the
principals property in her own name without indicating that she was acting on
behalf of the principal.

In the Poizat Case, Gabriela Andrea de Coster (Coster) executed a general power
of attorney authorizing her husband, Juan Poizat (Poizat), to obtain a loan and to
secure the same with mortgage, pledge or personal securities. Poizat obtained a
credit of ten thousand (10,000) Pounds Sterling from petitioner therein, and
executed a mortgage upon the real property of his wife. Although the provisions of
the real estate mortgage mentioned that it was entered also in Poizats capacity as
attorney-in-fact of Coster, Poizat signed the contract in his own name without any
indication that he also signed it as the attorney-in-fact of his wife. For failure to
pay the loan, the petitioner foreclosed on the mortgage but this was opposed by
Coster. The Court ruled on the legal force and effect of the real estate mortgage in
question, by whom and for whom it was executed, and whether or not it was void
as to Coster, in this wise:

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 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. [EMPHASIS SUPPLIED]

Thus, while Poizat may have had the authority to borrow money and
mortgage the real property of his wife, the law specifies how and in what manner it
must be done, and the stubborn fact remains that, as to the transaction in question,
that power was never exercised. The mortgage in question was executed by him
and him only, and for such reason, it is not binding upon the wife, and as to her, it
is null and void.

In Bombon, respondent Ederlinda M. Gallardo (Gallardo) authorized Rufino S.

Aquino (Aquino) to contract a loan from any bank and secure it with mortgage on
her property. Gallardo also delivered her owners copy of Transfer Certificate of
Title to Aquino. Aquino obtained a loan from petitioner bank and executed a deed
of real estate mortgage without indicating that he was acting in behalf of Gallardo.
At the beginning of the mortgage deed, it was mentioned that the mortgage was
executed by Aquino, attorney-in-fact of Gallardo, together with a description of his
legal capacity to contract. Gallardo and her husband filed a complaint for
annulment of mortgage against the petitioner and Aquino and one (1) of the
grounds raised was that the mortgagor in the deed was Aquino instead of Gallardo.
The trial court ordered the suspension of the foreclosure of the real estate mortgage
until after the decision in the annulment case shall have become final and
executory. The dismissal of the complaint for annulment of mortgage was appealed
to the Court of Appeals which reversed the trial court and declared the mortgage
contract void and unenforceable against Gallardo. Upon elevation to this Court, we
held that Aquinos 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 M. 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.[19]

In the fairly recent case of Gozun v. Mercado,[20] respondent Mercado denied

having authorized his sister-in-law (Lilian) to borrow money from petitioner who
gave her cash advance of P253,000.00 allegedly for allowances of poll
watchers. Petitioner sued respondent to collect on various sums due from the latter
including the cash advance obtained by Lilian. The trial court found for the
petitioner and ordered the respondent to pay all amounts being claimed by the
petitioner. The Court of Appeals reversed the trial courts decision and dismissed
the complaint for lack of cause of action. When the case reached this Court,
petitioner argued that respondent had informed him that he had authorized Lilian to
obtain the loan and hence, following Macke v. Camps which held 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. We sustained
the Court of Appeals ruling on the matter and held that respondent was not liable
for the cash advance given by petitioner to Lilian who signed 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.[21]

Notwithstanding the nullity of the real estate mortgage executed by Tabing and her
husband, we find that the equity principle of laches is applicable in the instant case.
Laches is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it
or declined to assert it.[22] Its essential elements are: (1) conduct on the part of the
defendant, or of one under whom he claims, giving rise to the situation complained
of; (2) delay in asserting complainants right after he had knowledge of the
defendants conduct and after he has an opportunity to sue; (3) lack of knowledge
or notice on the part of the defendant that the complainant would assert the right on
which he bases his suit; and (4) injury or prejudice to the defendant in the event
relief is accorded to the complainant.[23]
 There is no absolute rule on what constitutes laches. It is a creation of equity
and applied not really to penalize neglect or sleeping upon ones rights but rather to
avoid recognizing a right when to do so would result in a clearly inequitable
situation. The question of laches, we said, is addressed to the sound discretion of
the court and each case must be decided according to its particular
circumstances.[24] Verily, in a number of cases, it had been held that laches, the
essence of which is the neglect to assert a right over a long period of time, may
prevent recovery of a titled property.[25]

In the present case, records clearly show that respondents could have filed an
action to annul the mortgage on their properties, but for unexplained reasons, they
failed to do so. They only questioned the loan and mortgage transactions in
December 1996, or after the lapse of more than five (5) years from the date of the
foreclosure sale. It bears noting that the real estate mortgage was registered and
annotated on the titles of respondents, and the latter were even informed of the
extrajudicial foreclosure and the scheduled auction. Instead of impugning the real
estate mortgage and opposing the scheduled public auction, respondents lawyer
wrote a letter to petitioner and merely asked that the scheduled auction be
postponed to a later date. Even after five (5) years, respondents still failed to
oppose the foreclosure and the subsequent transfer of titles to petitioner when their
agent, Tabing, acting in behalf of Cayetano, sent a letter proposing to buy back the
properties. It was only when the negotiations failed that respondents filed the
instant case. Clearly, respondents slept on their rights.[26]

WHEREFORE, the petition is GRANTED. The Decision dated December

8, 2006 and the Resolution dated September 6, 2007 of the Court of Appeals in
CA-G.R. CV No. 76382, as well as the Decision dated May 24, 2002 in Civil Case
No. 96-3684 of the Regional Trial Court, Branch 61, Naga City, are hereby SET
ASIDE.

The complaint for annulment of mortgage and extrajudicial foreclosure with

damages and cancellation of titles filed by respondents is hereby DISMISSED.

No costs.

SO ORDERED.
 MARTIN S. VILLARAMA, JR.
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

CONCHITA CARPIO MORALES TERESITA J. LEONARDO-DE CASTRO

Associate Justice Associate Justice

LUCAS P. BERSAMIN
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
 Chief Justice

[1]
Rollo, pp. 10-26.
[2]
Id., pp. 30-37. Penned by Associate Justice Mario L. Guariňa III and concurred in by Associate Justices Roberto
A. Barrios and Lucenito N. Tagle. The dispositive portion of the Decision reads as follows:

IN VIEW OF THE FOREGOING, the decision appealed from is MODIFIED in that the interest
rate shall be the stipulated 23 percent per annum instead of 12 percent. All other aspects of the
decision are AFFIRMED.

SO ORDERED.
[3]
Id. at 88-95. Penned by Executive Judge Corazon A. Tordilla. The dispositive portion of the Decision reads as
follows:
WHEREFORE, the real estate mortgage executed in favor of the defendant Bank is hereby
declared void and unenforceable against plaintiffs. Consequently, the Transfer Certificates of
Title Nos. 24272 and 24273 are hereby ordered annulled.

The loan however, of the spouses Tabing in the amount of Php. 100.000.00 shall remain valid and
enforceable against them solodarily, as stated in the two promissory notes they executed
(Exhs. A& B).

Applying the ruling of the Supreme Court in the case of Medel vs. Court of Appeals, G.R. No.
131622, November 27, 1998, the spouses Tabing are to pay to the Far East Bank & Trust
Company the amount of Php. 100,000.00 from July 13, 1989 with interest thereon of 12% per
annum until the amount due is fully paid. They are also to pay attorneys fees equivalent to
25% of the amount due.

For insufficiency of evidence, the complaint against Sheriff Rolando Borja is hereby dismissed.

SO ORDERED.
[4]
Id., p. 49.
[5]
Id., pp. 145-146.
[6]
Id., p. 160.
[7]
Id., pp. 147-151.
[8]
Id., pp. 149-151.
[9]
Id., pp. 152 and 161.
[10]
Id., p. 153.
[11]
Id., pp. 154-155.
[12]
Id., pp. 156-157.
[13]
Id., p. 158.
[14]
Id., pp. 50-55.
[15]
Id., pp. 92-94.
[16]
Id., pp. 34-36.
[17]
48 Phil. 536 (1925).
[18]
G.R. No. 95703, August 3, 1992, 212 SCRA 25.
[19]
Id., p. 30.
[20]
G.R. No. 167812, December 19, 2006, 511 SCRA 305.
[21]
Id., pp. 314-316, citing Rural Bank of Bombon v. Court of Appeals (supra), Philippine Sugar Estates
Development Co. v. Poizat, (supra) and Aguenza v. Metropolitan Bank and Trust Co., 337 Phil. 448, 457
(1997).
[22]
Republic v. Sandiganbayan, G.R. Nos. 112708-09, March 29, 1996, 255 SCRA 438, 451.
[23]
Catholic Bishop of Balanga v. Court of Appeals, G.R. No. 112519, November 14, 1996, 264 SCRA 181, 194.
[24]
Chavez v. Bonto-Perez, G.R. No. 109808, March 1, 1995, 242 SCRA 73, 80.
[25]
Ignacio v. Basilio, G.R. No. 122824, September 26, 2001, 366 SCRA 15; Po Lam v. Court of Appeals, G.R. No.
116220, December 6, 2000, 347 SCRA 86; and Declaro v. Court of Appeals, G.R. No. 119747, November 27,
2000, 346 SCRA 57.
[26]
Vide: Carpo v. Chua, G.R. Nos. 150773 & 153599, September 30, 2005, 471 SCRA 471, 483; Landrito, Jr. v.
Court of Appeals, G.R. No. 133079, August 9, 2005, 466 SCRA 107, 115; and Navarro v. Metropolitan Bank
and Trust Company, G.R. No. 165697, August 4, 2009.
 SECOND DIVISION

HADJI MAHMUD L. JAMMANG G.R. No. 149429

and ALMA SHIPPING LINES, INC.,
Petitioners, Present:
PUNO, J., Chairperson,
- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
TAKAHASHI TRADING CO., LTD., GARCIA, JJ.
and SINOTRANS SHANDONG
COMPANY, Promulgated:
Respondents.
October 9, 2006

x ---------------------------------------------------------------------------------------- x

DECISION
AZCUNA, J.:
This is a petition for review on certiorari[1] which seeks to set aside the
decision and resolution of the Court of Appeals (CA) promulgated on May 16,
2001 and August 9, 2001, respectively, in CA-G.R. CV No. 64197 entitled
Takahashi Trading Co., Ltd. and Sinotrans Shandong Company v. Hadji Mahmud
I. Jammang and Alma Shipping Lines, Inc.

The CA affirmed in toto the entire decision of the Regional Trial Court
(RTC) of Pasig City, Branch 167, in Civil Case No. 65340, which ruled in favor of
herein respondent Sinotrans Shandong Company which filed an action for the
collection of a sum of money against petitioner Jammang pursuant to the
provisions of their supplemental agreement.
 Petitioner Hadji Mahmud I. Jammang is a trader and the owner of the MV
Queen Alma, a vessel engaged in the shipment of barter goods
from Singapore to Jolo, Philippines. He is also the general manager of co-
petitioner Alma Shipping Lines, Inc. (Alma), a duly-organized and existing
domestic corporation.

Respondent Takahashi Trading Co., Ltd. (Takahashi) is a foreign

corporation duly licensed to transact business in the Philippines, while co-
respondent Sinotrans Shandong Company (Sinotrans) is a foreign corporation
organized and existing under the laws of the Peoples Republic of China.

The facts of the case are as follows:[2]

Petitioner Jammang has been engaged in the trading business for over fifteen
years, and is a pioneer in the establishment of trade relations
between Zamboanga City and nearby Asian countries such
as Taiwan, Malaysia and Indonesia. As stated earlier, Jammang is also the general
manager of Alma Shipping Lines, being the owner and operator of the MV Queen
Alma.
Sometime in October of 1993, Hiroaki Takahashi, the president of
respondent Takahashi, introduced Jammang to Sinotrans because the latter was
scouting for a supplier of Chinese goods for his buyers in Labuan, Malaysia.
Sinotrans agreed to supply said respondent with Chinese goods on the condition
that the latter will act as a sales agent of petitioner Sinotrans. It was agreed that
Jammang shall turn over the proceeds of the sale, less mark-up, and return unsold
goods, if any, to Sinotrans. On the other hand, Jammang and Takahashi agreed to
split equally whatever profit may be derived from the sale of Sinotrans goods.

Upon Jammangs assurances that he had ready buyers in the area, two
shipments of goods consisting of bleached or printed cotton, garlic
and lungkow vermicelli (sotanghon) were made by Sinotrans
from Qingdao, China to Labuan, Malaysia. The goods, valued at US$696,337,
were consigned to Takahashi. Contrary to the representation and assurances of
Jammang, however, there were no ready buyers in Labuan, Malaysia. For two
months, Takahashi was forced to store the goods in a warehouse for a fee.

Nevertheless, Jammang was able to convince Sinotrans and Takahashi to

allow him to bring the goods to Zamboanga City, Philippines, where he again
claimed to have ready buyers. He promised to turn over the proceeds of the sale, as
well as the unsold items, to Sinotrans. Likewise, he reassured Takahashi of their
equal sharing of the profits earned from the sale.

The goods were subsequently transshipped to Zamboanga City with

Jammang as consignee. Initially, he made a partial turnover of the proceeds of the
sale in the amount of US$230,000. After that, however, no further remittance was
made.

To address the situation, the parties executed a Supplemental Agreement

(Exhibit G) on July 27, 1994, stipulating the following:

This Agreement is entered into between ALMA SHIPPING LINES, INC.

and SHANDONG CO., CHINA, on July 27, 1994 at Alba Mall,
Tetuan, Zamboanga City.

Whereas, the amount of goods received by Alma Shipping Lines, Inc.

from SINOTRANS SHANDONG CO. CHINA is 696,337 USD.

Whereas, Alma Shipping Lines, Inc. has remitted already the amount of
230,000 USD as partial payment to the Sinotrans Shandong, Co.

Whereas, Alma Shipping Lines , Inc. will remit by July 29, 1994 to
SINOTRANS SHANDONG CO. through T/T in the amount of 15,000 USD.

Whereas, 266,000 USD is still collectible and the due date for collection
will be on September 15, 1994, and the moment the Alma Shipping Lines, Inc.
will receive the payments from the buyers, immediately the same amount must be
remitted to Sinotrans Shandong, Co.

Whereas, the remaining stocks in the amount of 185,000 USD [will] be

sold continuously and if possible, [Alma Shipping Lines, Inc. will] try to dispose
them up to October 31, 1994.
 Notwithstanding the agreement, Jammang was able to remit only the amount
of US$15,000.

It was discovered later, upon Sinotrans investigation, that Jammang had

already sold all the goods subject of the agreement. Despite repeated oral and
written demands, Jammang failed to account for and turn over the remaining
balance of US$451,337 to Sinotrans. He likewise declined to talk to respondents.
Moreover, he refused to give to Takahashi its share in the perceived profits.

Consequently, respondents filed with the RTC of Pasig City a complaint for a sum
of money and damages with an application for a writ of preliminary attachment
against Jammang.
Finding merit in the application for a writ of preliminary attachment, the
RTC granted the same in an order dated January 26, 1996.
Respondents offered in evidence several documents to support the testimony
of their lone witness, Lui Xiao Bo, a resident of China and the Import Export
Manager of Sinotrans.
He declared that since only the amount of US$230,000 was remitted by Jammang
as partial payment, he inspected the remaining inventory which the former showed
to him. To his estimate, the value of the same was only US$180,000. Petitioner
Jammang insisted, however, that he had collectibles amounting to US$246,000,
and a US$100,000 worth of stocks left at BCC Warehouse.

Despite the supplemental agreement that was subsequently executed by the parties,
petitioner Jammang was able to remit only US$15,000, leaving an unliquidated
balance of US$451,337. A demand in writing made by respondents to said
petitioner in April 1995 proved futile.

On his part, petitioner Jammang insisted that as a barter trader, he neither bought
nor sold the goods but merely facilitated the sale. Neither was he an agent of
respondents. His signing of the supplemental agreement was only for record
purposes, and the business development report was likewise signed by him in order
to convince Sinotrans that it is profitable to send goods to the Philippines.[3]
 As to the claim of Takahashi about his purported share in the profits,
petitioner Jammang stated that no such profit was realized on account of the poor
quality of the goods which cannot be sold at higher prices.

On the other hand, petitioner Alma Shipping Lines, Inc. denied liability
arising out of the transaction because it enjoys a separate and distinct personality
from its general manager. Petitioner Jammang acted on his own capacity and the
former was never a party or privy to any document signed by the latter.[4]

On April 22, 1999, declaring that petitioner Jammang is bound by the

provisions of the supplemental agreement, the RTC rendered its decision in favor
of respondents, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff

Sinotrans Shandong Company and against the defendant Hadji Mahmud I.
Jammang, ordering the latter to pay the former, as follows:

a) The amount of US$266,000.00, as the principal obligation, plus

legal interest thereon per annum until full payment, to be paid in
Philippine Currency at the exchange rate fixed by the Bangko Sentral at
the time of payment (Pan American World Airways v. Intermediate
Appellate Court, G.R. No. 44445, 31 August 1987);

b) To pay 10% of the principal obligation, as and for reasonable

attorneys fees;

c) To account for the remaining stocks valued at US$185,000.00

and, if sold, to remit the proceeds of the sale; and,

d) To pay the costs.

For lack of sufficient factual and legal basis, the counterclaim interposed
by the defendants is DISMISSED.

SO ORDERED.[5]

Petitioners appealed the RTC decision to the CA. On May 16, 2001, the CA
affirmed the assailed decision, thus:
 WHEREFORE, premises considered, the present appeal is hereby DISMISSED
and the appealed Decision in Civil Case No. 65340 is hereby AFFIRMED in its
entirety.

Double costs against the defendants-appellants.

SO ORDERED.[6]

Petitioners moved for a reconsideration of the CA decision but the same was
denied in a resolution dated August 9, 2001.

Petitioners contend that:

I.

THE COURT OF APPEALS DECIDED A QUESTION OF

SUBSTANCE NOT IN ACCORD WITH THE CORPORATION CODE AND
SETTLED JURISPRUDENCE WHEN IT AFFIRMED THE RTC DECISION
THAT JAMMANG WAS SOLIDARILY LIABLE WITH ALMA,
CONSIDERING THAT:

A. A CORPORATION HAS A PERSONALITY SEPARATE AND

DISTINCT FROM ITS STOCKHOLDERS;

B. THE DOCTRINE OF SEPARATE CORPORATE IDENTITY APPLIES

TO OFFICERS OF CORPORATIONS; AND,

C. JAMMANG, WHO IS NOT A STOCKHOLDER OR EVEN AN

OFFICER BUT A MERE GENERAL MANAGER, CANNOT BE HELD
LIABLE FOR ANY OBLIGATION CONTRACTED BY ALMA AS A
CORPORATE ENTITY.

II

THE COURT OF APPEALS DECIDED A QUESTION OF

SUBSTANCE NOT IN ACCORD WITH THE LAW ON AGENCY AND
SETTLED JURISPRUDENCE CONSIDERING THAT:

A. IT HELD THAT JAMMANG WAS AN AGENT OF SINOTRANS

DESPITE THE LACK OF A SPECIAL POWER OF ATTORNEY
AUTHORIZING HIM TO SELL THE GOODS OF THE LATTER; AND,
B. EVEN ASSUMING ARGUENDO THAT JAMMANG WAS AN
AGENT OF SINOTRANS, THE COURT OF APPEALS SERIOUSLY
ERRED IN ITS INTERPRETATION AND APPLICATION OF THE
LAW ON AGENCY, IN THAT:

1. AN AGENT IS NEVER LIABLE TO REMIT TO HIS

PRINCIPAL THE PROCEEDS OF THE GOODS DELIVERED
TO HIM FOR SALE UNLESS HE RECEIVED THE SAME;
AND,

2. SINCE THE RTC DECISION ITSELF WHICH WAS

AFFIRMED BY THE COURT OF APPEALS STATED THAT
NO EVIDENCE WAS ADDUCED THAT JAMMANG
RECEIVED PAYMENTS FOR THE US$266,000 GOODS SOLD
ON CREDIT, THERE WAS NO BASIS IN FACT AND LAW TO
HOLD [THAT] JAMMANG IS LIABLE FOR THE AMOUNT
OF US$266,000 PLUS INTERESTS UNTIL FULL PAYMENT.

III

THE COURT OF APPEALS SANCTIONED THE DEPARTURE BY

THE LOWER COURT FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS, THUS CALLING FOR THE EXERCISE OF THE
POWER OF SUPERVISION:

A. THE LONE WITNESS FOR THE RESPONDENTS DID NOT

TESTIFY BEFORE THE JUDGE HANDLING THE CASE BUT
BEFORE A MERE RESEARCHER WHO IS NOT A MEMBER OF THE
BAR;

B. THE TRIAL COURT DID NOT ALLOW THE PETITIONERS TO

CROSS-EXAMINE THE LONE WITNESS FOR THE RESPONDENTS.
THUS, THE JUDGE DID NOT HAVE THE OPPORTUNITY TO
EVALUATE THE TESTIMONY OF THE WITNESS TO DETERMINE
HIS TRUTHFULNESS AND CREDIBILITY; AND,

C. THE ENTIRE RECORDS OF THE CASE, EVEN THE VERY

DECISION OF THE TRIAL COURT, SHOWED THAT THE
RESPONDENTS MISERABLY FAILED TO PROVE BY
PREPONDERANT EVIDENCE THAT THEY WERE ENTITLED TO
THEIR CLAIMS AND THE AMOUNT SO ADJUDGED.
 IV

THE COURT OF APPEALS ERRED IN NOT HOLDING THE

RESPONDENTS LIABLE TO THE PETITIONERS FOR ACTUAL, MORAL
AND EXEMPLARY DAMAGES, AS WELL AS FOR ATTORNEYS FEES
AND FOR EXPENSES OF LITIGATION.

Petitioners argue as follows:

It is clear from the wording of the supplemental agreement that it was Alma
Shipping Lines, Inc. which entered thereto and not petitioner Jammang. The
former, being a juridical person, has a personality separate and distinct from the
stockholders or members who compose it. Therefore, as it was the company that
transacted with Sinotrans in the agreement, there is no basis for petitioner
Jammang to be bound solidarily with the company. In addition, petitioner
Jammang was neither a stockholder nor an officer of the company. As a general
manager, he was only a mere employee.

Petitioner Jammang was not an agent of respondents. The

supplemental agreement was not a special power of attorney necessary to designate
him to perform acts of dominion over the subject goods in accordance with Article
1878 of the Civil Code. Likewise, nothing in the Report of Business Development
indicated that petitioner was acting as the agent of Sinotrans. He was merely
reporting about the business conditions in Zamboanga. As a matter of fact, it was
Pablo Palis who, on direct testimony, categorically declared that he was Sinotrans
agent. Palis judicial admission of the agency existing between him and the
respondents was never contradicted.

Moreover, even assuming that petitioner was Sinotrans agent, he cannot be

held liable for the amount of US$266,000 when the evidence on record is bereft of
any showing that he received the proceeds of the sale. Under Article 1897 of the
Civil Code, the agent is not obliged to pay the price but is merely obliged to deliver
the price which he received from the buyer. Furthermore, the supplemental
agreement clearly shows that the obligation of petitioner to remit the amount of
US$266,000 was conditioned upon receipt of payment from the collectibles. If
agency existed, the obligation to remit the money arises only after the same had
been received by the agent.

The RTC judge was not able to observe the demeanor of respondents
witness, Liu Xiao Bo, because it was only the legal researcher, Petronilo Jalandoni,
who was not a member of the Bar, who presided in the proceedings and received
the testimony of the witness.
No evidence was presented to prove that US$266,000 was due and owing
from petitioner.

Respondents should reimburse petitioner for actual, moral and exemplary

damages, as well as for attorneys fees and litigation expenses.

The petition fails to show any reversible error of law by the Court of
Appeals.

The dispute really turns on factual questions.

As the Court of Appeals stated in its decision:

The plain and clear language of the Agreement dated July 27, 1994
(Exhibit G) undoubtedly shows that appellants Jammang committed himself to act
as a selling agent of plaintiff-appellee Sinotrans by his acknowledgment of the
actual receipt of goods worth US$696,337 shipped by the latter, his first
remittance of the amount of US$230,000 as partial payment thereof, his
undertaking to remit the sum of US$266,000 still due and collectible and to remit
US$15,000 on July 29, 1994, and his acknowledgment of the remaining unsold
goods worth US$185,000 which he will try to dispose of by October 31,
1994. Aside from said Agreement, appellant Jammang had earlier submitted a
Business Development Report confirming receipt of the goods sent to him by
plaintiff-appellee Sinotrans, in which We do not find any indication that he was
accepting said goods merely as facilitator or warehouseman. In fact, We could not
make out of the evidence presented as to the receipt of the subject goods by BCC
Warehouse as these are mere photocopies and the owner of said warehouse not
presented in court to shed on the particular transaction and arrangement with
plaintiffs-appellees. Such evidence would be crucial especially were it true as
claimed by appellant Jammang that plaintiff-appellees goods were not duly
covered by customs documents. Actually, the claim of alleged seizure by the
authorities of plaintiffs-appellees goods was not substantiated by competent
evidence such as documents or official report from the Philippine Navy,
Philippine Coast Guard or the Bureau of Customs. AS to Rev. Palis whom
appellant Jammang claims was the appointed selling agent of plaintiff-appellees,
the same does not hold water. As manifest in an Affidavit executed by Rev. Pablo
Palis, he was actually employed by appellant Jammang and worked as his
Executive Assistant in Jammangs SAKATA Office in Alta Mall Complex from
1993 up to December 1995, when the subject transaction with plaintiffs-appellees
took place. Appellant Jammang did not deny the statements in said affidavit but
maintained that he had clearly spelled out his limited role in the transaction with
plaintiffs-appellees. Nevertheless, said affidavit only served to prove that Palis
involvement in the subject transaction was in his capacity as agent or employee of
appellant Jammang and not of plaintiffs-appellees. Thus, even if appellants
presented documentary evidence showing that Palis actually withdrew some of
the goods at the warehouse, the same does not sufficiently prove the existence of
agent-principal relationship between him and plaintiffs-appellees, as in fact it only
goes to show that he did so to assist appellant Jammang in disposing of the
goods. This conclusion is buttressed by the fact that the buyers had issued
promissory notes for the payment of the goods bought by them in the name of
appellant Jammang and not of Palis.

Appellants then assailed the trial court in holding that the Agreement
(Exhibit G) embodied the entire transaction which transpired between the parties
and thus failed to properly appreciate the circumstances surrounding its execution
and subsequent events. Appellant Jammang maintained that he only acquiesced
into signing the Agreement (Exhibit G) as he was afraid that the conventional
trading being firmed up with plaintiffs-appellees may not materialize if he would
not accommodate the execution of said document as requested by plaintiffs-
appellees.Aside from failing to establish such alleged future business deal with
plaintiffs-apapellees wherein appellant Jammang claimed to expect lucrative
earnings from shipping contracts, appellants efforts to vary the clear and
unequivocal terms of the Agreement certainly raise more questions than provide a
more plausible and truthful version of the case. The difficulty, however, with
appellants version is that it tried to present an elaborately contrived picture of the
entire dealings between the parties that is inconsistent not only with the totality of
evidence on record but also contrary to human experience and the ordinary course
of things. The trial court aptly remarked that appellant Jammangs attempt to vary
the terms of the Agreement is a clear illustration of evading a legally contracted
obligation after benefiting from the sale of the goods, he is now reneging on his
commitment to remit the proceeds of the sale.

x x x. No such reversible error appears in this case as to the matter of

evaluation of testimonial evidence by the trial court, the tests applied by it [being]
no more than whether such testimony is in conformity with knowledge and
consistent with experience of mankind; a testimony that is credible in itself such
as the common experience of mankind can approve as probable under the
circumstances. Thus, the trial court could not help but declare that appellant
Jammang being a long time and experienced businessman himself, it is simply
 incredible that he will admit and acknowledge an obligation involving payment of
money reaching to thousands of dollars under Exhibits D and G, knowing its
serious legal and financial consequences. With his extensive experience in
shipping and barter trading, it is indeed simply unbelievable that he will assume
the alleged liability of Rev. Pablo Palis and agree to act as a dummy for the latter,
or to simply sign the Agreement (Exhibit G) purely to accommodate the
plaintiffs-appellees on the mere promise of a so-called conventional trading from
which he expects to earn huge shipping earnings. The clear and unmistakable
terms of Exhibits G and D indeed leave no room for doubt as to the intention of
the herein contracting parties. It is but proper that appellant Jammang be now
made to fulfill his contractual undertaking by paying the amounts still due and
owing to plaintiffs-appellees as per the Agreement dated July 27, 1994, to account
for the remaining stocks valued at US$185,000 and to pay 10% of the principal
obligation of US$266,000 as reasonable attorneys fees, pursuant to Art. 2208 (2)
of the Civil Code.

It is axiomatic that this Court will not review, much less reverse, the factual
findings of the Court of Appeals, especially where, as in this case, such findings
coincide with those of the trial court, since this Court is not a trier of facts.

All told, therefore, the Court finds no reason or basis to grant the petition.

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.

ADOLFO S. AZCUNA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chairperson
Associate Justice
ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA
Associate Justice Associate Justice

CANCIO C. GARCIA
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Associate Justice
Chairperson, Second Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

ARTEMIO V. PANGANIBAN
Chief Justice
[1]
Under Rule 45 of the Rules of Court.
[2]
Rollo, pp. 82-85, 205-210.
[3]
Rollo, p. 209; Records, p. 556.
[4]
Rollo, p. 209.
[5]
Rollo, p. 213.
[6]
Id. at 88.
 FIRST DIVISION

EDUARDO V. LINTONJUA, JR. G.R. No. 144805

and ANTONIO K. LITONJUA,
Petitioners,
Present:
PANGANIBAN, C.J., Chairperson,
- versus - YNARES-SANTIAGO,*
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
ETERNIT CORPORATION
(now ETERTON MULTI-
RESOURCES CORPORATION),
ETEROUTREMER, S.A. and Promulgated:
FAR EAST BANK & TRUST
COMPANY, June 8, 2006
Respondents.

x-----------------------------------------------------------------------------------------x

DECISION

CALLEJO, SR., J.:

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

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

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

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

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property
to Eduardo Litonjua, Jr., and his brother Antonio K. Litonjua. The Litonjua
siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised
Glanville of the Litonjua siblings offer and relayed the same to Delsaux
in Belgium, but the latter did not respond.On October 28, 1986, Glanville telexed
Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the
Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex to
Glanville stating that, based on the Belgian/Swiss decision, the final offer was
US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final
liquidation.[5]

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by
Delsaux. Litonjua, Jr. accepted the counterproposal of Delsaux. Marquez conferred
with Glanville, and in a Letter dated February 26, 1987, confirmed that the
Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that
the Litonjua siblings would confirm full payment within 90 days after execution
and preparation of all documents of sale, together with the necessary governmental
clearances.[6]
The Litonjua brothers deposited the amount of US$1,000,000.00 with the
Security Bank & Trust Company, Ermita Branch, and drafted an Escrow
Agreement to expedite the sale.[7]

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

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

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

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

May 22, 1987

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

334 Makati Stock Exchange Bldg.

6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:

Re: Land of Eternit Corporation

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

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

xxx

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

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

When apprised of this development, the Litonjuas, through counsel, wrote

EC, demanding payment for damages they had suffered on account of the aborted
sale. EC, however, rejected their demand.

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

In their answer to the complaint, EC and ESAC alleged that since

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

On July 3, 1995, the trial court rendered judgment in favor of defendants and
dismissed the amended complaint.[12] The fallo of the decision reads:
 WHEREFORE, the complaint against Eternit Corporation now Eterton
Multi-Resources Corporation and Eteroutremer, S.A. is dismissed on the ground
that there is no valid and binding sale between the plaintiffs and said defendants.

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

The counterclaim of Eternit Corporation now Eterton Multi-Resources

Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.[13]

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

The Litonjuas appealed the decision to the CA, alleging that (1) the lower
court erred in concluding that the real estate broker in the instant case needed a
written authority from appellee corporation and/or that said broker had no such
written authority; and (2) the lower court committed grave error of law in holding
that appellee corporation is not legally bound for specific performance and/or
damages in the absence of an enabling resolution of the board of directors.[15] They
averred that Marquez acted merely as a broker or go-between and not as agent of
the corporation; hence, it was not necessary for him to be empowered as such by
any written authority. They further claimed that an agency by estoppel was created
when the corporation clothed Marquez with apparent authority to negotiate for the
sale of the properties. However, since it was a bilateral contract to buy and sell, it
was equivalent to a perfected contract of sale, which the corporation was obliged to
consummate.

In reply, EC alleged that Marquez had no written authority from the Board
of Directors to bind it; neither were Glanville and Delsaux authorized by its board
of directors to offer the property for sale. Since the sale involved substantially all
of the corporations assets, it would necessarily need the authority from the
stockholders.
 On June 16, 2000, the CA rendered judgment affirming the decision of the
[16]
RTC. The Litonjuas filed a motion for reconsideration, which was also denied
by the appellate court.

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

In the instant petition for review, petitioners aver that

I

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PERFECTED CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN

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

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE

AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE
SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY
PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE
SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT
TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID
PROPERTIES.[17]

Petitioners maintain that, based on the facts of the case, there was a perfected
contract of sale of the parcels of land and the improvements thereon for
US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation.
Petitioners insist that they had accepted the counter-offer of respondent EC and
that before the counter-offer was withdrawn by respondents, the acceptance was
made known to them through real estate broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of
Directors of EC for Marquez to validly act as broker/middleman/intermediary. As
broker, Marquez was not an ordinary agent because his authority was of a special
and limited character in most respects. His only job as a broker was to look for a
buyer and to bring together the parties to the transaction. He was not authorized to
sell the properties or to make a binding contract to respondent EC; hence,
petitioners argue, Article 1874 of the New Civil Code does not apply.

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

Petitioners posit that the testimonial and documentary evidence on record

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

1. The testimony of Marquez that he was chosen by Glanville as the then

President and General Manager of Eternit, to sell the properties of said
corporation to any interested party, which authority, as hereinabove discussed,
need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;

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

sell its properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the

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

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00

with the Security Bank and that an ESCROW agreement was drafted over the
subject properties;

6. Glanvilles telex to Delsaux inquiring WHEN WE (Respondents) WILL

IMPLEMENT ACTION TO BUY AND SELL;
 7. More importantly, Exhibits G and H of the Respondents, which
evidenced the fact that Petitioners offer was allegedly REJECTED by both
Glanville and Delsaux.[18]

Petitioners insist that it is incongruous for Glanville and Delsaux to make a

counter-offer to petitioners offer and thereafter reject such offer unless they were
authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his
authority to sell the properties in his letter to Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

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

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

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

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX[19]

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

By way of comment, respondents aver that the issues raised by the

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

Petitioners aver in their subsequent pleadings that respondent EC, through

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

The petition has no merit.

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

It must be stressed that issues of facts may not be raised in the Court under Rule 45
of the Rules of Court because the Court is not a trier of facts. It is not to re-
examine and assess the evidence on record, whether testimonial and
documentary. There are, however, recognized exceptions where the Court may
delve into and resolve factual issues, namely:
 (1) When the conclusion is a finding grounded entirely on speculations, surmises,
or conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when the Court of Appeals, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both appellant and
appellee; (7) when the findings of the Court of Appeals are contrary to those of
the trial court; (8) when the findings of fact are conclusions without citation of
specific evidence on which they are based; (9) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of evidence
and are contradicted by the evidence on record.[23]

We have reviewed the records thoroughly and find that the petitioners failed to
establish that the instant case falls under any of the foregoing exceptions. Indeed,
the assailed decision of the Court of Appeals is supported by the evidence on
record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to
sell its properties and that it had empowered Adams, Glanville and Delsaux or
Marquez to offer the properties for sale to prospective buyers and to accept any
counter-offer. Petitioners likewise failed to prove that their counter-offer had been
accepted by respondent EC, through Glanville and Delsaux. It must be stressed that
when specific performance is sought of a contract made with an agent, the agency
must be established by clear, certain and specific proof.[24]

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation

Code of the Philippines, provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled
and held by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year and until their successors are
elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its members
or stockholders and is not affected by the personal rights,

obligations and transactions of the latter.[25] It may act only through its board of
directors or, when authorized either by its by-laws or by its board resolution,
through its officers or agents in the normal course of business. The general
principles of agency govern the relation between the corporation and its officers or
agents, subject to the articles of incorporation, by-laws, or relevant provisions of
law.[26]

Under Section 36 of the Corporation Code, a corporation may sell or convey its
real properties, subject to the limitations prescribed by law and the Constitution, as
follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under
this Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage
and otherwise deal with such real and personal property, including securities and
bonds of other corporations, as the transaction of a lawful business of the
corporation may reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders or

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

While a corporation may appoint agents to negotiate for the sale of its real
properties, the final say will have to be with the board of directors through its
officers and agents as authorized by a board resolution or by its by-laws.[30] An
unauthorized act of an officer of the corporation is not binding on it unless the
latter ratifies the same expressly or impliedly by its board of directors. Any sale of
real property of a corporation by a person purporting to be an agent thereof but
without written authority from the corporation is null and void. The declarations of
the agent alone are generally insufficient to establish the fact or extent of his/her
authority.[31]
By the contract of agency, a person binds himself to render some service or to do
something in representation on behalf of another, with the consent or authority of
the latter.[32]Consent of both principal and agent is necessary to create an
agency. The principal must intend that the agent shall act for him; the agent must
intend to accept the authority and act on it, and the intention of the parties must
find expression either in words or conduct between them.[33]

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

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

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the
authority of Delsaux, who, in turn, acted on the authority of respondent ESAC,
through its Committee for Asia,[38] the Board of Directors of respondent
ESAC,[39] and the Belgian/Swiss component of the management of respondent
ESAC.[40] As such, Adams and Glanville engaged the services of Marquez to offer
to sell the properties to prospective buyers. Thus, on September 12, 1986, Marquez
wrote the petitioner that he was authorized to offer for sale the property
for P27,000,000.00 and the other terms of the sale subject to negotiations. When
petitioners offered to purchase the property for P20,000,000.00, through Marquez,
the latter relayed petitioners offer to Glanville; Glanville had to send a telex to
Delsaux to inquire the position of respondent ESAC to petitioners offer.However,
as admitted by petitioners in their Memorandum, Delsaux was unable to reply
immediately to the telex of Glanville because Delsaux had to wait for confirmation
from respondent ESAC.[41] When Delsaux finally responded to Glanville on
February 12, 1987, he made it clear that, based on the Belgian/Swiss decision the
final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover
all existing obligations prior to final liquidation.[42] The offer of Delsaux emanated
only from the Belgian/Swiss decision, and not the entire management or Board of
Directors of respondent ESAC. While it is true that petitioners accepted the
counter-offer of respondent ESAC, respondent EC was not a party to the
transaction between them; hence, EC was not bound by such acceptance.

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

It bears stressing that in an agent-principal relationship, the personality of the

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

The petitioners cannot feign ignorance of the absence of any regular and valid
authority of respondent EC empowering Adams, Glanville or Delsaux to offer the
properties for sale and to sell the said properties to the petitioners. A person
dealing with a known agent is not authorized, under any circumstances, blindly to
trust the agents; statements as to the extent of his powers; such person must not act
negligently but must use reasonable diligence and prudence to ascertain whether
the agent acts within the scope of his authority.[45] The settled rule is that, persons
dealing with an assumed agent are bound at their peril, and if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon
them to prove it.[46] In this case, the petitioners failed to discharge their burden;
hence, petitioners are not entitled to damages from respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but
also as their agent. As gleaned from the letter of Marquez to Glanville, on February
26, 1987, he confirmed, for and in behalf of the petitioners, that the latter had
accepted such offer to sell the land and the improvements thereon. However, we
agree with the ruling of the appellate court that Marquez had no authority to bind
respondent EC to sell the subject properties. A real estate broker is one who
negotiates the sale of real properties. His business, generally speaking, is only to
find a purchaser who is willing to buy the land upon terms fixed by the owner. He
has no authority to bind the principal by signing a contract of sale. Indeed, an
authority to find a purchaser of real property does not include an authority to
sell.[47]
Equally barren of merit is petitioners contention that respondent EC is
estopped to deny the existence of a principal-agency relationship between it and
Glanville or Delsaux. For an agency by estoppel to exist, the following must be
established: (1) the principal manifested a representation of the agents authority or
knowlingly allowed the agent to assume such

authority; (2) the third person, in good faith, relied upon such representation; (3)
relying upon such representation, such third person has changed his position to his
detriment.[48]An agency by estoppel, which is similar to the doctrine of apparent
authority, requires proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken in reliance.[49] Such
proof is lacking in this case. In their communications to the petitioners, Glanville
and Delsaux positively and unequivocally declared that they were acting for and in
behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between

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

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of

merit. Costs against the petitioners.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice
WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson

(On leave)
CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified

that the conclusions in the above decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

ARTEMIO V. PANGANIBAN
Chief Justice
*
On leave.
[1]
Penned by Associate Justice Remedios A. Salazar-Fernando, with Associate Justices Fermin A. Martin, Jr. and
Salvador J. Valdez, Jr. (retired), concurring; rollo, pp. 40-53.
[2]
Rollo, pp. 54-55.
[3]
Id. at 11, 61.
[4]
Id. at 394-395.
[5]
Id. at 396.
[6]
Id. at 397-398.
[7]
Id. at 240.
[8]
Id. at 241.
[9]
Id.
[10]
Id. at 399.
[11]
Id. at 349-400.
[12]
Id. at 163-175.
[13]
Id. at 174-175.
[14]
Id. at 173-174.
[15]
Id. at 47-48.
[16]
Id. at 40-53.
[17]
Id. at 15.
[18]
Id. at 29-30.
[19]
Id. at 30-31.
[20]
Weathersby v. Gore, 556 F.2d 1247 (1977).
[21]
Cavic v. Grand Bahama Development Co., Ltd., 701 F.2d 879 (1983).
[22]
Culaba v. Court of Appeals, G.R. No. 125862, April 15, 2004, 427 SCRA 721, 729; Litonjua v. Fernandez, G.R.
No. 148116, April 14, 2004, 427 SCRA 478, 489.
[23]
Nokom v. National Labor Relations Commission, 390 Phil. 1228, 1242-1243 (2000). (citations omitted)
[24]
Blair v. Sheridan, 10 S.E. 414 (1889).
[25]
Philippine National Bank v. Ritratto Group, Inc., 414 Phil. 494, 503 (2001).
[26]
San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 357 Phil. 631, 644 (1998).
[27]
Traders Royal Bank v. Court of Appeals, G.R. No. 78412, September 26, 1989, 177 SCRA 788, 792.
[28]
BPI Leasing Corporation v. Court of Appeals, G.R. No. 127624, November 18, 2003, 416 SCRA 4, 11.
[29]
AF Realty & Development, Inc. v. Dieselman Freight Services, Co., 424 Phil. 446, 454 (2002).
[30]
De Liano v. Court of Appeals, 421 Phil. 1033, 1052 (2001).
[31]
Litonjua v. Fernandez, supra note 22, at 493.
[32]
Article 1868, NEW CIVIL CODE.
[33]
Ellison v. Hunsinger, 75 S.E. 2d. 884 (1953); Dominion Insurance Corporation v. Court of Appeals, 426 Phil.
620, 626 (2002).
[34]
CIVIL CODE, Art. 1870.
[35]
CIVIL CODE, Art. 1869, paragraph 2.
[36]
CIVIL CODE, Art. 1878(12).
[37]
CIVIL CODE, Art. 1874.
[38]
Exhibits H and H-1, rollo, p. 166.
[39]
Exhibits G and G-1, id.
[40]
Exhibits C and C-1, id. at 165.
[41]
Rollo, p. 396.
[42]
Exhibits C and C-1, rollo, p. 165.
[43]
Philippine National Bank v. Ritratto Group, Inc., supra note 25, at 503.
[44]
Orient Air Services and Hotel Representatives v. Court of Appeals, 274 Phil. 927, 939 (1991).
[45]
Hill v. Delta Loan and Finance Company, 277 S.W. 2d 63, 65.
[46]
Litonjua v. Fernandez, supra note 22, at 494; Culaba v. Court of Appeals, supra note 22, at 730; BA Finance
Corporation v. Court of Appeals, G.R. No. 94566, July 3, 1992, 211 SCRA 112, 116.
[47]
Donnan v. Adams, 71 S.W. 580.
[48]
Carolina-Georgia Carpet and Textiles, Inc. v. Pelloni, 370 So. 2d 450 (1979).
[49]
Id.
 THIRD DIVISION

PHILIPPINE HEALTH-CARE PROVIDERS, INC. G.R. No. 171052

(MAXICARE),

Petitioner, Present:

YNARES-SANTIAGO, J.,

Chairperson,

- versus - AUSTRIA-MARTINEZ,

CORONA,*

NACHURA, and

REYES, JJ.

CARMELA ESTRADA/CARA HEALTH Promulgated:

SERVICES,

Respondent. January 28, 2008

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:
This petition for review on certiorari assails the Decision[1] dated June 16, 2005 of
the Court of Appeals (CA) in CA-G.R. CV No. 66040 which affirmed in toto the
Decision[2]dated October 8, 1999 of the Regional Trial Court (RTC), Branch 135, of
Makati City in an action for breach of contract and damages filed by respondent
Carmela Estrada, sole proprietor of Cara Health Services, against Philippine
Health-Care Providers, Inc. (Maxicare).

The facts, as found by the CA and adopted by Maxicare in its petition, follow:

[Maxicare] is a domestic corporation engaged in selling health insurance plans whose

Chairman Dr. Roberto K. Macasaet, Chief Operating Officer Virgilio del Valle, and
Sales/Marketing Manager Josephine Cabrera were impleaded as defendants-appellants.

On September 15, 1990, [Maxicare] allegedly engaged the services of Carmela Estrada
who was doing business under the name of CARA HEALTH [SERVICES] to promote and
sell the prepaid group practice health care delivery program called MAXICARE Plan with
the position of Independent Account Executive. [Maxicare] formally appointed [Estrada]
as its General Agent, evidenced by a letter-agreement dated February 16, 1991. The
letter agreement provided for plaintiff-appellees [Estradas] compensation in the form of
commission, viz.:

Commission

In consideration of the performance of your functions and duties as

specified in this letter-agreement, [Maxicare] shall pay you a
commission equivalent to 15 to 18% from individual, family, group
 accounts; 2.5 to 10% on tailored fit plans; and 10% on standard plans of
commissionable amount on corporate accounts from all membership
dues collected and remitted by you to [Maxicare].

[Maxicare] alleged that it followed a franchising system in dealing with its agents
whereby an agent had to first secure permission from [Maxicare] to list a prospective
company as client.[Estrada] alleged that it did apply with [Maxicare] for the MERALCO
account and other accounts, and in fact, its franchise to solicit corporate accounts,
MERALCO account included, was renewed on February 11, 1991.

Plaintiff-appellee [Estrada] submitted proposals and made representations to the

officers of MERALCO regarding the MAXICARE Plan but when MERALCO decided to
subscribe to the MAXICARE Plan, [Maxicare] directly negotiated with MERALCO
regarding the terms and conditions of the agreement and left plaintiff-appellee
[Estrada] out of the discussions on the terms and conditions.

On November 28, 1991, MERALCO eventually subscribed to the MAXICARE Plan and
signed a Service Agreement directly with [Maxicare] for medical coverage of its qualified
members, i.e.: 1) the enrolled dependent/s of regular MERALCO executives; 2) retired
executives and their dependents who have opted to enroll and/or continue their
MAXICARE membership up to age 65; and 3) regular MERALCO female executives
(exclusively for maternity benefits). Its duration was for one (1) year from December 1,
1991 to November 30, 1992. The contract was renewed twice for a term of three (3)
years each, the first started on December 1, 1992 while the second took effect
on December 1, 1995.

The premium amounts paid by MERALCO to [Maxicare] were alleged to be the

following: a) P215,788.00 in December 1991; b) P3,450,564.00 in 1992; c) P4,223,710.00
in 1993; d) P4,782,873.00 in 1994; e) P5,102,108.00 in 1995; and P2,394,292.00 in May
1996. As of May 1996, the total amount of premium paid by MERALCO to [Maxicare]
was P20,169,335.00.

On March 24, 1992, plaintiff-appellee [Estrada], through counsel, demanded from

[Maxicare] that it be paid commissions for the MERALCO account and nine (9) other
accounts. In reply, [Maxicare], through counsel, denied [Estradas] claims for commission
 for the MERALCO and other accounts because [Maxicare] directly negotiated with
MERALCO and the other accounts(,) and that no agent was given the go signal to
intervene in the negotiations for the terms and conditions and the signing of the service
agreement with MERALCO and the other accounts so that if ever [Maxicare] was
indebted to [Estrada], it was only for P1,555.00 and P43.l2 as commissions on the
accounts of Overseas Freighters Co. and Mr. Enrique Acosta, respectively.

[Estrada] filed a complaint on March 18, 1993 against [Maxicare] and its officers with
the Regional Trial Court (RTC) of Makati City, docketed as Civil Case No. 93-935, raffled
to Branch 135.

Defendants-appellants [Maxicare] and its officers filed their Answer with Counterclaim
on September 13, 1993 and their Amended Answer with Counterclaim on September
28, 1993, alleging that: plaintiff-appellee [Estrada] had no cause of action; the cause of
action, if any, should be is against [Maxicare] only and not against its officers; CARA
HEALTHs appointment as agent under the February 16, 1991 letter-agreement to
promote the MAXICARE Plan was for a period of one (1) year only; said agency was not
renewed after the expiration of the one (1) year period; [Estrada] did not intervene in
the negotiations of the contract with MERALCO which was directly negotiated by
MERALCO with [Maxicare]; and [Estradas] alleged other clients/accounts were not
accredited with [Maxicare] as required, since the agency contract on the MAXICARE
health plans were not renewed. By way of counterclaim, defendants-appellants
[Maxicare] and its officers claimed P100,000.00 in moral damages for each of the
officers of [Maxicare] impleaded as defendant, P100,000.00 in exemplary
damages, P100,000.00 in attorneys fees, and P10,000.00 in litigation expenses.[3]

After trial, the RTC found Maxicare liable for breach of contract and ordered it to
pay Estrada actual damages in the amount equivalent to 10% of P20,169,335.00,
representing her commission for the total premiums paid by Meralco to Maxicare
from the year 1991 to 1996, plus legal interest computed from the filing of the
complaint on March 18, 1993, and attorneys fees in the amount of P100,000.00.
On appeal, the CA affirmed in toto the RTCs decision. In ruling for Estrada, both
the trial and appellate courts held that Estrada was the efficient procuring cause
in the execution of the service agreement between Meralco and Maxicare
consistent with our ruling in Manotok Brothers, Inc. v. Court of Appeals.[4]

Undaunted, Maxicare comes to this Court and insists on the reversal of the RTC
Decision as affirmed by the CA, raising the following issues, to wit:

1. Whether the Court of Appeals committed serious error in affirming Estradas

entitlement to commissions for the execution of the service agreement between
Meralco and Maxicare.

2. Corollarily, whether Estrada is entitled to commissions for the two (2) consecutive
renewals of the service agreement effective on December 1, 1992[5] and December 1,
1995.[6]

We are in complete accord with the trial and appellate courts ruling. Estrada is
entitled to commissions for the premiums paid under the service agreement
between Meralco and Maxicare from 1991 to 1996.

Well-entrenched in jurisprudence is the rule that factual findings of the trial

court, especially when affirmed by the appellate court, are accorded the highest
degree of respect and are considered conclusive between the parties.[7] A review
of such findings by this Court is not warranted except upon a showing of highly
meritorious circumstances, such as: (1) when the findings of a trial court are
grounded entirely on speculation, surmises or conjectures; (2) when a lower
courts inference from its factual findings is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion in the appreciation of
facts; (4) when the findings of the appellate court go beyond the issues of the
case, or fail to notice certain relevant facts which, if properly considered, will
justify a different conclusion; (5) when there is a misappreciation of facts; (6)
when the findings of fact are conclusions without mention of the specific
evidence on which they are based, are premised on the absence of evidence, or
are contradicted by evidence on record.[8] None of the foregoing exceptions which
would warrant a reversal of the assailed decision obtains in this instance.

Maxicare urges us that both the RTC and CA failed to take into account the
stipulations contained in the February 19, 1991 letter agreement authorizing the
payment of commissions only upon satisfaction of twin conditions, i.e., collection
and contemporaneous remittance of premium dues by Estrada to Maxicare.
Allegedly, the lower courts disregarded Estradas admission that the negotiations
with Meralco failed. Thus, the flawed application of the efficient procuring cause
doctrine enunciated in Manotok Brothers, Inc. v. Court of Appeals,[9] and the
erroneous conclusion upholding Estradas entitlement to commissions on
contracts completed without her participation.

We are not persuaded.

Contrary to Maxicares assertion, the trial and the appellate courts carefully
considered the factual backdrop of the case as borne out by the records. Both
courts were one in the conclusion that Maxicare successfully landed the Meralco
account for the sale of healthcare plans only by virtue of Estradas involvement
and participation in the negotiations. The assailed Decision aptly states:

There is no dispute as to the role that plaintiff-appellee [Estrada] played in selling

[Maxicares] health insurance plan to Meralco. Plaintiff-appellee [Estradas] efforts
consisted in being the first to offer the Maxicare plan to Meralco, using her connections
with some of Meralco Executives, inviting said executives to dinner meetings, making
submissions and representations regarding the health plan, sending follow-up letters,
etc.
 These efforts were recognized by Meralco as shown by the certification issued by its
Manpower Planning and Research Staff Head Ruben A. Sapitula on September 5, 1991,
to wit:

This is to certify that Ms. Carmela Estrada has initiated talks with us
since November 1990 with regards (sic) to the HMO requirements of
both our rank and file employees, managers and executives, and that it
was favorably recommended and the same be approved by the Meralco
Management Committee.

xxxx

This Court finds that plaintiff-appellee [Estradas] efforts were instrumental in

introducing the Meralco account to [Maxicare] in regard to the latters Maxicare health
insurance plans. Plaintiff-appellee [Estrada] was the efficient intervening cause in
bringing about the service agreement with Meralco. As pointed out by the trial court in
its October 8, 1999 Decision, to wit:

xxx Had not [Estrada] introduced Maxicare Plans to her bosom friends,
Messrs. Lopez and Guingona of Meralco, PHPI would still be an
anonymity. xxx[10]

Under the foregoing circumstances, we are hard pressed to disturb the findings of
the RTC, which the CA affirmed.

We cannot overemphasize the principle that in petitions for review

on certiorari under Rules 45 of the Rules of Court, only questions of law may be
put into issue. Questions of fact are not cognizable by this Court. The finding of
efficient procuring cause by the CA is a question of fact which we desist from
passing upon as it would entail delving into factual matters on which such finding
was based. To reiterate, the rule is that factual findings of the trial court,
especially those affirmed by the CA, are conclusive on this Court when supported
by the evidence on record.[11]

The jettisoning of the petition is inevitable even upon a close perusal of the merits
of the case.

First. Maxicares contention that Estrada may only claim commissions from
membership dues which she has collected and remitted to Maxicare as expressly
provided for in the letter-agreement does not convince us. It is readily apparent
that Maxicare is attempting to evade payment of the commission which rightfully
belongs to Estrada as the broker who brought the parties together. In fact,
Maxicares former Chairman Roberto K. Macasaet testified that Maxicare had
been trying to land the Meralco account for two (2) years prior to Estradas entry
in 1990.[12] Even without that admission, we note that Meralcos Assistant Vice-
President, Donatila San Juan, in a letter[13] dated January 21, 1992 to then
Maxicare President Pedro R. Sen, categorically acknowledged Estradas efforts
relative to the sale of Maxicare health plans to Meralco, thus:

Sometime in 1989, Meralco received a proposal from Philippine Health-Care Providers,

Inc. (Maxicare) through the initiative and efforts of Ms. Carmela Estrada, who
introduced Maxicare to Meralco. Prior to this time, we did not know that Maxicare is a
major health care provider in the country. We have since negotiated and signed up with
Maxicare to provide a health maintenance plan for dependents of Meralco executives,
effective December 1, 1991 to November 30, 1992.

At the very least, Estrada penetrated the Meralco market, initially closed to
Maxicare, and laid the groundwork for a business relationship. The only reason
Estrada was not able to participate in the collection and remittance of premium
dues to Maxicare was because she was prevented from doing so by the acts of
Maxicare, its officers, and employees.
 In Tan v. Gullas,[14] we had occasion to define a broker and distinguish it
from an agent, thus:

[O]ne who is engaged, for others, on a commission, negotiating contracts relative to

property with the custody of which he has no concern; the negotiator between the
other parties, never acting in his own name but in the name of those who employed
him. [A] broker is one whose occupation is to bring the parties together, in matter of
trade, commerce or navigation.[15]

An agent receives a commission upon the successful conclusion of a sale. On the other
hand, a broker earns his pay merely by bringing the buyer and the seller together, even if
no sale is eventually made.[16]

In relation thereto, we have held that the term procuring cause in describing a
brokers activity, refers to a cause originating a series of events which, without
break in their continuity, result in the accomplishment of the prime objective of
the employment of the brokerproducing a purchaser ready, willing and able to
buy on the owners terms.[17] To be regarded as the procuring cause of a sale as to
be entitled to a commission, a brokers efforts must have been the foundation on
which the negotiations resulting in a sale began.[18] Verily, Estrada was
instrumental in the sale of the Maxicare health plans to Meralco. Without her
intervention, no sale could have been consummated.

Second. Maxicare next contends that Estrada herself admitted that her
negotiations with Meralco failed as shown in Annex F of the Complaint.

The chicanery and disingenuousness of Maxicares counsel is not lost on this

Court. We observe that this Annex F is, in fact, Maxicares counsels letter
dated April 10, 1992addressed to Estrada. The letter contains a unilateral
declaration by Maxicare that the efforts initiated and negotiations undertaken by
Estrada failed, such that the service agreement with Meralco was supposedly
directly negotiated by Maxicare. Thus, the latter effectively declares that Estrada
is not the efficient procuring cause of the sale, and as such, is not entitled to
commissions.

Our holding in Atillo III v. Court of Appeals,[19] ironically the case cited by
Maxicare to bolster its position that the statement in Annex F amounted to an
admission, provides a contrary answer to Maxicares ridiculous contention. We
intoned therein that in spite of the presence of judicial admissions in a partys
pleading, the trial court is still given leeway to consider other evidence
presented.[20] We ruled, thus:

As provided for in Section 4 of Rule 129 of the Rules of Court, the general rule that a
judicial admission is conclusive upon the party making it and does not require proof
admits of two exceptions: 1) when it is shown that the admission was made through
palpable mistake, and 2) when it is shown that no such admission was in fact made. The
latter exception allows one to contradict an admission by denying that he made such an
admission.

For instance, if a party invokes an admission by an adverse party, but

cites the admission out of context, then the one making the admission
may show that he made no such admission, or that his admission was
taken out of context.

This may be interpreted as to mean not in the sense in which the

admission is made to appear. That is the reason for the modifier such.[21]

In this case, the letter, although part of Estradas Complaint, is not, ipso
facto, an admission of the statements contained therein, especially since the bone
of contention relates to Estradas entitlement to commissions for the sale of
health plans she claims to have brokered. It is more than obvious from the
entirety of the records that Estrada has unequivocally and consistently declared
that her involvement as broker is the proximate cause which consummated the
sale between Meralco and Maxicare.

Moreover, Section 34,[22] Rule 132 of the Rules of Court requires the
purpose for which the evidence is offered to be specified. Undeniably, the letter
was attached to the Complaint, and offered in evidence, to demonstrate
Maxicares bad faith and ill will towards Estrada.[23]

Even a cursory reading of the Complaint and all the pleadings filed
thereafter before the RTC, CA, and this Court, readily show that Estrada does not
concede, at any point, that her negotiations with Meralco failed. Clearly,
Maxicares assertion that Estrada herself does not pretend to be the efficient
procuring cause in the execution of the service agreement between Meralco and
Maxicare is baseless and an outright falsehood.

After muddling the issues and representing that Estrada made an admission
that her negotiations with Meralco failed, Maxicares counsel then proceeds to
cite a case which does not, by any stretch of the imagination, bolster the flawed
contention.

We, therefore, ADMONISH Maxicares counsel, and, in turn, remind every

member of the Bar that the practice of law carries with it responsibilities which
are not to be trifled with. Maxicares counsel ought to be reacquainted with Canon
10[24] of the Code of Professional Responsibility, specifically, Rule 10.02, to wit:

Rule 10.02 A lawyer shall not knowingly misquote or misrepresent the contents of a
paper, the language or the argument of opposing counsel, or the text of a decision or
 authority, or knowingly cite as law a provision already rendered inoperative by repeal or
amendment, or assert as a fact that which has not been proved.

Third. Finally, we likewise affirm the uniform ruling of the RTC and CA that Estrada
is entitled to 10% of the total amount of premiums paid[25] by Meralco to
Maxicare as of May 1996. Maxicares argument that assuming Estrada is entitled
to commissions, such entitlement only covers the initial year of the service
agreement and should not include the premiums paid for the succeeding
renewals thereof, fails to impress. Considering that we have sustained the lower
courts factual finding of Estradas close, proximate and causal connection to the
sale of health plans, we are not wont to disturb Estradas complete entitlement to
commission for the total premiums paid until May 1996 in the amount
of P20,169,335.00.

WHEREFORE, premises considered and finding no reversible error committed by

the Court of Appeals, the petition is hereby DENIED. Costs against the petitioner.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:
 CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ RENATO C. CORONA

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
 CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

*
In lieu of Associate Justice Minita V. Chico-Nazario per Special Order No. 484 dated January 11, 2008.
[1]
Penned by Associate Justice Vicente Q. Roxas, with Associate Justices Portia Aliňo- Hormachuelos and Juan Q.
Enriquez, Jr., concurring; rollo, pp. 37-46.
[2]
Penned by Judge Francisco B. Ibay; id. at 137-147.
[3]
Rollo, pp. 38-41.
[4]
G.R. No. 94753, April 7, 1993, 221 SCRA 224.
[5]
The renewed service agreement was for a period of three (3) years and expired on November 30, 1995.
[6]
A subsequent renewal of the service agreement which commenced on December 1, 1995, was likewise for a
period of three (3) years.
[7]
Titan Construction Corporation v. Uni-Field Enterprises, Inc., G.R. No. 153874, March 1, 2007, 517 SCRA 180,
186, Sigaya v. Mayuga, G.R. No. 143254, August 18, 2005, 467 SCRA 341, 353.
[8]
Ilao-Quianay v. Mapile, G.R. No. 154087, October 25, 2005, 474 SCRA 246, 253; see Child Learning Center,
Inc. v. Tagorio, G.R. No. 150920, November 25, 2005, 476 SCRA 236, 241-242.
[9]
Supra note 4.
[10]
Rollo, pp. 43-44.
[11]
Lambert v. Heirs of Ray Castillon, G.R. No. 160709, February 23, 2005, 452 SCRA 285, 290, citing Imperial v.
Jaucian, 427 SCRA 517 (2004).
[12]
Rollo, p. 10.
[13]
Id. at 83.
[14]
441 Phil. 622 (2002).
[15]
Tan v. Gullas, 441 Phil. 622, 631 (2002), citing Schmid and Oberly v. RJL Martinez Fishing Corporation, 166
SCRA 493 (1988).
[16]
Id. at 633, citing Alfred Hahn v. Court of Appeals, 266 SCRA 537 (1997).
[17]
Medrano v. Court of Appeals, G.R. No. 150678, February 18, 2005, 452 SCRA 77, 88, citing Clark v. Ellsworth,
66 Ariz. 119, 184 P. 2d 821 (1947).
[18]
Id.
[19]
334 Phil. 546 (1997).
[20]
Id. at 554.
[21]
Id. at 552.
[22]
Sec. 34. Offer of Evidence. The court shall consider no evidence which has not been formally offered. The
purpose for which the evidence is offered must be specified.
[23]
Rollo, p. 72.
[24]
CANON 10 A LAWYER OWES CANDOR, FAIRNESS AND GOOD FAITH TO THE COURT.
[25]
P20,169,335.00.
 SECOND DIVISION

[G.R. No. 150678. February 18, 2005]

BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners, vs.

COURT OF APPEALS, PACITA G. BORBON, JOSEFINA E.
ANTONIO and ESTELA A. FLOR, respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review of the Decision[1] of the Court of Appeals (CA)
affirming in toto the Decision[2] of the Regional Trial Court (RTC) of Makati City, Branch
135, in Civil Case No. 15664 which awarded to the respondents their 5% brokers
commission.
The facts are as follows:
Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned
by the Medrano family. In 1986, Mr. Medrano asked Mrs. Estela Flor, a cousin-in-law, to
look for a buyer of a foreclosed asset of the bank,[3] a 17-hectare mango plantation
priced at P2,200,000.00, located in Ibaan, Batangas.[4]
Mr. Dominador Lee, a businessman from Makati City, was a client of respondent
Mrs. Pacita G. Borbon, a licensed real estate broker. The two met through a previous
transaction where Lee responded to an ad in a newspaper put up by Borbon for an 8-
hectare property in Lubo, Batangas, planted with atis trees. Lee expressed that he
preferred a land with mango trees instead. Borbon promised to get back to him as soon
as she would be able to find a property according to his specifications.
Borbon relayed to her business associates and friends that she had a ready buyer
for a mango orchard. Flor then advised her that her cousin-in-law owned a mango
plantation which was up for sale. She told Flor to confer with Medrano and to give them
a written authority to negotiate the sale of the property. [5] Thus, on September 3, 1986,
Medrano issued the Letter of Authority, as follows:
Mrs. Pacita G. Borbon & Miss Josefina E. Antonio
Campos Rueda Building
Tindalo, Makati, M.M.

Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig

23 Mabini Street
Quezon City, M.M.
Dear Mesdames:

This letter will serve as your authority* to negotiate with any prospective buyer for
the sale of a certain real estate property more specifically a mango plantation which is
described more particularly therein below:

Location : Barrio Tulay-na-Patpat, Ibaan,

Batangas
Lot Area : 17 hectares (more or less) per
attached Appendix A
Improvements : 720 all fruit-bearing mango trees
(carabao variety) and other trees
Price : P 2,200,000.00

For your labor and effort in finding a purchaser thereof, I hereby bind myself to pay
you a commission of 5% of the total purchase price to be agreed upon by the buyer
and seller.

Very truly yours,

(Sgd.)
B.R. Medrano
Owner

* Subject to price sale.[6]

The respondents arranged for an ocular inspection of the property together with Lee
which never materialized the first time was due to inclement weather; the next time, no
car was available for the tripping to Batangas.[7] Lee then called up Borbon and told her
that he was on his way to Lipa City to inspect another property, and might as well also
take a look at the property Borbon was offering. Since Lee was in a hurry, the
respondents could no longer accompany him at the time. Thus, he asked for the exact
address of the property and the directions on how to reach the lot in Ibaan from Lipa
City. Thereupon, Lee was instructed to get in touch with Medranos daughter and also
an officer of the bank, Mrs. Teresa Ganzon, regarding the property.[8]
Two days after the visit, respondent Josefina Antonio called Lee to inquire about the
result of his ocular inspection. Lee told her that the mango trees looked sick so he was
bringing an agriculturist to the property. Three weeks thereafter, Antonio called Lee
again to make a follow-up of the latters visit to Ibaan. Lee informed her that he already
purchased the property and had made a down payment of P1,000,000.00. The
remaining balance of P1,200,000.00 was to be paid upon the approval of the
incorporation papers of the corporation he was organizing by the Securities and
Exchange Commission. According to Antonio, Lee asked her if they had already
received their commission. She answered no, and Lee expressed surprise over this. [9]
A Deed of Sale was eventually executed on November 6, 1986 between the bank,
represented by its President/General Manager Teresa M. Ganzon (as Vendor) and KGB
Farms, Inc., represented by Dominador Lee (as Vendee), for the purchase price
of P1,200,000.00.[10] Since the sale of the property was consummated, the respondents
asked from the petitioners their commission, or 5% of the purchase price. The
petitioners refused to pay and offered a measly sum of P5,000.00 each.[11] Hence, the
respondents were constrained to file an action against herein petitioners.
The petitioners alleged that Medrano issued the letter of authority in favor of all the
respondents, upon the representation of Flor that she had a prospective buyer. Flor was
the only person known to Medrano, and he had never met Borbon and Antonio.
Medrano had asked that the name of their prospective buyer be immediately registered
so as to avoid confusion later on, but Flor failed to do so. Furthermore, the other officers
of the bank had never met nor dealt with the respondents in connection with the sale of
the property. Ganzon also asked Lee if he had an agent and the latter replied that he
had none. The petitioners also denied that the purchase price of the property
was P2,200,000.00 and alleged that the property only cost P1,200,000.00. The
petitioners further contended that the letter of authority signed by Medrano was not
binding or enforceable against the bank because the latter had a personality separate
and distinct from that of Medrano. Medrano, on the other hand, denied liability,
considering that he was not the registered owner of the property, but the bank. The
petitioners, likewise, filed a counterclaim as they were constrained to hire the services
of counsel and suffered damages.[12]
After the case was submitted for decision, Medrano died, but no substitution of party
was made at this time.[13]
The trial court resolved the case based on the following common issues:
1. Whether or not the letter of authority is binding and enforceable against the
defendant Bank only or both defendants; and
2. Whether or not the plaintiffs are entitled to any commission for the sale of the subject
property.[14]
On September 21, 1994, the trial court rendered a Decision in favor of the
respondents. The petitioners were ordered to pay, jointly and severally, the 5% brokers
commission to herein respondents. The trial court found that the letter of authority was
valid and binding as against Medrano and the Ibaan Rural bank. Medrano signed the
said letter for and in behalf of the bank, and as owner of the property, promising to pay
the respondents a 5% commission for their efforts in looking for a purchaser of the
property. He is, therefore, estopped from denying liability on the basis of the letter of
authority he issued in favor of the respondents. The trial court further stated that the
sale of the property could not have been possible without the representation and
intervention of the respondents. As such, they are entitled to the brokers commission of
5% of the selling price of P1,200,000.00 as evidenced by the deed of sale.[15]The fallo of
the decision reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiffs and against the defendants, for the latter, jointly and severally:

1. To pay plaintiffs the sum of P60,000.00 representing their five percent (5%)
commission of the purchase price of the property sold based on Exh. D or 9 plus legal
interest from date of filing of the herein complaint until fully paid;

2. To pay plaintiffs the sum of P20,000.00 as and for attorneys fees;

3. To pay the plaintiffs the sum of P10,000.00 as litigation expenses;

4. To pay the costs of the proceedings.[16]

Unable to agree with the RTC decision, petitioner Ibaan Rural Bank filed its notice
of appeal.[17]
On October 10, 1994, the heirs of Bienvenido Medrano filed a Motion for
Reconsideration[18] praying that the late Bienvenido Medrano be substituted by his heirs.
They further prayed that the trial courts decision as far as Medrano was concerned be
set aside and dismissed considering his demise. The trial court denied the motion for
reconsideration.[19] Hence, the heirs of Medrano also filed their notice of appeal.[20]
On appeal, the petitioners reiterated their stance that the letter of authority was not
binding and enforceable, as the same was signed by Medrano, who was not actually the
owner of the property. They refused to give the respondents any commission, since the
latter did not perform any act to consummate the sale. The petitioners pointed out that
the respondents (1) did not verify the real owner of the property; (2) never saw the
property in question; (3) never got in touch with the registered owner of the property;
and (4) neither did they perform any act of assisting their buyer in having the property
inspected and verified.[21] The petitioners further raised the trial courts error in not
dismissing the case against Bienvenido Medrano considering his death.
On May 3, 2001, the CA promulgated the assailed decision affirming the finding of
the trial court that the letter of authority was valid and binding. Applying the principle of
agency, the appellate court ruled that Bienvenido Medrano constituted the respondents
as his agents, granting them authority to represent and act on behalf of the former in the
sale of the 17-hectare mango plantation. The CA also ruled that the trial court did not err
in finding that the respondents were the procuring cause of the sale. Suffice it to state
that were it not for the respondents, Lee would not have known that there was a mango
orchard offered for sale.
The CA further ruled that an action for a sum of money continues even after the
death of the defendant, and shall remain as a money claim against the estate of the
deceased.
Undaunted by the CAs unfavorable decision, the petitioners filed the instant petition,
raising eight (8) assignments of errors, to wit:
 I. THE COURT OF APPEALS ERRED WHEN IT FOUND THE PRIVATE
RESPONDENTS TO BE THE PROCURING CAUSE OF THE SALE;

II. THE COURT OF APPEALS ERRED IN GIVING CREDENCE TO THE

LETTER-AUTHORITY OF PETITIONER MR. MEDRANO;

III. THE COURT OF APPEALS MADE A MISTAKE WHEN IT CORRECTLY

RECOGNIZED THE EXTENT OF THE PRIVATE RESPONDENTS
OBLIGATION AND AUTHORITY CONTAINED IN MEDRANOS
LETTER-AUTHORITY AND YET ERRONEOUSLY GRANTED THE
PRIVATE-RESPONDENTS DEMAND, NOTWITHSTANDING THE
NON-PERFORMANCE OF THEIR OBLIGATION THEREUNDER;

IV. THE COURT OF APPEALS ERRED IN PRESUMING BAD FAITH UPON

THE PETITIONERS;

V. THE COURT OF APPEALS ERRED IN PLACING THE BURDEN OF

PROOF UPON THE DEFENDANTS-PETITIONERS;

VI. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS

CONCLUSION WITH EVIDENCE AND INSTEAD RELIED ON
INFERENCE;

VII. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS

CONCLUSION WITH EVIDENCE AND MERELY RELIED ON
SPECULATION AND SURMISE;

VIII. THE COURT OF APPEALS MISAPPRECIATED THE FACTS

PRESENTED BEFORE IT, AND CONSEQUENTLY FAILED TO
CONSIDER REASONABLY THE TWO (2) BASIC ARGUMENTS OF
THE PETITIONERS.[22]

The petition is denied.

The records disclose that respondent Pacita Borbon is a licensed real estate
broker[23] and respondents Josefina Antonio and Estela A. Flor are her associates.[24] A
broker is generally defined as one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of which he has no concern;
the negotiator between other parties, never acting in his own name but in the name of
those who employed him; he is strictly a middleman and for some purposes the agent of
both parties. A broker is one whose occupation is to bring parties together, in matters of
trade, commerce or navigation.[25] For the respondents participation in finding a buyer
for the petitioners property, the petitioners refuse to pay them commission, asserting
that they are not the efficient procuring cause of the sale, and that the letter of authority
signed by petitioner Medrano is not binding against the petitioners.
Procuring cause is meant to be the proximate cause.[26] The term procuring cause,
in describing a brokers activity, refers to a cause originating a series of events which,
without break in their continuity, result in accomplishment of prime objective of the
employment of the broker producing a purchaser ready, willing and able to buy real
estate on the owners terms.[27] A broker will be regarded as the procuring cause of a
sale, so as to be entitled to commission, if his efforts are the foundation on which the
negotiations resulting in a sale are begun.[28] The broker must be the efficient agent or
the procuring cause of the sale. The means employed by him and his efforts must result
in the sale. He must find the purchaser, and the sale must proceed from his efforts
acting as broker.[29]
Indeed, the evidence on record shows that the respondents were instrumental in the
sale of the property to Lee. Without their intervention, no sale could have been
consummated. They were the ones who set the sale of the subject land in
motion.[30] Upon being informed by Flor that Medrano was selling his mango orchard,
Borbon lost no time in informing Lee that they had found a property according to his
specifications. An ocular inspection of the property together with Lee was immediately
planned; unfortunately, it never pushed through for reasons beyond the respondents
control. Since Lee was in a hurry to see the property, he asked the respondents the
exact address and the directions on how to reach Ibaan, Batangas. The respondents
thereupon instructed him to look for Teresa Ganzon, an officer of the Ibaan Rural Bank
and the person to talk to regarding the property. While the letter-authority issued in favor
of the respondents was non-exclusive, no evidence was adduced to show that there
were other persons, aside from the respondents, who informed Lee about the property
for sale. Ganzon testified that no advertisement was made announcing the sale of the
lot, nor did she give any authority to other brokers/agents to sell the subject
property.[31] The fact that it was Lee who personally called Borbon and asked for
directions prove that it was only through the respondents that Lee learned about the
property for sale.[32] Significantly, too, Ms. Teresa Ganzon testified that there were no
other persons other than the respondents who inquired from her about the sale of the
property to Lee.[33] It can thus be readily inferred that the respondents were the only
ones who knew about the property for sale and were responsible in leading a buyer to
its consummation. All these circumstances lead us to the inescapable conclusion that
the respondents were the procuring cause of the sale. When there is a close, proximate
and causal connection between the brokers efforts and the principals sale of his
property, the broker is entitled to a commission.[34]
The petitioners insist that the respondents are not entitled to any commission since
they did not actually perform any acts of negotiation as required in the letter-authority.
They refuse to pay the commission since according to them, the respondents
participation in the transaction was not apparent, if not nil. The respondents did not
even look at the property themselves; did not introduce the buyer to the seller; did not
hold any conferences with the buyer, nor take part in concluding the sale. For the non-
compliance of this obligation to negotiate, the petitioners argue, the respondents are not
entitled to any commission.
 We find the argument specious. The letter of authority must be read as a whole and
not in its truncated parts. Certainly, it was not the intention of Medrano to expect the
respondents to do just that (to negotiate) when he issued the letter of authority. The
clear intention is to reward the respondents for procuring a buyer for the property.
Before negotiating a sale, a broker must first and foremost bring in a prospective buyer.
It has been held that a broker earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made.[35]The essential feature of a brokers
conventional employment is merely to procure a purchaser for a property ready, able,
and willing to buy at the price and on the terms mutually agreed upon by the owner and
the purchaser. And it is not a prerequisite to the right to compensation that the broker
conduct the negotiations between the parties after they have been brought into contact
with each other through his efforts.[36] The case of Macondray v. Sellner[37] is quite
instructive:

The business of a real estate broker or agent, generally, is only to find a purchaser,
and the settled rule as stated by the courts is that, in the absence of an express contract
between the broker and his principal, the implication generally is that the broker
becomes entitled to the usual commissions whenever he brings to his principal a party
who is able and willing to take the property and enter into a valid contract upon the
terms then named by the principal, although the particulars may be arranged and the
matter negotiated and completed between the principal and the purchaser directly.

Notably, there are cases where the right of the brokers to recover commissions
were upheld where they actually took no part in the negotiations, never saw the
customer, and even some in which they did nothing except advertise the property, as
long as it can be shown that they were the efficient cause of the sale.[38]
In the case at bar, the role of the respondents in the transaction is undisputed.
Whether or not they participated in the negotiations of the sale is of no moment. Armed
with an authority to procure a purchaser and with a license to act as broker, we see no
reason why the respondents can not recover compensation for their efforts when, in
fact, they are the procuring cause of the sale.[39]
Anent the validity of the letter-authority signed by Medrano, we find no reversible
error with the findings of the appellate and trial courts that the petitioners are liable
thereunder. Such factual findings deserve this Courts respect in the absence of any
cogent reason to reverse the same. Medranos obligation to pay the respondents
commission for their labor and effort in finding a purchaser or a buyer for the described
parcel of land is unquestionable. In the absence of fraud, irregularity or illegality in its
execution, such letter-authority serves as a contract, and is considered as the law
between the parties. As such, Medrano can not renege on the promise to pay
commission on the flimsy excuse that he is not the registered owner of the property.
The evidence shows that he comported himself to be the owner of the property. His
testimony is quite telling:
Q Mr. Medrano, do you know any of the plaintiffs in this case, Pacita Borbon, Josefina
Antonio, and Stella (sic) F. Flor?
 WITNESS
A I know only Stella (sic) F. Flor. The rest, I do not know them. I have never met them,
up to now.
Q How about the co-defendant Ibaan Rural Bank?
A I know co-defendant Ibaan Rural Bank, having been the founder and at one time or
another, I have served several capacities from President to Chairman of the
Board.
Q Are you familiar with a certain parcel of land located at Barrio Tulay na Patpat,
Ibaan, Batangas, with an area of 17 hectares?
A Yes, Sir. I used to own that property but later on mortgaged it to Ibaan Rural Bank.
Q And what, if any, [did] the bank do to your property after you have mortgaged the
same to it?
A After many demands for payment or redemption of my mortgage, which I failed to do
so, the Ibaan Rural Bank sold it.
Q After it was foreclosed?
A Yes, Sir.
Q Do you recall having made any transaction with plaintiff Stella (sic) F. Flor regarding
the property?
A Yes, Sir. Since she is the first cousin of my wife, I remember [that] she came to my
office once and requested for a letter of authority which I issued [in] September
1986, I think, and I gave her the letter of authority.[40]
As to the liability of the bank, we quote with favor the disquisition of the respondent
court, to wit:

Further, the appellants cannot use the flimsy excuse (only to evade liability) that
(w)hat Mr. Medrano represented to the plaintiffs-appellees, without the knowledge or
consent of the defendant Bank, did not bind the Bank. Res inter alios acta alteri
nocere non debet. (page 8 of the Appellants Brief; page 35 of the Rollo). While it may
be true that technically the Ibaan Rural Bank did not authorize Bienvenido R.
Medrano to sell the land under litigation or that the latter was no longer an officer of
the said bank, still, these circumstances do not convince this Court fully well to
absolve the bank. Note that, as former President of the said bank, it is improbable that
he (Bienvenido R. Medrano) was completely oblivious of the developments therein.
By reason of his past association with the officers of the said bank (who are, in fact,
his relatives), it is unbelievable that Bienvenido R. Medrano could simply have issued
the said letter of authority without the knowledge of the said officers. Granting por
aguendo that Bienvenido R. Medrano did not act on behalf of the bank, however, We
doubt that he had no financial and/or material interest in the said sale a fact that could
not possibly have eluded Our attention.[41]
 From all the foregoing, there can be no other conclusion than the respondents are
indeed the procuring cause of the sale. If not for the respondents, Lee would not have
known about the mango plantation being sold by the petitioners. The sale was
consummated. The bank had profited from such transaction. It would certainly be
iniquitous if the respondents would not be rewarded their commission pursuant to the
letter of authority.
WHEREFORE, the petition is DENIED due course. The Decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
Puno, (Chairman), Tinga, and Chico-Nazario, JJ., concur.
Austria-Martinez, J., no part.

[1] Penned by Associate Justice Jose L. Sabio, Jr., with Associate Justices Ma. Alicia Austria-Martinez
(now an Associate Justice of the Supreme Court) and Hilarion L. Aquino (retired), concurring.
[2] Penned by Judge Omar U. Amin.
[3] Records, p. 8.
[4] TSN, 4 January 1989, p. 6.
[5] TSN, 4 December 1987, pp. 7-8.
[6] Exhibit B, Records, p. 153.
[7] TSN, 4 December 1987, pp. 9-10; TSN, 15 March 1989, p. 9.
[8] TSN, 15 March 1989, p. 10
[9] TSN, 11 May 1989, pp. 8-9.
[10] Exhibit D, Records, p. 178.
[11] TSN, 15 March 1989, p. 14.
[12] Records, pp. 8-10.
[13] Id. at 320.
[14] Id.
[15] Id. at 229.
[16] Id. at 321.
[17] Id. at 322.
[18] Id. at 325-327.
[19] Id. at 370-371.
[20] Id. at 372.
[21] Rollo, p. 39.
[22] Rollo, pp. 16-17.
[23] Exhibit A, Records, p. 168.
[24] TSN, 4 December 1987, p. 6.
[25] Tan v. Gullas, 393 SCRA 334 (2002).
[26] Blacks Law Dictionary, Fifth Edition.
[27] Clark v. Ellsworth, 66 Ariz. 119, 184 P.2d 821 (1947).
[28] See Mohamed v. Robbins, 23 Ariz. App. 195, 531 P.2d 928, 930 (1975).
[29] Danon v. Brimo, 48 Phil. 133 (1921).
[30] Tan v. Gullas, supra.
[31] TSN, 11 September 1990, p. 5.
[32] TSN, 4 December 1987, p. 11.
[33] TSN, 11 September 1990, p. 5.
[34] Manotok Brothers, Inc. v. Court of Appeals, 221 SCRA 224 (1993).
[35] Tan v. Gullas, supra.
[36] Wickersham v. T. D. Harris, 313 F.2d 468 (1963).
[37] 33 Phil. 370 (1916).
[38] Libby v. Ivers & Pond Piano Co., 317 Mass. 478, 58 N.E.2d 834 (1945); Gleason v. Nelson, 162 Mass.
245, 38 N.E. 497 (1894); Clark v. Ellsworth, supra.
[39] Wickersham v. Harris, supra.
[40] TSN, 6 November 1990, pp. 5-6.
[41] Rollo, p. 41.
 THIRD DIVISION

CARLOS SANCHEZ, G.R. No. 141525

Petitioner,

Present:

- versus - PANGANIBAN, J., Chairman,

SANDOVAL-GUTIERREZ,

CORONA,

CARPIO MORALES, and

GARCIA, JJ.

MEDICARD PHILIPPINES,
Promulgated:
INC., DR. NICANOR
MONTOYA and CARLOS
EJERCITO,
September 2, 2005
Respondents.
x---------------------------------------------------------------------------------------------x

DECISION

SANDOVAL-GUTIERREZ, J.:

This petition for review on certiorari seeks to reverse the Decision[1] of the
Court of Appeals dated February 24, 1999 and its Resolution dated January
12, 2000 in CA-G.R. CV No. 47681.

The facts, as established by the trial court and affirmed by the Court of
Appeals, follow:

Sometime in 1987, Medicard Philippines, Inc. (Medicard), respondent,

appointed petitioner as its special corporate agent. As such agent, Medicard
gave him a commission based on the cash brought in.

In September, 1988, through petitioners efforts, Medicard and United

Laboratories Group of Companies (Unilab) executed a Health Care Program
Contract. Under this contract, Unilab shall pay Medicard a fixed monthly
premium for the health insurance of its personnel. Unilab paid
Medicard P4,148,005.00 representing the premium for one (1) year. Medicard
then handed petitioner 18% of said amount or P746,640.90 representing his
commission.

Again, through petitioners initiative, the agency contract between

Medicard and Unilab was renewed for another year, or from October 1, 1989
to September 30, 1990, incorporating therein the increase of premium
from P4,148,005.00 to P7,456,896.00. Medicard paid petitioner P1,342,241.00
as his commission.

Prior to the expiration of the renewed contract, Medicard proposed to

Unilab, through petitioner, an increase of the premium for the next year.
Unilab rejected the proposal for the reason that it was too high, prompting Dr.
Nicanor Montoya (Medicards president and general manager), also a
respondent, to request petitioner to reduce his commission, but the latter
refused.

In a letter dated October 3, 1990, Unilab, through Carlos Ejercito,

another respondent, confirmed its decision not to renew the health program
contract with Medicard.

Meanwhile, in order not to prejudice its personnel by the termination of

their health insurance, Unilab, through respondent Ejercito, negotiated with
Dr. Montoya and other officers of Medicard, to discuss ways in order to
continue the insurance coverage of those personnel.
 Under the new scheme, Unilab shall pay Medicard only the amount
corresponding to the actual hospitalization expenses incurred by each
personnel plus 15% service fee for using Medicard facilities, which amount
shall not be less than P780,000.00.

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

In a letter dated March 15, 1991, petitioner demanded from Medicard

payment of P338,000.00 as his commission plus damages, but the latter refused
to heed his demand.

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

After hearing, the RTC rendered its Decision dismissing petitioners

complaint and respondents counterclaim.

On appeal, the Court of Appeals affirmed the trial courts assailed

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

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

Hence, the instant petition for review on certiorari.

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

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

must be the procuring cause of the sale, which simply means that the measures
employed by him and the efforts he exerted must result in a sale.[2] In other
words, an agent receives his commission only upon the successful conclusion
of a sale.[3] Conversely, it follows that where his efforts are unsuccessful, or
there was no effort on his part, he is not entitled to a commission.

In Prats vs. Court of Appeals,[4] this Court held that for the purpose of
equity, an agent who is not the efficient procuring cause is nonetheless entitled
to his commission, where said agent, notwithstanding the expiration of his
authority, nonetheless, took diligent steps to bring back together the parties,
such that a sale was finalized and consummated between them. In Manotok
Borthers vs. Court of Appeals,[5] where the Deed of Sale was only executed after
the agents extended authority had expired, this Court, applying its ruling
in Prats, held that the agent (in Manotok) is entitled to a commission since he
was the efficient procuring cause of the sale, notwithstanding that the sale took
place after his authority had lapsed. The proximate, close, and causal
connection between the agents efforts and the principals sale of his property
can not be ignored.

It may be recalled that through petitioners efforts, Medicard was able to

enter into a one-year Health Care Program Contract with Unilab. As a result,
Medicard paid petitioner his commission. Again, through his efforts, the
contract was renewed and once more, he received his commission. Before the
expiration of the renewed contract, Medicard, through petitioner, proposed an
increase in premium, but Unilab rejected this proposal. Medicard then
requested petitioner to reduce his commission should the contract be renewed
on its third year, but he was obstinate. Meantime, on October 3, 1990, Unilab
informed Medicard it was no longer renewing the Health Care Program
contract.

In order not to prejudice its personnel, Unilab, through respondent

Ejercito, negotiated with respondent Dr. Montoya of Medicard, in order to
find mutually beneficial ways of continuing the Health Care Program. The
negotiations resulted in a new contract wherein Unilab shall pay Medicard the
hospitalization expenses actually incurred by each employees, plus a service
fee. Under the cost plus system which replaced the premium scheme, petitioner
was not given a commission.

It is clear that since petitioner refused to reduce his commission,

Medicard directly negotiated with Unilab, thus revoking its agency contract
with petitioner. We hold that such revocation is authorized by Article 1924 of
the Civil Code which provides:

Art. 1924. The agency is revoked if the principal directly manages the
business entrusted to the agent, dealing directly with third persons.

Moreover, as found by the lower courts, petitioner did not render

services to Medicard, his principal, to entitle him to a commission. There is no
indication from the records that he exerted any effort in order that Unilab and
Medicard, after the expiration of the Health Care Program Contract, can
renew it for the third time. In fact, his refusal to reduce his commission
constrained Medicard to negotiate directly with Unilab. We find no reason in
law or in equity to rule that he is entitled to a commission. Obviously, he was
not the agent or the procuring cause of the third Health Care Program
Contract between Medicard and Unilab.

WHEREFORE, the petition is DENIED. The challenged Decision and

Resolution of the Court of Appeals in CA-G.R. CV No. 47681
are AFFIRMED IN TOTO. Costs against petitioner.

SO ORDERED.

ANGELINA SANDOVAL-GUTIERREZ

Associate Justice
WE CONCUR:

ARTEMIO V. PANGANIBAN
Associate Justice

Chairman

RENATO C. CORONA CONCHITA CARPIO MORALES

Associate Justice Associate Justice

CANCIO C. GARCIA

Associate Justice
 ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

ARTEMIO V. PANGANIBAN
Associate Justice

Chairman, Third Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division

Chairman's Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of
the opinion of the Court.

HILARIO G. DAVIDE, JR.

Chief Justice
[1]
Per Associate Justice Mariano M. Umali (retired) and concurred in by Associate Justice Fermin A. Martin, Jr.
(retired) and Associate Justice Romeo J. Callejo, Sr., (now a member of this Court).
[2]
Damon vs. Antonio A. Brimo & Co., 42 Phil. 134, 139 (1921). See also Ramos vs. Court of Appeals, G.R. No.
25463, April 4, 1975, 63 SCRA 331.
[3]
Hanh vs. Court of Appeals, G.R. No. 113074, January 22, 1997, 266 SCRA 537, 549.
[4]
G.R. No. 39822, January 31, 1978, 81 SCRA 360.
[5]
G.R. No. 94753, April 7, 1993, 221 SCRA 224.
 SECOND DIVISION

SPOUSES JOSELINA ALCANTARA G.R. No. 165133

AND ANTONIO ALCANTARA, and

SPOUSES JOSEFINO RUBI AND Present:

ANNIE DISTOR- RUBI,

Petitioners, CARPIO, J., Chairperson,

BRION,

DEL CASTILLO,

ABAD, and

- versus - PEREZ, JJ.

Promulgated:

BRIGIDA L. NIDO, as attorney-in-fact April 19, 2010

of REVELEN N. SRIVASTAVA,

Respondent.

x--------------------------------------------------x

RESOLUTION
CARPIO, J.:

The Case
Spouses Antonio and Joselina Alcantara and Spouses Josefino and Annie Rubi
(petitioners) filed this Petition for Review[1] assailing the Court of Appeals
(appellate court) Decision[2] dated 10 June 2004 as well as the Resolution[3] dated
17 August 2004 in CA-G.R. CV No. 78215. In the assailed decision, the appellate
court reversed the 17 June 2002 Decision[4] of Branch 69 of the Regional Trial
Court of Binangonan, Rizal (RTC) by dismissing the case for recovery of possession
with damages and preliminary injunction filed by Brigida L. Nido (respondent), in
her capacity as administrator and attorney-in-fact of Revelen N. Srivastava
(Revelen).

The Facts
Revelen, who is respondents daughter and of legal age, is the owner of an
unregistered land with an area of 1,939 square meters located in Cardona, Rizal.
Sometime in March 1984, respondent accepted the offer of petitioners to
purchase a 200-square meter portion of Revelens lot (lot) at P200 per square
meter. Petitioners paid P3,000 as downpayment and the balance was payable on
installment. Petitioners constructed their houses in 1985. In 1986, with
respondents consent, petitioners occupied an additional 150 square meters of the
lot. By 1987, petitioners had already paid P17,500[5] before petitioners defaulted
on their installment payments.

On 11 May 1994, respondent, acting as administrator and attorney-in-fact of

Revelen, filed a complaint for recovery of possession with damages and prayer for
preliminary injunction against petitioners with the RTC.
 The RTCs Ruling

The RTC stated that based on the evidence presented, Revelen owns the lot and
respondent was verbally authorized to sell 200 square meters to petitioners. The
RTC ruled that since respondents authority to sell the land was not in writing, the
sale was void under Article 1874[6] of the Civil Code.[7] The RTC ruled that
rescission is the proper remedy.[8]

On 17 June 2002, the RTC rendered its decision, the dispositive portion reads:

WHEREFORE, judgment is rendered in favor of plaintiff and against the

defendants, by -

1. Declaring the contract to sell orally agreed by the plaintiff Brigida Nido,
in her capacity as representative or agent of her daughter Revelen Nido
Srivastava, VOID and UNENFORCEABLE.

2. Ordering the parties, upon finality of this judgment, to have mutual

restitution the defendants and all persons claiming under them to
peacefully vacate and surrender to the plaintiff the possession of the
subject lot covered by TD No. 09-0742 and its derivative Tax
Declarations, together with all permanent improvements introduced
thereon, and all improvements built or constructed during the
pendency of this action, in bad faith; and the plaintiff, to return the sum
of P17,500.00, the total amount of the installment on the land paid by
defendant; the fruits and interests during the pendency of the condition
shall be deemed to have been mutually compensated.

3. Ordering the defendants to pay plaintiff the sum of P20,000.00 as

attorneys fees, plus P15,000.00 as actual litigation expenses, plus the
costs of suit.

SO ORDERED.[9]
 The Appellate Courts Ruling

On 5 January 2004, petitioners appealed the trial courts Decision to the

appellate court. In its decision dated 10 June 2004, the appellate court reversed
the RTC decision and dismissed the civil case.[10]

The appellate court explained that this is an unlawful detainer case. The prayer in
the complaint and amended complaint was for recovery of possession and the
case was filed within one year from the last demand letter. Even if the complaint
involves a question of ownership, it does not deprive the Municipal Trial Court
(MTC) of its jurisdiction over the ejectment case. Petitioners raised the issue of
lack of jurisdiction in their Motion to Dismiss and Answer before the RTC.[11] The
RTC denied the Motion to Dismiss and assumed jurisdiction over the case because
the issues pertain to a determination of the real agreement between the parties
and rescission of the contract to sell the property.[12]

The appellate court added that even if respondents complaint is for recovery of
possession or accion publiciana, the RTC still has no jurisdiction to decide the
case. The appellate court explained:

Note again that the complaint was filed on 11 May 1994. By that time, Republic Act No.
7691 was already in effect. Said law took effect on 15 April 1994, fifteen days after its
publication in the Malaya and in the Time Journal on 30 March 1994 pursuant to Sec. 8
of Republic Act No. 7691.

Accordingly, Sec. 33 of Batas Pambansa 129 was amended by Republic Act No. 7691
giving the Municipal Trial Court the exclusive original jurisdiction over all civil actions
involving title to, or possession of, real property, or any interest therein where the
assessed value of the property or interest therein does not exceed P20,000 or, in civil
actions in Metro Manila, where such assessed value does not exceed P50,000, exclusive
of interest, damages of whatever kind, attorneys fees, litigation expenses and costs.
 At bench, the complaint alleges that the whole 1,939- square meter lot of Revelen N.
Srivastava is covered by Tax Declaration No. 09-0742 (Exh. B, p. 100, Records) which
gives its assessed value of the whole lot of P4,890.00. Such assessed value falls within
the exclusive original prerogative or jurisdiction of the first level court and, therefore,
the Regional Trial Court a quo has no jurisdiction to try and decided the same.[13]

The appellate court also held that respondent, as Revelens agent, did not have a
written authority to enter into such contract of sale; hence, the contract entered
into between petitioners and respondent is void. A void contract creates no rights
or obligations or any juridical relations. Therefore, the void contract cannot be the
subject of rescission.[14]

Aggrieved by the appellate courts Decision, petitioners elevated the case before
this Court.

Issues

Petitioners raise the following arguments:

1. The appellate court gravely erred in ruling that the contract

entered into by respondent, in representation of her daughter,
and former defendant Eduardo Rubi (deceased), is void; and

2. The appellate court erred in not ruling that the petitioners are
entitled to their counterclaims, particularly specific
performance.[15]
 Ruling of the Court

We deny the petition.

Petitioners submit that the sale of land by an agent who has no written authority
is not void but merely voidable given the spirit and intent of the law. Being only
voidable, the contract may be ratified, expressly or impliedly. Petitioners argue
that since the contract to sell was sufficiently established through respondents
admission during the pre-trial conference, the appellate court should have ruled
on the matter of the counterclaim for specific performance.[16]

Respondent argues that the appellate court cannot lawfully rule on petitioners
counterclaim because there is nothing in the records to sustain petitioners claim
that they have fully paid the price of the lot.[17] Respondent points out that
petitioners admitted the lack of written authority to sell. Respondent also alleges
that there was clearly no meeting of the minds between the parties on the
purported contract of sale.[18]

Sale of Land through an Agent

Articles 1874 and 1878 of the Civil Code provide:

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

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;

xxx

Article 1874 of the Civil Code explicitly requires a written authority before
an agent can sell an immovable property. Based on a review of the records, there
is absolutely no proof of respondents written authority to sell the lot to
petitioners. In fact, during the pre-trial conference, petitioners admitted that at
the time of the negotiation for the sale of the lot, petitioners were of the belief
that respondent was the owner of lot.[19] Petitioners only knew that Revelen was
the owner of the lot during the hearing of this case. Consequently, the sale of the
lot by respondent who did not have a written authority from Revelen is void. A
void contract produces no effect either against or in favor of anyone and cannot
be ratified.[20]

A special power of attorney is also necessary to enter into any contract by

which the ownership of an immovable is transmitted or acquired for a valuable
consideration. Without an authority in writing, respondent cannot validly sell the
lot to petitioners. Hence, any sale in favor of the petitioners is void.

Our ruling in Dizon v. Court of Appeals[21] is instructive:

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. 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. 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
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.

Further, Article 1318 of the Civil Code enumerates the requisites for a valid
contract, namely:

1. consent of the contracting parties;

2. object certain which is the subject matter of the contract;

3. cause of the obligation which is established.

Respondent did not have the written authority to enter into a contract to sell the
lot. As the consent of Revelen, the real owner of the lot, was not obtained in
writing as required by law, no contract was perfected. Consequently, petitioners
failed to validly acquire the lot.

General Power of Attorney

On 25 March 1994, Revelen executed a General Power of Attorney constituting

respondent as her attorney-in-fact and authorizing her to enter into any and all
contracts and agreements on Revelens behalf. The General Power of Attorney
was notarized by Larry A. Reid, Notary Public in California, U.S.A.
Unfortunately, the General Power of Attorney presented as Exhibit C[22] in the RTC
cannot also be the basis of respondents written authority to sell the lot.

Section 25, Rule 132 of the Rules of Court provides:

Sec. 25. Proof of public or official record. An official record or an entry therein, when
admissible for any purpose, may be evidenced by an official publication thereof or by a
copy attested by the officer having the legal custody of the record, or by his deputy, and
accompanied, if the record is not kept in the Philippines, with a certificate that such
officer has the custody. If the office in which the record is kept is in a foreign country,
the certificate may be made by a secretary of embassy or legation consul general,
consul, vice consul, or consular agent or by any officer in the foreign service of the
Philippines stationed in the foreign country in which the record is kept, and
authenticated by the seal of his office.

In Teoco v. Metropolitan Bank and Trust Company,[23] quoting Lopez v. Court of

Appeals,[24] we explained:

From the foregoing provision, when the special power of attorney is executed and
acknowledged before a notary public or other competent official in a foreign country, it
cannot be admitted in evidence unless it is certified as such in accordance with the
foregoing provision of the rules by a secretary of embassy or legation, consul general,
consul, vice consul, or consular agent or by any officer in the foreign service of the
Philippines stationed in the foreign country in which the record is kept of said public
document and authenticated by the seal of his office. A city judge-notary who notarized
the document, as in this case, cannot issue such certification.[25]
Since the General Power of Attorney was executed and acknowledged in the
United States of America, it cannot be admitted in evidence unless it is certified as
such in accordance with the Rules of Court by an officer in the foreign service of
the Philippines stationed in the United States of America. Hence, this document
has no probative value.

Specific Performance

Petitioners are not entitled to claim for specific performance. It must be stressed
that when specific performance is sought of a contract made with an agent, the
agency must be established by clear, certain and specific proof.[26] To reiterate,
there is a clear absence of proof that Revelen authorized respondent to sell her
lot.

Jurisdiction of the RTC

Section 33 of Batas Pambansa Bilang 129,[27] as amended by Republic Act No.

7691 provides:
Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in Civil Cases. Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts shall exercise:

xxx

(3) Exclusive original jurisdiction in all civil actions which involve title to, possession of,
real property, or any interest therein where the assessed value of the property or
interest therein does not exceed Twenty thousand pesos (P20,000.00) or, in civil actions
in Metro Manila, where such assessed value does not exceed Fifty thousand pesos
(P50,000.00) exclusive of interest, damages of whatever kind, attorneys fees, litigation
expenses and costs: x x x

In Geonzon Vda. de Barrera v. Heirs of Vicente Legaspi,[28] the Court explained:

 Before the amendments introduced by Republic Act No. 7691, the plenary action
of accion publiciana was to be brought before the regional trial court. With the
modifications introduced by R.A. No. 7691 in 1994, the jurisdiction of the first level
courts has been expanded to include jurisdiction over other real actions where the
assessed value does not exceed P20,000, P50,000 where the action is filed in Metro
Manila. The first level courts thus have exclusive original jurisdiction
over accion publiciana and accion reivindicatoria where the assessed value of the real
property does not exceed the aforestated amounts. Accordingly, the jurisdictional
element is the assessed value of the property.

Assessed value is understood to be the worth or value of property established by taxing

authorities on the basis of which the tax rate is applied. Commonly, however, it does not
represent the true or market value of the property.

The appellate court correctly ruled that even if the complaint filed with the RTC
involves a question of ownership, the MTC still has jurisdiction because the
assessed value of the whole lot as stated in Tax Declaration No. 09-0742
is P4,890.[29] The MTC cannot be deprived of jurisdiction over an ejectment case
based merely on the assertion of ownership over the litigated property, and the
underlying reason for this rule is to prevent any party from trifling with the
summary nature of an ejectment suit.[30]

The general rule is that dismissal of a case for lack of jurisdiction may be raised at
any stage of the proceedings since jurisdiction is conferred by law. The lack of
jurisdiction affects the very authority of the court to take cognizance of and to
render judgment on the action; otherwise, the inevitable consequence would
make the courts decision a lawless thing.[31] Since the RTC has no jurisdiction over
the complaint filed, all the proceedings as well as the Decision of 17 June 2002 are
void. The complaint should perforce be dismissed.

WHEREFORE, we DENY the petition. We AFFIRM the Decision and

Resolution of the Court of Appeals in CA-G.R. CV No. 78215.
 SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO ROBERTO A. ABAD

Associate Justice Associate Justice
JOSE PORTUGAL PEREZ
Associate Justice

ATTESTATION
I attest that the conclusions in the above Resolution had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairpersons Attestation, I certify that the conclusions in the above
Resolution had been reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

[1]
Under Rule 45 of the Rules of Court.
[2]
Rollo, pp. 20-29. Penned by Associate Justice Conrado M. Vasquez, Jr. with Associate Justices Rebecca De Guia-
Salvador, and Jose C. Reyes, Jr., concurring.
[3]
Id. at 33. Penned by Associate Justice Conrado M. Vasquez, Jr. with Associate Justices Rebecca De Guia-
Salvador, and Jose C. Reyes, Jr., concurring.
[4]
CA rollo, pp. 56-64. Penned by RTC Judge Paterno G. Tiamson.
[5]
Records, p. 79.
[6]
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.
[7]
CA rollo, p. 60.
[8]
Id. at 61.
[9]
Id. at 63-64.
[10]
Rollo, p. 28.
[11]
Id. at 25-26.
[12]
Records, p. 66.
[13]
Rollo, pp. 26-27.
[14]
Id. at 27-28.
[15]
Id. at 15.
[16]
Id. at 15-16.
[17]
Id. at 56.
[18]
Id. at 58.
[19]
Id. at 12.
[20]
Roberts v. Papio, G.R. No. 166714, 9 February 2007, 515 SCRA 346, 371.
[21]
444 Phil. 161, 165-166 (2003) citing Cosmic Lumber Corp. v. Court of Appeals, 332 Phil. 948, 957-958 (1996).
[22]
Records, pp. 102-103.
[23]
G.R. No. 162333, 23 December 2008, 575 SCRA 82.
[24]
240 Phil. 811 (1987).
[25]
Supra note 23 at 95-96.
[26]
Litonjua, Jr. v. Eternit Corporation, G.R. No. 144805, 8 June 2006, 490 SCRA 204, 218-219.
[27]
The Judiciary Reorganization Act of 1980.
[28]
G.R. No. 174346, 12 September 2008, 565 SCRA 192, 197.
[29]
Records, p. 100.
[30]
Sudaria v. Quiambao, G.R. No. 164305, 20 November 2007, 537 SCRA 689, 697.
[31]
Municipality of Sta. Fe v. Municipality of Aritao, G.R. No. 140474, 21 September 2007, 533 SCRA 586, 599.
 Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

SPOUSES FERNANDO G.R. No. 188288

and LOURDES VILORIA,

Petitioners, Present:

CARPIO, J.,

Chairperson,

PEREZ,
- versus - SERENO,

REYES, and

BERNABE, JJ. 
 CONTINENTAL AIRLINES, INC., Promulgated:

Respondent.

January 16, 2012

x------------------------------------------------------------------------------------x

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the
January 30, 2009 Decision of the Special Thirteenth Division of the Court of Appeals
1

(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 attorney’s fees and costs of suit to plaintiffs-
appellees is hereby REVERSED and SET ASIDE.

Defendant-appellant’s counterclaim is DENIED.

 Costs against plaintiffs-appellees.

SO ORDERED. 2

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.

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.

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 Fernando’s

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 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 Continental’s 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 CAI’s 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 attorney’s fees. 7

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 attorney’s
fees. CAI also invoked the following clause printed on the subject tickets:

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) carrier’s 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

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 RTC’s 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 Mager’s
misrepresentation in obtaining their consent in the purchase of the subject tickets. The 9

relevant portion of the April 3, 2006 Decision states:

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 defendant’s 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. Mager’s
misleading misrepresentations. Continental Airlines agent Ms. Mager
further relied on and exploited plaintiff Fernando’s need and told him
that they must book a flight immediately or risk not being able to travel
at all on the couple’s preferred date. Unfortunately, plaintiffs spouses fell
prey to the airline’s and its agent’s unethical tactics for baiting trusting
customers.” 10

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is
CAI’s 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 CAI’s agent in view of CAI’s
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:

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.

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

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 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 Court’s Ruling

On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that
CAI cannot be held liable for Mager’s 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 CAI’s agent. Furthermore,
contrary to Spouses Viloria’s 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 principal’s words or actions. In the same manner,
there must be an intention on the part of the agent to accept the
appointment and act upon it. Absent such mutual intent, there is
generally no agency. 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.

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 CAI’s 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-à-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 latter’s reversal of the RTC’s 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 CAI’s 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 CAI’s 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 CAI’s alleged breach of its undertaking in its March 24, 1998 letter.

The Respondent’s Case

In its Comment, CAI claimed that Spouses Viloria’s 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 Viloria’s 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. Also, the advertisement pertains to airfares in September
15

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. CAI likewise
16

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 Viloria’s claim that they are not aware of CAI’s
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.

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 CA’s 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 Travel’s agents and
employees such as Mager?
 c. Assuming that CAI is bound by the acts of Holiday Travel’s 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 Court’s 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 re-examine the evidence presented by the parties below, this
Court takes exception to the general rule that the CA’s 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.

We disagree. The CA failed to consider undisputed facts, discrediting CAI’s

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, this Court explained
18

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.

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 CAI’s 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 Viloria’s 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 Travel’s 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 CAI’s acts in recognition of Holiday
Travel’s 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. Estoppel bars
20

CAI from making such denial.

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, this Court extrapolated that the primordial
21

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 principal’s
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
principal-agent 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 agent’s 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.

Considering that Holiday Travel is CAI’s agent, does it necessarily follow that
CAI is liable for the fault or negligence of Holiday Travel’s employees? Citing China
Air Lines, Ltd. v. Court of Appeals, et al., CAI argues that it cannot be held liable for
23

the actions of the employee of its ticketing agent in the absence of an employer-
employee relationship.

An examination of this Court’s pronouncements in China Air Lines will reveal

that an airline company is not completely exonerated from any liability for the tort
committed by its agent’s employees. A prior determination of the nature of the
passenger’s cause of action is necessary. If the passenger’s 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 company’s 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 company’s 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 agent’s 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 agent’s employees. Article 2180 of the Civil Code does not make the
principal vicariously liable for the tort committed by its agent’s employees and the
principal-agency relationship per se does not make the principal a party to such tort;
hence, the need to prove the principal’s own fault or negligence.

On the other hand, if the passenger’s 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 company’s fault or negligence. As this
Court previously stated in China Air Lines and reiterated in Air France vs.
Gillego, “in an action based on a breach of contract of carriage, the aggrieved party
24

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 Viloria’s cause of action on the basis of Mager’s 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 CAI’s alleged
liability can be substantiated. Apart from their claim that CAI must be held liable for
Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses Viloria did
not present evidence that CAI was a party or had contributed to Mager’s 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 CAI’s behalf, in order to deny Spouses Viloria’s request for a refund or
Fernando’s use of Lourdes’ ticket for the re-issuance of a new one, and
simultaneously claim that they are not bound by Mager’s supposed misrepresentation
for purposes of avoiding Spouses Viloria’s 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 Mager’s acts, which were performed in compliance with
Holiday Travel’s obligations as CAI’s agent.

However, a person’s 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. (emphasis supplied)
26

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, this Court ruled in Jayme v. Apostol, that:
27 28

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:
 “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.” (citations omitted)
29

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

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. Mager’s
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 (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
Fernando’s 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 Mager’s 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. In Samson v. Court of
30

Appeals, causal fraud was defined as “a deception employed by one party prior to or
31

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., mere preponderance of evidence is not adequate:
33

Fraud must also be discounted, for according to the Civil Code:

 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.

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.

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

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 Mager’s statement was fraudulent.
Specifically, Spouses Viloria failed to prove that (a) there were indeed available seats
at 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 Mager’s alleged fraud, which is Fernando’s
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." Spouses Viloria failed to overcome this presumption.
35

IV. Assuming the contrary, Spouses Viloria

are nevertheless deemed to have ratified
the subject contracts.

Even assuming that Mager’s 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.”

Ratification of a voidable contract is defined under Article 1393 of the Civil

Code as follows:

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.
 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

Simultaneous with their demand for a refund on the ground of Fernando’s

vitiated consent, Spouses Viloria likewise asked for a refund based on CAI’s
supposed bad faith in reneging on its undertaking to replace the subject tickets with a
round trip ticket from Manila to Los Angeles.

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 defendant’s breach of faith, a violation of the reciprocity
between the parties and in Solar Harvest, Inc. v. Davao Corrugated Carton
37

Corporation, this Court ruled that a claim for a reimbursement in view of the other
38

party’s failure to comply with his obligations under the contract is one for rescission
or resolution.

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 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 CAI’s supposed breach of its undertaking to issue new
tickets upon surrender of the subject tickets?”

Article 1191, as presently worded, states:

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 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.

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

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 Fernando’s
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 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).”

Clearly, there is nothing in the above-quoted section of CAI’s letter from which
the restriction on the non-transferability 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.

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 CAI’s 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) carrier’s 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 Fernando’s
purchase of a new ticket.

CAI’s 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. Whether a breach is substantial is largely determined by the attendant
40

circumstances. 41

While CAI’s 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 CAI’s failure to comply is not essential to its fulfillment of its
undertaking to issue new tickets upon Spouses Viloria’s surrender of the subject
tickets. This Court takes note of CAI’s willingness to perform its principal obligation
and this is to apply the price of the ticket in Fernando’s 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, CAI’s
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 Viloria’s 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 payment toward the purchase of
another Continental ticket” and there is nothing in it suggesting that CAI had obliged
42

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 CAI’s 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.

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. (citations omitted)
45

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, CAI’s liability for damages for its refusal to accept Lourdes’ ticket
for the purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s 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. Thus:
46

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. The award of exemplary damages is likewise not warranted.
48

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.

BIENVENIDO L. REYES

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice
 JOSE PORTUGAL PEREZ MARIA LOURDES P. A. SERENO

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s
Division.

RENATO C. CORONA

Chief Justice

 Additional Member in lieu of Associate Justice Arturo D. Brion per Special Order No. 1174 dated January 9,
2012.

1 Penned by Associate Justice Monina Arevalo-Zenarosa, with Associate Justices Isaias P. Dicdican and Ramon M.
Bato, Jr., concurring; rollo, pp. 42-54.

2 Id. at 53.

3 Id. at 64.

4 Id. at 65.

5 Id. at 67.

6 Id. at 68.

7 Id. at 69-76.

8 Id. at 80.
9 Id. at 77-85.

10 Id. at 84.

11 Id. at 83.

12 Id. at 84.

13 Id. at 50-51.

14 Id. at 52.

15 Id. at 214.

16 Id. at 215.

17 See Heirs of Jose Lim v. Lim, G.R. No. 172690, March 3, 2010, 614 SCRA 141, 147; Ontimare, Jr. v. Spouses
Elep, G.R. No. 159224, January 20, 2006, 479 SCRA 257, 265.

18 171 Phil 222 (1978).

19 Id. at 226-227, citing Articles 1868 and 1881, New Civil Code; 11 Manresa 422-423; 4 Sanchez Roman 478,
2nd Ed.; 25 Scaevola, 243, 262; Tolentino, Comments, Civil Code of the Philippines, p.340, vol. 5, 1959
Ed., Columbia University Club v. Higgins, D.C.N.Y., 23 f. Supp. 572, 574; Valentine Oil Co. v. Young, 109 P. 2d
180, 185; 74 C.J.S. 4; Valentine Oil Co. v. Powers, 59 N.W. 2d 160, 163, 157 Neb. 87; Purnell v. City of Florence,
175 So. 417, 27 Ala. App. 516; Stroman Motor Co. v. Brown; 243 P. 133, 126 Ok. 36.

20 Philippine Airlines, Inc. v. CA, 325 Phil 303, 323 (1996).

21 G.R. No. L-25926, February 27, 1970, 31 SCRA 779.

22 Id. at 785.

23 264 Phil 15 (1990).

24 G.R. No. 165266, December 15, 2010, 638 SCRA 472.

25 38 Phil 768 (1918).

26 Id. at 775-776.

27 13 Phil 202 (1909).

28 G.R. No. 163609, November 27, 2008, 572 SCRA 41.

29 Id. at 51-52.

30 See Tongson v. Emergency Pawnshop Bula, Inc., G.R. No. 167874, 15 January 2010, 610 SCRA 150, 159,
citing Woodhouse v. Halili, 93 Phil 526, 537 (1953).
31 G.R. No. 108245, November 25, 1994, 238 SCRA 397.

32 Id. at 404.

33 G.R. No. 90270, July 24, 1992, 211 SCRA 785.

34 Id. at 793, citing Tolentino, Commentaries on the Civil Code, Vol. 4, pp. 508, 514.

35 Trinidad v. Intermediate Appellate Court, G.R. No. 65922, December 3, 1991, 204 SCRA 524, 530, citing Rule
131, Sections 5(a) and 5(p).

36 Acuña v. Batac Producers Coop. Mktg. Ass., 126 Phil 896, 902 (1967).

37 Heirs of Sofia Quirong, v. Development Bank of the Philippines, G.R. No. 173441, December 3, 2009, 606
SCRA 543, 550.

38 G.R. No. 176868, July 26, 2010, 625 SCRA 448.

39 Gonzales v. Climax Mining Ltd., 492 Phil 682, 697 (2005).

40 See Barredo v. Leaño, G.R. No. 156627, June 4, 2004, 431 SCRA 106, 115.

41 See Central Bank of the Philippines v. Spouses Bichara, 385 Phil 553, 565 (2000), citing Vermen Realty
Development Corporation v. Court of Appeals, et al., 224 SCRA 549, 555.

42 Rollo, p. 67.

43 Id. at 52.

44 382 Phil 412 (2000).

45 Id. at 423.

46 223 Phil 266 (1985).

47 Id. at 276-277.

48 See Yobido v. Court of Appeals, 346 Phil 1, 13 (1997).

49 Mahinay v. Atty. Velasquez, Jr., 464 Phil 146, 150 (2004).

 THIRD DIVISION

MARIA TUAZON, ALEJANDRO G.R. No. 156262

P. TUAZON, MELECIO P.
TUAZON, Spouses ANASTACIO and Present:
MARY T. BUENAVENTURA,
Petitioners, Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
Corona,
- versus - Carpio Morales, and
Garcia, JJ
Promulgated:
HEIRS OF BARTOLOME RAMOS,
Respondents. July 14, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- x

DECISION
PANGANIBAN, J.:

S
tripped 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 Review[1] under Rule 45 of the Rules of Court,

challenging the July 31, 2002 Decision[2] 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 Decision[3] 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.

x x x x x x x x x[4]

The Facts

The facts are narrated by the CA as follows:

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

xxxxxxxxx

[B]ut when these [checks] were encashed, all of the checks bounced
due to insufficiency of funds. [Respondents] advanced that before
issuing said checks[,] spouses Tuazon already knew that they had
no available fund to support the checks, and they failed to provide
for the payment of these despite repeated demands made on them.

[Respondents] averred that because spouses Tuazon anticipated

that they would be sued, they conspired with the other [defendants]
to defraud them as creditors by executing x x x fictitious sales of
their properties. They executed x x x simulated sale[s] [of three lots]
in favor of the x x x spouses Buenaventura x x x[,] as well as their
residential lot and the house thereon[,] all located at Nueva Ecija,
and another simulated deed of sale dated July 12, 1988 of a Stake
Toyota registered with the Land Transportation Office of
Cabanatuan City on September 7, 1988. [Co-petitioner] Melecio
Tuazon, a son of spouses Tuazon, registered a fictitious Deed of
Sale on July 19, 1988 x x x over a residential lot located at Nueva
Ecija. Another simulated sale of a Toyota Willys was executed on
January 25, 1988 in favor of their other son, [co-petitioner] Alejandro
Tuazon x x x. As a result of the said sales, the titles of these
properties issued in the names of spouses Tuazon were cancelled
and new ones were issued in favor of the [co-]defendants spouses
Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly,
by the said ante-dated and simulated sales and the corresponding
transfers there was no more property left registered in the names of
spouses Tuazon answerable to creditors, to the damage and
prejudice of [respondents].

For their part, defendants denied having purchased x x x

rice from [Bartolome] Ramos. They alleged that it was Magdalena
Ramos, wife of said deceased, who owned and traded the
merchandise and Maria Tuazon was merely her agent. They argued
that it was Evangeline Santos who was the buyer of the rice and
issued the checks to Maria Tuazon as payments therefor. In good
faith[,] the checks were received [by petitioner] from Evangeline
Santos and turned over to Ramos without knowing that these were
not funded. And it is for this reason that [petitioners] have been
insisting on the inclusion of Evangeline Santos as an indispensable
party, and her non-inclusion was a fatal error. Refuting that the sale
of several properties were fictitious or simulated, spouses Tuazon
contended that these were sold because they were then meeting
financial difficulties but the disposals were made for value and in
good faith and done before the filing of the instant suit. To dispute
the contention of plaintiffs that they were the buyers of the rice, they
argued that there was no sales invoice, official receipts or like
 evidence to prove this. They assert that they were merely agents
and should not be held answerable.[5]

The corresponding civil and criminal cases were filed by respondents

against Spouses Tuazon. Those cases were later consolidated and amended
to include Spouses Anastacio and Mary Buenaventura, with Alejandro
Tuazon and Melecio Tuazon as additional defendants. Having passed away
before the pretrial, Bartolome Ramos was substituted by his heirs, herein
respondents.

Contending that Evangeline Santos was an indispensable party in the case,

petitioners moved to file a third-party complaint against her. Allegedly, she
was primarily liable to respondents, because she was the one who had
purchased the merchandise from their predecessor, as evidenced by the
fact that the checks had been drawn in her name. The RTC, however,
denied petitioners Motion.

Since the trial court acquitted petitioners in all three of the consolidated
criminal cases, they appealed only its decision finding them civilly liable to
respondents.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioners had failed to prove the
existence of an agency between respondents and Spouses Tuazon. The
appellate court disbelieved petitioners contention that Evangeline Santos
should have been impleaded as an indispensable party. Inasmuch as all the
checks had been indorsed by Maria Tuazon, who thereby became liable to
subsequent holders for the amounts stated in those checks, there was no
need to implead Santos.

Hence, this Petition.[6]

Issues

Petitioners raise the following issues for our consideration:

1. Whether or not the Honorable Court of Appeals erred in ruling that

petitioners are not agents of the respondents.

2. Whether or not the Honorable Court of Appeals erred in

rendering judgment against the petitioners despite x x x
the failure of the respondents to include in their action Evangeline
Santos, an indispensable party to the suit.[7]

The Courts Ruling

The Petition is unmeritorious.

First Issue:
 Agency

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]

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.
 Second Issue:
Indispensable Party

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

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

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

As indorser, Petitioner Maria Tuazon warranted that upon due

presentment, the checks were to be accepted or paid, or both, according to
their tenor; and that in case they were dishonored, she would pay the
corresponding amount.[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.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
 WECONCUR:

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

CONCHITA CARPIO MORALES CANCIO C. GARCIA

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of
the Courts Division.

ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairmans Attestation, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

HILARIO G. DAVIDE, JR.

Chief Justice

[1] Rollo, pp. 8-21.

[2] Id., pp. 24-33. Seventeenth Division. Penned by Justice Roberto A. Barrios (Division
chairman) and concurred in by Justices Bienvenido L. Reyes and Edgardo F. Sundiam
(members).
[3] Id., pp. 153-175.
[4] Id., p. 174. Citations omitted.
[5] Assailed Decision, pp. 5-7; rollo, pp. 28-30.
[6] The case was deemed submitted for decision on September 8, 2003, upon receipt by this

Court of petitioners Memorandum, signed by Atty. Leoncio P. Ferrer. Respondents

Memorandum, signed by Atty. Irineo G. Calderon, was received by the Court on
September 5, 2003.
[7] Petitioners Memorandum, pp. 9-10. Original in uppercase.
[8] Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323, 331, May 28, 2004

(citing Borromeo v. Sun, 375 Phil. 595, October 22, 1999; Go Ong v. CA, 154 SCRA 270,
September 24, 1987.).
[9] Article 1868 of the New Civil Code.
[10] Manila Memorial Park Cemetery, Inc. v. Linsangan, GR No. 151319, November 22,

2004; Spouses Yu Eng Cho v. Pan American World Airways Inc., 385 Phil. 453, 465, March
27, 2000 (citing Tolentino, Civil Code of the Philippines, p. 396, Vol. V, 1992 ed.).
[11] Dominion Insurance Corporation v. CA, 426 Phil. 620, 626, February 6, 2002; Victorias Milling

Co., Inc. v. CA, 389 Phil. 184, 196, June 19, 2000.
[12] Victorias Milling Co., Inc. v. CA, supra, p. 197.
[13] Litonjua v. Fernandez, 427 SCRA 478, 493, April 14, 2004.
[14] Victorias Milling Co., Inc. v. CA, supra, p. 196; Lim v. CA, 321 Phil. 782, 794, December 19,

1995 (citing People v. Yabut, 76 SCRA 624, April 29, 1977).

[15] SEC. 2. Parties in interest. - A real party in interest is the party who stands to be benefited
or injured by the judgment in the suit, or the party entitled to the avails of the suit.
Unless otherwise authorized by law or these Rules, every action must be prosecuted
or defended in the name of the real party in interest.
[16] SEC. 31. Indorsement; how made. - The indorsement must be written on the instrument itself

or upon a paper attached thereto. The signature of the indorser, without additional
words, is a sufficient indorsement.
SEC. 63. When a person deemed indorser. - A person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser
unless he clearly indicates by appropriate words his intention to be bound in some
other capacity.
[17] 66, id.
[18] Metropol (Bacolod) Financing & Investment Corp. v. Sambok Motors Company, 205 Phil. 758, 762,

February 28, 1983.

[19] 7, Rule 3 of the Rules of Court.
 Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

URBAN BANK, INC, G.R. No. 145817

Petitioner,

����������������������� -
versus -

MAGDALENO M. PE�A,
Respondent.
x---------------------------------------------x

DELFIN C. GONZALEZ, JR., BENJAMIN L. DE G. R. No. 145822

LEON, and ERIC L. LEE,

Petitioners,

- versus -

MAGDALENO M. PE�A,
Respondent.
x---------------------------------------------x

MAGDALENO M. PE�A, G. R. No. 162562

Petitioner,
Present:

- versus - BRION, J.,

�����Acting
Chairperson,
URBAN BANK, INC., TEODORO BORLONGAN, VILLARAMA,*
DELFIN C. GONZALEZ, JR., BENJAMIN L. DE MENDOZA,**
LEON, P. SIERVO H. DIZON, ERIC L. LEE, BEN SERENO, and
T. LIM, JR., CORAZON BEJASA, and ARTURO PERLAS-
MANUEL, JR., BERNABE,***JJ.
 Respondents.
Promulgated:

October 19, 2011

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

SERENO, J.:

��������� These consolidated petitions began as a simple case for

payment of services rendered and for reimbursement of costs. The case spun a web
of suits and counter-suits because of: (1) the size of the award for agent�s fee
rendered in favor of Atty. Magdaleno Pe�a (Pe�a) � PhP24,000,000 �
rendered by the trial court; (2) the controversial execution of the full judgment
award of PhP28,500,000 (agent�s fee plus reimbursement for costs and other
damages) pending appeal; and (3) the finding of solidary liability against Urban
Bank, Inc., and several of its corporate officers and directors together with the
concomitant levying and sale in execution of the personal (even conjugal)
properties of those officers and directors; and (4) the fact that assets with declared
conservative values of at least PhP181 Million which, together with those with
undeclared values could reach very much more than such amount,[1] were levied or
sold on execution pending appeal to satisfy the PhP28.5 Million award in favor of
Atty. Pe�a. Incidentally, two supersedeas bonds worth PhP80 Million (2.8 times
the amount of the judgment) were filed by Urban Bank and some of its officers and
directors to stay the execution pending appeal.

Had the four attendant circumstances not afflicted the original case, it would
have been an open-and-shut review where this Court, applying even just the
minimum equitable principle against unjust enrichment would have easily affirmed
the grant of fair recompense to Atty. Pe�a for services he rendered for Urban
Bank if such had been ordered by the trial court.

���������

That Atty. Pe�a should be paid something by Urban Bank is not in dispute
� the Court of Appeals (CA) and the Regional Trial Court (RTC) of Bago City,
agreed on that. What they disagreed on is the basis and the size of the award. The
trial court claims that the basis is an oral contract of agency and the award should
be PhP28,5000,000; while, the appellate court said that Atty. Pe�a can only be
paid under the legal principle against unjust enrichment, and the total award in his
favor should only amount to PhP3,000,000.

In the eyes of the trial court, the controlling finding is that Atty. Pe�a
should be believed when he testified that in a telephone conversation, the president
of Urban Bank, Teodoro Borlongan, a respondent herein, agreed to pay him for his
services 10% of the value of the property then worth PhP240,000,000, or
PhP24,000,000. Costs and other awards additionally amount to PhP4,500,000, for
a total award of PhP28,500,000 according to the trial court. To the Court of
Appeals, such an award has no basis, as in fact, no contract of agency exists
between Atty. Pe�a and Urban Bank. Hence, Atty. Pe�a should only be
recompensed according to the principle of unjust enrichment, and that he should be
awarded the amount of PhP3,000,000 only for his services and reimbursements of
costs.
��������� The disparity in the size of the award given by the trial court
vis-�-vis that of the Court of Appeals (PhP28,500,000 v. PhP3,000,000) must be
placed in the context of the service that Atty. Pe�a proved that he rendered for
Urban Bank. As the records bear, Atty. Pe�a�s services consisted of causing the
departure of unauthorized sub-tenants in twenty-three commercial establishments
in an entertainment compound along Roxas Boulevard. It involved the filing of
ejectment suits against them, Pe�a�s personal defense in the counter-suits filed
against him, his settlement with them to the tune of PhP1,500,000, which he
advanced from his own funds, and his retention of security guards and expenditure
for other costs amounting to more or less PhP1,500,000. There is no claim by Atty.
Pe�a of any service beyond those. He claims damages from the threats to his life
and safety from the angry tenants, as well as a vexatious collection suit he had to
face from a creditor-friend from whom he borrowed PhP3,000,000 to finance the
expenses for the services he rendered Urban Bank.

At the time the award of PhP28,500,000 by the trial court came out in 1999,
the net worth of Urban Bank was PhP2,219,781,104.[2] While the bank would be
closed by the Bangko Sentral ng Pilipinas (BSP) a year later for having unilaterally
declared a bank holiday contrary to banking rules, there was no reason to believe
that at the time such award came out it could not satisfy a judgment of
PhP28,500,000, a sum that was only 1% of its net worth, and a miniscule 0.2% of
its total assets of PhP11,933,383,630.[3] In fact, no allegation of impending
insolvency or attempt to abscond was ever raised by Atty. Pe�a and yet, the trial
court granted execution pending appeal.

Interestingly, Pe�a had included as co-defendants with Urban Bank in the

RTC case, several officers and board directors of Urban Bank. Not all board
directors were sued, however. With respect to those included in the complaint,
other than against Teodoro Borlongan, Corazon Bejasa, and Arturo Manuel, no
evidence was ever offered as to their individual actions that gave rise to Atty.
Pe�a�s cause of action � the execution of the agency contract and its breach �
and yet, these officers and directors were made solidarily liable by the trial court
with Urban Bank for the alleged breach of the alleged corporate contract of
agency. Execution pending appeal was also granted against them for this solidary
liability resulting in the levy and sale in execution pending appeal of not only
corporate properties of Urban Bank but also personal properties of the individual
bank officers and directors. It would have been interesting to find out what drove
Atty. Pe�a to sue the bank officers and directors of Urban Bank and why he chose
to sue only some, but not all of the board directors of Urban Bank, but there is
nothing on the record with which this analysis can be pursued.
Before us are: (a) the Petitions of Urban Bank (G. R. No. 145817) and the
De Leon Group (G R. No. 145822) questioning the propriety of the grant of
execution pending appeal, and (b) the Petition of Atty. Pe�a (G. R. No. 162562)
assailing the CA�s decision on the substantive merits of the case with respect to
his claims of compensation based on an agency agreement.

��������� Ordinarily, the final resolution by the Supreme Court of an

appeal from a trial court decision would have automatic, generally-understood
consequences on an order issued by the trial court for execution pending appeal.
But this is no ordinary case, and the magnitude of the disproportions in this case is
too mind-boggling that this Court must exert extra effort to correct whatever
injustices have been occasioned in this case. Thus, our dispositions will include
detailed instructions for several judicial officials to implement.

At core, these petitions can be resolved if we answer the following

questions:

1. ����� What is the legal basis for an award in favor of

Pe�a for the services he rendered to Urban Bank? Should it be a
 contract of agency the fee for which was orally agreed on as Pe�a
claims? Should it be the application of the Civil Code provisions on
unjust enrichment? Or is it to be based on something else or a
combination of the legal findings of both the RTC and the CA? How
much should the award be?
2. ����� Are the officers and directors of Urban Bank
liable in their personal capacities for the amount claimed by Pe�a?
3. ����� What are the effects of our answers to questions
(1) and (2), on the various results of the execution pending appeal that
happened here?

Factual Background of the Controversy

��������� Urban Bank, Inc. (both petitioner and respondent in these

two consolidated cases),[4] was a domestic Philippine corporation, engaged in the
business of banking.[5] The eight individual respondents in G. R. No. 162562 were
officers and members of Urban Bank�s board of directors, who were sued in their
official and personal capacities.[6] On the other hand, Benjamin L. De Leon, Delfin
C. Gonzalez, Jr., and Eric L. Lee, (hereinafter the de Leon Group), are the
petitioners in G. R. No. 145822 and are three of the same bank officers and
directors, who had separately filed the instant Petition before the Court.

Petitioner-respondent Atty. Magdaleno M. Pe�a (Pe�a)[7] is a lawyer by

profession and was formerly a stockholder, director and corporate secretary of
Isabel Sugar Company, Inc. (ISCI).[8]
 ISCI owned a parcel of land[9] located in Pasay City (the Pasay
property).[10] In 1984, ISCI leased the Pasay property for a period of 10
years.[11] Without its consent[12]and in violation of the lease contract,[13] the lessee
subleased the land to several tenants, who in turn put up 23 establishments, mostly
beer houses and night clubs, inside the compound.[14] In 1994, a few months before
the lease contract was to expire, ISCI informed the lessee[15] and his tenants[16] that
the lease would no longer be renewed and that it intended to take over the Pasay
property[17] for the purpose of selling it.[18]

Two weeks before the lease over the Pasay property was to expire, ISCI and
Urban Bank executed a Contract to Sell, whereby the latter would pay ISCI the
amount of PhP241,612,000 in installments for the Pasay property. [19] Both parties
agreed that the final installment of PhP25,000,000 would be released by the bank
upon ISCI�s delivery of full and actual possession of the land, free from any
tenants.[20] In the meantime, the amount of the final installment would be held by
the bank in escrow. The escrow provision in the Contract to Sell, thus, reads:

�The SELLER (ISCI) agrees that from the proceeds of the purchase
prices of the subject Property (Pasay property), the BUYER (Urban Bank) shall
withhold the amount of PHP 25,000,000.00 by way of escrow and shall release
this amount to the SELLER only upon its delivery to the BUYER of the full
and actual possession and control of the Subject Property, free from tenants,
occupants, squatters or other structures or from any liens, encumbrances,
easements or any other obstruction or impediment to the free use and
occupancy by the buyer of the subject Property or its exercise of the rights to
ownership over the subject Property, within a period of sixty (60) days from
the date of payment by the BUYER of the purchase price of the subject Property
net of the amounts authorized to be deducted or withheld under Item II (a) of this
Contract.[21] (Emphasis supplied) �

ISCI then instructed Pe�a, who was its director and corporate secretary, to
take over possession of the Pasay property[22] against the tenants upon the
expiration of the lease. ISCI�s president, Mr. Enrique G. Montilla III (Montilla),
faxed a letter to Pe�a, confirming the latter�s engagement as the corporation�s
agent to handle the eviction of the tenants from the Pasay property, to wit:[23]

MEMORANDUM
TO:��������� Atty. Magdaleno M. Pena
���������������� Director
FROM:��� Enrique G. Montilla III
���������������� President
DATE:���� 26 November 1994

You are hereby directed to recover and take possession of the

property of the corporation situated at Roxas Boulevard covered by TCT No.
5382 of the Register of Deeds for Pasay City immediately upon the expiration
of the contract of lease over the said property on 29 November 1994. For this
purpose you are authorized to engage the services of security guards to protect the
property against intruders. You may also engage the services of a lawyer in case
there is a need to go to court to protect the said property of the corporation. In
addition you may take whatever steps or measures are necessary to ensure our
continued possession of the property.

(sgd.) ENRIQUE G. MONTILLA III

President[24]

On 29 November 1994, the day the lease contract was to expire, ISCI and
Urban Bank executed a Deed of Absolute Sale[25] over the Pasay property for the
amount agreed upon in the Contract to Sell, but subject to the above escrow
provision.[26] The title to the land was eventually transferred to the name of Urban
Bank on 05 December 1994.[27]

On 30 November 1994, the lessee duly surrendered possession of the Pasay

property to ISCI,[28] but the unauthorized sub-tenants refused to leave the
area.[29] Pursuant to his authority from ISCI, Pe�a had the gates of the property
closed to keep the sub-tenants out.[30] He also posted security guards at the
property,[31] services for which he advanced payments.[32] Despite the closure of the
gates and the posting of the guards, the sub-tenants would come back in the
evening, force open the gates, and proceed to carry on with their businesses.[33] On
three separate occasions, the sub-tenants tried to break down the gates of the
property, threw stones, and even threatened to return and inflict greater harm on
those guarding it.[34]

In the meantime, a certain Marilyn G. Ong, as representative of ISCI, faxed

a letter to Urban Bank � addressed to respondent Corazon Bejasa, who was then
the bank�s Senior Vice-President � requesting the issuance of a formal authority
for Pe�a.[35] Two days thereafter, Ms. Ong faxed another letter to the bank, this
time addressed to its president, respondent Teodoro Borlongan.[36] She repeated
therein the earlier request for authority for Pe�a, since the tenants were
questioning ISCI�s authority to take over the Pasay property.[37]

In response to the letters of Ms. Ong, petitioner-respondent bank, through

individual respondents Bejasa and Arturo E. Manuel � Senior Vice-President and
Vice-President, respectively � advised Pe�a[38] that the bank had noted the
engagement of his services by ISCI and stressed that ISCI remained as the
lawyer�s principal.[39]

��������� To prevent the sub-tenants from further appropriating the

Pasay property,[40] petitioner-respondent Pe�a, as director and representative of
ISCI, filed a complaint for injunction[41] (the First Injunction Complaint) with the
RTC-Pasay City.[42] Acting on ISCI�s prayer for preliminary relief, the trial court
favorably issued a temporary restraining order (TRO),[43] which was duly
implemented.[44] At the time the First Injunction Complaint was filed, a new title to
the Pasay property had already been issued in the name of Urban Bank.[45]
 On 19 December 1994, when �information reached the judge that the Pasay
property had already been transferred by ISCI to Urban Bank, the trial court
recalled the TRO and issued a break-open order for the property. According to
Pe�a, it was the first time that he was apprised of the sale of the land by ISCI and
of the transfer of its title in favor of the bank.�[46] It is not clear from the records
how such information reached the judge or what the break-open order was in
response to.

On the same day that the TRO was recalled, petitioner-respondent Pe�a
immediately contacted ISCI�s president, Mr. Montilla, who in turn confirmed the
sale of the Pasay property to Urban Bank.[47] Pe�a told Mr. Montilla that because
of the break-open order of the RTC-Pasay City, he (Pe�a) would be recalling the
security guards he had posted to secure the property. Mr. Montilla, however, asked
him to suspend the planned withdrawal of the posted guards, so that ISCI could get
in touch with petitioner-respondent bank regarding the matter.[48]

Later that same day, Pe�a received a telephone call from respondent
Bejasa. After Pe�a informed her of the situation, she allegedly told him that
Urban Bank would be retaining his services in guarding the Pasay property, and
that he should continue his efforts in retaining possession thereof. He insisted,
however, on talking to the Bank�s president. Respondent Bejasa gave him the
contact details of respondent Borlongan, then president of Urban Bank.[49]

The facts regarding the following phone conversation and correspondences

are highly-controverted. Immediately after talking to respondent Bejasa, Pe�a got
in touch with Urban Bank�s president, respondent Borlongan. Pe�a explained
that the policemen in Pasay City were sympathetic to the tenants and were
threatening to force their way into the premises. He expressed his concern that
violence might erupt between the tenants, the city police, and the security guards
posted in the Pasay property. Respondent Borlongan supposedly assured him that
the bank was going to retain his services, and that the latter should not give up
possession of the subject land. Nevertheless, petitioner-respondent Pe�a
demanded a written letter of authority from the bank. Respondent Borlongan
acceded and instructed him to see respondent Bejasa for the letter.[50]

In the same telephone conversation, respondent Borlongan allegedly asked

Pe�a to maintain possession of the Pasay property and to represent Urban Bank in
any legal action that might be instituted relative to the property. Pe�a supposedly
demanded 10% of the market value of the property as compensation and
attorney�s fees and reimbursement for all the expenses incurred from the time he
took over land until possession was turned over to Urban Bank. Respondent
Borlongan purportedly agreed on condition that possession would be turned over to
the bank, free of tenants, not later than four months; otherwise, Pe�a would lose
the 10% compensation and attorney�s fees.[51]

Later that afternoon, Pe�a received the bank�s letter dated 19 December
1994, which was signed by respondents Bejasa and Manuel, and is quoted below:

����������� This is to confirm the engagement of your services

as the authorized representative of Urban Bank, specifically to hold and
maintain possession of our abovecaptioned property [Pasay property] and to
protect the same from former tenants, occupants or any other person who
are threatening to return to the said property and/or interfere with your
possession of the said property for and in our behalf.
����������� You are likewise authorized to represent Urban Bank
in any court action that you may institute to carry out the aforementioned duties,
and to prevent any intruder, squatter or any other person not otherwise authorized
in writing by Urban [B]ank from entering or staying in the
premises.[52] (Emphasis supplied)
 On even date, ISCI sent Urban Bank a letter, which acknowledged ISCI�s
engagement of Pe�a and commitment to pay for any expenses that may be
incurred in the course of his services. ISCI�s letter reads:
This has reference to your property located along Roxas Boulevard, Pasay
City [Pasay property] which you purchased from Isabela Sugar Company under a
Deed of Absolute Sale executed on December 1, 1994.
In line with our warranties as the Seller of the said property and our
undertaking to deliver to you the full and actual possession and control of said
property, free from tenants, occupants or squatters and from any obstruction or
impediment to the free use and occupancy of the property� by Urban Bank, we
have engaged the services of Atty. Magdaleno M. Pe�a to hold and maintain
possession of the property and to prevent the former tenants or occupants
from entering or returning to the premises. In view of the transfer of the
ownership of the property to Urban Bank, it may be necessary for Urban Bank to
appoint Atty. Pe�a likewise as its authorized representative for purposes of
holding/maintaining continued possession of the said property and to represent
Urban Bank in any court action that may be instituted for the abovementioned
purposes.
It is understood that any attorney�s fees, cost of litigation and any
other charges or expenses that may be incurred relative to the exercise by
Atty. Pe�a of his abovementioned duties shall be for the account of Isabela
Sugar Company and any loss or damage that may be incurred to third parties
shall be answerable by Isabela Sugar Company.[53](Emphasis supplied)

The following narration of subsequent proceedings is uncontroverted.

Pe�a then moved for the dismissal of ISCI�s First Injunction Complaint,
filed on behalf of ISCI, on the ground of lack of personality to continue the action,
since the Pasay property, subject of the suit, had already been transferred to Urban
Bank.[54] The RTC-Pasay City dismissed the complaint and recalled its earlier
break-open order.[55]

Thereafter, petitioner-respondent Pe�a, now in representation of Urban

Bank, filed a separate complaint[56] (the Second Injunction Complaint) with the
RTC-Makati City, to enjoin the tenants from entering the Pasay property.[57] Acting
on Urban Bank�s preliminary prayer, the RTC-Makati City issued a TRO.[58]

While the Second Injunction Complaint was pending, Pe�a made efforts to
settle the issue of possession of the Pasay property with the sub-tenants. During the
negotiations, he was exposed to several civil and criminal cases they filed in
connection with the task he had assumed for Urban Bank, and he received several
threats against his life.[59] The sub-tenants eventually agreed to stay off the property
for a total consideration of PhP1,500,000.[60] Pe�a advanced the payment for the
full and final settlement of their claims against Urban Bank.[61]

Pe�a claims to have borrowed PhP3,000,000 from one of his friends in

order to maintain possession thereof on behalf of Urban Bank.[62] According to
him, although his creditor-friend granted him several extensions, he failed to pay
his loan when it became due, and it later on became the subject of a separate
collection suit for payment with interest and attorney�s fees.[63] This collection
suit became the basis for Atty. Pe�a�s request for discretionary execution
pending appeal later on.

On 07 February 1995, within the four-month period allegedly agreed upon in

the telephone conversation, Pe�a formally informed Urban Bank that it could
already take possession of the Pasay property.[64] There was however no mention of
the compensation due and owed to him for the services he had rendered.

On 31 March 1995, the bank subsequently took actual possession of the

property and installed its own guards at the premises.[65]
 Pe�a thereafter made several attempts to contact respondents Borlongan
and Bejasa by telephone, but the bank officers would not take any of his calls. On
24 January 1996, or nearly a year after he turned over possession of the Pasay
property, Pe�a formally demanded from Urban Bank the payment of the 10%
compensation and attorney�s fees allegedly promised to him during his telephone
conversation with Borlongan for securing and maintaining peaceful possession of
the property.[66]

Proceedings on the Complaint for Compensation

��������� On 28 January 1996, when Urban Bank refused to pay for

his services in connection with the Pasay property, Pe�a filed a complaint[67] for
recovery of agent�s compensation and expenses, damages and attorney�s fees in
RTC-Bago City in the province of Negros Occidental.[68] Interestingly, Pe�a sued
only six out of the eleven members of the Board of the Directors of Urban
Bank.[69] No reason was given why the six directors were selected and the others
excluded from Pe�a�s complaint. In fact, as pointed out, Atty. Pe�a mistakenly
impleaded as a defendant, Ben Y. Lim, Jr., who was never even a member of the
Board of Directors of Urban Bank; while, Ben T. Lim, Sr., father and namesake of
Ben Y. Lim, Jr., who had been a director of the bank, already passed away in
1997.[70]

In response to the complaint of Atty. Pe�a, Urban Bank and individual

bank officers and directors argued that it was ISCI, the original owners of the
Pasay property, that had engaged the services of Pe�a in securing the premises;
and, consequently, they could not be held liable for the expenses Pe�a had
incurred.[71]
��������� On 28 May 1999, the RTC-Bago City[72] ruled in favor of
Pe�a, after finding that an agency relationship had indeed been created between
him and Urban Bank. The eight directors and bank officers were found to be
solidarily liable with the bank for the payment of agency�s fees. The trial court
thus ordered Urban Bank and all eight defendant bank directors and officers whom
Pe�a sued to pay the total amount of PhP28,500,000 (excluding costs of suit):

����������� WHEREFORE, premised from the foregoing,

judgment is hereby rendered ordering defendants to pay plaintiff jointly and
severally the following amounts:
1. P24,000,000 as compensation for plaintiff�s services plus the
legal rate of interest from the time of demand until fully paid;
2. P3,000,000 as reimbursement of plaintiff�s expenses;
3. P1,000,000 as and for attorney�s fees;
4. P500,000 as exemplary damages;
5. Costs of suit.
SO ORDERED.[73]

��������� Urban Bank and the individual defendant bank directors and
officers filed a common Notice of Appeal,[74] which was given due course.[75] In
the appeal, they questioned the factual finding that an agency relationship existed
between the bank and Pe�a.[76]

Although they put up a single defense in the proceedings in the lower court,
Urban Bank and individual defendants contracted different counsel and filed
separate Briefs on appeal in the appellate court.

In its Brief,[77] Urban Bank[78] assigned as errors the trial court�s reliance on
the purported oral contract of agency and Pe�a�s claims for compensation
during the controverted telephone conversation with Borlongan, which were
allegedly incredible.
Meanwhile, Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee (the
De Leon Group),[79]� the petitioners in the instant Petition docketed as G. R. No.
145822, argued that, even on the assumption that there had been an agency
contract with the bank, the trial court committed reversible error in holding them
� as bank directors � solidarily liable with the corporation.[80]

On the other hand, Teodoro Borlongan, Corazon M. Bejasa, Arturo Manuel,

Jr., Ben Y. Lim, Jr., and P. Siervo H. Dizon (the Borlongan Group)[81] reiterated
similar arguments as those of the De Leon Group, adding that the claimed
compensation of 10% of the purchase price of the Pasay property was not
reasonable.[82]

Pe�a refuted all of their arguments[83] and prayed that the trial court�s
Decision be affirmed.[84]

��������� Acting favorably on the appeal, the Court of

Appeals[85] annulled the Decision of the RTC-Bago City and ruled that no agency
relationship had been created. Nevertheless, it ordered Urban Bank to reimburse
Pe�a for his expenses and to give him reasonable compensation for his efforts in
clearing the Pasay property of tenants in the amount of PhP3,000,000, but absolved
the bank directors and officers from solidary liability. The dispositive portion of
the CA decision reads as follows:

WHEREFORE, in view of the foregoing considerations, the May 28, 2000

Decision [sic] and the October 19, 2000 [sic] Special Order of the RTC of Bago
City, Branch 62,[86] are hereby ANNULLED AND SET ASIDE. However, the
plaintiff-appellee [Pe�a] in CA GR CV No. 65756 is awarded the amount of
P3 Million as reimbursement for his expenses as well as reasonable
compensation for his efforts in clearing Urban Bank�s property of unlawful
 occupants. The award of exemplary damages, attorney�s fees and costs of suit
are deleted, the same not having been sufficiently proven. The petition for Indirect
Contempt against all the respondents is DISMISSED for utter lack of
merit. [87] (Emphasis supplied)

���������
Pe�a duly filed a Motion for Reconsideration of the unfavorable CA
Decision.[88] The appellate court, however, denied his motion.[89] The CA Decision
and Resolution were appealed by Pe�a to this Court, through one of the three
consolidated Rule 45 Petitions before us (G. R. No. 162562).

Execution Pending Appeal

��������� On 07 June 1999, prior to the filing of the notice of appeal

of Urban Bank and individual bank officers,[90] Pe�a moved for execution pending
appeal[91]of the Decision rendered by the RTC-Bago City,[92] which had awarded
him a total of PhP28,500,000 in compensation and damages.[93]

In supporting his prayer for discretionary execution, Pe�a cited the pending
separate civil action for collection filed against him by his creditor-friend, who was
demanding payment of a PhP3,000,000 loan.[94] According to Pe�a, he had used
the proceeds of the loan for securing the bank�s Pasay property. No other reason
for the prayer for execution pending appeal was given by Pe�a other than
this collection suit.[95]

�In opposition to the motion, Urban Bank countered that the collection case
was not a sufficient reason for allowing execution pending appeal.[96]
��������� On 29 October 1999, the RTC-Bago City, through Judge
Henry J. Trocino,[97] favorably granted Pe�a�s motion and issued a Special
Order authorizing execution pending appeal.[98] In accordance with this Special
Order, Atty. Josephine Mutia-Hagad, the clerk of court and ex officio sheriff,
issued a Writ of Execution[99] on the same day.[100] The Special Order and Writ of
Execution were directed at the properties owned by Urban Bank as well as the
properties of the eight individual bank directors and officers.

On 04 November 1999, affected by the trial court�s grant of execution

pending appeal, Urban Bank[101] filed a Rule 65 Petition with the CA to enjoin the
Special Order and Writ of Execution issued by the trial court with a prayer for a
TRO.[102]

On 09 November 1999, the appellate court favorably granted the TRO and
preliminarily prohibited the implementation of the Special Order and Writ of
Execution.[103]

��������� On 12 January 2000, the CA eventually granted Urban

Bank�s Rule 65 Petition, and the RTC�s Special Order and Writ of Execution,
which permitted execution pending appeal, were annulled. The appellate court
ruled:[104]
��������� WHEREFORE, the instant petition is GRANTED. The
Special Order and writ of execution, both dated October 29, 1999, are
ANNULLED and SET ASIDE.
Respondents are directed to desist from further implementing the writ of
execution and to lift the garnishment and levy made pursuant thereto. [105]

��������� On 02 February 2000, Pe�a moved for the reconsideration

of the CA�s Decision;[106] while petitioners filed their corresponding
Comment/Opposition
thereto.[107]
 During the pendency of Pe�a�s Motion for Reconsideration, Urban Bank
declared a bank holiday on 26 April 2000 and was placed under receivership of the
Philippine Deposit Insurance Corporation (PDIC).[108]

In its Amended Decision dated 18 August 2000, the CA[109] favorably

granted Pe�a�s Motion for Reconsideration, and reversed its earlier Decision to
allow execution pending appeal.[110] The appellate court found that the bank
holiday declared by the BSP after the promulgation of its earlier Decision,
PDIC�s receivership of Urban Bank, and the imminent insolvency thereof
constituted changes in the bank�s conditions that would justify execution pending
appeal.[111]

On 29 August 2000, Urban Bank and its officers moved for the
reconsideration of the Amended Decision.[112] The De Leon Group subsequently
filed several Supplemental Motions for Reconsideration.[113] Thereafter,
respondents Teodoro Borlongan and Corazon M. Bejasa also filed their separate
Supplemental Motion for Reconsideration,[114] as did petitioner Ben T. Lim, Jr.[115]

On 19 October 2000, the Court of Appeals denied the motion for

reconsideration for lack of merit and the other subsequent Supplemental Motions
for Reconsideration for being filed out of time.[116] The appellate court also ordered
Pe�a to post an indemnity bond.[117] The Amended Decision and the Resolution
were the subjects of several Rule 45 Petitions filed by Urban Bank and individual
petitioners (G. R. Nos. 145817, 145818 and 145822).

On the same day the CA denied its Motion for Reconsideration, the De Leon
Group immediately moved for the stay of execution pending appeal upon the filing
of a supersedeas bond.[118]
 On 31 October 2000, the CA[119] granted the stay of the execution upon the
filing by the De Leon Group of a PhP40,000,000 bond in favor of Pe�a.[120] Pe�a
moved for the reconsideration of the stay order.[121]

In its Resolution dated 08 December 2000,[122] the appellate court denied

Pe�a�s Motion for Reconsideration and a stay order over the execution pending
appeal was issued in favor of the De Leon Group, after they had filed their
supersedeas bond.[123] The stay of execution pending appeal, however, excluded
Urban Bank.[124]

On 08 December 2000, Pe�a posted his indemnity bond as required by the

CA.[125]

As mentioned earlier, Urban Bank, the De Leon Group, and the Borlongan
Group filed around December 2000 separate Rule 45 Petitions in this Court, to
assail the unfavorable CA Amended Decision and Resolution that affirmed the
execution pending appeal. The details of these Rule 45 Petitions will be discussed
in detail later on.

In the meantime, Export and Industry Bank (EIB) submitted its proposal for
rehabilitation of Urban Bank to the BSP, and requested that the troubled bank be
removed from receivership of the PDIC. On 12 July 2001, or almost a year after
the Court of Appeals amended its decision to allow execution pending appeal, the
rehabilitation plan of Urban Bank was approved by the Monetary Board of the
BSP.[126] Thus, the Monetary Board subsequently lifted PDIC�s statutory
receivership of the bank.[127]

On 14 September 2001, Urban Bank, trying to follow the lead of the De

Leon Group, made a similar request with the Court of Appeals for approval of its
own supersedeas bond,[128] for the same amount of PhP40,000,000, and prayed that
the execution of the RTC-Bago City�s Decision against it be stayed as well.[129]

Sometime in September and October 2001, Urban Bank began receiving

notices of levy and garnishment over its properties. After it received Notice of the
impending public execution sale of its shares in the Tagaytay Highlands
International Golf Club,[130] Urban Bank reiterated its request for the approval of
the supersedeas bond with the Court of Appeals and the issuance of the
corresponding stay order.[131]�

The appellate court, however, merely noted Urban Bank�s motion on the
ground that there was no showing whether a petition to the Supreme Court had
been filed or given due course or denied.[132]

After the denial by the Court of Appeals of Urban Bank�s motion for
approval of its supersedeas bond, some of the levied properties of Urban Bank and
the other bank officers were sold on public auction. The table below lists the
properties that appear on record to have been levied and/or sold on execution
pending appeal and the approximate value of some of these properties. They do not
include properties covered by the Petition docketed as G. R. No. 145818.

TABLE OF LEVIED, GARNISHED AND/OR EXECUTED PROPERTIES PENDING

APPEAL
Owner/ Property Description Estimated Value or Total Remarks
Defendant Price at Public Auction Amount
Three Club Shares As of 06 December 4,800,000
Tagaytay Highlands 1999, one share was
International Golf selling at P1.6
Club[133] Million.[134]
Three Club Shares in As of 06 December 2,000,000[137] Atty. Pe�a was one
Urban Bank
Makati Sports, Club, 1999, MSCI Club Shares of the winning
Inc. (MSCI) [Covered �A� and �B� were bidders in the auction
by Stock Certificate selling at PhP650,000 sale together with his
Nos. A-1893, A-2305 and PhP700,000, creditor friend,
and B-762][135] respectively.[136] Roberto Ignacio, and
 Atty. Ramon
Ere�eta.
85 Condominium The highest bid price 85,000,000 Intervenor Unimega
Units in the Urban obtained for the purchased the 10
Bank Plaza, Makati condominium units condominium units in
City[138] was �PhP1M at the the auction sale for
time of the execution P1M each or a total
sale.[139] of P10 M.[140]
A 155 sqm. 12,400,000
condominium unit,
Makati City (CCT No.
57697) [141]
A 12.5 sqm. Estimates are based on 500,000
condominium parking report of Urban Bank[142]
space (Parking Three,
Unit P-46) in Makati
City (CCT No.
57698)[143]
A 64,677 sqm. land in Value based on estimate 35,572,350
Tagaytay City (TCT of Urban Bank[145]
No. 20471)[144]
One Club Share in Borlongan�s club share 1,000,000 Notice of Sale on
Manila Polo Club (No. was estimated to be Execution on
3433)[146] valued at P1,000,000.[147] Personal Property
dated 25 August
2000[148]
One Club Share in One club share was 500,000
Subic Bay Yacht estimated to be valued at
Club[149] P500,000.[150]
One Club Share in As of 06 December 870,000
Teodoro
Baguio Country 1999, one share was
Borlongan
Club[151] selling at P870,000.[152]
One Club Share in As of 06 December 650,000
MSCI[153] 1999, MSCI Club Shares
�A� and �B� were
selling at PhP650,000
and PhP700,000
respectively.[154]
Real Property[155] No estimate available on
record.
One Club Share in Gonzales� club share 4,000,000 Notice of Sale on
Manila Polo Club (No. was estimated to be Execution on
3818)[156] valued at P4,000,000.[157] Personal Property
dated 25 August
2000[158]
One Club Share in Gonzales� club share 1,077,000
Delfin C. Baguio Country was estimated to be
Gonzales, Club.[159] valued at P1,077,000.[160]
Jr.
One Club Share in Gonzales� club share 2,000,000
Alabang Country Club was estimated to be
(Member No. 550)[161] valued at P2,000,000.[162]
30,585 shares of stock P20.00 per share[164] 611,700
in D. C. Gonzales, Jr.,
Inc.[163]
 40 Shares of stock in P50.00 per share[166] 2,000
D. C. Gonzales, Jr.,
Inc.[165]
One Club Share in De Leon�s Share was 5,050,000 Notice of Sale on
Manila Polo Club estimated at P4 M for the Execution on
(with Associate share and P1.05 M for Personal Property
Membership) [No. the associate dated 25 August
0597][167] membership.[168] 2000[169]
One Club Share in De Leon�s share was 450,000
Benjamin
MSCI (Stock estimated at
L. de Leon
Certificate No. A- P450,000.[171]
175)[170]
One Club Share in As of 06 December 870,000
Baguio Country Club 1999, one share was
(5523)[172] selling at least
P870,000.[173]
No records available
as to properties
P. Siervo G.
levied, garnished or
Dizon
executed pending
appeal.
One Club Share in Lee�s� club share was 4,000,000 Notice of Sale on
Manila Polo Club estimated to be valued at Execution on
(2038)[174] P4,000,000.[175] Personal Property
dated 25 August
2000[176]
One Club Share in Lee�s club share was 15,750,000
Manila Golf Club, estimated to be valued at
Inc.[177] P15,750,000.[178]
One Club Share in Lee�s club share was 2,000,000
Sta. Elena Golf Club, estimated to be valued at
Inc. (Class �A� P2,000,000.[180]
Share)[179]
Two Club Shares in Lee�s club shares were 1,000,000 Notice of Sale on
Tagaytay Highlands estimated to be valued at Execution on
Eric L. Lee
Int�l Golf Club, P1,000,000.[182] Personal Property
Inc.[181] dated 25 August
2000[183]
One Club Share in Lee�s club share was 500,000
Subic Yacht Club[184] estimated to be valued at
P500,000.[185]
60,757 Shares of stock P20.00 per share 1,214,140
in EQL Properties,
Inc.[186]
40 Shares of stock in P50.00 per share 2,000
EQL Properties,
Inc.[187]
Cash garnished from 100,000
BPI Account[188]
No records available
as to properties
Ben T. Lim,
levied, garnished or
Jr.
executed pending
appeal.
Corazon Real Property[189] No estimated value.
Bejasa
Arturo Real Property[190] No estimated value.
Manuel, Jr.,
TOTAL VALUE 181,919,190

The sum of PhP181,919,190 does not include many other properties and it is
not difficult to believe that the total value covered reached more than that.[191] In
summary, the estimated values and/or purchase prices at the auction sale of the
properties of Urban Bank and its officers amounted to no less
than PhP181,919,190 already. This amounts to almost six times the value of the
award given by the trial court. Otherwise stated, Pe�a, as judgment creditor, was
overly secured by the levied and/or garnished properties for the amount of
PhP28,500,000, where the judgment award was still subject of reversal on appeal.

On 22 October 2001, Urban Bank, with respect to its pending Rule 45

Petition in this Court, moved for the approval of its PhP40,000,000 supersedeas
bond[192] and requested that the Court stay the execution pending appeal.[193] Pe�a
opposed the motion on the ground that it had already been rendered moot and
academic by the sale of the properties of the bank.[194]

On 23 October 2002, or almost a year after some of the condominium units

were sold in a public auction, EIB, as the successor of Urban Bank, expressed to
the sheriff of RTC-Bago City an intent to redeem the said condominium
units.[195] Thus, EIB tendered three manager�s checks in the total amount of
PhP22,108,800[196] to redeem the properties that were previously under the name of
Urban Bank.[197] Although the trial court noted the bank�s Manifestation,[198] the
sheriff returned the EIB�s manager�s checks. Thus, on 29 October 2002, EIB,
through a motion, was prompted to turn over the checks to the trial court itself.[199]
 When Urban Bank supposedly failed to redeem the condominium units
according to the sheriff,[200] final Certificates of Sale were issued in favor of
Unimega on 04 November 2002.[201] Upon the latter�s motion, RTC-Bago City, in
its Order dated 13 November 2002, ordered the Register of Deeds of Makati to
transfer the Condominium Certificates of Title to the name of Unimega. [202] It has
not been shown, though, whether this Order was followed.

This Court, acting on Urban Bank�s earlier motion to approve its

supersedeas bond, granted the same in its Resolution dated 19 November
2001.[203] Pe�a moved for reconsideration of the approval,[204] but his motion was
subsequently denied by the Court.[205]

Proceedings in the Supreme Court (G. R. Nos. 145817, 145818 & 145822)

On 21 December 2000, Urban Bank,[206] represented by its receiver,

PDIC,[207] filed a Rule 45 Petition with this Court (docketed as G. R. No. 145817)
to assail the CA�s Amended Decision and Resolution granting execution pending
appeal.[208] In response, Pe�a moved for the denial of the petition on the grounds
of lack merit, violation of the rule against forum shopping, and non-payment of
docket fees, among others.[209] In a separate Comment,[210] Pe�a also argued that
the appellate court had committed no error when it considered the bank�s
�imminent insolvency� as a good reason for upholding the validity of the
execution pending appeal.

On the other hand, the Borlongan Group[211] filed a separate Rule 45 Petition
questioning the same Decision and Resolution, docketed as G. R. No.
145818.[212] This Court initially denied their petition on the ground that it failed to
sufficiently show that the CA committed reversible order.[213] The Borlongan
Group twice moved for the reconsideration of the denial of their petition; but the
Court nonetheless denied both motions for lack of merit. [214] This denial of the
petition in G. R. No. 145818 became final and executory, with the issuance of the
Entry of Judgment.[215]

Meanwhile, another Rule 45 Petition (G. R. No. 145822)[216] was filed by the
De Leon Group, assailing the same Decisions of the appellate court. The Court also
preliminarily denied this petition on the ground that the De Leon Group failed to
file the appeal within the reglementary period and to pay certain fees.[217]

Despite the denial of the Rule 45 Petition in G. R. No. 145822 filed by the
De Leon Group, the Court nonetheless ordered that the case be consolidated with
Urban Bank�s own Rule 45 Petition in G. R. No. 145817.[218] The Court
subsequently gave due course to both of these petitions.[219]� In compliance with
the Court�s Order,[220]Urban Bank[221] and the De Leon Group[222] filed their
respective Memoranda.

As detailed earlier, the Court granted and approved Urban Bank�s

supersedeas bond and stayed the execution pending appeal.

Considering the favorable stay of execution pending appeal, EIB, as the new
owner and successor of Urban Bank, immediately wrote to tell[223] the corporate
secretary of MSCI not to effect the cancellation or transfer of Urban Bank�s three
MSCI stock certificates previously sold in a public auction. [224] In reply, MSCI
explained that since there was no injunction or stay order, it had no other option
but to comply with the trial court�s Order for the transfer. Eventually, however, it
could not effect the transfer of one of the shares to Pe�a because a club share had
already been previously registered in his name, and the club�s bylaws prohibited
a natural person from owning more than one share.[225] Meanwhile, one of the
winning bidders in the public auction sale of the MSCI shares wrote to the latter to
demand that the club share previously owned by Urban Bank be transferred to
him.[226]

On 04 February 2002, considering the conflicting claims of Urban Bank

(through EIB) and the winning bidders of the club shares, MSCI filed a Motion for
Clarification of the Court�s Resolution staying the execution pending appeal.[227]

In its Motion for Clarification dated 06 August 2002, Urban Bank likewise
requested clarification of whether the stay order suspended, as well, its right to
redeem the properties sold at a public auction.[228] The copy of Urban Bank�s
motion for clarification intended for Pe�a was mistakenly sent to the wrong
counsel.�

In its Resolution dated 13 November 2002, the Court explained that its
earlier stay order prohibited the MSCI from transferring the shares, and that the
one-year period for redemption of the bank�s properties was likewise suspended:
WHEREFORE, the Court hereby RESOLVES to clarify that as a
consequence of its approval of the supersedeas bond, the running of the one-
year period for petitioner Urban Bank to redeem the properties sold at the
public auctions held on October 4, 11 and 25, 2001 as well as the
consolidation of the titles in favor of the buyers, is SUSPENDED OR
STAYED. MSCI is also prohibited from transferring petitioner Urban Bank�s
MSCI club shares to the winning bidders in the execution sale held on October
11, 2001.[229] (Emphasis supplied)

���������
On 09 December 2002, Pe�a moved that the Court�s Resolution be
recalled, because he was not given an opportunity to be heard on Urban Bank�s
Motion for Clarification, which was sent to a different counsel.[230] Interposing its
objection, the bank argued that the error in mistakenly sending the Motion for
clarification to a different counsel was by sheer inadvertence,[231] but Pe�a was
nonetheless aware of the motion, and that the
Court�s clarification did not create or diminish his rights in any case.[232]

The Motion for Clarification filed by Urban Bank, the Court�s Resolution
dated 13 November 2002 and Pe�a�s Omnibus Motion praying for the recall of
the said Resolution became the subject of an administrative case (Administrative
Case No. 6332), which was treated as a separate matter and later on de-
consolidated with the instant Petitions.[233] The Court had even called for an
executive session[234] in which Pe�a, among others, appeared and was questioned
by the then members of the Court�s First Division, namely retired Chief Justice
Hilario Davide, Justices Jose Vitug, Antonio Carpio and Adolfo Azcuna. Although
the Petitions had earlier been assigned to Justice Carpio, he has since taken no part
in the proceedings of this case and this resulted in the re-raffling of the Petitions.
The transfer and unloading of the case by the subsequently assigned Justices as
well as Pe�a�s numerous motions for inhibition and/or re-raffle has likewise
cause considerable delay in the disposition of the instant Petitions and the
Administrative Case.

Unimega, which was the winning bidder of some of the publicly executed
condominium units of Urban Bank, moved to intervene in the case and to have the
Court�s same Resolution suspending the one-year period of redemption of the
properties be reconsidered.[235] Unimega claimed that ownership of the bank�s
titles to the 10 condominium units had already been transferred to the former at the
time the Court issued the Resolution; and, thus, there was no more execution to be
suspended or stayed. Only Urban Bank[236] opposed the motion[237]of intervenor
Unimega on the ground that the latter was not a buyer in good faith, and that the
purchase price was grossly disproportional to the fair market value of the
condominium units.[238]
 The Court eventually granted the Motion to Intervene considering that the
intervenor�s title to the condominium units purchased at the public auction would
be affected, favorably or otherwise, by the judgment of the Court in this case.
However, it held in abeyance the resolution of intervenor�s Motion for
Reconsideration, which might preempt the decision with respect to the propriety of
execution pending appeal.[239] Thereafter, the bank adopted its earlier Opposition to
the intervention as its answer to Unimega�s petition-in-intervention.[240] Also in
answer thereto, the De Leon Group adopted its earlier Manifestation and
Comment.[241]

Intervenor Unimega then requested that a writ of possession be issued in its

favor covering the 10 condominium units sold during the public auction.[242] The
Court required the parties to file their comments on the request. [243] The
Lim[244] and Borlongan Groups[245] manifested separately that they would not be
affected by a resolution of the request of intervenor Unimega, since the latter was
not among the contending parties to the incident. Pe�a similarly interposed no
objection to the issuance of the writ of possession.[246] In contrast, Urban Bank
opposed the application of Unimega on the ground that the latter was not entitled
to possession of the levied properties, because the rules of extrajudicial foreclosure
were not applicable to execution sales under Rule 39, and that intervenor was also
not a buyer in good faith.[247] In a similar vein, the De Leon Group opposed the
application for a writ of possession, and further argued that the Court had already
suspended the running of the one-year period of redemption in the execution
sale.[248] Accordingly, intervenor Unimega countered that the right of redemption
of the levied properties had already expired without having been exercised by the
judgment debtor.[249]

In summary, the Court shall resolve the substantial issues in the following:
(a) the Petition of Pe�a (G. R. No. 162562) assailing the CA�s decision on the
substantive merits of the case with respect to his claims of compensation based on
an agency agreement; and (b) the Petitions of Urban Bank (G. R. No. 145817) and
the De Leon Group (G R. No. 145822) questioning the propriety of the grant of
execution pending appeal.

OUR RULING

I
Pe�a is entitled to payment for compensation for services
rendered as agent of Urban Bank, but on the basis of the
principles of unjust enrichment and quantum meruit, and
not on the purported oral contract.

The Court finds that Pe�a should be paid for services rendered under the
agency relationship that existed between him and Urban Bank based on the civil
law principle against unjust enrichment, but the amount of payment he is entitled
to should be made, again, under the principle against unjust enrichment and on the
basis of quantum meruit.

In a contract of agency, agents bind themselves to render some service or to

do something in representation or on behalf of the principal, with the consent or
authority of the latter.[250] The basis of the civil law relationship of agency is
representation, [251] the elements of which include the following: (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) agents act
as representatives and not for themselves; and (d) agents act within the scope of
their authority.[252]

Whether or not an agency has been created is determined by the fact that one
is representing and acting for another.[253] The law makes no presumption of
agency; proving its existence, nature and extent is incumbent upon the person
alleging it.[254]
 With respect to the status of Atty. Pe�a�s relationship with Urban Bank,
the trial and the appellate courts made conflicting findings that shall be reconciled
by the Court. On one end, the appellate court made a definitive ruling that no
agency relationship existed at all between Pe�a and the bank, despite the
services performed by Pe�a with respect to the Pasay property purchased by the
bank. Although the Court of Appeals ruled against an award of agent�s
compensation, it still saw fit to award Pe�a with Ph3,000,000 for expenses
incurred for his efforts in clearing the Pasay property of tenants.[255] �On the other
extreme, the trial court heavily relied on the sole telephone conversation between
Pe�a and Urban Bank�s President to establish that the principal-agent
relationship created between them included an agreement to pay Pe�a the huge
amount of PhP24,000,000. In its defense, Urban Bank insisted that Pe�a was
never an agent of the bank, but an agent of ISCI, since the latter, as seller of the
Pasay property committed to transferring it free from tenants. Meanwhile, Pe�a
argues on the basis of his successful and peaceful ejectment of the sub-tenants,
who previously occupied the Pasay property.

Based on the evidence on records and the proceedings below, the Court
concludes that Urban Bank constituted Atty. Pe�a as its agent to secure
possession of the Pasay property. This conclusion, however, is not
determinative of the basis of the amount of payment that must be made to him
by the bank. The context in which the agency was created lays the basis for
the amount of compensation Atty. Pe�a is entitled to.

The transactional history and context of the sale between ISCI and Urban
Bank of the Pasay property, and Atty. Pe�a�s participation in the transfer of
possession thereof to Urban Bank provide crucial linkages that establish the nature
of the relationship between the lawyer and the landowner-bank.
 The evidence reveals that at the time that the Contract to Sell was executed
on 15 November 1994, and even when the Deed of Absolute Sale was executed
two weeks later on 29 November 1994, as far as Urban Bank was concerned,
Pe�a was nowhere in the picture. All discussions and correspondences were
between the President and Corporate Secretary of Urban Bank, on one hand, and
the President of ISCI, on the other. The title to the Pasay property was transferred
to Urban Bank on 5 December 1994. Interestingly, Pe�a testifies that it was only
on 19 December 1994 that he learned that the land had already been sold by ISCI
to Urban Bank, notwithstanding the fact that Pe�a was a director of ISCI. Pe�a
was not asked to render any service for Urban Bank, neither did he perform any
service for Urban Bank at that point.
ISCI undertook in the Contract to Sell, to physically deliver the property to
Urban Bank, within 60 days from 29 November 1994,[256] under conditions of
�full and actual possession and control ..., free from tenants, occupants, squatters
or other structures or from any liens, encumbrances, easements or any other
obstruction or impediment to the free use and occupancy by the buyer of the
subject Property or its exercise of the rights to ownership over the subject
Property....�[257] To guarantee this undertaking, ISCI agreed to the escrow
provision where PhP25,000,000 (which is a little over 10% of the value of the
Pasay property) would be withheld by Urban Bank from the total contract price
until there is full compliance with this undertaking.

Apparently to ensure that ISCI is able to deliver the property physically

clean to Urban Bank, it was ISCI�s president, Enrique Montilla who directed on
26 November 1994 one of its directors, Pe�a, to immediately recover and take
possession of the property upon expiration of the contract of lease on 29 November
1994.[258] Pe�a thus first came into the picture as a director of ISCI who was
constituted as its agent to recover the Pasay property against the lessee as well as
the sub-tenants who were occupying the property in violation of the lease
agreement.[259] He was able to obtain possession of the property from the lessee on
the following day, but the unauthorized sub-tenants refused to vacate the property.

It was only on 7 December 1994, that Urban Bank was informed of the
services that Pe�a was rendering for ISCI. The faxed letter from ISCI�s Marilyn
Ong reads:

Atty. Magdaleno M. Pe�a, who has been assigned by Isabela Sugar

Company, Inc., to take charge of inspecting the tenants would like to request
an authority similar to this from the Bank, as new owners. Can you please issue
something like this today as he needs this.[260]

Two days later, on 9 December 1994, ISCI sent Urban Bank another letter
that reads:

Dear Mr. Borlongan, I would like to request for an authorization from

Urban Bank as per attached immediately � as the tenants are questioning the
authority of the people there who are helping us to take over possession of
the property. (Emphasis supplied)[261]

It is clear from the above that ISCI was asking Urban Bank for help to
comply with ISCI�s own contractual obligation with the bank under the terms of
the sale of the Pasay property. Urban Bank could have ignored the request, since it
was exclusively the obligation of ISCI, as the seller, to deliver a clean property to
Urban Bank without any help from the latter.

A full-bodied and confident interpretation of the contracts between ISCI and

Urban Bank should have led the latter to inform the unauthorized sub-tenants that
under its obligation as seller to Urban Bank, it was under duty and had continuing
authority to recover clean possession of the property, despite the transfer of title.
Yet, what unauthorized sub-tenant, especially in the kind of operations being
conducted within the Pasay property, would care to listen or even understand such
argument?

Urban Bank thus chose to cooperate with ISCI without realizing the kind of
trouble that it would reap in the process. In an apparent attempt to allow the efforts
of ISCI to secure the property to succeed, it recognized Pe�a�s role in helping
ISCI, but stopped short of granting him authority to act on its behalf. In response to
the two written requests of ISCI, Urban Bank sent this letter to Pe�a on 15
December 1994:
This is to advise you that we have noted the engagement of your services
by Isabela Sugar Company to recover possession of the Roxas Boulevard property
formerly covered by TCT No. 5382, effective November 29, 1994. It is
understood that your services have been contracted by and your principal
remains to be the Isabela Sugar Company, which as seller of the property and
under the terms of our Contract to Sell dated November 29, 1994, has committed
to deliver the full and actual possession of the said property to the buyer, Urban
Bank, within the stipulated period. [262] (Emphasis supplied)

Up to this point, it is unmistakable that Urban Bank was staying clear from
making any contractual commitment to Pe�a and conveyed its sense that
whatever responsibilities arose in retaining Pe�a were to be shouldered by ISCI.

According to the RTC-Bago City, in the reversed Decision, Atty. Pe�a only
knew of the sale between ISCI and Urban Bank at the time the RTC-Pasay City
recalled the TRO and issued a break-open order:

�� when information reached the (Pasay City) judge that the Pasay
property had already been transferred by ISCI to Urban Bank, the trial court
recalled the TRO and issued a break-open order for the property. According to
Pe�a, it was the first time that he was apprised of the sale of the land by ISCI and
of the transfer of its title in favor of the bank.�[263]
 There is something contradictory between some of the trial court�s factual
findings and Pe�a�s claim that it was only on 19 December 1994 that he first
learned of the sale of the property to Urban Bank. It is difficult to believe Pe�a on
this point considering: (1) that he was a board director of ISCI and a sale of this
significant and valuable property of ISCI requires the approval of the board of
directors of ISCI; and (2) that ISCI twice requested Urban Bank for authority to be
issued in his favor (07 and 9 December 1994), 12 and 10 days before 19 December
1994, since it would be contrary to human experience for Pe�a not to have been
informed by an officer of ISCI beforehand that a request for authority for him was
being sent to Urban Bank.

The sequence of fast-moving developments, edged with a sense of panic,

with respect to the decision of the RTC-Pasay City to recall the temporary
restraining order and issue a break-open order on 19 December 1994 in the First
Injunction Complaint, is highly enlightening to this Court.

First, Pe�a allegedly called up the president of ISCI, Montilla, who,

according to Pe�a, confirmed to him that the Pasay property had indeed been sold
to Urban Bank.

Second, Pe�a allegedly told Montilla that he (Pe�a) would be withdrawing

his guards from the property because of the break-open order from the RTC-Pasay
City.

Third, Montilla requested Pe�a to suspend the withdrawal of the guards

while ISCI gets in touch with Urban Bank.
 Fourth, apparently in view of Montilla�s efforts, Bejasa, an officer of
Urban Bank called Pe�a and according to the latter, told him that Urban Bank
would continue retaining his services and for him to please continue with his effort
to secure the property.

Fifth, this statement of Bejasa was not enough for Pe�a and he insisted that
he be enabled to talk with no less than the President of Urban Bank, Borlongan. At
this point, Bejasa gave him the phone number of Borlongan.

Sixth, immediately after the conversation with Bejasa, Pe�a calls

Borlongan and tells Borlongan that violence might erupt in the property because
the Pasay City policemen, who were sympathetic to the tenants, were threatening
to force their way through the property.

At this point, if indeed this conversation took place, which Borlongan

contests, what would have been the response of Borlongan? Any prudent president
of a bank, which has just purchased a PhP240,000,000 property plagued by
unauthorized and unruly sub-tenants of the previous owner, would have sought to
continue the possession of ISCI, thru Pe�a, and he would have agreed to the
reasonable requests of Pe�a. Borlongan could also have said that the problem of
having the sub-tenants ejected is completely ISCI�s and ISCI should resolve the
matter on its own that without bothering the bank, with all its other problems. But
the specter of violence, especially as night was approaching in a newly-bought
property of Urban Bank, was not something that any publicly-listed bank would
want publicized. To the extent that the violence could be prevented by the
president of Urban Bank, it is expected that he would opt to have it prevented.

But could such response embrace the following legal consequences as Pe�a
claims to have arisen from the telephone conversation with Borlongan: (1) A
contract of agency was created between Pe�a and Urban Bank whereby
Borlongan agreed to retain the services of Pe�a directly; (2) This contract of
agency was to be embodied in a written letter of authority from Urban Bank; and
(3) The agency fee of Pe�a was to be 10% of the market value as �attorney�s
fees and compensation� and reimbursement of all expenses of Pe�a from the
time he took over the land until possession is turned over to Urban Bank.

This Court concludes that the legal consequences described in statements (1)
and (2) above indeed took place and that the facts support them. However, the
evidence does not support Pe�a�s claim that Urban Bank agreed to
�attorney�s fees and compensation� of 10% of the market value of the
property.
Urban Bank�s letter dated 19 December 1994 confirmed in no uncertain
terms Pe�a�s designation as its authorized representative to secure and maintain
possession of the Pasay property against the tenants. Under the terms of the letter,
petitioner-respondent bank confirmed his engagement (a) �to hold and maintain
possession� of the Pasay property; (b) �to protect the same from former
tenants, occupants or any other person who are threatening to return to the said
property and/or interfere with your possession of the said property for and in our
behalf�; and (c) to represent the bank in any instituted court action intended
to prevent any intruder from entering or staying in the premises.[264]

These three express directives of petitioner-respondent bank�s letter admits

of no other construction than that a specific and special authority was given to
Pe�a to act on behalf of the bank with respect to the latter�s claims of ownership
over the property against the tenants. Having stipulated on the due execution and
genuineness of the letter during pretrial,[265] the bank is bound by the terms thereof
and is subject to the necessary consequences of Pe�a�s reliance thereon. No
amount of denial can overcome the presumption that we give this letter � that it
means what it says.

�In any case, the subsequent actions of Urban Bank resulted in the
ratification of Pe�a�s authority as an agent acting on its behalf with respect to
the Pasay property. By ratification, even an unauthorized act of an agent becomes
an authorized act of the principal.[266]

Both sides readily admit that it was Pe�a who was responsible for clearing
the property of the tenants and other occupants, and who turned over possession of
the Pasay property to petitioner-respondent bank.[267] When the latter received full
and actual possession of the property from him, it did not protest or refute his
authority as an agent to do so. Neither did Urban Bank contest Pe�a�s
occupation of the premises, or his installation of security guards at the site, starting
from the expiry of the lease until the property was turned over to the bank, by
which time it had already been vested with ownership thereof. Furthermore, when
Pe�a filed the Second Injunction Complaint in the RTC-Makati City under the
name of petitioner-respondent bank, the latter did not interpose any objection or
move to dismiss the complaint on the basis of his lack of authority to represent its
interest as the owner of the property. When he successfully negotiated with the
tenants regarding their departure from its Pasay property, still no protest was heard
from it. After possession was turned over to the bank, the tenants accepted
PhP1,500,000 from Pe�a, in �full and final settlement� of their claims against
Urban Bank, and not against ISCI.[268]

In all these instances, petitioner-respondent bank did not repudiate the

actions of Pe�a, even if it was fully aware of his representations to third parties on
its behalf as owner of the Pasay property. Its tacit acquiescence to his dealings with
respect to the Pasay property and the tenants spoke of its intent to ratify his actions,
as if these were its own. Even assuming arguendo that it issued no written
authority, and that the oral contract was not substantially established, the bank duly
ratified his acts as its agent by its acquiescence and acceptance of the benefits,
namely, the peaceful turnover of possession of the property free from sub-tenants.

Even if, however, Pe�a was constituted as the agent of Urban Bank, it does
not necessarily preclude that a third party would be liable for the payment of the
agency fee of Pe�a. Nor does it preclude the legal fact that Pe�a while an agent
of Urban Bank, was also an agent of ISCI, and that his agency from the latter never
terminated. This is because the authority given to Pe�a by both ISCI and Urban
Bank was common � to secure the clean possession of the property so that it may
be turned over to Urban Bank. This is an ordinary legal phenomenon � that an
agent would be an agent for the purpose of pursuing a shared goal so that the
common objective of a transferor and a new transferee would be met.

Indeed, the Civil Code expressly acknowledged instances when two or more
principals have granted a power of attorney to an agent for a common
transaction.[269] The agency relationship between an agent and two principals may
even be considered extinguished if the object or the purpose of the agency is
accomplished.[270] In this case, Pe�a�s services as an agent of both ISCI and
Urban Bank were engaged for one shared purpose or transaction, which was to
deliver the property free from unauthorized sub-tenants to the new owner � a task
that Pe�a was able to achieve and is entitled to receive payment for.

That the agency between ISCI and Pe�a continued, that ISCI is to shoulder
the agency fee and reimbursement for costs of Pe�a, and that Urban Bank never
agreed to pay him a 10% agency fee is established and supported by the following:

First, the initial agency relationship between ISCI and Pe�a persisted. No
proof was ever offered that the letter of 26 November 1994 of Mr. Montilla of ISCI
to Pe�a, for the latter �to immediately recover and take possession of the
property upon expiration of the contract of lease on 29 November 1994� was
terminated.� It is axiomatic that the appointment of a new agent for the same
business or transaction revokes the previous agency from the day on which notice
thereof was given to the former agent.[271] If it is true that the agency relationship
was to be borne by Urban Bank alone, Pe�a should have demonstrated that his
previous agency relationship with ISCI is incompatible with his new relationship
with Urban Bank, and was thus terminated.
Second, instead, what is on the record is that ISCI confirmed the
continuation of this agency between Pe�a and itself and committed to pay for the
services of Pe�a, in its letter to Urban Bank dated 19 December 1994 which
reads:

�In line with our warranties as the Seller of the said property and our
undertaking to deliver to you the full and actual possession and control of said
property, free from tenants, occupants or squatters and from any obstruction or
impediment to the free use and occupancy of the property� by Urban Bank, we
have engaged the services of Atty. Magdaleno M. Pe�a to hold and maintain
possession of the property and to prevent the former tenants or occupants
from entering or returning to the premises. In view of the transfer of the
ownership of the property to Urban Bank, it may be necessary for Urban Bank to
appoint Atty. Pe�a likewise as its authorized representative for purposes of
holding/maintaining continued possession of the said property and to represent
Urban Bank in any court action that may be instituted for the abovementioned
purposes.
It is understood that any attorney�s fees, cost of litigation and any
other charges or expenses that may be incurred relative to the exercise by
Atty. Pe�a of his abovementioned duties shall be for the account of Isabela
Sugar Company and any loss or damage that may be incurred to third parties
shall be answerable by Isabela Sugar Company.[272](Emphasis supplied)

Third, Pe�a has never shown any written confirmation of his 10% agency
fee, whether in a note, letter, memorandum or board resolution of Urban Bank. An
agency fee amounting to PhP24,000,000 is not a trifling amount, and corporations
do not grant their presidents unilateral authority to bind the corporation to such an
amount, especially not a banking corporation which is closely supervised by the
BSP for being a business seriously imbued with public interest. There is nothing on
record except the self-serving testimony of Pe�a that Borlongan agreed to pay
him this amount in the controverted telephone conversation.

Fourth, while ordinarily, uncontradicted testimony will be accorded its full

weight, we cannot grant full probative value to the testimony of Pe�a for the
following reasons: (a) Pe�a is not a credible witness for testifying that he only
learned of the sale of the property of 19 December 1994 when the acts of ISCI, of
Urban Bank and his own up to that point all indicated that he must have known
about the sale to Urban Bank; and (b) it is incredible that Urban Bank will agree to
add another PhP24,000,000 to the cost of the property by agreeing to the agency
fee demanded by Pe�a. No prudent and reasonable person would agree to expose
his corporation to a new liability of PhP24,000,000 even if, in this case, a refusal
would lead to the Pasay City policemen and unauthorized sub-tenants entering the
guarded property and would possibly erupt in violence.

Pe�a�s account of an oral agreement with Urban Bank for the payment of
PhP24,000,000 is just too much for any court to believe. Whatever may be the
agreement between Pe�a and ISCI for compensation is not before this Court. This
is not to say, however, that Urban Bank has no liability to Pe�a. It has. Payment
to him is required because the Civil Code demands that no one should be unjustly
enriched at the expense of another. This payment is to be measured by the
standards of quantum meruit.

Amount of Compensation
 Agency is presumed to be for compensation. But because in this case we
find no evidence that Urban Bank agreed to pay Pe�a a specific amount or
percentage of amount for his services, we turn to the principle against unjust
enrichment and on the basis of quantum meruit.

Since there was no written agreement with respect to the compensation due
and owed to Atty. Pe�a under the letter dated 19 December 1994, the Court will
resort to determining the amount based on the well-established rules on quantum
meruit.

Agency is presumed to be for compensation.[273] Unless the contrary intent is

shown, a person who acts as an agent does so with the expectation of payment
according to the agreement and to the services rendered or results effected.[274] We
find that the agency of Pe�a comprised of services ordinarily performed by a
lawyer who is tasked with the job of ensuring clean possession by the owner of a
property. We thus measure what he is entitled to for the legal services rendered.

A stipulation on a lawyer�s compensation in a written contract for

professional services ordinarily controls the amount of fees that the contracting
lawyer may be allowed to collect, unless the court finds the amount to be
unconscionable.[275] In the absence of a written contract for professional services,
the attorney�s fees are fixed on the basis of quantum meruit,[276] i.e., the
reasonable worth of the attorney�s services.[277] When an agent performs services
for a principal at the latter�s request, the law will normally imply a promise on
the part of the principal to pay for the reasonable worth of those services.[278] The
intent of a principal to compensate the agent for services performed on behalf of
the former will be inferred from the principal�s request for the agents.[279]
 In this instance, no extra-ordinary skills employing advanced legal training
nor sophisticated legal maneuvering were required to be employed in ejecting 23
sub-tenants who have no lease contract with the property owner, and whose only
authority to enter the premises was unlawfully given by a former tenant whose own
tenancy has clearly expired. The 23 sub-tenants operated beer houses and
nightclubs, ordinary retail establishments for which no sophisticated structure
prevented easy entry. After Pe�a succeeded in locking the gate of the compound,
the sub-tenants would open the padlock and resume their businesses at night.
Indeed, it appears that only security guards, chains and padlocks were needed to
keep them out. It was only the alleged connivance of Pasay City policemen that
Pe�a�s ability to retain the possession was rendered insecure. And how much
did it take Pe�a to enter into a settlement agreement with them and make all these
problems go away? By Pe�a�s own account, PhP1,500,000 only. That means
that each tenant received an average of PhP65,217.40 only. Surely, the legal
services of Pe�a cannot be much more than what the sub-tenants were willing to
settle for in the first place. We therefore award him the equivalent amount of
PhP1,500,000 for the legal and other related services he rendered to eject the
illegally staying tenants of Urban Bank�s property.

The Court of Appeals correctly reversed the trial court and found it to have
acted with grave abuse of discretion in granting astounding monetary awards
amounting to a total of PhP28,500,000 without any basis.[280] For the lower court to
have latched on to the self-serving claims of a telephone agreement as sufficient
support for extending a multi-million peso award is highly irregular. Absent any
clear basis for the amount of the lawyer�s compensation, the trial court should
have instinctively resorted to quantum meruit, instead of insisting on a figure with
circumstantial and spurious justification.

We cannot also agree with the Decision penned by Judge Edgardo L. Catilo
characterizing Pena�s 10% fee as believable because it is nearly congruent to the
PhP25 Million retention money held in escrow for ISCI until a clean physical and
legal turn-over of the property is effected:
We now come to the reasonableness of the compensation prayed for by the
plaintiff which is 10% of the current market value which defendants claim to be
preposterous and glaringly excessive. Plaintiff [Pe�a] testified that defendant
Borlongan agreed to such an amount and this has not been denied by Ted
Borlongan. The term �current market value of the property� is hereby
interpreted by the court to mean the current market value of the property at the
time the contract was entered into. To interpret it in accordance with the
submission of the plaintiff that it is the current market value of the property at the
time payment is made would be preposterous. The only evidence on record where
the court can determine the market value of the property at the time the contract
of agency was entered into between plaintiff and defendant is the consideration
stated in the sales agreement between Isabela Sugar Company, Inc. and Urban
bank which is P241,612,000.00. Ten percent of this amount is a reasonable
compensation of the services rendered by the plaintiff considering the �no cure,
no pay� arrangement between the parties and the risks which plaintiff had to
undertake.[281]

In the first place, the Decision of Judge Catilo makes Pe�a�s demand of
an agency fee of PhP24 Million, an additional burden on Urban Bank. The
Decision does not make the retention money responsible for the same, or acquit
Urban Bank of any liability to ISCI if it pays the PhP24 Million directly to Pena
instead of ISCI. In the second place, the amount of money that is retained by
transferees of property transactions while the transferor is undertaking acts to
ensure a clean and peaceful transfer to the transferee does not normally
approximate a one-to-one relationship to the services of ejecting unwanted
occupants. They may be inclusive of other costs, and not only legal costs, with
enough allowances for contingencies, and may take into consideration other
liabilities as well. The amount can even be entirely arbitrary, and may have been
caused by the practice followed by Urban Bank as advised by its officers and
lawyers or by industry practice in cases where an expensive property has some
tenancy problems. In other words, Judge Catilo�s statement is a non sequitur, is
contrary to normal human experience, and sounds like an argument being made to
fit Pe�a�s demand for a shocking pay-out.

��������� In any case, 10% of the purchase price of the Pasay property
� a staggering PhP24,161,200 � is an unconscionable amount, which we find
reason to reduce.� Neither will the Court accede to the settlement offer of Pe�a
to Urban Bank of at least PhP38,000,000 for alleged legal expenses incurred
during the course of the proceedings,[282] an amount that he has not substantiated at
any time.
Lawyering is not a business; it is a profession in which duty to public
service, not money, is the primary consideration.[283] The principle of quantum
meruit applies if lawyers are employed without a price agreed upon for their
services, in which case they would be entitled to receive what they merit for their
services, or as much as they have earned.[284] In fixing a reasonable compensation
for the services rendered by a lawyer on the basis of quantum meruit, one may
consider factors such as the time spent and extent of services rendered; novelty and
difficulty of the questions involved; importance of the subject matter; skill
demanded; probability of losing other employment as a result of acceptance of the
proffered case; customary charges for similar services; amount involved in the
controversy and the resulting benefits for the client; certainty of compensation;
character of employment; and professional standing of the lawyer.[285]

Hence, the Court affirms the appellate court�s award of PhP3,000,000 to

Pe�a, for expenses incurred corresponding to the performance of his services. An
additional award of PhP1,500,000 is granted to him for the services he performed
as a lawyer in securing the rights of Urban Bank as owner of the Pasay property.

II
The corporate officers and directors of Urban Bank are not
solidarily or personally liable with their properties for the
corporate liability of Urban Bank to Atty. Pe�a.
��������� The obligation to pay Pe�a�s compensation, however,
falls solely on Urban Bank. Absent any proof that individual petitioners as bank
officers acted in bad faith or with gross negligence or assented to a patently
unlawful act, they cannot be held solidarily liable together with the corporation for
services performed by the latter�s agent to secure possession of the Pasay
property. Thus, the trial court had indeed committed grave abuse of discretion
when it issued a ruling against the eight individual defendant bank directors and
officers and its Decision should be absolutely reversed and set aside.

A corporation, as a juridical entity, may act only through its directors,

officers and employees.[286] Obligations incurred as a result of the acts of the
directors and officers as corporate agents are not their personal liabilities but those
of the corporation they represent.[287] To hold a director or an officer personally
liable for corporate obligations, two requisites must concur: (1) the complainant
must allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence
or bad faith; and (2) the complainant must clearly and convincingly prove such
unlawful acts, negligence or bad faith.[288] �To hold a director, a trustee or an
officer personally liable for the debts of the corporation and, thus, pierce the veil of
corporate fiction, bad faith or gross negligence by the director, trustee or officer in
directing the corporate affairs must be established clearly and convincingly.�[289]

Pe�a failed to allege and convincingly show that individual defendant bank
directors and officers assented to patently unlawful acts of the bank, or that they
were guilty of gross negligence or bad faith. Contrary to his claim, the
Complaint[290] in the lower court never alleged that individual defendants
acquiesced to an unlawful act or were grossly negligent or acted in bad
faith.[291] Neither is there any specific allegation of gross negligence or action in
bad faith that is attributable to the individual defendants in performance of their
official duties.

In any event, Pe�a did not adduce any proof that the eight individual
defendants performed unlawful acts or were grossly negligent or in bad faith.
Aside from the general allegation that they were corporate officers or members of
the board of directors of Urban Bank, no specific acts were alleged and proved to
warrant a finding of solidary liability. At most, petitioners Borlongan, Bejasa
and Manuel were identified as those who had processed the agency agreement with
Pe�a through their telephone conversations with him and/or written authorization
letter.

Aside from Borlongan, Bejasa and Manuel, Atty. Pe�a in the complaint
pointed to no specific act or circumstance to justify the inclusion of Delfin C.
Gonzalez, Jr., Benjamin L. de Leon, P. Siervo H. Dizon, Eric L. Lee, and Ben T.
Lim, Jr., except for the fact that they were members of the Board of Directors of
Urban Bank at that time. That the five other members of the Board of Directors
were excluded from Pe�a�s complaint highlights the peculiarity of their
inclusion. What is more, the complaint mistakenly included Ben Y. Lim, Jr., who
had not even been a member of the Board of Directors of Urban Bank. In any case,
his father and namesake, Ben T. Lim, Sr., who had been a director of the bank at
that time, had already passed away in 1997.

In ruling for the solidary liability of the other bank directors, the decision of
the trial court hinged solely on the purported admission of Arturo Manuel, Jr., that
the transactions with Atty. Pe�a were approved by the Board of Directors:
 In this case, plaintiff testified as to the personal participation of defendants
Ted Borlongan and Corazon Bejasa in the subject transaction. On the other hand,
with respect to the other defendants, it was the defendants themselves, through
witness Arturo Manuel, Jr., who admitted that all the transactions involved in
this case were approved by the board of directors. Thus, the court has
sufficient basis to hold the directors jointly and severally liable with defendant
Urban Bank, Inc.[292] (Emphasis supplied)

The Decision of the RTC-Bago City must be utterly rejected on this point
because its conclusion of any cause of action, much less actual legal liability on the
part of Urban Bank�s corporate officers and directors are shorn of any factual
finding. That they assented to the transactions of the bank with respect to Atty.
Pe�a�s services without any showing that these corporate actions were patently
unlawful or that the officers were guilty of gross negligence or bad faith is
insufficient to hold them solidarily liable with Urban Bank. It seems absurd that
the trial court will hold the impleaded selected members of the Board of Directors
only, but not the others who also purportedly approved the transactions. Neither is
the reason behind the finding of �solidariness� with Urban Bank in such liability
explained at all. It is void for completely being devoid of facts and the law on
which the finding of liability is based.

The Court of Appeals correctly rejected the claim of personal liability

against the individual petitioners when it held as follows:

The plaintiff-appellee�s complaint before the court a quo does not point
to any particular act of either one or all of the defendants-appellants that will
subject them to personal liability. His complaint merely asserts that defendant
Borlongan and Atty. Bejasa acted for and in behalf of Urban Bank in securing his
services in protecting the bank�s newly acquired property. Hence, We cannot
allow the same.[293]
 Pe�a had argued that individual defendant bank directors and officers
should be held personally and solidarily liable with petitioner-respondent bank,
since they failed to argue for limited corporate liability.[294] The trial court
subscribed to his reasoning and held that the failure to resort to the said defense
constituted a waiver on the part of individual defendants.[295] The Court is not
persuaded.

As the complainant on the trial court level, Pe�a carried the burden of
proving that the eight individual defendants performed specific acts that would
make them personally liable for the obligations of the corporation. This he failed to
do. He cannot capitalize on their alleged failure to offer a defense, when he had not
discharged his responsibility of establishing their personal liabilities in the first
place. This Court cannot sustain the individual liabilities of the bank officers when
Pe�a, at the onset, has not persuasively demonstrated their assent to patently
unlawful acts of the bank, or that they were guilty of gross negligence or bad faith,
regardless of the weaknesses of the defenses raised. This is too basic a requirement
that this Court must demand sufficient proof before we can disregard the separate
legal personality of the corporation from its offices.

Hence, only Urban Bank, not individual defendants, is liable to pay

Pe�a�s compensation for services he rendered in securing possession of the
Pasay property. Its liability in this case is, however, without prejudice to its
possible claim against ISCI for reimbursement under their separate agreements.

III
 Considering the absolute nullification of the trial court�s
Decision, the proceedings arising from the execution
pending appeal based on the said Decision is likewise
completely vacated.

Since the trial court�s main Decision awarding PhP28,500,000 in favor of

Pe�a has been nullified above, the execution pending appeal attendant thereto, as
a result, no longer has any leg to stand on and is thus completely vacated.

To recall, prior to the filing of Urban Bank of its notice of appeal in the main
case,[296] Pe�a moved on 07 June 1999 for execution pending appeal[297] of the
Decision,[298] which had awarded him a total of PhP28,500,000 in compensation
and damages.[299] In supporting his prayer for discretionary execution, Pe�a cited
no other reason than the pending separate civil action for collection filed
against him by a creditor, who was demanding payment of a PhP3,000,000
loan.[300]According to him, he had used the proceeds of the loan for securing the
bank�s Pasay property.[301] In opposition to the motion, Urban Bank countered
that the collection case was not a sufficient reason for allowing execution pending
appeal.[302]

��������� Favorably acting on Pe�a�s motion, the RTC-Bago City,

through Judge Henry J. Trocino,[303] issued a Special Order authorizing execution
pending appeal on the basis of Pe�a�s indebtedness to his creditor-friend.[304] In
accordance with this Special Order, Atty. Josephine Mutia-Hagad, the clerk of
court and ex officiosheriff, expeditiously issued a Writ of Execution on the same
day.[305] The trial court�s Special Order and Writ of Execution were the subjects
of a Rule 65 Petition filed by Urban Bank with the CA.[306]

Both the Special Order and Writ of Execution are nullified for two reasons:
 (1) Since the Decision of the RTC-Bago City is completely
vacated, all its issuances pursuant to the Decision, including the
Special Order and the Writ of Execution are likewise vacated; and
(2) The Special Order authorizing execution pending appeal
based on the collection suit filed against Atty. Pe�a had no basis
under the Rules of Court, and the same infirmity thus afflicts the Writ
of Execution issued pursuant thereto.

Since the Decision of the RTC-Bago City is vacated, all

orders and writs pursuant thereto are likewise vacated.

Considering that the Special Order and Writ of Execution was a result of the
trial court�s earlier award of PhP28,500,000, the nullification or complete
reversal of the said award necessarily translates to the vacation as well of the
processes arising therefrom, including all the proceedings for the execution
pending appeal.

Considering the unconscionable award given by the trial court and the
unjustified imposition of solidary liability against the eight bank officers, the Court
is vacating the Decision of the RTC-Bago City Decision. The trial court
erroneously made solidarily liable Urban Bank�s directors and officers without
even any allegations, much less proof, of any acts of bad faith, negligence or
malice in the performance of their duties. In addition, the trial court mistakenly
anchored its astounding award of damages amounting PhP28,500,000 on the basis
of the mere account of Atty. Pe�a of� a telephone conversation, without even
considering the surrounding circumstances and the sheer disproportion to the legal
services rendered to the bank.
 A void judgment never acquires finality.[307] In contemplation of law, that
void decision is deemed non-existent.[308] Quod nullum est, nullum producit
effectum.[309]Hence, the validity of the execution pending appeal will ultimately
hinge on the court�s findings with respect to the decision in which the execution
is based.

Although discretionary execution can proceed independently while the

appeal on the merits is pending, the outcome of the main case will greatly impact
the execution pending appeal, especially in instances where as in this case, there is
a complete reversal of the trial court�s decision. Thus, if the decision on the
merits is completely nullified, then the concomitant execution pending appeal is
likewise without any effect. In fact, the Rules of Court expressly provide for the
possibility of reversal, complete or partial, of a final judgment which has been
executed on appeal.[310] Precisely, the execution pending appeal does not bar the
continuance of the appeal on the merits, for the Rules of Court explicitly provide
for restitution according to equity and justice in case the executed judgment is
reversed on appeal.[311]

Considering that the Decision of the RTC-Bago City has been completely
vacated and declared null and void, it produces no effect whatsoever. Thus, the
Special Order and its concomitant Writ of Execution pending appeal is likewise
annulled and is also without effect. Consequently, all levies, garnishment and sales
executed pending appeal are declared null and void, with the concomitant duty of
restitution under the Rules of Court, as will be discussed later on.

In any case, the trial court�s grant of execution pending

appeal lacks sufficient basis under the law and
jurisprudence.
 We rule that the pendency of a collection suit by a third party creditor which
credit was obtained by the winning judgment creditor in another case, is not a
sufficiently good reason to allow execution pending appeal as the Rules of Court
provide. Execution pending appeal is an extraordinary remedy allowed only when
there are reasons to believe that the judgment debtor will not be able to satisfy the
judgment debt if the appeals process will still have to be awaited. It requires proof
of circumstances such as insolvency or attempts to escape, abscond or evade a just
debt.

In Florendo v. Paramount Insurance, Corp.,[312] the Court explained that the

execution pending appeal is an exception to the general rule that execution issues
as a matter of right, when a judgment has become final and executory:

As such exception, the court�s discretion in allowing it must be strictly

construed and firmly grounded on the existence of good reasons. �Good
reasons,� it has been held, consist of compelling circumstances that justify
immediate execution lest the judgment becomes illusory. The circumstances
must be superior, outweighing the injury or damages that might result should the
losing party secure a reversal of the judgment. Lesser reasons would make of
execution pending appeal, instead of an instrument of solicitude and justice, a tool
of oppression and inequity. (Emphasis supplied)

Indeed, the presence or the absence of good reasons remains the yardstick in
allowing the remedy of execution pending appeal, which should consist of
exceptional circumstances of such urgency as to outweigh the injury or damage
that the losing party may suffer, should the appealed judgment be reversed
later.[313] Thus, the Court held that even the financial distress of the prevailing
company is not sufficient reason to call for execution pending appeal:

In addressing this issue, the Court must stress that the execution of a
judgment before its finality must be founded upon good reasons. The yardstick
remains the presence or the absence of good reasons consisting of exceptional
 circumstances of such urgency as to outweigh the injury or damage that the losing
party may suffer, should the appealed judgment be reversed later. Good reason
imports a superior circumstance that will outweigh injury or damage to the
adverse party. In the case at bar, petitioner failed to show �paramount and
compelling reasons of urgency and justice.� Petitioner cites as good reason
merely the fact that �it is a small-time building contractor that could ill-afford
the protracted delay in the reimbursement of the advances it made for the
aforesaid increased costs of . . . construction of the [respondent's] buildings.�
Petitioner's allegedly precarious financial condition, however, is not
by itself a jurisprudentially compelling circumstance warranting immediate
execution. The financial distress of a juridical entity is not comparable to a case
involving a natural person � such as a very old and sickly one without any means
of livelihood, an heir seeking an order for support and monthly allowance for
subsistence, or one who dies.
Indeed, the alleged financial distress of a corporation does not outweigh
the long standing general policy of enforcing only final and executory judgments.
Certainly, a juridical entity like petitioner corporation has, other than
extraordinary execution, alternative remedies like loans, advances, internal cash
generation and the like to address its precarious financial condition. (Emphasis
supplied)

���������
In Philippine Bank of Communications v. Court of Appeals,[314] the Court
denied execution pending appeal to a juridical entity which allegedly was in
financial distress and was facing civil and criminal suits with respect to the
collection of a sum of money. It ruled that the financial distress of the prevailing
party in a final judgment which was still pending appeal may not be likened to the
situation of a natural person who is ill, of advanced age or dying as to justify
execution pending appeal:
It is significant to stress that private respondent Falcon is a juridical entity
and not a natural person. Even assuming that it was indeed in financial distress
and on the verge of facing civil or even criminal suits, the immediate
execution of a judgment in its favor pending appeal cannot be justified as
Falcon�s situation may not be likened to a case of a natural person who may
be ill or may be of advanced age. Even the danger of extinction of the
corporation will not per se justify a discretionary execution unless there are
showings of other good reasons, such as for instance, impending insolvency of the
adverse party or the appeal being patently dilatory. But even as to the latter
reason, it was noted in Aquino vs. Santiago (161 SCRA 570 [1988]), that it is not
for the trial judge to determine the merit of a decision he rendered as this is the
 role of the appellate court. Hence, it is not within competence of the trial court, in
resolving a motion for execution pending appeal, to rule that the appeal is patently
dilatory and rely on the same as its basis for finding good reason to grant the
motion. Only an appellate court can appreciate the dilatory intent of an appeal as
an additional good reason in upholding an order for execution pending appeal
which may have been issued by the trial court for other good reasons, or in cases
where the motion for execution pending appeal is filed with the appellate court in
accordance with Section 2, paragraph (a), Rule 39 of the 1997 Rules of Court.

What is worse, only one case was actually filed against Falcon and this is
the complaint for collection filed by Solidbank. The other cases are
�impending�, so it is said. Other than said Solidbank case, Falcon�s
survival as a body corporate cannot be threatened by anticipated litigation.
This notwithstanding, and even assuming that there was a serious threat to
Falcon�s continued corporate existence, we hold that it is not tantamount nor
even similar to an impending death of a natural person. The material existence of
a juridical person is not on the same plane as that of human life. The survival of a
juridical personality is clearly outweighed by the long standing general policy of
enforcing only final and executory judgments. (Emphasis supplied)

In this case, the trial court supported its discretionary grant of execution
based on the alleged collection suit filed against Pe�a by his creditor friend for
PhP3,000,000:

It has been established that the plaintiff secured the loan for the purpose of
using the money to comply with the mandate of defendant bank to hold and
maintain possession of the parcel of land in Pasay City and to prevent intruders
and former tenants from occupying the said property. The purpose of the loan was
very specific and the same was made known to defendant bank through defendant
Teodoro Borlongan. The loan was not secured for some other purpose. Truth to
tell, the plaintiff accomplished his mission in clearing the property of tenants,
intruders and squatters, long before the deadline given him by the defendant bank.
The plaintiff was assured by no less than the President of defendant bank of the
availability of funds for his compensation and reimbursement of his expenses.
Had he been paid by defendant bank soon after he had fulfilled his obligation, he
could have settled his loan obligation with his creditor.
Defendants were benefitted by the services rendered by the plaintiff.
While plaintiff has complied with the undertaking, the defendants, however,
failed to perform their obligation to the plaintiff.
The plaintiff stands to suffer greatly if the collection case against him
is not addressed. Firstly, as shown in Exhibit �C�, plaintiff�s total
obligation with Roberto Ignacio as of May 1999 is PhP24,192,000.00. This
 amount, if left unpaid, will continue to increase due to interest charges being
imposed by the creditor to the prejudice of plaintiff. Secondly, a preliminary
attachment has already been issued and this would restrict the plaintiff from freely
exercising his rights over his property during the pendency of the case.
In their opposition, defendants claim that plaintiff�s indebtedness is a
ruse, however, defendants failed to adduce evidence to support its claim.
The court finds that the pendency of the case for collection of money
against plaintiff is a good reason for immediate execution. [315]

The mere fact that Atty. Pe�a was already subjected to a collection suit for
payment of the loan proceeds he used to perform his services for Urban Bank is not
an acceptable reason to order the execution pending appeal against the bank.
Financial distress arising from a lone collection suit and not due to the advanced
age of the party is not an urgent or compelling reason that would justify the
immediate levy on the properties of Urban Bank pending appeal. That Pe�a
would made liable in the collection suit filed by his creditor-friend would not
reasonably result in rendering illusory the final judgment in the instant action for
agent�s compensation.

Pe�a�s purported difficulty in paying the loan proceeds used to perform

his services does not outweigh the injury or damages that might result should
Urban Bank obtain a reversal of the judgment, as it did in this case. Urban Bank
even asserts that the collection suit filed against Pe�a was a mere ruse to provide
justification for the execution pending appeal, no matter how flimsy.[316] As quoted
above, the trial court noted Atty. Pe�a�s total obligation to his creditor-friend as
of May 1999 was already the incredible amount of PhP24,192,000.00, even when
the Complaint dated 03 April 1999 itself, which spawned the collection suit
included only a prayer for payment of PhP3,500,000 with attorney�s fees of
PhP100,000.[317] It seems absurd that Atty. Pe�a would agree to obtaining a loan
from his own friend, when the Promissory Notes provided for a penalty of 5%
interest per month or 60% per annum for delay in the payment.[318] It sounds more
like a creative justification of the immediate execution of the PhP28.5 Million
judgment notwithstanding the appeal.

In fact, the Court of Appeals noted Atty. Pe�a�s admission of sufficient

properties to answer for any liability arising from the collection suit arising from
his creditor-friend. In initially denying the execution pending appeal, the appellate
court held that:
On the other hand, private respondent�s claim that the only way he could
pay his indebtedness to Roberto Ignacio is through the money that he expects to
receive from petitioners in payment of his services is belied by his testimony at
the hearing conducted by the trial court on the motion for execution pending
appeal wherein petitioners were able to secure an admission from him that he has
some assets which could be attached by Roberto Ignacio and that he would
probably have other assets left even after the attachment.[319]

Hence, to rule that a pending collection suit against Atty. Pe�a, which has
not been shown to result in his insolvency, would be to encourage judgment
creditors to indirectly and indiscriminately instigate collection suits or cite pending
actions, related or not, as a �good reason� to routinely avail of the remedy of
discretionary execution.[320] As an exception to the general rule on execution after
final and executory judgment, the reasons offered by Atty. Pe�a to justify
execution pending appeal must be strictly construed.

Neither will the Court accept the trial court�s unfounded assumption that
Urban Bank�s appeal was merely dilatory, as in fact, the PhP28,500,000 award
given by the trial court was overturned by the appellate court and eventually by
this Court. �

Moreover, at the time the Special Order of Judge Henry Troci�o of the
RTC-Bago City came out in 1999, Urban Bank had assets worth more than PhP11
Billion and had a net worth of more than PhP2 Billion. There was no reason then to
believe that Urban Bank could not satisfy a judgment of PhP28,500,000, a sum that
was only 1% of its net worth, and 1/5 of 1% of its total assets
of PhP11,933,383,630.[321] Urban Bank was even given a Solvency, Liquidity and
Management Rating of 82.89 over 100 by no less than the BSP[322] and reportedly
had liquid assets amounting to PhP2,036,878.[323] In fact, no allegation of
impending insolvency or attempt to abscond was ever raised by Atty. Pe�a and
yet, the trial court granted execution pending appeal.

��������� Since the original order granting execution pending appeal

was completely void for containing no justifiable reason, it follows that any
affirmance of the same by the Court of Appeals is likewise void.

The Decision of the Court of Appeals in the case docketed as CA-G.R. SP

No. 55667, finding a new reason for granting execution pending appeal, i.e., the
receivership of Urban Bank, is likewise erroneous, notwithstanding this Court�s
ruling in Lee v. Trocino.[324] In accordance with the subsequent Resolution of the
Court in abovementioned case of Lee v. Trocino,[325] we directly resolve the issue
of the insufficiency of the reasons that led to the grant of execution pending appeal.

In cases where the two or more defendants are made subsidiarily or

solidarily liable by the final judgment of the trial court, discretionary execution can
be allowed if all the defendants have been found to be insolvent. Considering that
only Urban Bank, and not the other eight individual defendants, was later on
considered by the Court of Appeals to have been �in danger of insolvency,� is
not sufficient reason to allow execution pending appeal, since the liability for the
award to Pe�a was made (albeit, mistakenly) solidarily liable together with the
bank officers.

In Flexo Manufacturing Corp. v. Columbus Food, Inc., and Pacific Meat

Company, Inc.,[326] both Columbus Food, Inc., (Columbus Food) and Pacific Meat
Company, Inc., (Pacific Meat) were found by the trial court therein to be solidarily
liable to Flexo Manufacturing, Inc., (Flexo Manufacturing) for the principal
obligation of PhP2,957,270.00. The lower court also granted execution pending
appeal on the basis of the insolvency of Columbus Food, even if Pacific Meat was
not found to be insolvent. Affirming the reversal ordered by the Court of Appeals,
this Court ruled that since there was another party who was solidarily liable to pay
for the judgment debt, aside from the insolvent Columbus Food, there was no good
reason to allow the execution pending appeal:
Regarding the state of insolvency of Columbus, the case of Philippine
National Bank v. Puno, held:
�While this Court in several cases has held that insolvency
of the judgment debtor or imminent danger thereof is a good
reason for discretionary execution, otherwise to await a final and
executory judgment may not only diminish but may nullify all
chances for recovery on execution from said judgment debtor, We
are constrained to rule otherwise in this particular case. In the
aforecited cases, there was either only one defeated party or
judgment debtor who was, however, insolvent or there were
several such parties but all were insolvent, hence the aforesaid
rationale for discretionary execution was present. In the case at
bar, it is undisputed that, assuming MMIC is insolvent, its co-
defendant PNB is not. It cannot, therefore, be plausibly assumed
that the judgment might become illusory; if MMIC cannot
satisfy the judgment, PNB will answer for it. It will be observed
that, under the dispositive portion of the judgment hereinbefore
quoted, the liability of PNB is either subsidiary or solidary.��
Thus, when there are two or more defendants and one is not insolvent,
the insolvency of a co-defendant is not a good reason to justify execution
pending appeal if their liability under the judgment is either subsidiary or
solidary. In this case, Pacific was adjudged to be solidarily liable with Columbus.
Therefore, the latter is not the only party that may be answerable to Flexo. Its
insolvency does not amount to a good reason to grant execution pending
appeal. (Emphasis supplied)

Similarly, the trial court in this case found Urban Bank and all eight
individual bank officers solidarily liable to Atty. Pe�a for the payment of the
PhP28,500,000 award. Hence, had the judgment been upheld on appeal, Atty.
Pe�a could have demanded payment from any of the nine defendants. Thus, it
was a mistake for the Court of Appeals to have affirmed execution pending appeal
based solely on the receivership of Urban Bank, when there were eight other
individual defendants, who were solidarily liable but were not shown to have been
insolvent. �Since Urban Bank�s co-defendants were not found to have been
insolvent, there was no good reason for the Court of Appeals to immediately order
execution pending appeal, since Atty. Pe�a�s award could have been satisfied by
the eight other defendants, especially when the de Leon Group filed its supersedeas
bond. �
It seems incongruous for Atty. Pe�a to be accorded the benefit of
erroneously impleading several bank directors, who had no direct hand in the
transaction, but at the same time, concentrating solely on Urban Bank�s inability
to pay to justify execution pending appeal, regardless of the financial capacity of
its other co-defendants. Worse, he capitalized on the insolvency and/or
receivership of Urban Bank to levy or garnish properties of the eight other
individual defendants, who were never shown to have been incapable of paying the
judgment debt in the first place. The disposition on the execution pending appeal
may have been different had Atty. Pe�a filed suit against Urban Bank alone minus
the bank officers and the same bank was found solely liable for the award and later
on declared under receivership.
�
In addition, a judgment creditor of a bank, which has been ordered by the
BSP to be subject of receivership, has to fall in line like every other creditor of the
bank and file its claim under the proper procedures for banks that have been taken
over by the PDIC. Under Section 30 of Republic Act No. 7653, otherwise known
as the New Central Bank Act, �which prevailed at that time, once a bank is under
receivership, the receiver shall immediately gather and take charge of all the assets
and liabilities of the bank and administer the same for the benefit of its creditors
and all of the bank�s assets shall be considered as under custodial legis and
exempt from any order of garnishment, levy, attachment or execution.[327] In the
Minute Resolution of the Monetary Board of the BSP, Urban Bank was not only
prevented from doing business in the Philippines but its asset and affairs were
placed under receivership as provided for under the same law.[328] In fact, even
Pe�a himself assured the PDIC, as receiver of Urban Bank, that he would not
schedule or undertake execution sales of the bank�s assets for as long as the bank
remains in receivership.[329] Until the approval of the rehabilitation or the initiation
of the liquidation proceedings, all creditors of the bank under receivership shall
stand on equal footing with respect to demanding satisfaction of their debts, and
cannot be extended preferred status by an execution pending appeal with respect to
the bank�s assets:
� [t]o execute the judgment would unduly deplete the assets of
respondent bank to the obvious prejudice of other creditors. After the Monetary
Board has declared that a bank is insolvent and has ordered it to cease operations,
the Board becomes the trustee of its assets for the equal benefit of all the
depositors and creditors. After its insolvency, one creditor cannot obtain an
advantage or preference over another by an attachment, execution or
otherwise. Until there is an approved rehabilitation or the initiation of the
liquidation proceedings, creditors of the bank stand on equal footing with
respect to demanding satisfaction of their debts, and cannot be afforded
special treatment by an execution pending appeal with respect to the bank�s
assets.[330] (Emphasis supplied)

Moreover, assuming that the CA was correct in finding a reason to justify

the execution pending appeal because of the supervening event of Urban Bank�s
closure, the assumption by the EIB of the liabilities of Urban Bank meant that any
execution pending appeal can be granted only if EIB itself is shown to be unable to
satisfy Pe�a�s judgment award of PhP28,500,000. That is not at all the case. In
just one particular sale on execution herein, EIB offered to answer in cash for a
substantial part of Pe�a�s claims, as evidenced by EIB�s capacity and
willingness to redeem the executed properties (condominium units sold to
intervenor Unimega) by tendering manager�s checks for more than PhP22
Million[331] which is already 77.57% of Pe�a�s total award from the trial
court.[332] The fact that EIB�s offer to take over Urban Bank means it was able to
satisfy the BSP�s concern that all legitimate liabilities of Urban Bank be duly
discharged.

As an exception to the general rule that only final judgments may be

executed,[333] the grant of execution pending appeal must perforce be based on
�good reasons.� These reasons must consist of compelling or superior
circumstances demanding urgency which will outweigh the injury or damages
suffered, should the losing party secure a reversal of the judgment or final
order.[334] The circumstances that would reasonably justify superior urgency,
demanding interim execution of Pe�a�s claims for compensation and/or
damages, have already been settled by the financial capacity of the eight other co-
defendants, the approval of the supersedeas bonds, the subsequent takeover by
EIB, and the successor bank�s stable financial condition,[335] which can answer
for the judgment debt. Thus, Pe�a�s interest as a judgment creditor is already
well-protected.

While there is a general rule that a final and executory judgment in the main
case will render moot and academic a petition questioning the exercise of the trial
court�s discretion in allowing execution pending appeal, we find it necessary to
rule categorically on this question because of the magnitude of the aberrations that
attended the execution pending appeal in the Decision of the RTC-Bago City.

Irregularities in the Levy and Sale on Execution Pending

Appeal

Assuming that the Special Order granting execution pending appeal were
valid, issues have been raised on alleged irregularities that mar the levy and sale on
execution of the properties of Urban Bank and its officers and directors. Many of
the facts have not been sufficiently litigated before the trial and appellate courts for
us to fully rule on the issue, nevertheless, from what is on record, the following are
the observations of this Court:

First, contrary to the general rules on execution, no opportunity was given to

Urban Bank or the other co-defendants to pay the judgment debt in cash or
certified check.[336] Before proceeding on the levying and garnishing personal and
real properties, demand must be made by the sheriff against the judgment debtors,
Urban Bank and the eight other individual bank officers, for the immediate
payment of the award subject of the execution pending appeal. It has not been
shown whether Urban Bank and its officers and directors were afforded such an
opportunity.� Instead of garnishing personal properties of the bank, the sheriff
inexplicably proceeded to levy substantial real properties of the bank and its
officers at the onset.

Second, assuming that Urban Bank and its officers did not possess sufficient
cash or funds to pay for the judgment debt pending appeal, they should have been
given the option to choose which of their properties to be garnished and/or levied.
In this case, Urban Bank exercised its option by presenting to the sheriff various
parcels of land, whose values amount to more than PhP76,882,925 and were
sufficient to satisfy the judgment debt.[337] Among those presented by the bank,
only the property located in Tagaytay was levied upon by the sheriff. [338] No
sufficient reason was raised why the bank�s chosen properties were rejected or
inadequate for purposes of securing the judgment debt pending appeal. Worse, the
Sheriff proceeded with garnishing and levying on as many properties of Urban
Bank and its officers, in disregard of their right to choose under the rules.�

Third, the public auction sales conducted in the execution pending appeal
sold more properties of Urban Bank and the directors than what was sufficient to
satisfy the debt. Indeed, the conservative value of the properties levied herein by
the sheriff amounting to more than PhP181,919,190, consisting of prime
condominium units in the heart of the Makati Business district, a lot in Tagaytay
City, shares in exclusive clubs, and shares of stock, among others, was more than
sufficient to answer for the PhP28,500,000 judgment debt six times over. Rather
than stop when the properties sold had approximated the monetary award, the
execution sale pending appeal continued and unduly benefitted Atty. Pe�a, who,
as judgment creditor and, at times, the winning bidder, purchased most of the
properties sold.

Fourth, it was supremely disconcerting how Urban Bank, through its

successor EIB, was unduly deprived of the opportunity to redeem the properties,
even after presenting manager�s checks[339] equal to the purchase price of the
condominium units sold at the execution sale. No reason was offered by the trial
court[340] or the sheriff[341] for rejecting the redemption price tendered by EIB in
order to recover the properties executed and sold in public auction pending appeal.

Finally, the Court cannot turn a blind eye to the fact that there was already a
sufficient supersedeas bond given to answer for whatever monetary award will be
given in the end. To recall, the De Leon Group had already tendered a supersedeas
bond of PhP40,000,000 in the Court of Appeals to prevent execution pending
appeal over their properties. In fact, even Urban Bank tendered a separate
supersedeas bond of equal amount with this Court, for a total of PhP80,000,000 to
secure any judgment to be awarded to Atty. Pe�a. That execution sales over the
properties of judgment debtors proceeded despite the three-fold value of securities
compared to the amount of the award indicates bad faith, if not malice, with
respect to the conduct of the execution pending appeal.

��������� Inasmuch as the RTC Decision has already been vacated and
an independent finding has been made by this Court of the complete nullity of the
order granting execution pending appeal, it follows that all acts pursuant to such
order and its writ are also void. It does not follow however, that the Court�s
Decision in Co v. Sillador,[342] is nullified, inasmuch as an equally-important legal
doctrine � the immutability of Supreme Court final decisions � is also to be
considered. In any case, the factual circumstances and the ruling on that case were
limited to the actions of Sheriff Allan Sillador with respect to properties levied
under the same Special Order and Writ of Execution, which were subject of third
party claims made by the spouses of Teodoro Borlongan, Corazon Bejasa and
Arturo Manuel, Jr.[343] It does not encompass other specific events and acts
committed in the course of the execution pending appeal that may warrant
administrative or disciplinary actions. Having said that, this Court leaves it to the
parties to explore avenues for redress in such a situation.

The observation on the irregularities above-enumerated are made for the

purpose of correcting the injustice that has been committed herein, by allowing the
Court to pursue the question of who was responsible for such gross violation of the
rules on execution, and for the Court to find measures to improve the safeguards
against abuse of court processes. It is for this reason that the Office of the Court
Administrator will be given a special task by the Court on this matter. Judge Henry
Trocino of RTC-Bago City, who issued the Special Order and had supervisory
authority over the proceedings of the execution pending appeal, would have been
included under such administrative investigation by the Office of the Court
Administrator, were it not for his retirement from the judicial service.

The Court�s Suspension Order of Execution Pending

Appeal

��������� Acting on Atty. Pe�a�s Omnibus Motion dated 09

December 2002[344] and Unimega�s Motion for Reconsideration dated 10
December 2002[345]with respect to the Court�s Order dated 13 November
2002[346] �that clarified the earlier stay order against the execution pending
appeal,[347] the Court hereby denies both motions. The Court is fully correct in
suspending the period for the running of the redemption period of the properties of
Urban Bank and its officers and directors that were levied and subject of execution
sale to satisfy the judgment debt in favor of Atty. Pe�a, the Court having
conclusively determined that the supersedeas bond filed was sufficient and
considering the subsequent finding that the said execution pending appeal lacks
any sufficient ground for the grant thereof.

��������� As to the theory of Atty. Pe�a that the actuations of Justice

Carpio, the then ponente of this case, in drafting the questioned Order� should
positively impact his motion for reconsideration of the same, the Court finds this
argument utterly devoid of merit.

��������� In the first place, that questioned Order was not the decision
of only a single member of the Court, Justice Carpio, but of the entire division to
which he belonged, then composed of retired Chief Justice Hilario Davide, Justices
Jose Vitug, Consuelo Ynares-Santiago and Adolfo Azcuna. This Order was
affirmed by the same Division as its duly-promulgated order. In relation to this, the
affirmation by the Division of this Order demonstrates that there is no truth to Atty.
Pe�a�s claim that Justice Carpio fabricated the Order.

��������� In the second place, Atty. Pe�a�s claim of undue interest

against Justice Carpio specifically with respect to the latter having the instant case
transferred to his new Division, is based on ignorance of the system of assignment
of cases in the Supreme Court.� When a reorganization of the Court takes place in
the form of a change in the composition of Divisions, due to the retirement or loss
of a member, the Justices do not thereby lose their case assignments but bring the
latter with them to their new Divisions.[348] The cases are then transferred to the
Justices� new Divisions, by way of the corresponding request from each justice.
Each justice is in fact, required to make this request, otherwise the rollo of the
cases of which he is Member-in-Charge will be retained by a Division in which he
is no longer a member. Indeed, Atty. Pe�a�s imagination has gotten the better of
him.

��������� Thirdly, his insinuation (which he denies) that Justice Carpio

may have been bribed because the latter has a new Mercedes Benz[349] is highly
offensive and has no place where his points should have been confined to legal
reasons and arguments.

��������� Incidentally, Atty. Pe�a has voiced the fear in the Letter of
Complaint filed in the Court�s Committee on Ethics and Ethical
Standards,[350] which he brought against the ponente of this Decision, that she will
suppress material information regarding the issuance of the Order suspending the
redemption period because of her close relationship to Justice Carpio. Contrary to
this fear, this Decision is frontally disposing of this claim by stating that there is no
basis to believe that the questioned Order was anything than the joint decision of
the five members of the then First Division, and that his arguments in his motion to
reconsider does not persuade this Court to vary in any form the questioned order.
Moreover, our disposition of this case renders moot his motion to reconsider the
order.

It must be emphasized that the prolonged resolution of the procedural issue

in the Petitions in G. R. Nos. 145817 and 145822 on the execution pending appeal
is due in no small part to the delays arising from Pe�a�s peculiar penchant for
filing successive motions for inhibition and re-raffle.[351] The Court cannot sanction
Pe�a�s repeated requests for voluntary inhibition of members of the Court based
on the sole ground of his own self-serving allegations of lack of faith and trust, and
would like to reiterate, at this point, the policy of the Court not to tolerate acts of
litigants who, for just about any conceivable reason, seek to disqualify a judge (or
justice) for their own purpose, under a plea of bias, hostility, prejudice or
prejudgment.[352] The Court cannot allow the unnecessary and successive requests
for inhibition, lest it opens the floodgates to forum-shopping where litigants look
for a judge more friendly and sympathetic to their cause than previous ones.[353]

Restitution of the Bank�s Executed Properties

The Court is still confronted with the supervening acts related to the
execution pending appeal and the reversal of the award of damages, which affect
the rights of the parties as well as of the intervenors to the case, specifically,
intervenor Unimega. In completely resolving the differing claims and performing
its educational function, the Court shall briefly encapsulate and restate the
operational rules governing execution pending appeal when there has been a
reversal of the trial court�s Decision on the award of damages in order to guide
the parties as well as the bench and bar in general. The necessity of making these
detailed instructions is prompted by the most natural question an ordinary person
with a sense of justice will ask after reading the facts: How can an obligation to
pay for the services of a lawyer so that 23 unwanted tenants leave a corporation's
property lead to ��the loss or the impairment of use of more than PhP181
Million worth of properties of that corporation and of its officers and directors?
Obviously, this Court must undertake corrective actions swiftly.

The rule is that, where the executed judgment is reversed totally or partially,
or annulled � on appeal or otherwise � the trial court may, on motion, issue such
orders of restitution or reparation of damages as equity and justice may warrant
under the circumstances.[354] The Rules of Court precisely provides for restitution
according to equity, in case the executed judgment is reversed on appeal. [355] �In
an execution pending appeal, funds are advanced by the losing party to the
prevailing party with the implied obligation of the latter to repay the former, in
case the appellate court cancels or reduces the monetary award.�[356]

In disposing of the main case subject of these Petitions, the Court totally
reversed the staggering amount of damages given by the trial court, and limited on
a quantum meruit basis the agent�s compensation to PhP4,500,000 only.
However, properties of Urban Bank and individual petitioners have been garnished
and levied upon in the amount of supposedly more than PhP85,399,350.[357]

Applying the foregoing rules, petitioner-respondent bank is entitled to

complete and full restitution of its levied properties, subject to the payment of the
PhP4,500,000. Meanwhile, petitioners bank officers, all of whom have not been
found individually or solidarily liable, are entitled to full restitution of all their
properties levied upon and garnished, since they have been exonerated from
corporate liability with respect to the bank�s agency relationship with Pe�a.

Considering the monetary award to Pe�a and the levy on and execution of
some of its properties pending appeal, Urban Bank, now EIB, may satisfy the
judgment in the main case and at the same time fully recover all the properties
executed owing to the complete reversal of the trial court�s awarded damages. It
must immediately and fully pay the judgment debt before the entire lot of levied
properties, subject of the execution pending appeal, is restored to it.[358]

Due to the complete reversal of the trial court�s award for damages, which
was the basis of the Special Order and Writ of Execution allowing execution
pending appeal, intervenor Unimega and other bidders who participated in the
public auction sales are liable to completely restore to petitioner-respondent bank
all of the properties sold and purchased therein. Although execution pending
appeal is sanctioned under the rules and jurisprudence, when the executed decision
is reversed, the premature execution is considered to have lost its legal bases. The
situation necessarily requires equitable restitution to the party prejudiced
thereby.[359] As a matter of principle, courts are authorized at any time to order the
return of property erroneously ordered to be delivered to one party, if the order is
found to have been issued without jurisdiction.[360]

As a purchaser of properties under an execution sale, with an appeal on the

main case still pending, intervenor Unimega knew or was bound to know that its
title to the properties, purchased in the premature public auction sale, was
contingent on the outcome of the appeal and could possibly be reversed. Until the
judgment on the main case on which the execution pending appeal hinges is
rendered final and executory in favor of the prevailing judgment creditor, it is
incumbent on the purchasers in the execution sale to preserve the levied properties.
They shall be personally liable for their failure to do so, especially if the judgment
is reversed, as in this case.[361] In fact, if specific restitution becomes impracticable
� such as when the properties pass on to innocent third parties � the losing party
in the execution even becomes liable for the full value of the property at the time
of its seizure, with interest. The Court has ruled:

When a judgment is executed pending appeal and subsequently overturned

in the appellate court, the party who moved for immediate execution should, upon
return of the case to the lower court, be required to make specific restitution of
such property of the prevailing party as he or any person acting in his behalf may
have acquired at the execution sale. If specific restitution becomes
impracticable, the losing party in the execution becomes liable for the full
value of the property at the time of its seizure, with interest.
While the trial court may have acted judiciously under the premises, its
action resulted in grave injustice to the private respondents. It cannot be gainsaid
that it is incumbent upon the plaintiffs in execution (Arandas) to return whatever
they got by means of the judgment prior to its reversal. And if perchance some
of the properties might have passed on to innocent third parties as happened
in the case at bar, the Arandas are duty bound nonetheless to return the
corresponding value of said properties as mandated by the Rules. (Emphasis
supplied)[362]
 In this case, the rights of intervenor Unimega to the 10 condominium units
bought during the public auction sale under the Special Order are rendered
nugatory by the reversal of the award of unconscionable damages by the trial court.
It cannot claim to be an innocent third-party purchaser of the levied condominium
units, since the execution sale was precisely made pending appeal. It cannot simply
assume that whatever inaction or delay was incurred in the process of the appeal of
the main Decision would
automatically render the remedy dilatory in character.[363] Whatever rights were
acquired by intervenor Unimega from the execution sale under the trial court�s
Special Orders are conditional on the final outcome of the appeal in the main case.
Unlike in auction sales arising from final and executory judgments, both the
judgment creditor and the third parties who participate in auction sales pending
appeal are deemed to knowingly assume and voluntarily accept the risks of a
possible reversal of the decision in the main case by the appellate court.

Therefore, intervenor Unimega is required to restore the condominium units

to Urban Bank. Although the intervenor has caused the annotation of the sale and
levied on the titles to those units, the titles have remained under the name of the
bank, owing to the supersedeas bond it had filed and the Court�s own orders that
timely suspended the transfer of the titles and further execution pending appeal.

The obligation to restore the properties to petitioner-respondent bank is,

however, without prejudice to the concurrent right of intervenor Unimega to the
return of the PhP10,000,000 the latter paid for the condominium units, which
Pe�a received as judgment creditor in satisfaction of the trial court�s earlier
Decision.[364] Consequently, intervenor�s earlier request for the issuance of a writ
of possession[365] over those units no longer has any leg to stand on. Not being
entitled to a writ of possession under the present circumstances, Unimega�s ex
parte petition is consequently denied.
 Upon the reversal of the main Decision, the levied properties itself, subject
of execution pending appeal must be returned to the judgment debtor, if those
properties are still in the possession of the judgment creditor, plus compensation to
the former for the deprivation and the use thereof.[366]� The obligation to return
the property itself is likewise imposed on a third-party purchaser, like intervenor
Unimega, in cases wherein it directly participated in the public auction sale, and
the title to the executed property has not yet been transferred. The third-party
purchaser shall, however, be entitled to reimbursement from the judgment creditor,
with interest.

Considering the foregoing points, the Court adopts with modification the
rules of restitution expounded by retired Justice Florenz D. Regalado in his seminal
work on civil procedure,[367] which the appellate court itself cited earlier.[368] In
cases in which restitution of the prematurely executed property is no longer
possible, compensation shall be made in favor of the judgment debtor in the
following manner:

a. If the purchaser at the public auction is the judgment creditor,

he must pay the full value of the property at the time of its seizure,
with interest.
b. If the purchaser at the public auction is a third party, and title
to the property has already been validly and timely transferred to
the name of that party, the judgment creditor must pay the amount
realized from the sheriff�s sale of that property, with interest.
c. If the judgment award is reduced on appeal, the judgment
creditor must return to the judgment debtor only the excess received
over and above that to which the former is entitled under the final
judgment, with interest.
 In summary, Urban Bank is entitled to complete restoration and return of the
properties levied on execution considering the absolute reversal of the award of
damages, upon the payment of the judgment debt herein amounting to
PhP4,500,000, with interest as indicated in the dispositive portion. With respect to
individual petitioners, they are entitled to the absolute restitution of their executed
properties, except when restitution has become impossible, in which case Pe�a
shall be liable for the full value of the property at the time of its seizure, with
interest. Whether Urban Bank and the bank officers and directors are entitled to
any claim for damages against Pe�a and his indemnity bond is best ventilated
before the trial court, as prescribed under the procedural rules on execution
pending appeal.

WHEREFORE, the Court DENIES Atty. Magdaleno Pe�a�s Petition for

Review dated 23 April 2004 (G. R. No. 162562) and AFFIRMS WITH
MODIFICATION the Court of Appeals� Decision dated 06 November 2003
having correctly found that the Regional Trial Court of Bago City gravely abused
its discretion in awarding unconscionable damages against Urban Bank, Inc., and
its officers. The Decision of the Regional Trial Court of Bago City dated 28 May
1999 is hence VACATED.

Nevertheless, Urban Bank, Inc., is ORDERED to pay Atty. Pe�a the

amount of PhP3,000,000 as reimbursement for his expenses and an additional
PhP1,500,000 as compensation for his services, with interest at 6% per annum
from 28 May 1999, without prejudice to the right of Urban Bank to invoke
payment of this sum under a right of set-off against the amount of PhP25,000,000
that has been placed in escrow for the benefit of Isabela Sugar Company, Inc. The
Complaint against the eight other individual petitioners, namely Teodoro
Borlongan (+), Delfin C. Gonzales, Jr., Benjamin L. de Leon, P. Siervo G. Dizon,
Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr., is
hereby DISMISSED.

The Petitions for Review on Certiorari filed by petitioners Urban Bank (G.
R. No. 145817) and Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee
(G. R. No. 145822) are hereby GRANTED under the following conditions:

a. Urban Bank, Teodoro Borlongan, Delfin C. Gonzalez,

Jr., Benjamin L. de Leon, P. Siervo H. Dizon, Eric L. Lee, Ben Y.
Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr., (respondent bank
officers) shall be restored to full ownership and possession of all
properties executed pending appeal;
b. If the property levied or garnished has been sold on
execution pending appeal and Atty. Magdaleno Pe�a is the winning
bidder or purchaser, he must fully restore the property to Urban Bank
or respondent bank officers, and if actual restitution of the property is
impossible, then he shall pay the full value of the property at the time
of its seizure, with interest;
c. If the property levied or garnished has been sold to a
third party purchaser at the public auction, and title to the property
has not been validly and timely transferred to the name of the
third party, the ownership and possession of the property shall be
returned to Urban Bank or respondent bank officers, subject to the
third party�s right to claim restitution for the purchase price paid at
the execution sale against the judgment creditor;
d. If the purchaser at the public auction is a third party,
and title to the property has already been validly and timely
transferred to the name of that party, Atty. Pe�a must pay Urban
Bank or respondent bank officers the amount realized from the
 sheriff�s sale of that property, with interest from the time the
property was seized.

The Omnibus Motion dated 09 December 2002 filed by Atty. Pe�a and
Motion for Reconsideration dated 10 December 2002 filed by Unimega with
respect to the Court�s Order dated 13 November 2002 is hereby DENIED.

The Office of the Court Administrator is ordered to conduct an investigation

into the possible administrative liabilities of Atty. Josephine Mutia-Hagad, the then
RTC-Bago City�s Clerk of Court, and Allan D. Sillador, the then Deputy Sheriff
of Bago City, for the irregularities attending the execution pending appeal in this
case, including all judicial officers or sheriffs in the various places in which
execution was implemented, and to submit a report thereon within 120 days from
receipt of this Decision.

��������� The Office of the Court Administrator is also directed to

make recommendations for the prevention of abuses of judicial processes in
relation to executions, especially those pending appeal, whether thru administrative
circulars from this Court or thru a revision of the Rules of Court, within 30 days
from submission of the report on administrative liabilities adverted to above. Let a
copy of the Court�s Decision in this case be sent to the Office of the Court
Administrator.

��������� The Presiding Judge of RTC Bago City shall make a full
report on all incidents related to the execution in this case, including all returns on
the writ of execution herein.

Because so much suspicious circumstances have attended the execution in

this case by the Regional Trial Court of Bago City, the proceedings with respect to
any restitution due and owing under the circumstances shall be transferred to the
Regional Trial Court in the National Capital Region, Makati City, a court with
venue to hear cases involving Urban Bank/Export and Industry Bank whose
headquarters is located in Makati City. The Executive Judge of the Regional Trial
Court of Makati City is ordered to include the execution of the Decision and the
proceedings for the restitution of the case in the next available raffle.

The Regional Trial Court of Makati City, to which the case shall be raffled,
is hereby designated as the court that will fully implement the restorative directives
of this Decision with respect to the execution of the final judgment, return of
properties wrongfully executed, or the payment of the value of properties that can
no longer be restored, in accordance with Section 5, Rule 39 of the Rules of Court.
The parties are directed to address the implementation of this part of the Decision
to the sala to which the case will be raffled.

No pronouncement as to costs.

SO ORDERED.

MARIA LOURDES P. A. SERENO

Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice
Acting Chairperson
 MARTIN S. VILLARAMA, JR. JOSE C. MENDOZA
Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

��������� I attest that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the writer of the opinion of
the Court�s Division.

�����������������������������������������������������
������������������������������������� �ARTURO D. BRION
�����������������������������������������������������
������������������������������������������������� Associat
e Justice

����������������������������������
������������� � Acting Chairperson, Second Division

CERTIFICATION
��������� Pursuant to Section 13, Article VIII of the Constitution and
the Division Acting Chairperson�s Attestation, I certify that the conclusions in
the above Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court�s Division.

���������������� �����������������
����������������������������RENATO C.
CORONA
����������������������������������
����������������������� ����� ����Chi
ef Justice

*
����Additional member vice J. �Antonio T. Carpio per Raffle dated 7 June 2010.
**
�� Additional member vice J. Bienvenido L. Reyes per Raffle dated 17 October� 2011.
***
Additional member vice J. Jose P. Perez per S.O. No. 1114. ��
[1]
The actual ceiling amount for the levied, garnished or executed properties pending appeal is uncertain because of
the dearth of records. It seems that the figure could turn out to be very high, considering that the entire Urban Bank
Plaza located in Sen. Gil Puyat Avenue, corner Chino Roces Avenue, Makati City in the name of Urban Bank was
appraised at a value of PhP2,830,559,000 as of 16 April 2002. Since 85 of the 160 or almost half of the
condominium units of Urban Bank Plaza were levied, it is reasonable to assume that more than PhP1.4
Billion worth of bank properties were subject of execution pending appeal. (Appraisal Report as of 16 April 2002 of
the Cuervo Appraisers; rollo [G. R. No. 145817], Vol. 2, at 1396-1423)
[2]
Report of Independent Public Accountants dated 25 February 2000 by the Sycip Gorres & Velayo, Co.
(http://www.urbanbank.info/urbanweb/ubi_financial.htm last visited 07 October 2011)
[3]
Id.
[4]
Urban Bank is a petitioner in G. R. No. 145817; while it is a respondent in G. R. No. 162562.
[5]
Urban Bank was placed under receivership by the Philippine Deposit Insurance Corporation (PDIC), and was
eventually succeeded by Export and Industry Bank (EIB), after the PDIC approved the bank�s rehabilitation plan.
(BSP Minute Resolution No. 37 dated 12 July 2001; rollo [G.R. No. 145817], Vol. 1, at 843-845)
[6]
(1) Teodoro Borlongan, (2) Delfin C. Gonzales, Jr., (3) Benjamin L. de Leon, (4) P. Siervo H. Dizon, (5) Eric L.
Lee, (6) Ben T. Lim, Jr., (7) Corazon Bejasa, and (8) Arturo Manuel, Jr.
[7]
Atty. Pe�a is the respondents in both the Petitions docketed as G. R. Nos. 145817 and 145822, while he is the
petitioner in the Petition docketed as G. R. No. 162562.
[8]
Regional Trial Court (RTC) � Bago City Decision dated 28 May 1999, at 2; rollo (G. R. No. 162562), Vol. 1, at
506.
[9]
The 8,629 square meter parcel of land hosted what was then known as the Pasay International Food and Karaoke
Club Compound, which is along Roxas Boulevard. (Exhibit �F,� RTC records, Vol. 3, at 583)
[10]
The Pasay property was covered by Transfer Certificate of Title (TCT) No. T-5382, under the name of ISCI.
(RTC Decision dated 28 May 1999, at 1; rollo [G. R. No. 145817], Vol. 1, at 78)
[11]
The Pasay property was leased to Mr. Ernesto P. Ochoa from 29 November 1984 to 29 November 1994.
(Contract of Lease dated 29 November 1984; rollo [G.R. No. 162562], Vol. 1, at 278-280)
[12]
ISCI Complaint dated 08 December 1994, par. 5, at 3. (Exhibit �E-2,� RTC records, Vol. 3, at 574)
[13]
�SUBLEASE PROHIBITED. That as distinguished from LESSEE�s [Mr. Ochoa] rent-out operations above-
mentioned, the LESSEE [Mr. Ochoa] shall not assign, cede or convey this lease, nor undertake to sub-lease the
whole or substantially all of the lease premises [Pasay property] to any single third party, without the LESSOR�s
[ISCI�s] consent in writing; �� (Contract of Lease dated 29 November 1984, par. 5 at 2; rollo [G.R. No.
162562], Vol. 1, at 279)
[14]
RTC Decision dated 28 May 1999, at 1; rollo (G. R. No. 162562), Vol. 1, at 505.
[15]
�Being the President, I find it proper to inform you about the non-renewal of the lease between you as lessee
and our company as lessor over the company�s property situated at Pasay City, when the lease expires on
November 29, instant.� (ISCI�s Letter dated 04 February 1994; rollo [G. R. No. 162562], Vol. 1, at 283)
[16]
�We would also like to take this opportunity to inform you and the other establishments that you represent that
the lease contract of Mr. Ochoa on said property [Pasay property] will expire on November 29, 1994. It may even be
terminated earlier because of continued violations of and non-compliance with the terms and conditions of the
contract. Thereafter, we will recover possession of the property and all improvements thereon shall belong to our
company [ISCI].� (ISCI�s Letter dated 31 May 1994; rollo [G. R. No. 162562], Vol. 1, at 285)
[17]
ISCI Complaint dated 08 December 1994, par. 6, at 3. (Exhibit �E-2,� RTC records, Vol. 3, at 574)
[18]
�BOARD RESOLUTION No. 003 Series of 1994. BE IT RESOLVES, AS IT IS HEREBY RESOLVED that
the reception of offers to buy the Pasay property be centralized and the President be empowered and authorized to
receive, review, admit and analyze all offers for the purchase of the Roxas Boulevard property, more specifically
Lot No. 2251 covered by TCT No. T-5382, consisting of an area of 8,629 square meters, more or less.� (ISCI�s
Secretary�s Certificate dated 04 February 1994; rollo [G. R. No. 162562], Vol. 1, at 284)
[19]
Contract to Sell dated 15 November 1994. (Exhibit �16,� RTC records [Vol. 4] at 846-849)
[20]
Id.
[21]
Id.
[22]
RTC Decision dated 28 May 1999, at 2; rollo (G. R. No. 162562), Vol. 1, at 506.
[23]
RTC Decision dated 28 May 1999, at 8; rollo (G. R. No. 162562), Vol. 1, at 512). See also ISCI�s letter dated
31 May 1994; rollo (G. R. No. 162562), Vol. 1, at 285.
[24]
ISCI�s fax letter dated 26 November 1994; Exhibit �3,� RTC records, Vol. 4, at 810.
[25]
Deed of Absolute Sale dated 29 November 1994; Exhibit �6-G� to �6-I,� RTC records, Vol. 4, at 817-819.
[26]
Deed of Absolute Sale dated 29 November 1994; Exhibit �6-G� to �6-I,� RTC records, Vol. 4, at 817-819.
[27]
TCT No. 134451 in the name of petitioner Urban Bank dated 05 December 1994; Exhibit �A,� RTC records,
Vol. 3, at 564-567.
[28]
ISCI Complaint dated 08 December 1994, par. 7, at 3; Exhibit �E-2,� RTC records, Vol.3, at 574.
[29]
RTC Decision dated 28 May 1999, at 1; rollo (G. R. No. 162562), Vol. 1, at 505.
[30]
RTC Decision dated 28 May 1999, at 2; rollo (G. R. No. 162562), Vol. 1, at 506.
[31]
Id.
[32]
Pe�a allegedly paid PhP641,547.41 to the Perm Security and Investigation Agency, Inc., for security services
rendered in guarding the Pasay property from 30 November 1994 to 31 March 1995. (Letter and Certification both
dated 19 November 1997; Exhibits �AA� and �AA-1,� RTC records, Vol. 3, at 755-756).
[33]
�The scenario continued for days when the gates would be closed in the morning and would be forced open in
the evening by the operators of the night spots constructed on the subject property.� (RTC Decision dated 28 May
1999, at 2; rollo[G. R. No. 162562], Vol. 1, at 506)
[34]
ISCI�s Complaint dated 08 December 1994, par. 10, at 4. (Exhibit �E-3,� RTC records, Vol. 3, at 575)
[35]
�Atty. Magdaleno M. Pe�a, who has been assigned by Isabela Sugar Company, Inc., to take charge of
inspecting the tenants would like to request an authority similar to this from the Bank [petitioner Urban Bank], as
new owners. Can you please issue something like this today as he needs this.� (ISCI�s letter dated 07 December
1994; Exhibit �1,� RTC records, Vol. 4, at 808)
[36]
�Dear Mr. Borlongan, I would like to request for an authorization from Urban Bank as per attached
immediately � as the tenants are questioning the authority of the people there who are helping us to take over
possession of the property. (Sgd.) MARILYN G. ONG� (ISCI�s fax letter dated 09 December 1994; Exhibit
�2,� RTC records, Vol. 4, at 809)
[37]
RTC Decision dated 28 May 1999, at 8; rollo (G. R. No. 162562), Vol. 1, at 512.
[38]
�This is to advise you [Pe�a] that we [petitioner Urban Bank] have noted the engagement of your services by
Isabela Sugar Company to recover possession of the Roxas Boulevard property formerly covered by TCT No. 5382,
effective November 29, 1994. It is understood that your services have been contracted by and your principal
remains to be Isabela Sugar Company, which as Seller of the property and under the terms of our Contract to Sell
dated November 29, 1994, has committed to deliver the full and actual possession of the said property to the buyer,
Urban Bank, within the stipulated period.� (Emphasis supplied; petitioner Urban Bank�s letter dated 15
December 1994; Exhibit �4,� RTC records, Vol. 4, at 811)
[39]
RTC Decision dated 28 May 1999, at 8; rollo (G. R. No. 162562), Vol. 1, at 512.
[40]
RTC Decision dated 28 May 1999, at 2; rollo (G. R. No. 162562), Vol. 1, at 506.
[41]
ISCI�s Complaint dated 08 December 1994; Exhibit �E� to �E-6,� RTC records, Vol.3, at 572-578.
[42]
ISCI�s Complaint for injunction was docketed as Civil Case No. 94-1275. (Id.)
[43]
�WHEREFORE, to prevent the main cause of action or principal relief sought by plaintiff (ISCI) from
becoming moot and academic, the parties herein are directed to maintain the status quo more specifically, restraining
defendants (tenants) and all persons acting in their behaves (sic), from harassing and threatening plaintiff�s
personnel and from forcefully and unlawfully interfering with plaintiff�s possession of the property until further
orders from this Court. �� (RTC Order dated 13 December 1994 in Civil Case No. 94-1275; Exhibit �E-7� to
�E-7-c,� RTC records, Vol. 3, at 579-582)
[44]
�The Regional Trial Court of Pasay City issued a Temporary Restraining Order in favor of plaintiff on
December 13, 1994 and was implemented on December 17, 1994.� (RTC Decision dated 28 May 1999, at
3; rollo [G. R. No. 162562], Vol. 1, at 507)
[45]
Title to the Pasay property (TCT No. 134451) was issued on 05 December 1994, which was four days before the
First Injunction Complaint was filed with the RTC Pasay City on 09 December 1994.
[46]
This is according to the Decision of RTC-Bago City. (RTC Decision dated 28 May 1999, at 3; rollo [G R. No.
162562], Vol. 1, at 507) The records of the case in RTC-Pasay city are NOT with the Court, as none of the issues
raised therein are before Us.
[47]
Pe�a�s Petition for Review dated 23 April 2004, at 6; rollo (G. R. No. 162562), Vol. 1, at 13.
[48]
RTC Decision dated 28 May 1999, at 3; rollo (G. R. No. 162562), Vol. 1, at 507.
[49]
RTC Decision dated 28 May 1999, at 3-4; rollo (G. R. No. 162562), Vol. 1, at 507-508.
[50]
RTC Decision dated 28 May 1999, at 4; rollo (G. R. No. 162562), Vol. 1, at 508.
[51]
RTC Decision dated 28 May 1999, at 4-5; rollo (G. R. No. 162562), Vol. 1, at 508-509.
[52]
Petitioner Urban Bank�s Letter dated 19 December 1994; Exhibit �B,� RTC records, Vol.3, at 568.
[53]
ISCI�s Letter dated 19 December 1994 signed by Herman Ponce and Julie Abad; Exhibit �5,� RTC records,
Vol. 4, at 812.
[54]
ISCI�s Urgent Ex-parte Motion/Notice to Dismiss dated 21 December 1994; Exhibit �I� to �I-2,� RTC
records, Vol. 3, at 586-588.
[55]
RTC Decision dated 28 May 1999, at 6; rollo (G. R. No. 162562), Vol. I at 510.
[56]
Petitioner Urban Bank�s Complaint dated 04 January 1995; Exhibit �J� to �J-6,� RTC records, Vol. 3, at
589-595.
[57]
Petitioner Urban Bank�s Complaint was docketed as Civil Case No. 95-029.
[58]
RTC-Makati City�s Order dated 06 January 1995; Exhibit �K,� RTC records, Vol. 3, at 599.
[59]
RTC Decision dated 28 May 1999, at 6; rollo (G. R. No. 162562), Vol. 1, at 510.
[60]
Id.
[61]
Receipt dated 28 April 1995 issued by Atty. Noel B. Malaya from Pe�a for the amount of PhP1,500,000;
Exhibit �BB,� RTC records, Vol. 3 at 757.
[62]
The PhP3,000,000 loan of Mr. Roberto Ignacio to Pe�a is covered by three Promissory Notes dated 30
November 1994, 20 December 1994 and 27 April 1995 for PhP1,000,000 each. The three loans were all due on 30
May 1995 with an express stipulation of five percent (5%) interest for every month of delay. (Rollo [G. R. No.
145817], Vol. 1, at 286-288)
[63]
Mr. Ignacio�s Complaint dated 03 April 1999 (Civil Case No. 99-93952); rollo (G. R. No. 145817), Vol. 1, at
281-285.
[64]
Pe�a�s letter dated 07 February 1995 to petitioner Urban Bank; Exhibit �C,� RTC records, Vol. 3, at 569.
[65]
RTC Decision dated 28 May 1999, at 6-7; rollo (G. R. No. 162562), Vol. 1, at 510-511.
[66]
Pe�a�s letter dated 24 January 1996; Exhibit �D,� RTC records, Vol. 3, at 570.
[67]
Pe�a�s Complaint dated 28 February 1996; RTC records, Vol. 1 at 1-6.
[68]
CA Amended Decision dated 18 August 2000, at 2; rollo (G. R. No. 145817), Vol. 1, at 11.
[69]
At the time the complaint was filed in 1996, the eleven members of the Board of Directors of Urban Bank
included: (1) Teodoro C. Borlongan; (2) Benjamin L. de Leon; (3) Claudio R. de Luzuriaga, Jr.; (4) P. Siervo H.
Dizon; (5) Francisco C. Eizmendi, Jr., (6) Delfin C. Gonzalez, Jr.; (7) Noel A. Laman; (8) Eric L. Lee; (9) Ben T.
Lim Sr.; (10) Jose P. Magno, Jr., (11) Carlos C. Salinas. (Urban Bank List of Members of the Board of Directors for
Year Ending 1995; rollo (G. R. No. 162562), Vol. 1, at 840)
[70]
Comment dated 30 March 2005 of Ben Y. Lim, Jr., and P. Siervo H. Dizon; rollo (G. R. No. 162562), Vol. 1, at
804-817.
[71]
Petitioners� Answer with Compulsory Counterclaim dated 28 October 1996; rollo (G. R. No. 145817), Vol. 1,
at 245-252.
[72]
The Decision of the RTC-Bago City was then rendered by Judge Edgardo L. Catilo.
[73]
RTC Decision dated 28 May 1999, at 24; rollo (G. R. No. 145817 ), Vol. 1, at 101.
[74]
Notice of Appeal dated 15 June 1999; RTC records, Vol. 5, at 1016.
[75]
RTC Order dated 23 June 1999; RTC records, Vol. 5, at 1022.
[76]
The appeal was docketed in the Court of Appeals as CA-G. R. CV No. 65756.
[77]
Brief for Defendant-Appellant Urban Bank, Inc., dated 25 January 2002; CA rollo (CA-G.R. CV No. 65756),
Vol. 1, at 110-175.
[78]
The Singson Valdez & Associates Law Office entered its appearance for petitioner Urban Bank. (Notice of
Appearance dated 07 November 2001; CA rollo [CA-G.R. CV No. 65756], Vol. 1, at 57-59) Although petitioner
Urban Bank�s previous counsel, the Poblador Bautista & Reyes Law Office, withdrew its appearance, it remained
as counsel for the other individual petitioners. (Withdrawal of Appearance dated 07 August 2001; CA rollo [CA-
G.R. CV No. 65756], Vol. 1, at 36-37).
[79]
The De Leon Group was represented by the Abello Concepcion Regala & Cruz Law Office.
[80]
De Leon Group�s Appellants� Brief dated 28 January 2002; CA rollo (CA-G.R. CV No. 65756), Vol. 2, at
177-312.
[81]
The Poblador Bautista & Reyes Law Office initially represented petitioner Borlongan Group, but was replaced
by the Chato Eleazar Lagmay & Arreza Law Office. (Entry of Appearance dated 05 May 2003; CA rollo, [CA-G.R.
CV No. 65756], Vol. 2, at 1201-1203) However, Benjamin Y. Lim and P. Siervo H. Dizon (the Lim Group) retained
the Poblador Bautista & Reyes Law Office. (Withdrawal of Appearance dated 15 January 2003; CA rollo [CA-G.R.
CV No. 65756], Vol. 2, at 1164-1166)
[82]
Petitioner Borlongan Group�s Brief for Appellants dated 18 April 2002; CA rollo (CA-G.R. CV No. 65756),
Vol. 2, at 675-735.
[83]
Pe�a�s Appellee�s Brief dated 07 September 2002; CA rollo (CA-G.R. CV No. 65756), Vol. 2, at 892-972.
[84]
In a separate original petition under Rule 71, Pe�a also asked that Urban Bank and the individual officers and
directors as well as their counsel be cited for indirect contempt for, among others, withholding material information
from the appellate court as well as for misrepresenting the appearance of witnesses in the proceedings below.
(Petition dated 05 September 2002; CA rollo [CA-G.R. SP No. 72698], Vol. 1, at 2-14) This petition for indirect
contempt was later consolidated with the appeal of the main case. (CA Resolution dated 25 November 2002;
CA rollo [CA-G.R. SP No. 72698], Vol. 1, at 295)
[85]
The Court of Appeals� Sixth Division was then composed of CA Justices Delilah Vidallon-Magtolis, Jose L.
Sabio, Jr., (ponente) and Hakim S. Abdulwahid.
[86]
The dates of the trial court�s orders appearing in the dispositive portion were later corrected by the CA and now
reads �the May 28, 1999 Decision and the October 29, 2000 Special Order.� (CA Resolution dated 08 March
2004, at 2; rollo [G. R. No. 162562], Vol. 1, at 80)
[87]
CA Decision (CA GR SP No. 72698 & CV No. 65756) dated 06 November 2003; rollo (G.R. No. 162562), Vol.
1, at 82-111.
[88]
Pe�a�s Motion for Reconsideration dated 04 December 2003; rollo (G. R. No. 162562), Vol. 1, at 533-565.
[89]
CA Resolution (CA GR SP No. 72698 & CV NO. 65756) dated 08 March 2004; rollo (G.R. No. 162562), Vol. 1,
at 79-80.
[90]
Notice of Appeal dated 15 June 1999; RTC records (Vol. V) at 1016.
[91]
Pe�a�s Motion for Execution dated 07 June 1999; rollo (G. R. No. 145817), Vol. 1, at 277-279; see Pe�a�s
Memorandum dated 13 October 1999; rollo (G. R. No. 145822), Vol. 1, at 371-376.
[92]
RTC Decision dated 28 May 1999, at 24; rollo (G. R. No. 145817 ), Vol. 1, at 101.
[93]
PhP 24,000,000 (compensation) + PhP3,000,000� (reimbursement) + PhP1,000,000 (attorney�s fees) +
PhP500,000 (exemplary damages) = PhP28,500,000 (excluding costs of suit)
[94]
The Complaint filed against Pe�a was a civil action for collection of PhP3,500,000 and PhP100,000 attorney�s
fees, which was filed by Mr. Roberto R. Ignacio and was docketed as Civil Case No. 99-93952 with the Regional
Trial Court of Manila. (Complaint dated 03 April 1999; rollo [G. R. No. 145822], Vol. 1, at 213-217)
[95]
�4. Plaintiff has been unable to pay his loan precisely because defendants have not paid him his fees. Since. Mr.
Ignacio has been a long time friend of his, he has been granted several extensions but on 4 June 1999, plaintiff
received a summons issued by the Regional Trial Court of Manila, Branch 16 for a collection case filed [by] said
Mr. Ignacio. �
������� �6. � It is imperative therefore that this Honorable Court�s Decision be executed immediately
so that he could settle the obligation which he would not have contracted had defendants not engaged his services.�
(Pe�a�s Motion for Execution dated 07 June 1999, at 2; rollo [G. R. No. 145817], Vol. 1, at 278)
[96]
Petitioner Urban Bank�s Opposition (to Motion for Execution) dated 15 June 1999; rollo (G. R. No. 145817),
Vol. 1, at 289-300; see Petitioner Urban Bank�s Memorandum dated 12 October 1999; rollo (G. R. No. 145822),
Vol. 1, at 309-331.
[97]
Petitioner Urban Bank had earlier moved for the voluntary inhibition of Judge Catilo. (Petitioner Urban Bank�s
Motion for Voluntary Inhibition by the Presiding Judge dated 15 June 1999; rollo [G.R. No. 145817], Vol. 1, at 301-
306)
[98]
RTC Special Order dated 29 October 1999; rollo (G.R. No. 145817), Vol. 1, at 880-889.
[99]
Writ of Execution dated 28 May 1999; rollo (G. R. No. 145822), Vol. 1, at 152-154.
[100]
The trial court�s Special Order and Writ of Execution were the subjects of a Rule 65 Petition filed by Urban
Bank with the CA, and later docketed as CA-G. R. SP No. 55667. (Urban Bank�s Petition for Certiorari and
Prohibition dated 29 November 1999; rollo [G. R. No. 145817], Vol. 1, at 307-345)
[101]
Petitioner Urban Bank was represented in this Rule 65 Petition by the Poblador Bautista & Reyes Law Offices.
[102]
Respondent Pena�s Petition for Certiorari and Prohibition with Application for Temporary Restraining Order
and Writ of Preliminary Injunction dated 04 November 1999; rollo (G. R. No. 145817), Vol. 1, at 307-338.
[103]
CA Resolution dated 09 November 1999.
[104]
CA Twelfth Division composed of Justices Godardo A. Jacinto, Marina V. Buzon (ponente) and Edgardo P.
Cruz.
[105]
CA Decision dated 12 January 2000; rollo (G. R. No. 145817), Vol. 1, at 346-358.
[106]
Pe�a�s Motion for Reconsideration dated 02 February 2000; rollo (G. R. No. 145817), Vol. 1, at 359-380.
[107]
Petitioners� Comment/Opposition dated 14 April 2000; rollo (G. R. No. 145817), Vol. 1, at 381-401.
[108]
The Bangko Sentral ng Pilipinas (BSP) issued Monetary Board Resolution No. 22 placing petitioner Urban
Bank under receivership of the Philippine Deposit Insurance Corporation (PDIC), considering that the bank was
suffering from illiquidity and its capital was deficient. (Minutes of Board Resolution No. 22 dated 26 April
2000; rollo [G. R. No. 145817], Vol. 1, at 232)
[109]
CA Former Special Twelfth Division, Justices Godardo A. Jacinto, Roberto A. Barrios and Edgardo P. Cruz
(ponente).
[110]
This CA Amended Decision is the subject of petitioner Urban Bank�s Rule 45 Petition in G. R. No. 145817.
(Rollo [G. R. No. 145817], Vol. 1, at 10-21).
[111]
�In the instant case, although petitioner Bank�s imminent insolvency may not have been considered by
the� court a quo in allowing immediate execution, such ground, which has in the meantime arisen, may be relied
upon by this Court in deciding the propriety of the execution pending appeal.� (CA Amended Decision dated 18
August 2000, at 8; rollo (G. R. No. 145817), Vol. 1, at 17)
[112]
Petitioners� Motion for Reconsideration dated 29 August 2000; rollo (G. R. No. 145817), Vol. 1, at 402-419.
[113]
Petitioner De Leon Group�s Supplemental Motion for Reconsideration dated 21 September 2000 (rollo [G. R.
No. 145822], Vol. 1, at 791-815) and Second Supplemental Motion for Reconsideration dated� 11 October 2000
(rollo [G. R. No. 145822], Vol. 1, at 851-867); see also CA Resolution dated 19 October 2000, at 1 (rollo [G. R. No.
145817], Vol. 1, at 23).
[114]
Benjamin de Leon, Delfin C. Gonzales and Eric L Lee filed three separate Supplemental Motions for
Reconsideration on 22 September 2000, 11 October 2000 and 16 October 2000. (CA Resolution dated 19 October
2000, at 1; rollo [G. R. No. 145817], Vol. 1, at 23)
[115]
Petitioner Lim�s Supplemental Motion for Reconsideration and Application for Temporary Restraining Order
and Writ of Preliminary Injunction dated 13October 2000; rollo (G. R. No. 162562), Vol. 1, at 818-824.
[116]
CA Resolution dated 19 October 2000 (CA-G.R. SP No. 55667); rollo (G.R. No. 145817), Vol. 1, at 23-26.
[117]
�Respondent Magdaleno M. Pe�a is directed to post, within five (5) days from notice, an indemnity bond in
the amount of P15,000,000.00 to answer for the damages which petitioners may suffer in case of reversal on appeal
of the trial court�s decision.� (CA Resolution dated 19 October 2000, at 4; rollo [G.R. No. 145817], Vol. 1, at
26).
[118]
Petitioner De Leon Group�s Ex Abundanti Cautela Urgent Motion to Stay Execution Pending Appeal Upon
Filing of Supersedeas Bond dated 19 October 2000; rollo (G. R. No. 145822), Vol. 1, at 869-879.
[119]
The Special Former Special Twelfth Division was composed of Justices Bienvenido L. Reyes, Roberto A.
Barrios, and Perlita J. Tria Tirona (ponente).
[120]
CA Resolution dated 31 October 2000 (CA-G.R. SP No. 55667); rollo (G.R. No. 145817), Vol. 1, at 668-669.
[121]
Pe�a�s Urgent Motion for Reconsideration dated 06 November 2000 and Supplemental Motion dated 13
November 2000; rollo (G. R. No. 145822), Vol. 1, at 995-1008.
[122]
CA Resolution dated 08 December 2000 (CA-G.R. SP No. 55667); rollo (G.R. No. 145817), Vol. 1, at 670-674.
[123]
Petitioner De Leon Group�s Compliance with Motion to Approve Supersedeas Bond dated 08 November
2000; rollo (G. R. No. 145822), Vol. 1, at 990-994.
[124]
CA Resolution dated 08 December 2000 (CA-G.R. SP No. 55667); rollo (G.R. No. 145817), Vol. 1, at 670-674.
[125]
Pe�a�s Compliance dated 08 December 2000; rollo (G. R. No. 145822), Vol. 1, at 1058-1060); see Pe�a�s
Comment dated 30 April 2001, at 12; rollo (G. R. No. 145817), Vol. 1, at 521.
[126]
BSP Minute Resolution No. 37 dated 12 July 2001; rollo (G.R. No. 145817), Vol. 1, at 843-845.
[127]
Petitioner Urban Bank�s Urgent Motion to Approve Supersedeas Bond and to Stay Execution Pending Appeal
dated 22 October 2001; rollo (G.R. No. 145817), Vol. 1, at 660-667.
[128]
Surety Bond (MICO Bond No. 200104456) dated 13 September 2001; rollo (G.R. No. 145817), Vol. 1, at 740-
741.
[129]
Petitioner Urban Bank�s Compliance with Motion to Approve Supersedeas Bond dated 14 September 2001 in
CA-G.R. SP No. 55667; rollo (G.R. No. 145817), Vol. 1, at 675-709.
[130]
Notice of Sale on Execution of Personal Property dated 27 September 2001; rollo (G.R. No. 145817), Vol. 1, at
714.
[131]
Petitioner Urban Bank�s Urgent Manifestation and Motion dated 02 October 2001; rollo (G.R. No. 145817),
Vol. 1, at 710-712.
[132]
CA Resolution dated 05 October 2001 in CA-G.R. SP No. 55667; rollo (G.R. No. 145817), Vol. 1, at 715-716.
[133]
Notice of Sale on Execution of Personal Property dated 27 September 2001; rollo (G.R. No. 145817), Vol. 1, at
714.
[134]
Quotes from GG&A Club Shares and Metroland Holdings, Corp., dated 06 December 1999; rollo (G. R. No.
145822), Vol. 1, at 708. (At present, one share in Tagaytay Highlands International Golf Club is selling at
PhP560,000 [http://www.ggaclubshares.com/ last visited 17 October 2011].)
[135]
Notice of Sale on Execution of Personal Property dated 03 October 2001; rollo (G.R. No. 145817), Vol. 1, at
717; RTC Orders all dated 15 October 2001; rollo (G. R. No. 145822), Vol. 2, at 2923-2928.
[136]
Quotes from GG&A Club Shares and Metroland Holdings, Corp., dated 06 December 1999; rollo (G. R. No.
145822), Vol. 1, at 708. (At present, Makati Sports Club Shares �A� and �B� are now selling at P200,000 and
P230,000 respectively [http://www.ggaclubshares.com/ last visited 17 October 2011])
[137]
Two MSCI �A� Club Shares at PhP650,000 each and one MSCI �B� Club Share at PhP700,000.
[138]
Notice of Sale on Execution of Real Property dated 03 October 2001, covering Condominium Certificates of
Title (CCT) Nos. 56034-39, 56052-69, 56088-56147,� and 56154; rollo (G.R. No. 145817), Vol. 1, at 718-
739. See Certifications dated 26 October 2001 and 31 October 2001 attesting to the sale of the CCTs covering units
in Makati City registered under the name of Urban Bank; rollo (G. R. No. 145817), Vol. 1, at 769-770.
[139]
Most of the condominium units were sold anywhere for as low as PhP100,000 to PhP1,000,000. The whole lot
of 85 condominiums units in Urban Bank Plaza were sold for a total of PhP27,400,000 only. (c/f Properties levied
and attached; rollo [G. R. No. 145817], Vol. 1, at 976-980)
[140]
Ten Certificates of Sale all dated 25 October 2001; rollo (G.R. No. 145817), Vol. 1, at 1005-1035.
[141]
Notice of Levy on Execution dated 05 November 1999 and Condominium Certificate of Title No. 57697 under
the name of Urban Bank; RTC records, Vol. 5, at 1315-1318.
[142]
Urban Bank Properties, Annex of Urban Bank�s Letter dated� 09 November 1999; RTC records, Vol. 5, at
1310.
[143]
Notice of Levy on Execution dated 05 November 1999 and Condominium Certificate of Title No. 57698 under
the name of Urban Bank; RTC records, Vol. 5, at 1319-1322.
[144]
Notice of Levy on Execution dated 05 November 1999; RTC records, Vol. 5, at 1332-1333.
[145]
Urban Bank Properties, Annex of Urban Bank�s Letter dated 09 November 1999; RTC records, Vol. 5, at
1310.
[146]
Letter dated 08 November 1999 of Manila Polo Club; RTC records, Vol. 5, at 1312; RTC Order dated 19
December 2000; rollo (G. R. No. 145822), Vol. 2, at 2550-2552.
[147]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, one club share in Manila Polo Club sells at PhP7
Million. [http://www.ggaclubshares.com last visited 17 October 2011])
[148]
Rollo (G. R. No. 145817), Vol. 1, at 422.
[149]
RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2542-2543; RTC Amended Order dated
13 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2546-2549; see also Lee v. Trocino, G. R. No. 164648, 06
August 2008, 561 SCRA 178.
[150]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, one club share in Subic Bay Yacht Club sells at
PhP150,000. [http://www.ggaclubshares.com last visited 17 October 2011])
[151]
RTC Order dated 27 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2540-41.
[152]
Quotes from GG&A Club Shares and Metroland Holdings, Corp., dated 06 December 1999; rollo (G. R. No.
145822), Vol. 1, at 708. (At present, one share in Baguio Country Club is selling at PhP650,000
[http://www.ggaclubshares.com/ last visited 17 October 2011].)
[153]
RTC Order dated 27 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2540-41;
[154]
Quotes from GG&A Club Shares and Metroland Holdings, Corp., dated 06 December 1999; rollo (G. R. No.
145822), Vol. 1, at 708. (At present, Makati Sports Club Shares �A� and �B� are now selling at P200,000 and
P230,000 respectively [http://www.ggaclubshares.com/ last visited 17 October 2011])
[155]
Co v. Sillador, A. M. No. P-07-2342, 31 August 2007, 531 SCRA 657.
[156]
Letter dated 08 November 1999 of Manila Polo Club; RTC records, Vol. 5, at 1312; RTC Order dated 19
December 2000; rollo (G. R. No. 145822), Vol. 2, at 2550-2552; RTC Order dated 09 March 2001; rollo (G. R. No.
145822), Vol. 2, at 2558-2561.
[157]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, one club share in Manila Polo Club sells at PhP7
Million. [http://www.ggaclubshares.com last visited 17 October 2011])
[158]
Rollo (G. R. No. 1458177), Vol. 1, at 420.
[159]
Notice of Sale on Execution of Personal Property dated 22 September 2000; rollo (G. R. No. 145822). Vol. 2, at
2520; RTC Order dated 12 October 2000; rollo (G. R. No. 145822), Vol. 2, at 2526-2527; RTC Order dated 24
January 2001; rollo(G. R. No. 145822), Vol. 2, at 2554-2557; see also Urban Bank�s Manifestation and Motion
dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
[160]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, one share in Baguio Country Club is selling at
PhP650,000 [http://www.ggaclubshares.com/ last visited 17 October 2011].)
[161]
Notice of Sale on Execution of Personal Property dated 09 October 2000; rollo (G. R. No. 145822). Vol. 2, at
2523; RTC Order dated 18 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2528-2529; see also Urban Bank�s
Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
[162]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, Alabang Country Club Shares �A� and �B� are
selling at PhP1.95 M and PhP2.95M, respectively [http://www.ggaclubshares.com/ last visited 17 October 2011].)
[163]
Notice of Garnishment dated 29 October 1999; rollo (G. R. No. 145822), Vol. 2, at 2571-2572; Notice of Sale
on Execution of Personal Property dated 20 October 2000; rollo (G. R. No. 145822), Vol. 2, at 2539; RTC Order
dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2542-2543; RTC Amended Order dated 13 December
2000; rollo (G. R. No. 145822), Vol. 2, at 2546-2549; see also Lee v. Trocino, id.
[164]
RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2542-2543.
[165]
Notice of Sale on Execution of Personal Property dated 20 October 2000; rollo (G. R. No. 145822). Vol. 2, at
2539; RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2544-2545; RTC Amended Order
dated 13 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2546-2549; see also Lee v. Trocino, id.
[166]
RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2544-2545.
[167]
Letter dated 08 November 1999 of Manila Polo Club; RTC records, Vol. 5, at 1312; RTC Order dated 19
December 2000; rollo (G. R. No. 145822), Vol. 2, at 2550-2552; RTC Order dated 09 March 2001; rollo (G. R. No.
145822), Vol. 2, at 2558-2561.
[168]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, one club share in Manila Polo Club sells at PhP7
Million. [http://www.ggaclubshares.com last visited 17 October 2011])
[169]
Rollo (G. R. No. 145817), Vol. 1, at 425.
[170]
Notice of Sale on Execution of Personal Property dated 22 September 2000; rollo (G. R. No. 145822), Vol. 2, at
2522; RTC Order dated 27 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2540-41; see also Petitioner Urban
Bank�s Manifestation and Motion dated 20 September 2005, at 3; rollo (G. R. No. 145817), Vol. 2, at 1721.
[171]
Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3; rollo (G. R. No. 145817), Vol. 2, at
1721. (At present, a Makati Sports Club Share �A� is now selling at P200,000 [http://www.ggaclubshares.com/
last visited 17 October 2011])
[172]
Notice of Sale on Execution of Personal Property dated 22 September 2000; rollo (G. R. No. 145822). Vol. 2, at
2521; RTC Order dated 27 October 2000; rollo (G. R. No. 145822), Vol. 2, at 2540-2541.
[173]
Quotes from GG&A Club Shares and Metroland Holdings, Corp., dated 06 December 1999; rollo (G. R. No.
145822), Vol. 1, at 708. (At present, one share in Baguio Country Club is selling at PhP650,000
[http://www.ggaclubshares.com/ last visited 17 October 2011].)
[174]
Letter dated 08 November 1999 of Manila Polo Club; RTC records, Vol. 5, at 1312; RTC Order dated 19
December 2000; rollo (G. R. No. 145822), Vol. 2, at 2550-2552; RTC Order dated 09 March 2001; rollo (G. R. No.
145822), Vol. 2, at 2558-2561.
[175]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, one club share in Manila Polo Club sells at PhP7
Million. [http://www.ggaclubshares.com last visited 17 October 2011])
[176]
Rollo (G. R. No. 1458177), Vol. 1, at 421.
[177]
Notice of Sale on Execution of Personal Property dated 22 September 2000; rollo (G. R. No. 145822). Vol. 2, at
2519; RTC Order dated 04 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2525; RTC Order dated 20 December
2000; rollo (G. R. No. 145822), Vol. 2, at 2553; see also Urban Bank�s Manifestation and Motion dated 20
September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
[178]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, one club share in Manila Golf Club sells at PhP26.5
Million. [http://www.ggaclubshares.com last visited 17 October 2011])
[179]
Notice of Sale on Execution of Personal Property dated 09 October 2000; rollo (G. R. No. 145822). Vol. 2, at
2524; RTC Order dated 18 October 2000; rollo (G. R. No. 145822), Vol. 2, at 2530-2531; see also Urban Bank�s
Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
[180]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, one club share in Sta. Elena Club (both �A� and
�B�) sells at PhP2.3 Million. [http://www.ggaclubshares.com last visited 17 October 2011])
[181]
RTC Order dated 19 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2550-2552; Urban Bank�s
Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817), Vol. 2, at 1722.
[182]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, one club share in Tagaytay Highlands Int�l Gold
Club sells at PhP560,000. [http://www.ggaclubshares.com last visited 17 October 2011])
[183]
Rollo (G. R. No. 1458177), Vol. 1, at 423-424.
[184]
Notice of Sale on Execution of Personal Property dated 20 October 2000; rollo (G. R. No. 145822). Vol. 2, at
2538; see also Urban Bank�s Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817),
Vol. 2, at 1722.
[185]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 3-4; rollo (G. R. No. 145817),
Vol. 2, at 1721-1722. See also Petitioner De Leon Group�s Memorandum dated 20 January 2004, at 15-
16; rollo (G. R. No. 145822), Vol. 1, at 1235-1236. (At present, one club share in Subic Yacht Club sells at
PhP150,000. [http://www.ggaclubshares.com last visited 17 October 2011])
[186]
RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2542-2543; RTC Amended Order dated
13 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2546-2549; see also Lee v. Trocino, id.
[187]
RTC Order dated 31 October 2000, rollo (G. R. No. 145822), Vol. 2, at 2544-2545; RTC Amended Order dated
13 December 2000; rollo (G. R. No. 145822), Vol. 2, at 2546-2549; see also Lee v. Trocino, id.
[188]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005, at 4; rollo (G. R. No. 145817),
Vol. 2, at 1722.
[189]
Co v. Sillador, Id.
[190]
Id.
[191]
Based on the Appraisal Report as of 16 April 2002 conducted by Cuervo Appraisers, Inc., submitted by Urban
Bank in their Opposition (To Motion for Reconsideration with Intervention) dated 29 April 2003, the ten
condominium units alone purchased by Unimega for PhP10 Million (Units 21-2, 21-3, 21-5, 21-6, and 22-1 to 22-6)
was already worth PhP146,851,900. Meanwhile, the fair market value of the entire lot of 85 condominium units sold
on execution pending appeal could reach as even as much as PhP1.4 Billion. (Appraisal Report; rollo [G. R. No.
145817], Vol. 2, at 1396-1423)
[192]
Malaysian Insurance Surety Bond (MICO Bond No. 200104456) dated 13 September 2001; rollo (G. R. No.
145817), Vol. 1, at 740-741
[193]
Petitioner Urban Bank�s Urgent Motion to Approve Supersedeas Bond and to Stay Execution Pending Appeal
dated 22 October 2001; rollo (G. R. No. 145817). Vol. 1, at 660-667.
[194]
Pe�a�s Opposition dated 31 October 2001; rollo (G. R. No. 145817), Vol. 1, at 752-768.
[195]
EIB letter dated 23 October 2002; rollo (G.R. No. 145817), Vol. 2, at 1277.
[196]
The following manager�s checks were attached to the Manifestation: (a) Manager�s Check No. 80571
(PhP224,000); (b) Manager Check No. 80572 (PhP13,440,000); and (c) Manager�s Check No. 80573 (PhP
8,440,800). (Rollo [G. R. No. 145817], Vol. 2, at 1281)
[197]
Petitioner Urban Bank�s Manifestation with Tender of Payment of the Redemption Price dated 24 October
2002; rollo (G.R. No. 145817), Vol. 2, at 1278-1281.
[198]
RTC-Bago City�s Order dated 28 October 2002; rollo (G. R. No. 145817), Vol. 2, at 1286.
[199]
� Petitioner Urban Bank�s Motion with Manifestation dated 29 October 2002; rollo (G. R. No. 145817), Vol.
2, at 1287-1291.
[200]
Sheriff Sillador�s Affidavits of Non-Redemption both dated 04 November 2002; rollo (G.R. No. No. 145817),
Vol. 1, at 1072-1074.
[201]
Sheriff�s Certificates of Final Sale both dated 04 November 2002; rollo (G.R. No. 145817), Vol. 1, at 1065-
1071.
[202]
RTC-Bago City�s Order dated 13 November 2002; rollo (G.R. No. 145817), Vol. 1, at 1086-1089.
[203]
SC Resolution dated 19 November 2001; rollo (G. R. No. 145817), Vol. 1, at 794-795.
[204]
Pe�a�s Motion for Reconsideration (of the Resolution Approving the Supersedeas Bond) dated 07 December
2001; rollo (G.R. No. 145817), Vol. 1, at 846-862.
[205]
SC Resolution dated 24 September 2003; rollo (G.R. No. 145817), Vol. 1, at 1151-1152.
[206]
Petitioner Urban Bank�s counsel, the Poblador Bautista & Reyes Law Office, was substituted by the Office of
the Chief Legal Counsel of PDIC, which had become the bank�s receiver at that time. (Substitution of Counsel
dated 24 November 2000; rollo [G. R. No. 145817], Vol. 1, at 27-30)
[207]
PDIC, as receiver of petitioner Urban Bank, was represented by the Ongkiko Kalaw Manhit & Acorda Law
Offices. (Entry of Appearance dated 21 December 2000; rollo [G. R. No. 145817], Vol. 1, at 183-185)
[208]
Petitioner Urban Bank�s Petition for Review on Certiorari dated 21 December 2000; rollo (G. R. No. 145817),
Vol. 1, at 186-213.
[209]
Pe�a�s Comment with Motion to Cite for Contempt and Urgent Motion to Dismiss dated 12 January
2001; rollo (G. R. No. 145817), Vol. 1, at 32-77.
[210]
Pe�a�s Comment dated 30 April 2001; rollo (G. R. No. 145817), at� 510-555.
[211]
Petitioner Borlongan Group, comprised of individual bank directors and officers Teodoro Borlongan, Corazon
M. Bejasa, Arturo Manuel, Jr., Ben Y. Lim, Jr., and P. Siervo H. Dizon, was then represented by the Poblador
Bautista & Reyes Law Offices.
[212]
Petitioner Borlongan Group�s Petition for Review on Certiorari dated 21 November 2000; rollo (G. R. No.
145822), Vol. 1, at 887-950.
[213]
�Considering the allegations, issues and arguments adduced in the petition for review on Certiorari of the
amended decision and resolution of the Court of Appeals dated August 18, 2000 and October 19, 2000, respectively,
as well as respondent�s comments thereon, the Court further Resolves to DENY the petition for failure of the
petitioners to sufficiently show that the Court of Appeals committed any reversible error in the challenged amended
decision and resolution as to warrant the exercise by this Court of its discretionary appellate jurisdiction in this
case.� (SC Resolution dated 29 January 2001 in G. R. No. 145818; rollo (G. R. No. 145822), Vol. 1, at 955-956)
[214]
SC Resolution dated 25 June 2001 in G.R. No. 145818; rollo (G.R. No. 145817), Vol. 1, at 620-621.
[215]
SC Entry of Judgment dated 11 May 2001 in G.R. No. 145818; rollo (G.R. No. 145817), Vol. 1, at 657-658.
[216]
Petitioner De Leon Group�s Petition for Review on Certiorari dated 06 December 2000; rollo (G. R. No.
145822), Vol. 1, at 14-75.
[217]
SC Resolution dated 13 December 2000; rollo (G. R. No. 145822), Vol. 1, at 955-956.
[218]
SC Resolution dated 12 November 2001; rollo (G. R. No. 145817), Vol. 1, at 796.
[219]
SC Resolution dated 24 September 2003; rollo (G. R. No. 145817), Vol. 1, at 1151-1152.
[220]
Id.
[221]
Petitioner Urban Bank�s Memorandum dated 28 January 2004; rollo (G. R. No. 145822), Vol. 1, at 1267-1288.
[222]
Petitioner De Leon Group�s Memorandum dated 20 January 2004; rollo (G. R. No. 145822), Vol. 1, at 1221-
1266.
[223]
EIB letter dated 10 December 2001; rollo (G.R. No. 145817), Vol. 1, at 896-897; see also EIB letter dated 24
October 2001 (rollo [G.R. No. 145817], Vol. 1, at 956) and EIB letter dated 06 June 2002 (rollo [G.R. No. 145817],
Vol. 1, at 939)
[224]
Petitioner Urban Bank�s three shares in the Makati Sports Club were previously sold in a public auction last 11
October 2001, conducted by the sheriff of RTC-Bago City. (RTC Orders all dated 15 October 2001; rollo [G.R. No.
145817], Vol. 1, at 890-895)
[225]
MSCI�s letter dated 26 November 2001; Annex �C� of MSCI�s Motion for Clarification; rollo (G.R. No.
145817), Vol. 1, at 875-899.
[226]
Atty. Ere�eta�s letter dated 16 January 2002 (rollo [G.R. No. 145817], Vol. 1, at 898-899); Atty. Ere�eta�s
letter dated 30 May 2002 (rollo [G.R. No. 145817], Vol. 1, at 898-938). See also Atty. Ere�eta�s Motion to Cite
in Contempt of Court dated 22 July 2002 in Civil Case No. 754 (rollo [G.R. No. 145817], Vol. 1, at 944-948).
[227]
Makati Sports Club�s Motion for Clarification dated 04 February 2002; rollo (G.R. No. 145817), Vol. 1, at
875-879.
[228]
Petitioner Urban Bank�s Motion for Clarification dated 6 August 2002; rollo (G.R. No. 145817),Vol. 1, at 972-
975. See also petitioner Urban Bank�s Urgent Motion to Resolve dated 21 October 2002; rollo (G.R. No. 145817),
Vol. 1, at 982-987.
[229]
SC Resolution dated 13 November 2002; rollo (G.R. No. 145817), Vol. 1, at 988-990.
[230]
Pe�a�s Urgent Omnibus Motion dated 09 December 2002 (rollo [G. R. No. 145817], Vol. 1, at 1090-
1102); see also Pe�a�s Supplement to the Urgent Omnibus Motion dated 19 December 2002 (rollo [G. R. No.
145817], Vol. 1, at 1106-1110)
[231]
Urban Bank attributed the mistake allegedly due to the fact that in one of the Court�s Resolution (SC
Resolution dated 13 February 2002), the ACCRA Law Office was mentioned as the �counsel of respondent.�
(Opposition [To Urgent Omnibus Motion and Supplement to Urgent Omnibus Motion] dated 28 February 2003, at
2-4; rollo [G.R. No. 145817], Vol. 2, at 1220-1222).
[232]
Petitioner Urban Bank�s Opposition dated 28 February 2003; rollo (G.R. No. 145817), Vol. 2, at 1219-1227.
[233]
SC Resolution dated� 31 August 2011.
[234]
SC Resolution dated 17 February 2003; rollo (G.R. No. 145822), Vol. 3, at 3220-3221.
[235]
Intervenor Unimega�s Motion for Reconsideration with Intervention dated 10 December 2002; rollo (G.R. No.
145817), Vol. 1, at 991-1004.
[236]
Petitioner De Leon Group manifested that Unimega�s intervention was only with respect to petitioner Urban
Bank�s properties (condominium units), but opposed the legal and factual conclusions of Unimega insofar as it
deemed the titles to the executed properties to be consolidated in Unimega�s name. (Petitioner De Leon Group�s
Manifestation and Comment dated 24 February; rollo [G. R. No. 145817], Vol. 2, at 1191-196)
[237]
Petitioner Urban Bank�s Opposition (to Motion for Reconsideration with Intervention) dated 29 April
2003; rollo (G.R. No. 145817), Vol. 2, at 1386-1394.
[238]
According to petitioner Urban Bank, the fair market value of the condominium units (of varying sizes)
purchased by Unimega, inclusive of the parking lots attached to the units, amounted to PhP175,849,850, which is
grossly disproportional to the PhP10,000,000 paid by Unimega for all the 10 units during the auction sale.
(Petitioner Urban Bank�s Opposition dated 29 April 2003, at 4; rollo, [G. R. No. 145817], Vol. 2, at 1389)
[239]
SC Resolution dated 01 August 2005; rollo (G.R. No. 145817), Vol. 2, at 1623-1630.
[240]
Petitioner Urban Bank�s Manifestation and Motion dated 20 September 2005; rollo (G. R. No. 145817), Vol.
2, at 1719-1725.
[241]
Petitioner De Leon Group�s Manifestation dated 12 September 2005; rollo (G. R. No. 145817), Vol. 2, at
1759-1763.
[242]
Intervenor Unimega�s Ex Parte Petition for the Issuance of a Writ of Possession dated 28 June 2006; rollo (G.
R. No. 162562), Vol. 2, at 1156-1169.
[243]
SC Resolution dated 06 September 2006; rollo (G. R. No. 162562), Vol. 2, at 1171-1172.
[244]
Petitioner Lim Group�s Compliance and Comment dated 25 October 2006; rollo (G. R. No. 162562), Vol. 2, at
1181-1184.
[245]
Petitioner Borlongan Group�s (composed of the heirs of Borlongan, Bejasa and Manuel, Jr.) Compliance dated
30 October 2006; rollo (G. R. No. 162562), Vol. 2, at 1188-1189.
[246]
Pe�a�s Compliance and Comment dated 07 January 2008; rollo (G. R. No. 162562), Vol. 2, at 1233-1241.
[247]
Petitioner Urban Bank�s Opposition (to Ex Parte Petition for the Issuance of a Writ of Possession) dated 08
November 2006; rollo (G. R. No. 162562), Vol. 2, at 1196-1201.
[248]
Petitioner De Leon Group�s Manifestation and Comment dated 17 November 2006; rollo (G. R. No. 162562),
Vol. 2, at 1204-1211.
[249]
Intervenor Unimega�s Reply/Comment (to the Opposition of Urban Bank and Manifestation/Comment of
Petitioners Gonzales, Jr., De Leon and Lee) dated 07 February 2007; rollo (G. R. No. 162562), Vol. 2, at 1212-1224.
[250]
CIVIL CODE, Art. 1868.
[251]
Victorias Milling Co., Inc. v. CA, G. R. No. 117356, 19 June 2000, 33 SCRA 663, citing Bordador v. Luz, 283
SCRA 374, 382 (1997).
[252]
Eurotech Industrial Technologies v. Cuizon, G. R. No. 167552, 23 April 2007, 521 SCRA 584, citing Yu Eng
Cho v. Pan American World Airways, Inc., 385 Phil. 453, 465 (2000).
[253]
Yun Kwan Byung v. PAGCOR, G. R. No. 163553, 11 December 2009, 608 SCRA 107, citing Angeles v.
Philippine National Railways, 500 SCRA 444, 452 (2006).
[254]
Tuason v. Heirs of Ramos, G. R. No. 156262, 14 July 2005, 463 SCRA 408, citing Victorias Milling Co., Inc. v.
CA, 389 Phil. 184, 196 (2000); Lim v. CA, 321 Phil. 782, 794, (1995).
[255]
�WHEREFORE, in view of the foregoing considerations, the May 28, 2000 Decision [sic] and the October 19,
2000 [sic] Special Order of the RTC of Bago City, Branch 62, are hereby ANNULLED AND SET ASIDE.
However, the plaintiff-appellee in CA GR CV No. 65756 is awarded the amount of P3 Million as reimbursement for
his expenses as well as reasonable compensation for his efforts in clearing Urban Bank�s property of unlawful
occupants. The award of exemplary damages, attorney�s fees and costs of suit are deleted, the same not having
been sufficiently proven. The petition for Indirect Contempt against all the respondents is DISMISSED for utter lack
of merit.� (CA Decision [CA GR SP No. 72698 & CV No. 65756] dated 06 November 2003; rollo [G.R. No.
162562], Vol. 1, at 82-111)
[256]
When Urban Bank paid the purchase price less authorized retention money under the Deed of Absolute Sale.
[257]
Contract to Sell dated 15 November 1994. (Exhibit �16,� RTC records [Vol. 4] at 846-849)
[258]
ISCI�s fax letter dated 26 November 1994; Exhibit �3,� RTC records, Vol. 4, at 810.
[259]
�SUBLEASE PROHIBITED. That as distinguished from LESSEE�s [Mr. Ochoa] rent-out operations above-
mentioned, the LESSEE [Mr. Ochoa] shall not assign, cede or convey this lease, nor undertake to sub-lease the
whole or substantially all of the lease premises [Pasay property] to any single third party, without the LESSOR�s
[ISCI�s] consent in writing; �� (Contract of Lease dated 29 November 1984, par. 5 at 2; rollo [G.R. No.
162562], Vol. 1, at 279)
[260]
ISCI�s letter dated 07 December 1994; Exhibit �1,� RTC records, Vol. 4, at 808.
[261]
ISCI�s fax letter dated 09 December 1994; Exhibit �2,� RTC records, Vol. 4, at 809.
[262]
Urban Bank�s letter dated 15 December 1994; Exhibit �4,� RTC records, Vol. 4, at 811.
[263]
RTC Decision dated 28 May 1999, at 3; rollo (G R. No. 162562), Vol. 1, at 507. However, the records of the
case in RTC-Pasay City with respect to the First Injunction Complaint filed by Pe�a on behalf of ISCI are NOT
with this Court, as none of the issues raised therein are before Us.
[264]
Petitioner Urban Bank�s letter dated 19 December 1994; Exhibit �B,� RTC records, Vol. 3, at 568.
[265]
�The due execution and genuineness of the letter dated December 19, 1994 sent by the defendant Urban Bank
to the plaintiff; ��(Pre-Trial Order dated 23 September 1997, at 3; RTC records, Vol. 2, at 501)
[266]
Cua v. Ocampo Tan, G. R. No. 181455-56&182008, 04 December 2009, 607 SCRA 645, citing Yasuma v. Heirs
of Cecilio S. de Villa, 499 SCRA 466, 471-472 (2006).
[267]
RTC�s Order dated 04 November 1997, modifying the Pre-trial Order dated 23 September 1997; RTC records,
Vol. 2, at 514-519.
[268]
�Received from Atty. Magdaleno M. Pe�a the amount of One Million Five Hundred Thousand Pesos
(PhP1,500,000) representing full and final settlement of our claims against Urban Bank Incorporated arising from
the closure of the Australian Club located in the former International Food Complex along Roxas Boulevard, Pasay
City, Metro Manila.� (Receipt dated 28 April 1995; Exhibit �BB,� RTC records, Vol.3, at 757)
[269]
�When two or more principals have granted a power of attorney for a common transaction, any one of them
may revoke the same without the consent of the others.� (CIVIL CODE, Art. 1925)
[270]
�Agency is extinguished: � (5) By the accomplishment of the object or purpose of the agency; �.� (CIVIL
CODE, Art. 1919)
[271]
CIVIL CODE, Art. 1923.
[272]
ISCI�s Letter dated 19 December 1994 signed by Herman Ponce and Julie Abad; Exhibit �5,� RTC records,
Vol. 4, at 812.
[273]
CIVIL CODE, Art. 1875; cf. National Brewery & Allied Industries Labor Union of the Phils. v. San Miguel
Brewery, Inc., G. R. No. L-18170, 31 August 1963, 8 SCRA 805.
[274]
3 Am. Jur. 2d. � 246, citing Monroe v. Grolier Soc. of London, 208 Cal. 447, 281 P. 604, 65 A.L.R. 989
(1929); Chamberlain v. Abeles, 88 Cal. App. 2d 291, 198 P.2d 927 (2d Dist. 1948).
[275]
RULES OF COURT, Rule 138, Sec. 24; Orocio v. Anguluan, G. R. No. 179892-93, 30 January 2009, 577
SCRA 531.
[276]
�Quantum meruit means that in an action for work and labor, payment shall be made in such amount as the
plaintiff reasonably deserves.� (H. L. Carlos Construction, Inc., v. Marina Properties Corp., G. R. No. 147614, 29
January 2004, 421 SCRA 428, citing Republic v. Court of Appeals, 359 Phil. 530, 640 [1998])
[277]
Rayos v. Hernandez, G. R. No. 169079, 12 February 2007, 515 SCRA 517; Bach v. Ongkiko Kalaw Manhit &
Acorda Law Offices, G. R. No. 160334, 11 September 2006, 501 SCRA 192.
[278]
Transcontinental Underwriters Agency, S. R. L., v. American Agency Underwriters, 680 F.2d 298, 300 (18 May
1982), citing Miller v. Wilson, 24 Pa. 114 (1854).
[279]
Id.
[280]
CA Decision dated 06 November 2003, at 23; rollo (G. R. No. 162562), Vol. 1, at 104.
[281]
RTC Decision dated 28 May 1999, at 21; RTC records, Vol. 4, at 962.
[282]
�12. It is true that Atty. Singson had been offering the amount of P25 million to respondent but the latter could
not agree to the said amount because his legal expenses alone since this case started in 1996 (and considering that it
spawned several other case) would already have reached P10 million. In clearing the Roxas Boulevard property, he
had to borrow P3 million (an amount which had been earning interest since 1995) from his good friend Mr. Roberto
Ignacio. When respondent�s services were engaged by petitioner, he was promised ten (10%) of the property�s
value which was at least P25 million. Thus, even if respondent agreed to forego the interests that had accrued since
1996, and even if Mr. Ignacio agreed to collect from him only the principal loaned amount, he would still be
entitled to at least P38 million. To respondent�s mind, therefore, P25 million was out of the question.�
(Pe�a�s Consolidated Reply dated 01 April 2003, at 6-7; rollo [G. R. No. 145822], Vol. 3, at 3359-3360)
[283]
Adrimisin v. Javier, A. C. No. 2591, 08 September 2006, 501 SCRA 192.
[284]
Quilban v. Robinol, A. C. Nos. 2144 & 2180, 10 April 1989, 171 SCRA 768; see Traders Royal Bank
Employees Union, v. NLRC, G. R. No. 120592, 14 March 1997, 269 SCRA 733.
[285]
Catly v. Navarro, G. R. No. 167239, 05 May 2010, 620 SCRA 151, citing Orocio v. Anguluan, 577 SCRA 531,
551-552 (2009).
[286]
Lambert Pawnbrokers and Jewelry Corp., v. Binamira, G. R. No. 170464, 12 July 2010, 624� SCRA 705.
[287]
Id.
[288]
Francisco v. Mallen, Jr., G. R. No. 173169, 22 September 2010, 631 SCRA 118, citing Section 31 of
the CORPORATION CODE and Ramoso v. Court of Appeals, 400 Phil. 1260 (2000).
[289]
Magaling v. Ong, G. R. No. 173333, 13 August 2008, 562 SCRA .
[290]
�7. The defendant URBAN BANK through its President, defendant TEODORO BORLONGAN, and the
defendants Board [of] Directors as well as its Senior Vice President CORAZON BEJASA and VICE President,
Arturo Manuel, Jr., entered into an agency agreement with the plaintiff, whereby the latter in behalf of defendant
URBAN BANK, shall hold and maintain possession of the aforedescribed property, prevent entry of intruders,
interlopers, and squatters therein and finally turnover peaceful possession thereof to defendant URBAN BANK; it
was further agreed that for the services rendered as its agent, defendant URBAN BANK shall pay plaintiff a fee in
an amount equivalent to 10% of the market value of the property prevailing at the time of the payment.� (Pe�a�s
Complaint dated 28 February 1996, at 2; RTC records, Vol. 1, at 2)
[291]
Pe�a�s Petition dated 23 April 2004, at 61-65; rollo (G. R. No. 162562), Vol. 1, at 68-72.
[292]
RTC Decision dated 28 May 1999, at 23; RTC records, Vol. 4, at 964.
[293]
CA Decision dated 06 November 2003, at 24-25; rollo (G. R. No. 162562), Vol. 1, at 105-106.
[294]
Pe�a�s Petition dated 23 April 2004, supra note 126.
[295]
�Impleaded as defendants in this case are the members of the board of directors of Urban bank who were
sought to be held liable in the same manner as the bank. Their failure to raise the defense of limited corporate
liability in their Motion to Dismiss or in their Answer in consequence with the provision of Rule 9 of the 1997 Rules
of Civil Procedure constitute a waiver on their part to bring up this defense. Thus, this warrants the court to hold all
the defendants in this case jointly and severally liable with Urban Bank, Inc., This pronouncement finds basis in
plaintiff�s general prayer for such further or other relief as may be deemed just or equitable.� (RTC Decision 28
May 1999, at 22-23; RTC records, Vol. 4, at 963-964)
[296]
Notice of Appeal dated 15 June 1999; RTC records (Vol. V) at 1016-1017.
[297]
Pe�a�s Motion for Execution dated 07 June 1999; rollo (G. R. No. 145817), Vol. 1, at 277-279; see Pe�a�s
Memorandum dated 13 October 1999; rollo (G. R. No. 145822), Vol. 1, at 371-376.
[298]
RTC Decision dated 28 May 1999, at 24; rollo (G. R. No. 145817 ), Vol. 1, at 101.
[299]
PhP 24,000,000 (compensation) + PhP3,000,000� (reimbursement) + PhP1,000,000 (attorney�s fees) +
PhP500,000 (exemplary damages) = PhP28,500,000 (excluding costs of suit)
[300]
�4. Plaintiff has been unable to pay his loan precisely because defendants have not paid him his fees. Since.
Mr. Ignacio has been a long time friend of his, he has been granted several extensions but on 4 June 1999, plaintiff
received a summons issued by the Regional Trial Court of Manila, Branch 16 for a collection case filed [by] said
Mr. Ignacio. �
������� �6. � It is imperative therefore that this Honorable Court�s Decision be executed immediately
so that he could settle the obligation which he would not have contracted had defendants not engaged his services.�
(Pe�a�s Motion for Execution dated 07 June 1999, at 2; rollo [G. R. No. 145817], Vol. 1, at 278)
[301]
The Complaint filed against Pe�a was a civil action for collection of PhP3,500,000 and PhP100,000
attorney�s fees, which was filed by Mr. Roberto R. Ignacio and was docketed as Civil Case No. 99-93952 with the
Regional Trial Court of Manila. (Complaint dated 03 April 1999; rollo [G. R. No. 145822], Vol. 1, at 213-217)
[302]
Petitioner Urban Bank�s Opposition (to Motion for Execution) dated 15 June 1999; rollo (G. R. No. 145817),
Vol. 1, at 289-300; see Petitioner Urban Bank�s Memorandum dated 12 October 1999; rollo (G. R. No. 145822),
Vol. 1, at 309-331.
[303]
Petitioner Urban Bank had earlier moved for the voluntary inhibition of Judge Catilo. (Petitioner Urban Bank�s
Motion for Voluntary Inhibition by the Presiding Judge dated 15 June 1999; rollo [G.R. No. 145817], Vol. 1, at 301-
306)
[304]
�The court finds that the pendency of the case for collection of money against plaintiff is a good reason for
immediate execution.� (RTC Special Order dated 29 October 1999, at 7; rollo [G.R. No. 145817], Vol. 1, at 886)
[305]
Writ of Execution dated 28 May 1999; rollo (G. R. No. 145822), Vol. 1, at 152-154.
[306]
The said Rule 65 Petition in the Court of Appeals was docketed as CA-G. R. SP No. 55667. (Petitioner Urban
Bank�s Petition for Certiorari and Prohibition dated 29 November 1999; rollo [G. R. No. 145817], Vol. 1, at 307-
345)
[307]
Nazareno v. Court of Appeals, G. R. No. 111610, 27 February 2002, 378 SCRA 28.
[308]
Id.
[309]
�That which is a nullity produces no effect.� (Maagad v. Maagad, G. R. No.� 171762, 05 June 2009, 588
SCRA 649)
[310]
RULES OF COURT, Rule 39, Sec. 5.
[311]
Silverio v. Court of Appeals, G. R. No. L-39861, 17 March 1986, 141 SCRA 527.
[312]
G. R. No. 167976, 20 January 2010, 610 SCRA 377.
[313]
Diesel Construction Company, Inc., v. Jollibee Foods Corp., G. R. No. 136805, 28 January 2000, 323 SCRA
844.
[314]
Philippine Bank of Communications v. Court of Appeals, G. R. No. 126158, 23 September 1997, 279 SCRA
364.
[315]
RTC Special Order dated 29 October 1999, at 6-7; rollo (G. R. No. 145817), Vol. 1, at 885-886.
[316]
�17. More likely than not, the �Mr. Ignacio case� was a convenient ruse employed by Private Respondent
[Pe�a]. It should be noted that Mr. Ignacio stated in his complaint that �(Private Respondent�s) assurance
that his client (Petitioner Bank) was going to pay him before (30 May 1995) was what induced (Ignacio) to
grant the loans in the first place.� However, on 30 November 1994, the day of the first alleged �loan� of
P1,000,000, Petitioner Bank was not even in the picture yet. In fact, �it was only (on December 19,1994), that
plaintiff Private Respondent herein) was appraised (sic) that the property had already been sold and the title thereto
ha[d] already been transferred to Urban Bank.� How then could Petitioner Bank have assured payment to Private
Respondent by 30 May 1995, which assurances were allegedly what induced the release of the loan? On the other
hand, if the 30 November 1994 loan was taken out because Private Respondents was �instructed by his relatives�
at ISCI to clear the property of occupants, why in the world would Private Respondents have to take out the loan
with his friend, in his own name?� (Petition for Certiorari and Prohibition dated 04November 1999, at 14-
15; rollo (G. R. No. 145817), Vol. 1, at 320-321; emphasis supplied and citations omitted)
[317]
�WHEREFORE, plaintiff respectfully prays that upon the filing of this Complaint, a writ of preliminary
attachment be issued ex-parte to cover all of defendants� property and that after due proceedings, defendant be
made to pay the principal amount of P3,500,000.00 plus interests and attorney�s fees in the amount of
P100,000.00.� (Mr. Roberto Ignacio�s Complaint dated 03 April 1999, at 3-4; RTC records, Vol. 4, at 983-984)
[318]
�It is understood that default on my part will entitle payee to 5% interest for every month of delay.�
(Promissory Notes dated 30 November 1994, 20 December 1994, and 27 April 1995; RTC records, Vol. 4, 986-988)
[319]
CA Decision dated 12 January 2000 in C. A.-G. R. SP No. 55667, at 11-12; rollo (G. R. No. 145817), Vol. 1, at
356-357.
[320]
�[E]xecution pending appeal must be strictly construed being an exception to the general rule. So, too,
execution pending appeal is not to be availed of and applied routinely, but only in extraordinary circumstances.�
(Corona International, Inc., v. Court of Appeals, G. R. No. 127851, 18 October 2000, 343 SCRA 512)
[321]
http://www.urbanbank.info/urbanweb/ubi_financial.htm last visited 07 October 2011.
[322]
BSP Letter dated 04 December 1998; rollo (G. R. No. 145822), Vol. 1, at 622.
[323]
Business World Special Report, The Commercial Banking System, Selected Balance Sheet Accounts as of 27
September 1999; rollo (G. R. No. 145822), Vol. 1, at 624.
[324]
�We agree with the appellate court's ratiocination in CA-G.R. SP No. 55667 that there is good ground to
order execution pending appeal. Records show that on April 26, 2000, Urban Bank declared a bank holiday, and
the Bangko Sentral ng Pilipinas (BSP) ordered its closure. Subsequently, Urban Bank was placed under receivership
of the Philippine Deposit Insurance Corporation (PDIC); five of its senior officials, including defendants (in the trial
court) Borlongan and Bejasa, were placed in the hold-departure list of the Bureau of Immigration and Deportation
pending investigation for alleged anomalous transactions (e.g. violation of the Single Borrower's Limit provision of
Republic Act No. 8791, or the General Banking Law of 2000) and bank fraud which led to Urban Bank's financial
collapse. Furthermore, several administrative, criminal and civil cases had been filed against Urban Bank officials,
who are defendants in Civil Case No. 754. Also, in the Pe�a disbarment case, the Court found the existence of an
agency relation between Pe�a and Urban Bank, thereby entitling the former to collection of fees for his services.
Impending insolvency of the adverse party constitutes good ground for execution pending appeal.� (Lee v. Trocino,
G.R. No. 164648, 06 August 2008, 561 SCRA 178)
[325]
�Nevertheless, in the interest of an orderly and judicious administration of justice, we resolve to amend
specific portions of our Decision which do not affect in any significant manner the integrity of our original
disposition of the case. Thus, with regard to whether or not there exists an agency relationship between Urban Bank
and Pe�a, the matter should be left to the final determination of the Court in G.R. No. 162562. Anent the
soundness of the lower court's grant of execution pending appeal, which necessarily settles the validity of the
Special Order and Writ of Execution, the decision in G.R. No. 145822 must be awaited. Accordingly, our
original dispositions regarding Urban Bank's liability to Pe�a and finding good reasons for execution pending
appeal are hereby withdrawn in order to make way for their resolution in the other petitions pending with the
Court.� (Lee v. Trocino, G.R. No. 164648, 19 June 2009, 590 SCRA 32)
[326]
G.R. No. 164857, 11 April 2005, 455 SCRA 272.
[327]
�The receiver shall immediately gather and take charge of all the assets and liabilities of the institution,
administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised
Rules of Court but shall not, with the exception of administrative expenditures, pay or commit any act that will
involve the transfer or disposition of any asset of the institution: Provided, That the receiver may deposit or place the
funds of the institution in non-speculative investments. The receiver shall determine as soon as possible, but not later
than ninety (90) days from take over, whether the institution may be rehabilitated or otherwise placed in such a
condition so that it may be permitted to resume business with safety to its depositors and creditors and the general
public: Provided, That any determination for the resumption of business of the institution shall be subject to prior
approval of the Monetary Board.
�������������������������������������������� ���
����������������������������������������� �
������� (2) � The assets of an institution under receivership or liquidation shall be deemed in custodia
legis in the hands of the receiver and shall, from the moment the institution was placed under such receivership or
liquidation, be exempt from any order of garnishment, levy, attachment, or execution. �.� (Republic Act No.
7653, Sec. 30)
[328]
�1. To prohibit the bank from doing business in the Philippines and to place its assets and affairs under
receivership in accordance with Section 30 of R. A. No. 7653; �� (Monetary Board�s Minute Resolution No. 22
dated 26 April 2000; rollo [G. R. No. 145817] , Vol. 1, at 232)
[329]
�In connection with the above-referenced cases, please be informed that neither the undersigned [Pe�a] nor
the sheriff of RTC Br. 62, Bago City, has initiated execution sale activities against the properties and assets of Urban
Bank (UB) after the latter was ordered closed by the Bangko Sentral ng Pilipinas and placed under receivership of
the PDIC.
������� �As the judgment creditor in the aforementioned cases, I would like to assure you that no
execution sale of UB�s assets shall be scheduled or undertaken for as long as the bank remains under
receivership.� (Pe�a�s Letter dated 19 December 2000; rollo [G. R. No. 145817], Vol. 1, at 599)
[330]
Philippine Veterans Bank v. Intermediate Appellate Court, G. R. No. 73162, 23 October 1989, 178 SCRA 645.
[331]
Petitioner Urban Bank, through EIB, had previously expressed its intent to redeem the 10 condominium units
sold to intervenor Unimega during the public execution sale.
[332]
The RTC-Bago City in the Decision in the main case awarded Pe�a a total of PhP28,500,000 in compensation
and/or damages; EIB tendered three manager�s checks totaling PhP22,108,800 to redeem the 10 condominium
units sold to intervenor Unimega, an amount that is more than three-fourths of the award in the main case.
[333]
Florendo v. Paramount Insurance Corp., G. R. No. 167976, 20 January 2010, 610 SCRA 377, citing City of
Iligan v. Principal Management Group, Inc., 455 Phil. 335, 344 (2003).
[334]
Stronghold Insurance, Co., Inc., v. Felix, G. R. No. 148090, 28 November 2006, 508 SCRA 357, citing Heirs of
Macabangkit Sangkay v. National Power Corporation, 489 SCRA 401, 417 (2006).
[335]
�UBI is expected to reopen by end of August 2011. Upon reopening liabilities (as provided in the
memorandum of agreement) up to P500,000 (inclusive of the P100,000 insured deposit) shall be paid and the
balance payable in the next three (3) years with the first 30% serviced on the first year, 30% on the second year and
40% on the third year.� (PDIC Letter dated 13 August 2001 to Atty. Pe�a; rollo [G. R. No. 145817], Vol. 1, at
654)
[336]
Rule 39, Sec. 9 (a).
[337]
Letter dated 09 November 1999; RTC records, Vol. 5, at 1308-1309; Petitioner Urban Bank�s Memorandum
dated 28 January 2004, par. 12, at 4; rollo (G. R. No. 145822), Vol. 1, at 1270; see also petitioner De Leon
Group�s Memorandum dated 20 January 2004, par. 1.12, at 6; rollo (G. R. No. 145822), Vol. 1, at 1226.
[338]
Id.
[339]
The following manager�s checks were attached to the Manifestation: (a) Manager�s Check No. 80571
(PhP224,000); (b) Manager Check No. 80572 (PhP13,440,000); and (c) Manager�s Check No. 80573 (PhP
8,440,800). (Rollo [G. R. No. 145817], Vol. 2, at 1281)
[340]
RTC Order dated 13 November 2002; rollo (G. R. No. 145817), Vol. 1, at 1086-1089.
[341]
Sheriff Sillador�s Affidavits of Non-Redemption both dated 04 November 2002; rollo (G.R. No. No. 145817),
Vol. 1, at 1072-1074.
[342]
In that case, Sheriff Allan Sillador of RTC-Bago City levied and sold on public auction supposedly conjugal
properties of Teodoro Borlongan, Corazon Bejasa and Arturo Manuel, Jr., despite the third party claims asserted by
their respective spouse. The Court found Sheriff Sillador administratively liable for his failure to comply with the
mandatory procedures for the conduct of the auction sale. (A. M. No. P-07-2342, 31 August 2007, 531 SCRA 657)
[343]
After the RTC-Bago City granted execution pending appeal in the main case, judgment obligors Teodoro
Borlongan, Corazon Bejasa and Arturo Manuel, Jr., received a notice of sale on execution of real properties
involving their respective lots. Their respective spouses filed Notices/Affidavits of Third Party Claim with Sheriff
Allan Sillador and claimed that the levied properties are included in their conjugal estates. The said administrative
complaint was filed with respect to the irregularities attendant the auction sale of these conjugal properties
conducted by Sheriff Sillador. Sheriff Sillador was found to found guilty of simple neglect of duty and suspended
for a period of 1 month without pay with a stern warning that a repetition of the same or similar acts will be dealt
with more severely. (Co. v. Sillador, id.)
[344]
Pe�a�s Urgent Omnibus Motion dated 09 December 2002 (rollo [G. R. No. 145817], Vol. 1, at 1090-
1102); see also Pe�a�s Supplement to the Urgent Omnibus Motion dated 19 December 2002 (rollo [G. R. No.
145817], Vol. 1, at 1106-1110)
[345]
Intervenor Unimega�s Motion for Reconsideration with Intervention dated 10 December 2002; rollo (G.R. No.
145817), Vol. 1, at 991-1004.
[346]
SC Resolution dated 13 November 2002; rollo (G.R. No. 145817), Vol. 1, at 988-990.
[347]
SC Resolution dated 19 November 2001; rollo (G. R. No. 145817), Vol. 1, at 794-795.
[348]
�Effect of reorganization of Divisions on assigned cases. � In the reorganization of the membership of
Divisions, cases already assigned to a Member-in-Charge shall be transferred to the Division to which the Member-
in-Charge moves, subject to the rule on the resolution of motions for reconsideration under Section 7 of this Rule.
The Member-in-Charge is the Member given the responsibility of overseeing the progress and disposition of a case
assigned by raffle.� (Internal Rules of the Supreme Court [A. M. No. 10-4-20-SC, as amended], Rule 2, Sec. 9)
[349]
�Private respondent [Pe�a] composed himself and tried to recall if there was any pending incident with this
Honorable Court regarding the suspension of the redemption period but he could not remember any. In an effort to
hide his discomfort, respondent teased Atty. Singson about bribing the ponente to get such an order. Much to
his surprise, Atty. Singson did not even bother to deny and in fact explained that they obviously had to exert extra
effort because they could not afford to lose the properties involved (consisting mainly of almost all the units in the
Urban Bank Plaza in Makati City) as it might cause the bank (now Export Industry Bank) to close down.�
(Pe�a�s Urgent Motion to Inhibit and to Resolve Respondent�s Urgent Omnibus Motion dated 30 January 2006,
at 2-3; see SC TSN dated 03 March 2002, at 55-58)
[350]
Letter Complaint dated 16 September 2011 (Re: Justices Carpio and Sereno) filed with the Court�s Committee
on Ethics and Ethical Standards; see Supplement to the Very Urgent Motion for Re-Raffle dated 20 September
2011.
[351]
1. Pe�a�s Motion to Inhibit (Re: Justice Artemio V. Panganiban) dated 12 January 2001; 2. Urgent Motion to
Inhibit (Re: Justice Arturo Buena) dated 20 August 2001; 3. Letter Complaint (Re: Justice Buena) dated 28 October
2001; 4. Motion to Inhibit (Re: Justice Panganiban) dated 18 February 2002; 5. Reply (Re: Justice Panganiban) dated
15 March 2001; 6. Urgent Motion to Inhibit (re: ponente) dated 30 January 2003; 7. Motion to Inhibit (Re: Justice
Leonardo A. Quisumbing) dated 08 July 2004; 8. Motion to Inhibit (Re: Justice Panganiban) dated 28 December
2004; 9. Motion to Inhibit (Re: Justice Eduardo Antonio B. Nachura) dated 17 December 2007; 10. Motion for
Inhibition (Re: Justice Panganiban) dated 28 December 2004; 11. Reiteratory Motion to Recuse dated 03 March
2006 (Re: Justice Panganiban); 12. Motion to Inhibit (Re: Justice Nachura) dated 07 January 2008; 13. Urgent
Consolidated Motion to Reiterate Request for Inhibition (Re: Justice Antonio T. Carpio) dated 02 June 2008;
14. Urgent Motion for Re-Raffle (Re: Justice Presbitero J. Velasco) dated 10 July 2008; 15. Supplement to the
Urgent Motion for Re-Raffle (Re: Justices Conchita Carpio Morales and Dante O. Tinga) dated 04 August 2008;
16. Urgent Consolidated Motion for Re-Raffle (Re: Justices Carpio Morales, Tinga and Velasco) dated 14 August
2008; 17. Urgent Consolidated Motion for Re-Raffle (Re: Justices Arturo D. Brion, Leonardo A. Quisumbing,
Carpio Morales, Tinga, Velasco, Quisumbing) dated 28 August 2008; 18. Motion to Inhibit (Re: Justice Carpio)
dated 21 January 2010; 19. Very Urgent Motion to Inhibit (Re: Justices Carpio Morales and Ma. Lourdes P. A.
Sereno) dated 30 March 2011; 20. Very Urgent Motion to Inhibit dated 22 August 2011 (Re: Justice Sereno); and
21. Very Urgent Motion to Re-Raffle dated 01 September 2011 (Re: Justices Carpio, Jose Perez and Sereno).
[352]
Pasricha v. Don Luis Dison Realty, Inc., G. R. No. 136409, 14 March 2008, 548 SCRA 273.
[353]
�We agree that judges have the duty of protecting the integrity of the judiciary as an institution worthy of
public trust and confidence. But under the circumstances here, we also agree that unnecessary inhibition of
judges in a case would open the floodgates to forum-shopping. More so, considering that Judge Magpale was not
the first judge that TAN had asked to be inhibited on the same allegation of prejudgment. To allow successive
inhibitions would justify petitioners' apprehension about the practice of certain litigants shopping for a judge
more friendly and sympathetic to their cause than previous ones.
�As held in Mateo, Jr. v. Hon. Villaluz, the invitation for judges to disqualify themselves need not always be
heeded. It is not always desirable that they should do so. It might amount in certain cases to their being recreant
about their duties. It could also be an instrument whereby a party could inhibit a judge in the hope of getting
another more amenable to his persuasion.� (Chin, v. Court of Appeals, G. R. No. 144618, 15 August 2003, 409
SCRA 206; emphasis supplied)
[354]
RULES OF COURT, Rule 39, Sec. 5.�
[355]
Legaspi v. Ong, G. R. No. 141311, 26 May 2005, 459 SCRA 122.
[356]
Pilipinas Bank v. Court of Appeals, G. R. No. 97873, 12 August 1993, 225 SCRA 268.
[357]
Petitioner De Leon Group�s Memorandum dated 20 January 2004; at 15-16; rollo (G. R. No. 145822), Vol. 1,
at 1235-1236.
[358]
RULES OF COURT, Rule 39, Sec. 9 (a).
[359]
�Legal solutions in pari materia are not wanting. Section 2 of Rule 39 of the Rules of Court authorize for
goods reasons, the immediate execution of decisions of the Courts of First Instance during the pendency of an
appeal, but then, evidently to avoid injustice, Section 5 of the same Rule provides: �When the judgment executed is
reversed totally or partially on appeal, the trial court, on motion, after the case is remanded to it, may issue such
order of restitution as equity and justice may warrant under the circumstances.� I am aware of no better principle
than that underlying this provision that can be applied to the case at bar, for here, as in the case before Us, the order
of immediate execution is concededly authorized when issued, but it is considered, in effect, as losing its legal
basis after the executed decision is reversed or modified, hence the necessity of equitable restitution to the
party prejudiced by the premature execution.� (Dissenting Opinion of Justice Antonio P. Barredo in Yarcia v.
City of Baguio, G. R. No. L-27562, 29 May 1970, 33 SCRA 419; emphasis supplied)
[360]
�The gist of the appeal is that since the order for the dismissal of the case was issued on August 20, 1960, and
said dismissal had become final, the court could no longer issue its order of December 9, 1960 directing the return of
the property. The argument while apparently correct would be productive of clear injustice. As a matter of principle
courts should be authorized, as in this case, at any time to order the return of property erroneously ordered to be
delivered to one party, if the order was found to have been issued without jurisdiction. Authority for the return of the
property is expressed under the provision of Section 5 of Rule 39, Rules of Court �� (Esler v. Ellama, G. R. No.
L-18236, 31 January 1964, 10 SCRA 138)
[361]
�It is no defense that, prior to the finality of the judgment of the appellate court, the land and its products had
been already distributed among the heirs of the late Ceferino Datoon. His administratrix, appellant herein, personally
knew of the claim of appellee Salas; she also knew, and was bound to know, that the judgment of the Court of First
Instance dismissing the complaint had been appealed, and could be reversed. It was, therefore, incumbent upon
her to reserve the land and its products from distribution among the heirs of Datoon until final judgment was
rendered, and she is personally answerable for her failure to do so, apart from the obligation of the heirs
themselves not to profit from what is not theirs.� (Salas v. Quinga, G. R. No. L-20294, 30 January 1965, 13
SCRA 143)
[362]
Aranda v. Court of Appeals, G. R. No. 63188, 13 June 1990,� 186 SCRA 456, citing Po Pauco v. Tan Junco,
49 Phil. 349 (1926) and Hilario v. Hicks, 40 Phil. 576 (1919).
[363]
�It is submitted that under the premises movant-intervenor acted in good faith when it proceeded to participate
in the execution sale despite the pendency of the appeal of the petitioner to this Honorable Court considering that at
the time of the sale this Honorable Court have not yet acted on the said appeal inspite of the fact that the same was
filed before the scheduled execution sale. In such case, the movant-intervenor can assume in good faith that the
inaction on the appeal taking into account the urgency of the situation, would mean that the appeal was only dilatory
in character.� (Intervenor Unimega�s Reply dated 22 May 2003, at 2; rollo (G. R. No. 145822), Vol. 3, at 3524)
[364]
�Recovery of price if sale not effective; revival of judgment. � If the purchaser of real property sold on
execution, or his successor in interest, fails to recover the possession thereof, or is evicted therefrom, in
consequence of irregularities in the proceedings concerning the sale, or because the judgment has been reversed
or set aside, or because the property sold was exempt from execution, or because a third person has vindicated his
claim to the property, he may on motion in the same action or in a separate action recover from the judgment
obligee the price paid, with interest, or so much thereof as has not been delivered to the judgment obligor, or
he may, on motion, have the original judgment revived in his name for the whole price with interest, or so much
thereof as has been delivered to the judgment obligor. The judgment so revived shall have the same force and effect
as an original judgment would have as of the date of the revival and no more.� (RULES OF COURT, Rule 39, Sec.
34; emphasis supplied)
[365]
Intervenor Unimega�s Ex Parte Petition for the Issuance of a Writ of Possession dated 28 June 2006; rollo (G.
R. No. 162562), Vol. 2, at 1156-1169.
[366]
Florenz D. Regalado, REMEDIAL LAW COMPENDIUM II 8th ed. (2002), at 424.
[367]
Regalado, id. at 424, citing Po Pauco v. Tan Juco, 49 Phil. 349 (1926).
[368]
CA Resolution dated 19 October 2000, at 3-4; rollo (G. R. No. 145817), Vol. 1, at 25-26.
 SECOND DIVISION

March 29, 2017

G.R. No. 205657

INTERNATIONAL EXCHANGE BANK NOW UNION BANK OF THE PHILIPPINES, Petitioner

vs
SPOUSES JEROME AND QUINNIE BRIONES, AND JOHN DOE, Respondents

DECISION

LEONEN, J.:

Upon accepting an agency, the agent becomes bound to carry out the agency and shall be held
liable for the damages, which the principal may incur due to the agent's non-performance.1

This resolves the Petition for Review on Certiorar2 filed by International Exchange Bank (iBank), now
Union Bank of the Philippines, assailing the Court of Appeals' September 27, 2012 Decision3 and
February 6, 2013 Resolution4 in CA-G.R. CV. No. 97453, which upheld the June 16, 2011
Decision5 of Branch 138, Makati City Regional Trial Court in Civil Case No. 04-557.

On July 2, 2003, spouses Jerome and Quinnie Briones (Spouses Briones) took out a loan of
₱3,789,216.00 from iBank to purchase a BMW Z4 Roadster.6 The monthly amortization for two (2)
years was ₱78,942.00.7

The Spouses Briones executed a promissory note with chattel mortgage that required them to take
out an insurance policy on the vehicle.8 The promissory note also gave iBank, as the Spouses
Briones' attomey-infact, irrevocable authority to file an insurance claim in case of loss or damage to
the vehicle.9 The insurance proceeds were to be made payable to iBank.10

On November 5, 2003, at about 10:50 p.m., the mortgaged BMW Z4 Roadster was camapped by
three (3) armed men in front of Metrobank Banlat Branch in Tandang Sora, Quezon City.11 Jerome
Briones (Jerome) immediately reported the incident to the Philippine National Police Traffic
Management Group.12

The Spouses Briones declared the loss to iBank, which instructed them to continue paying the next
three (3) monthly installments "as a sign of good faith," a directive they complied with.13

On March 26, 2004, or after the Spouses Briones finished paying the three (3)-month installment,
iBank sent them a letter demanding full payment of the lost vehicle.14

On April 30, 2004, the Spouses Briones submitted a notice of claim with their insurance company,
which denied the claim on June 29, 2004 due to the delayed reporting of the lost vehicle.15

On May 14, 2004, iBank filed a complaint for replevin and/or sum of money against the Spouses
Briones and a person named John Doe.16 The Complaint alleged that the Spouses Briones defaulted
in paying the monthly amortizations of the mortgaged vehicle.17
After no settlement was arrived at during the Pre-trial Conference, the case was referred to
Mediation and Judicial Dispute Resolution.18 However, the parties still failed to agree on a
compromise settlement.19

After pre-trial and trial on the merits, the Regional Trial Court20 dismissed iBank's complaint. It ruled
that as the duly constituted attorney-in- fact of the Spouses Briones, iBank had the obligation to
facilitate the filing of the notice of claim and then to pursue the release of the insurance proceeds.21

The Regional Trial Court also pointed out that as the Spouses Briones' agent, iBank prioritized its
interest over that of its principal when it failed to file the notice of claim with the insurance company
and demanded full payment from the spouses.22

The dispositive portion of the Regional Trial Court Decision read:

WHEREFORE, premises considered, judgment is hereby rendered dismissing this case as the
obligation of both parties to each other has already been considered extinguished by compensation.

SO ORDERED.23 (Emphasis in the original)

The Regional Trial Court's Decision was appealed by iBank to the Court of Appeals, which
dismissed24 it on September 27, 2012.

The Court of Appeals ruled that the terms and stipulations of the promissory note with chattel
mortgage were clear.25Sections 6 and 22 of the promissory note provided that the Spouses Briones,
as the mortgagors, would insure the vehicle against loss, damage, theft, and fire with the insurance
proceeds payable to iBank, as the mortgagee.26Furthermore, in the event of loss or damage,
Spouses Briones irrevocably appointed iBank or its assigns as their attorney-in-fact with full power to
process the insurance claim.27

The Court of Appeals stated that as the Spouses Briones' agent, iBank was bound by its acceptance
to carry out the agency.28 However, instead of filing an insurance claim, iBank opted to collect the
balance of Spouses Briones' loan.29 By not looking after the interests of its principal, the Court of
Appeals ruled that iBank should be held liable for the damages suffered by Spouses Briones.30

The Court of Appeals likewise upheld the Regional Trial Court's ruling that "the denial of the
insurance claim [for delayed filing] was a direct consequence of [the] bank's inaction in not filing the
insurance claim."31

The dispositive portion of the Court of Appeals Decision read:

WHEREFORE, the instant appeal is hereby DENIED. The assailed Decision dated June 16, 2011 of
the Regional Trial Court, Branch 138, Makati City is AFFIRMED.

SO ORDERED.32 (Emphasis in the original)

On February 6, 2013, the Court of Appeals denied33 iBank's motion for reconsideration,34 prompting
iBank to appeal the denial to this Court.

Petitioner iBank claims that it is entitled to recover the mortgaged vehicle or, in the alternative, to
collect a sum of money from respondents because of the clear wording of the promissory note with
chattel mortgage executed by respondents.35 Petitioner also insists that it is entitled to the award of
damages.36

Petitioner maintains that the insurance coverage taken on the vehicle is "only an aleatory alternative
that [respondents] are entitled [to]" if their claim is granted by the insurance company.37 Petitioner
asserts that it was the duty of the respondents to file a claim with the insurance company. Thus, they
should not be allowed to pass on that responsibility to petitioner and they should be held
accountable for the loan taken out on the carnapped vehicle.38

Moreover, petitioner posits that respondent Jerome's direct dealing with the insurance company was
a revocation of the agency relationship between petitioner and respondents.39

Petitioner holds that respondents only shifted the blame after the insurance company denied
respondents' claim.40

On the other hand, respondents insist that when the mortgaged vehicle was carnapped, petitioner,
as the agent, should have asserted its right "to collect, demand and proceed against the [insurance
company.]"41

Respondents state that after they had informed petitioner of the loss of the mortgaged vehicle, they
continued to pay the monthly installment for three (3) months as compliance with petitioner's
request. Nonetheless, despite their good faith and the insurance policy taken out on the carnapped
vehicle, petitioner still demanded full payment from them.42

Finally, respondents maintain that petitioner failed to exercise the "degree of diligence required [of it
considering] the fiduciary nature of its relationship with its client[s]."43

The issues for this Court's resolution are as follows:

First, whether an agency relationship existed between the parties;

Second, whether the agency relationship was revoked or terminated; and

Finally, whether petitioner is entitled to the return of the mortgaged vehicle or, in the alternative,
payment of the outstanding balance of the loan taken out for the mortgaged vehicle.

The Petition is devoid of merit.

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 consent or authority of the latter."44 Furthermore,
Article 1884 of the Civil Code provides that "the agent is bound by his acceptance to carry out the
agency, and is liable for the damages which, through his non-performance, the principal may
suffer."45

Rallos v. Felix Go Chan & Sons Realty Corporation46 lays down the elements of agency:

Out of the above given principles, sprung the creation an 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.47 (Emphasis in the original, citation omitted)

All the elements of agency exist in this case. Under the promissory note with chattel mortgage,
Spouses Briones appointed iBank as their attorney-in-fact, authorizing it to file a claim with the
insurance company if the mortgaged vehicle was lost or damaged.48 Petitioner was also authorized to
collect the insurance proceeds as the beneficiary of the insurance policy.49 Sections 6 and 22 of the
promissory note state:

6. The MORTGAGOR agrees that he will cause the mortgaged property/ies to be insured against
loss or damage by accident, theft and fire . . . with an insurance company/ies acceptable to the
MORTGAGEE ... ; that he will make all loss, if any, under such policy/ies payable to the
MORTGAGEE or its assigns ... [w]ith the proceeds thereon in case of loss, payable to the said
MORTGAGEE or its assigns ... shall be added to the principal indebtedness hereby secured
... [M]ortgagor hereby further constitutes the MORTGAGEE to be its/his/her Attorney-in-Fact for the
purpose of filing claims with insurance company including but not limited to apply, sign, follow-up
and secure any documents, deeds . . . that may be required by the insurance company to process
the insurance claim ...

22. In case of loss or damage, the MORTGAGOR hereby irrevocably appoints the MORTGAGEE or
its assigns as his 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,
receipt 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 interest.50 (Emphasis supplied,
citation omitted)

Article 1370 of the Civil Code is categorical that when "the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall
control."51

The determination of agency is ultimately factual in nature and this Court sees no reason to reverse
the findings of the Regional Trial Court and the Court of Appeals. They both found the existence of
an agency relationship between the Spouses Briones and iBank, based on the clear wording of
Sections 6 and 22 of the promissory note with chattel mortgage, which petitioner prepared and
respondents signed.

II

Petitioner asserts that the Spouses Briones effectively revoked the agency granted under the
promissory note when they filed a claim with the insurance company.52

Petitioner is mistaken.

Revocation as a form of extinguishing an agency under Article 192453 of the Civil Code only applies
in cases of incompatibility, such as when the principal disregards or bypasses the agent in order to
deal with a third person in a way that excludes the agent.54

In the case at bar, the mortgaged vehicle was camapped on November 5, 2003 and the Spouses
Briones immediately informed petitioner about the loss.55 The Spouses Briones continued paying the
monthly installment for the next three (3) months following the vehicle's loss to show their good
faith.56

However, on March 26, 2004, petitioner demanded full payment from Spouses Briones for the lost
vehicle.57 The Spouses Briones were thus constrained to file a claim for loss with the insurance
company on April 30, 2004, precisely because petitioner failed to do so despite being their agent and
being authorized to file a claim under the insurance policy.58 Not surprisingly, the insurance company
declined the claim for belated filing.

The Spouses Briones' claim for loss cannot be seen as an implied revocation of the agency or their
way of excluding petitioner. They did not disregard or bypass petitioner when they made an
insurance claim; rather, they had no choice but to personally do it because of their agent's
negligence. This is not the implied termination or revocation of an agency provided for under Article
1924 of the Civil Code.

While a contract of agency is generally revocable at will as it is primarily based on trust and
confidence,59 Article 1927 of the Civil Code provides the instances when an agency becomes
irrevocable:

Article 1927. 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.

A bilateral contract that depends upon the agency is considered an agency coupled with an interest,
making it an exception to the general rule of revocability at will.60 Lim v. Saban61 emphasizes that
when an agency is established for both the principal and the agent, an agency coupled with an
interest is created and the principal cannot revoke the agency at will.62

In the promissory note with chattel mortgage, the Spouses Briones authorized petitioner to claim,
collect, and apply· the insurance proceeds towards the full satisfaction of their loan if the mortgaged
vehicle were lost or damaged. Clearly, a bilateral contract existed between the parties, making the
agency irrevocable. Petitioner was also aware of the bilateral contract; thus, it included the
designation of an irrevocable agency in the promissory note with chattel mortgage that it prepared
for the Spouses Briones to sign.

III

Petitioner asserts that the insurance coverage is only an alternative available to the Spouses
Briones;63 and with the denial of the insurance claim, the Spouses Briones are obligated to pay the
remaining balance plus interest of the mortgaged vehicle.64

The petitioner is again mistaken.

As the agent, petitioner was mandated to look after the interests of the Spouses Briones. However,
instead of going after the insurance proceeds, as expected of it as the agent, petitioner opted to
claim the full amount from the Spouses Briones, disregard the established principal-agency
relationship, and put its own interests before those of its principal.

The facts show that the insurance policy was valid when the vehicle was lost, and that the insurance
claim was only denied because of the belated filing. 1âwphi1
Having been negligent in its duties as the duly constituted agent, petitioner must be held liable for
the damages suffered by the Spouses Briones because of non-performance65 of its obligation as the
agent, and because it prioritized its interests over that of its principal.66

Furthermore, petitioner's bad faith was evident when it advised the Spouses Briones to continue
paying three (3) monthly installments after the loss, purportedly to show their good faith.67 A principal
and an agent enjoy a fiduciary relationship marked with trust and confidence, therefore, the agent
has the duty "to act in good faith [to advance] the interests of [its] principal."68

If petitioner was indeed acting in good faith, it could have timely informed the Spouses Briones that it
was terminating the agency and its right to file an insurance claim, and could have advised them to
facilitate the insurance proceeds themselves. Petitioner's failure to do so only compounds its
negligence and underscores its bad faith. Thus, it will be inequitable now to compel the Spouses
Briones to pay the full amount of the lost property.

WHEREFORE, premises considered, the Petition is DENIED. The Court of Appeals Decision and
Resolution dated September 27, 2012 and February 6, 2013, respectively, in CA-G.R. CV. No.
97453 are AFFIRMED.

SO ORDERED.

MARVIC M.V.F. LEONEN

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

On official leave
DIOSDADO M. PERALTA
JOSE CATRAL MENDOZA*
Associate Justice
Associate Justice

SAMUEL R. MARTIRES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION
Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation,
I certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

*
On official leave.

1
CIVIL CODE, art. 1884.

2
Rollo, pp. 11-76.

3
Id. at 83-97. The Decision was penned by Associate Justice Ramon R. Garcia and
concurred in by Associate Justices Amelita G. Tolentino and Danton Q. Bueser of the Fourth
Division, Court of Appeals, Manila.

4
Id. at 122-123. The Resolution was penned by Associate Justice Ramon R. Garcia and
concurred in by Associate Justices Amelita G. Tolentino and Danton Q. Bueser of the Fourth
Division, Court of Appeals, Manila.

5
Id. at 77-81. The Decision was penned by Acting Presiding Judge Joselito C. Villarosa of
Branch 138, Regional Trial Court, City of Makati.

6
Id. at 84.

7
Id.

8
Id. at 77.

9
Id.

10
Id.

11
Id. at 78.

12
Id.

13
Id.

14
Id.

15
Id. at 85.

16
Id.
17
Id.

18
Id. at 24.

19
Id.

20
Id. at 77-81.

21
Id. at 78-79.

22
Id. at 79-80.

23
Id. at 81.

24
Id. at 83-97.

25
Id. at 92-93.

26
Id.

27
Id. at 94.

28
Id.

29
Id.

30
Id.

31
Id. at 95.

32
Id. at 97.

33
Id. at 122-123.

34
Id. at 98-121.

35
Id.at31-34.

36
Id. at 34.

37
Id. at 35.

38
Id. at 47.

39
Id. at 48.

40
Id. at 52.

41
Id. at 135-136. Comment.
42
Id. at 136. Comment.

43
Id. at 143. Comment.

44
CIVIL CODE, art. 1868.

45
CIVIL CODE, art. 1884.

46
171 Phil 222 (1978) [Per J. Muñoz Palma, First Division].

47
Id. at 226-227.

48
Rollo, p. 77.

49
Id.

50
Id. at 93.

51
CIVILCODE, art.1370.

52
Rollo, p. 48.

53
CIVIL CODE, art. 1924 provides:

Article 1924. The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons.

Bitte v. Spouses Jonas, G.R. No. 212256, December 9, 2015, 777 SCRA 489, 512 [Per J.
54

Mendoza, Second Division].

55
Rollo, p. 78.

56
Id.

57
Id.

58
Id.

59
Republic v. Evangelista, 504 Phil 115, 121 (2005) [Per J. Puno, Second Division].

60
Id.

61
488 Phil 236 (2004) [Per J. Tinga, Second Division].

62
Id. at 244-245.

63
Rollo, p. 35.

64
Id. at 73-74.
65
CIVIL CODE, art. 1884 provides:

Article 1884. The agent is bound by his acceptance to carry out the agency, and is
liable for damages which, through his non-performance, the principal may suffer.

He must also finish the business already begun on the death of the principal, should
delay entail any danger.

66
CIVIL CODE, art. 1889 provides:

Article 1889. The agent shall be liable for damages if, there being a conflict between
his interests and those of the principal, he should prefer his own.

67
Rollo, p. 78.

68
Bank of the Philippine Islands v. Laingo, G.R. No. 205206, March 16, 2016
<http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/20l6/march2016/205206.p
dt> [Per J. Carpio, Second Division].
 SECOND DIVISION

January 25, 2017

G.R. No. 212375

KABISIG REAL WEALTH DEV., INC. and FERNANDO C. TIO,, Petitioners

vs.
YOUNG BUILDERS CORPORATION, Respondent

DECISION

PERALTA, J.:

This is a Petition for Review which petitioners Kabisig Real Wealth Dev., Inc. and Fernando C. Tio
filed assailing the Court of Appeals (CA) Decision1 dated June 28, 2013 and Resolution2 dated March
28, 2014 in CAG.R. CV No. 02945, affirming the Decision of the Regional Trial Court (RTC) of Cebu
City, Branch 12, dated July 31, 2008 in Civil Case No. CEB- 27950.

The following are the pertinent antecedents of the case, as shown by the records:

Sometime in April 2001, Kabisig Real Wealth Dev., Inc. (Kabisig), through Ferdinand Tio (Tio),
contracted the services of Young Builders Corporation (Young Builders) to supply labor, tools,
equipment, and materials for the renovation of its building in Cebu City. Young Builders then finished
the work in September 2001 and billed Kabisig for P4,123,320.95. However, despite numerous
demands, Kabisig failed to pay. It contended that no written contract was ever entered into between
the parties and it was never informed of the estimated cost of the renovation. Thus, Young Builders
filed an action for Collection of Sum of Money against Kabisig.

On July 31, 2008, the RTC of Cebu City rendered a Decision finding for Young Builders, thus:

WHEREFORE, judgment is hereby rendered ordering the defendants to pay plaintiff P4,123,320.95
representing the value of services rendered and materials used in the renovation of the building of
defendant Kabisig Real Wealth Dev., Inc. into a restaurant of defendant Ferdinand Tio, by way of
actual damages, plus 12% per annum from September 11, 2001 until it is fully paid. Costs against
defendants.

SO ORDERED.3

Therefore, Kabisig elevated the case to the CA. On June 28, 2013, the appellate court affirmed the
RTC Decision, with modification, viz.:

WHEREFORE, foregoing premises considered, the Decision dated July 31, 2008 rendered by the
Regional Trial Court of Cebu City, Branch 12 in Civil Case No. CEB-27950 is
hereby AFFIRMED with MODIFICATION, deleting the award for actual damages. As modified, the
defendants Kabisig Real Wealth Dev., Inc. and Ferdinand Tio are ordered to jointly pay the plaintiff
Young Builders Corporation Two Million Four Hundred Thousand (₱2,400,000.00) Pesos as
TEMPERATE DAMAGES for the value of services, rendered and materials used in the renovation of
defendants-appellants building. In addition, the total amount adjudged shall earn interest at the rate
of 12% per annum from September 11, 2001, until it is fully paid. Costs against defendants.
SO ORDERED.4

Subsequently, Young Builders and Kabisig moved for reconsideration, but both were denied by the
CA.5

Hence, Kabisig filed the instant petition.

The sole issue is whether or not Kabisig is liable to Young Builders for the damages claimed:

Under the Civil Code, a contract is a meeting of minds, with respect to the other, to give something
or to render some service. Article 1318 reads:

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

(1) Consent of the contracting parties;

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

(3) Cause of the obligation which is established.

Accordingly, for a contract to be valid, it must have the following essential elements: (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. Consent must exist, otherwise, the contract is nonexistent.
Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause,
which are to constitute the contract. By law, a contract of sale, is perfected at the moment there is a
meeting of the minds upon the thing that is the object of the contract and upon the price. Indeed, it is
a consensual contract which is perfected by mere consent.6

Through the testimonies of both Young Builders' and Kabisig's witnesses, Tio commissioned the
company of his friend, Nelson Yu, to supply labor, tools, equipment, and materials for the renovation
of Kabisig's building into a restaurant. While Tio argues that the renovation was actually for the
benefit of his partners, Fernando Congmon, Gold En Burst Foods Co., and Sunburst Fried Chicken,
Inc., and therefore, they should be the ones who must shoulder the cost of the renovation, said
persons were never impleaded in the instant case. Moreover, all the documents pertaining to the
project, such as official receipts of payment for the building permit application, are under the names
of Kabisig and Tio.

Further, Kabisig's claim as to the absence of a written contract between it and Young Builders simply
does not hold water. It is settled that once perfected, a contract is generally binding in whatever
1avvphi1

form, whether written or oral, it may have been entered into, provided the aforementioned essential
requisites for its validity are present.7 Article 1356 of the Civil Code provides:

Art. 1356. Contracts shall be obligatory in whatever form they may have been entered into, provided
all the essential requisites for their validity are present.

xxxx

There is nothing in the law that requires a written contract for the agreement in question to be valid
and enforceable. Also, the Court notes that neither Kabisig nor Tio had objected to the renovation
work, until it was already time to settle the bill.
Likewise, the appellate court aptly reduced the amount of damages awarded by the RTC. Under
Article 2199 of the Civil Code, actual or compensatory damages are those awarded in satisfaction of,
or in recompense for, loss or injury sustained. They proceed from a sense of natural justice and are
designed to repair the wrong that has been done, to compensate for the injury inflicted. They either
refer to the loss of what a person already possesses (dano emergente ), or the failure to receive as a
benefit that which would have pertained to him (lucro cesante ),8 as in this case.

For an injured party to recover actual damages, however, he is required to prove the actual amount
of loss with reasonable degree of certainty premised upon competent proof and on the best
evidence available. The burden of proof is on the party who would be defeated if no evidence would
be presented on either side. He must establish his case by a preponderance of evidence, which
means that the evidence adduced by one side is superior to that of the other. In other words,
damages cannot be presumed and courts, in making an award, must point out specific facts that
could afford a basis for measuring compensatory damages. A court cannot merely rely on
speculations, conjectures, or guesswork as to the fact and amount of damages as well as hearsay or
uncorroborated testimony whose truth is suspect. A party is entitled to adequate compensation only
for such pecuniary loss actually suffered and duly proved. Indeed, to recover actual damages, the
amount of loss must not only be capable of proof but must actually be proven with a reasonable
degree of certainty, premised upon competent proof or best evidence obtainable of its actual
amount.9 Here, the evidence reveals that Young Builders failed to submit any competent proof of the
specific amount of actual damages being claimed. The documents submitted by Young Builders
either do not bear the name of Kabisig or Tio, their conformity, or signature, or do not indicate in any
way that the amount reflected on its face actually refers to the renovation project.

Notwithstanding the absence of sufficient proof, Young Builders still deserves to be recompensed for
actually completing the work. In the absence of competent proof on the amount of actual damages,
the courts allow the party to receive temperate damages. Temperate or moderate damages, which
are more than nominal but less than compensatory damages, may be recovered when the court
finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case,
be proved with certainty.10

To determine the compensation due and to avoid unjust enrichment from resulting out of a fulfilled
contract, the principle of quantum meruit may be used. Under this principle, a contractor is allowed
to recover the reasonable value of the services rendered despite the lack of a written contract. The
measure of recovery under the principle should relate to the reasonable value of the services
performed. The principle prevents undue enrichment based on the equitable postulate that it is
unjust for a person to retain any benefit without paying for it. Being predicated on equity, said
principle should only be applied if no express contract was entered into, and no specific statutory
provision was applicable.11

The principle of quantum meruit justifies the payment of the reasonable value of the services
rendered and should apply in the absence of an express agreement on the fees. It is notable that the
issue revolves around the parties' inability to agree on the fees that Young Builders should receive.
Considering the absence of an agreement, and in view of the completion of the renovation, the Court
has to apply the principle of quantum meruit in determining how much is due to Young Builders.
Under the established circumstances, the total amount of ₱2,400,000.00 which the CA awarded is
deemed to be a reasonable compensation under the principle of quantum meruit since the
renovation of Kabisig's building had already been completed in 2001. 12

Finally, the rate of interest should be modified. When the obligation is breached, and it consists in
the payment of a sum of money, as in this case, the interest due should be that which may have
been stipulated in writing. In the absence of stipulation, the rate of interest shall be 12%, later
reduced to 6%,13 per annum to be computed from default, i.e., from judicial or extrajudicial demand,
subject to the provisions of Article 116914 of the Civil Code. Here, the records would show that Young
Builders made the demand on September 11, 2001. Also, the rate of legal interest for a judgment
awarding a sum of money shall be 6% per annum from the time such judgment becomes final and
executory until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.15

WHEREFORE, PREMISES CONSIDERED, the Court DISMISSES the petition for lack of merit
and AFFIRMS the Decision of the Court of Appeals dated June 28, 2013, and its Resolution dated
March 28, 2014, in CA-G.R. CV No. 02945, with MODIFICATION as to the interest which must be
twelve percent (12%) per annum of the amount awarded from the time of demand on September 11,
2001 to June 30, 2013, and six percent (6%) per annum from July 1, 2013 until its full
satisfaction. SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

JOSE CATRAL MENDOZA MARVIC M.V.F. LEONEN

Associate Justice Associate Justice

FRANCIS H. JARDELEZA*

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decisionhad been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation,
I certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice
Footnotes

*
Designated Additional Member per Special Order No. 2416, dated January 4, 2017.

1
Penned by Associate Justice Gabriel T. Ingles, with Associate Justices Pampio A.
Abarintos, and Marilyn B. Lagura-Yap, concurring; rollo, pp. 29-47.

2
Id. at 49-50

3
Id at 29.

4
Id. at 47. (Emphasis in the original).

5
Id. at 49-50.

6
Heirs of Intac v. CA, G.R. No. 173211, October 11, 2012, 684 SCRA 88, 98.

7
Delos Reyes v. CA, G.R. No. 129103, September 3, 1999, 313 SCRA 632, 643.

8
PNOC Shipping and Transport Corporation v. CA, G.R. No. 107518 October 8, 1998, 297
SCRA 402, 417.

9
Id.

10
Republic v. Mupas, G.R. No. 181892, September 8, 2015.

11
International Hotel Corporation v. Joaquin, G.R. No. 158361, April 10, 2013.

12
Id.

13
Effective starting on July 1, 2013, pursuant to Bangko Sentral ng Pilipinas Circular No. 799,

Series of 2013; Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013, 703 SCRA
439, 457-458.

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
14

obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform. In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by the
other begins.
15
Nacar, supra note 13.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 187769 June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.

DECISION

BRION, J.:

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 Marasigan III (Marasigan)
the sum of ₱200,000.00.

The Factual Background

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

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 payee’s 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 petitioner’s knowledge and consent, Gutierrez went to Marasigan
(the petitioner’s former teammate), to secure a loan in the amount of ₱200,000.00 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.

After much contemplation and taking into account his relationship with the petitioner and Gutierrez,
Marasigan acceded to Gutierrez’ request and gave him ₱200,000.00 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 "₱200,000.00". 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 petitioner’s 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 ₱200,000.00, 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 check’s negotiation, and asserted that
he was not privy to the parties’ loan agreement.

Only Marasigan filed his answer to the complaint. In the RTC’s order dated December 22,
1997,Gutierrez was declared in default.

The Ruling of the RTC

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 petitioner’s
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
petitioner’s 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

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
petitioner’s 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 ₱200,000.00.

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 check’s 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 check’s 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

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

1. Whether the contract of loan in the amount of ₱200,000.00 granted by respondent

Marasigan to petitioner, through respondent Gutierrez, may be nullified for being void;

2. Whether there is basis to hold the petitioner liable for the payment of the ₱200,000.00
loan;

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

4. Whether Marasigan is a holder in due course.

The Court’s Ruling

The petition is impressed with merit.

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
petitioner’s 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.

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 off act 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.

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

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." 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 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.

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:

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

xxxx

(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)

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:

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:

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.
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
1âwphi 1

(SPA) in favor of Gutierrez. In fact, the petitioner’s 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:

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 petitioner’s 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.

Marasigan’s 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:

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:

Petitioner submits that his following testimony suffices to establish that respondent had authorized
Lilian to obtain a loan from him.

xxxx

Petitioner’s 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:12

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 beno
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)

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 Latter’s 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 Code14enumerates 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
petitioner’s 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 petitioner’s grant of consent to the parties’ loan
agreement. Without any evidence to prove Gutierrez’ authority, the petitioner’s 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.15

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.

II. Liability Under the Instrument

The answer is supplied by the applicable statutory provision found in Section 14 of the Negotiable
Instruments Law (NIL) which states:

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 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.16

In order however that one who is not a holder in due course can enforce the instrument against a
party prior to the instrument’s 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.17
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:

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;

(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;

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

(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)

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 beset 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.19

As held in De Ocampo v. Gatchalian:20

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, Marasigan’s 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:

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: 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 Alvin’s 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
1âwphi 1

their 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 petitioner’s 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 tantumonly; 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.

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:

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 ₱200,000 in this check?

A: No, sir.

Q: And lastly, did you authorize anyone including Nap Gutierrez to write the words ₱200,000 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.

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.

ARTURO D. BRION
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes
1
Under Rule 45 of the Rules of Coui1, rollo, pp. 9-31,

2
Id. at 30-47; penned by Associate Justice Monina Arevalo-Zenarosa, and concurred in by
Associate Justice Regalado E. Maambong and Associate Justice Sixto C. Marella, Jr.

3
Id. at 48-50.

4
Rollo, pp. 67-72.

5
Republic v. Bellate, G.R. No. 175685, August 7, 2013, 703 SCRA 210, 218.

6
Article 1869, Civil Code of the Philippines.

7
200 Phil. 685 (1982).

8
Rollo, p. 82.

9
G.R. No. 150350, August 22, 2006, 499 SCRA 466, 472.

10
G.R. No. 167812, December 19, 2006, 511 SCRA 305, 313-314.

11
People v. Yabut, G.R. No. L-42847 and L-42902, April 29, 1977, 167 Phil. 336, 343.

12
Id.

Pentacapital Investment Corporation v. Mahinay, G.R. No. 171736, July 5, 2010, 623
13

SCRA 284, 302.

14
Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

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

(3) Cause of the obligation which is established. (1261).

15
Deheza-Inamarga v. Alano, G.R. No. 171321, December 18, 2008, 574 SCRA 651, 660.

16
Dy v. People, G.R. No. 158312, November 14, 2008, 571 SCRA 59, 71-72.

T.B. Aquino, Notes and Cases on Banks, Negotiable Instruments and Other Commercial
17

Documents, p. 234 (2006 ed.).

A.F. Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the

18

Philippines, p. 281 (1992 ed.).

19
Id.

20
G.R. No. L-15126, November 30, 1961, 3 SCRA 596, 598.
21
Rollo, pp. 141-142.

22
Dino v. Loot, G.R. No. 170912, April 19, 2010, 618 SCRA 393, 404.

23
Id.

24
Rollo, p: 117.
 FIRST DIVISION

April 24, 2017

G.R. No. 205998

WILLIAM ANGIDAN SIY, Petitioner

vs.
ALVIN TOMLIN, Respondent

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari1 assails the October 9, 2012 Decision2 and February 19, 2013
Resolution3 of the Court of Appeals (CA) which respectively granted the respondent's Petition
for Certiorari and denied petitioner1s Motion for Reconsideration4 in CA-G.R. SP No. 124967.

Factual Antecedents

In July, 2011, petitioner William Anghian Siy filed before the Regional Trial Court of Quezon City
(RTC) a Complaint for Recovery of Possession with Prayer for Replevin5 against Frankie Domanog
Ong (Ong), Chris Centeno (Centeno), John Co Chua (Chua), and herein respondent Alvin Tomlin.
The case was docketed as Civil Case No. Q-11-69644 and assigned to RTC Branch 224.

In his Complaint, petitioner alleged that he is the owner of a 2007 model Range Rover with Plate
Number ZMG 272 which he purchased from alberto Lopez III (Lopez) on July 22, 2009; that in 2010,
he entrusted the said vehicle to Ong, a businessman who owned a second-hand car sales
showroom ("Motortrend" in Katipunan, Quezon City), after the latter claimed that he had a
prospective buyer therefor; that Ong failed to remit the proceeds of the purported sale nor return the
vehicle; that petitioner later found out that the vehicle had been transferred to Chua; that in
December, 2010, petitioner filed a complaint before the Quezon City Police District's Anti-
Carnapping Section; that Ong, upon learning of the complaint, met with petitioner to arrange the
return of the vehicle; that Ong still failed to surrender the vehicle; that petitioner learned that the
vehicle was being transferred to respondent; and that the vehicle was later impounded and taken
into custody by the PNP-Highway Patrol Group (HPG) at Camp Crame, Quezon City after
respondent attempted to process a PNP clearance of the vehicle with a view to transferring
ownership thereof. Petitioner thus prayed that a writ of replevin be issued for the return of the vehicle
to him, and that the defendants be ordered to pay him ₱100,000.00 atton1ey's fees and the costs of
suit.

After hearing the application, the trial court issued a July 29, 2011 Order6 decreeing as follows:

WHEREFORE, in view of the foregoing, and with the ADMISSION of the plaintiff's Documentary
Exhibits in support of this Application, issue a Writ of Replevin in favor of the plaintiff subject to the
posting of the bond in the amount of EIGHT MILLION PESOS (Php8,000,000.00) to be executed in
favor of the defendants for the return of the said property if such return be adjudged, and for the
payment to the adverse parties of such sum as they may recover from the applicant in this action.

SO ORDERED.7
Petitioner posted the required ₱8 million bond8 which was approved by the trial court.9 A Writ of
Replevin10 was then issued.

The subject vehicle was seized by the court-appointed special sheriff who then filed the
corresponding Sheriff's Return. 11

On August 17, 2011, respondent filed an Omnibus Motion12 seeking to quash the Writ of Replevin,
dismiss the Complaint, and turn over or return the vehicle to him. Respondent claimed that he is the
lawful and registered owner of the subject vehicle, having bought the same and caused registration
thereof in his name on March 7, 2011; that the Complaint in Civil Case No. Q-11-69644 should be
dismissed for failure to pay the correct amount of docket fees; that the Complaint is defective for
failing to allege the correct and material facts as to ownership, possession/detention by defendant,
warranty against distraint/levy/seizure, and actual value of the vehicle; and that the implementation
of the writ was attended by procedural irregularities.

Particularly, respondent argued that petitioner could not prove his ownership of the vehicle as the
only pieces of evidence he presented in this regard were a manager's check and cash voucher as
proof of payment, and the affidavit of Lopez attesting to the sale between him and petitioner which
are insufficient; that in fact, he is the registered owner of the vehicle, as shown by the Official
Receipt and Certificate of Registration13 dated March 7, 2011 issued in his name by the Land
Transportation Office (LTO); that it has not been shown that he wrongfully detained the vehicle, as
petitioner was never in possession thereof, since the same was already detained and seized by the
HPG at the time; that petitioner failed to allege, as required under Section 2 of Rule 60 of the 1997
Rules of Civil Procedure 14 (1997 Rules), that the vehicle has not been distrained or taken for a tax
assessment or a fine pursuant to law, or seized under a writ of execution or preliminary attachment,
or otherwise placed under custodia legis, or if so seized, that it is exempt from such seizure or
custody; and that petitioner failed to allege the actual market value (₱4 million) of the vehicle, and
instead, he intentionally understated its value at only ₱2 million in order to avoid paying the correct
docket fees.

As for the alleged procedural defects, respondent claimed that the sheriff implemented the writ
against the HPG, which is not a party to the case; that the Complaint must be dismissed for failure to
pay the correct docket foes based on the actual value of the vehicle; and that the trial court acted
with undue haste in granting the writ of replevin.

Finally, respondent argued that he is the true owner of the subject vehicle as he was able to register
the transfer in his favor and obtain a certificate of registration in his name; and that as between
petitioner's documentary evidence and his official registration documents, the latter should pre
Petitioner filed his Opposition/Comment15 to the omnibus motion.

Ruling of the Regional Trial Court

On November 21, 2011, the trial court issued an Order16 denying respondent's Omnibus Motion for
lack of merit. It held that respondent's remedy is not to move to quash the writ of replevin, but to post
a counterbond within the reglementary period allowed under the 1997 Rules; that for failure to post
said, counterbond, respondent's prayer for the return of the vehicle to him is premature; that the
issues of ownership and insufficiency of the allegations in the complaint are best determined during
trial; and that an allegation of undervaluation of the vehicle cannot divest the court of jurisdiction.

Respondent moved for reconsideration, but he was rebuffed just the same.

Ruling of the Court of Appeals

Respondent filed a Petition for Certiorari17 before the CA docketed as CAG. R. SP No. 124967
claiming as he did in his Omnibus Motion that the trial court should have dismissed Civil Case No.
Q-11-69644 on account of failure to pay the correct docket fees, defective complaint, procedural
irregularities in the service of the writ of replevin, the fact that he is the registered owner of the
subject vehicle, and for the reason that the trial court irregularly took cognizance of the case during
the period for inventory of its cases. Respondent sought injunctive relief as well.

On October 9, 2012, the CA rendered the assailed Decision granting the Petition. It held that the trial
court did not acquire jurisdiction over the instant case for failure of petitioner to pay the correct
docket fees, since petitioner misdeclared the value of the subject vehicle at only ₱2 million in his
Complaint, when the market value thereof was around ₱4.5 million to ₱5 million; that this
misdeclaration was undertaken with the clear intention to defraud the government; and that
petitioner failed to comply with the requirements under Section 2, Rule 60 of the 1997 Rules, in that
he gave a grossly inadequate value for the subject vehicle in the Complaint and failed to allege
therein that the vehicle has not been distrained or taken for a tax assessment or a fine pursuant to
law, or seized under a writ of execution or preliminary attachment, or otherwise placed
under custodia legis.

The CA added that it was improper for the sheriff to serve a copy of the writ of replevin upon the
respondent on the day following the seizure of the subject vehicle, and not prior to the taking thereof;
that the trial court is deemed to have acted without or in excess of its jurisdiction when it seized and
detained the vehicle on the basis of an improperly served writ; and that respondent was correct in
moving to quash the writ, as the proper remedy in case of an improperly served writ of replevin is to
file a motion to quash the same or a motion to vacate the order of seizure, and not to file a
counterbond as the trial court declared.

The CA thus decreed:

WHEREFORE, premises considered, the instant Petition for Certiorari is hereby GRANTED with the
following effects:

1) [T]he Order dated 21 November 2011 rendered by the Regional Trial Court of Quezon
City, Bnmch 224 is REVERSED and SET ASIDE;

2) [T]he Order dated 13 March 2012 similarly rendered by the Regional Trial Court of
Quezon City, Branch 224 is REVERSED and SET ASIDE;

3) Civil Case No. Q-11-69644 pending before the Regional Trial Court of Quezon City,
Branch 224 is hereby DISMISSED for want of jurisdiction;

4) The subject Range Rover with plate number ZMG 272 should be RETURNED to the
Philippine National Police-Highway Patrol Group for its proper disposition and finally;

5) Prayer for the Issuance of Temporary Restraining Order and/or Preliminary Injunction is
DENIED for being moot and academic.

SO ORDERED.18

Petitioner moved to reconsider, but in its assailed February 19, 2013 Resolution, the CA remained
unconvinced. Hence, the present Petition.
In a November 10, 2014 Resolution, 19 this Court resolved to give due course to the Petition.

Issues

Petitioner pleads the following assignment of errors:

I.

WHETHER XX X THE TRIAL COURT HAS ACQUIRED JURISDICTION OVER THE SUBJECT
MATTER OF THE COIV1PLAINT FOR RECOVERY OF POSSESSION WITH PRAYER FOR
REPLEVIN.

II.

WHETHER XXX THE PETITIONER FAILED TO ALLEGE ALL THE MATERIAL FACTS IN THE
COMPLAINT FOR REPLEVIN AND AFFIDAVIT OF MERIT UNDER SECTIONS 2 & 4, RULE 60 OF
THE REVISED RULES OF COURT.

III.

WHETHER X X X TIIE SHERIFF PROPERLY IMPLEMENTED THE WRIT OF REPLEVIN BY

SERVING THE SAME TO ANY PERSON WHO IS IN POSSESSION OF THE PROPERTY
SUBJECT THEREOF.20

Petitioner's Arguments

Praying that the assailed CA dispositions be reversed and set aside and that, instead, Civil Case No.
Q-11-69644 be reinstated, petitioner argues that the trial court acquired jurisdiction over the replevin
case considering the payment of docket fees based on a valuation of the subject vehicle arrived at in
good faith by petitioner, who in estimating the vehicle's value took into consideration various factors
such as depreciation, actual condition, year model, and other circumstances; that the payment of an
inadequate docket fee is not a ground for dismissal of a case, and the trial court may simply allow
the plaintiff to complete the payment of the correct docket fees within a reasonable time;21and that his
eventual submission to the trial court's valuation of ₱4 million and his willingness to pay the bond
and corresponding docket fee proves his good faith and sincerity.

On the issue relating to his supposed defective complaint on account of insufficient allegations made
therein, petitioner contends that there is nothing in the 1997 Rules which requires him to copy the
requirements in Section 2 of Rule 60 and incorporate them to the letter in his complaint, as the rule
merely requires an applicant in replevin to show the circumstances in his complaint or affidavit of
merit, which he claims he did.

Finally, petitioner insists that the writ of replevin was properly served upon respondent. He did not
address the issue relating to the sheriff's service of summons, the Writ of replevin, and the
responding order of the trial court on the day following the seizure and detention of the subject
vehicle, arguing rather sweepingly that it is sufficient for the sheriff to have served respondent with a
copy of the writ of replevin, together with the complaint, affidavit, and bond. He conceded that
respondent was in constructive possession of the vehicle, as he was the registered owner thereof.

In his Reply, 22 petitioner retorts that the Petition is grounded on questions of law; that even though
respondent was able to register the vehicle in his name, he is nonetheless a buyer and possessor in
bad faith, and thus, the transfer of ownership over the subject vehicle in his favor is illegal; that a
criminal case for estafa relative to the vehicle is pending against Ong, Chua, and Centeno; that
Lopez's purported sale to Chua was anomalous; and that respondent should have filed a
counterbond.

Respondent's Arguments

In his Comment, 23 respondent essentially counters that the Petition should be dismissed as it raises
issues of fact; that a liberal application of the rule requiring the payment of correct docket fees
cannot apply to petitioner's case since he intentionally defrauded the court in misdeclaring the value
of the subject vehicle; that while they need not be stated verbatim, the enumeration of required
allegations under Section 2 of Rule 60 must still be specifically included in a complaint for replevin or
in the accompanying affidavit of merit; that petitioner failed to show that he is the owner of the
vehicle or that he is entitled to its possession, and that the vehicle is wrongfully detained by him, and
that it has not been distrained, seized or placed under custodia legis; and that he is a buyer in good
faith and for value.

Our Ruling

The Petition must be denied.

"In a complaint for replevin, the claimant must convincingly show that he is either the owner or
clearly entitled to the possession of the object sought to be recovered, and that the defendant, who
is in actual or legal possession thereof, wrongfully detains the same."24 "Rule 60 x x x allows a
plaintiff, in an action for the recovery of possession of personal property, to apply for a writ of
replevin if it can be shown that he is 'the owner of the property claimed ... or is entitled to the
possession thereof.’ The plaintiff need not be the owner so long as he is able to specify his right to
the possession of the property and his legal basis therefor." 25

In Filinvest Credit Corporation v. Court of Appeals,26 this Court likewise held that-

x x x It is not only the owner who can institute a replevin suit. A person "entitled to the possession" of
the property also can, as provided in the same paragraph cited by the trial court, which reads:

Sec. 2. Affidavit and bond. - Upon applying for such order the plaintiff must show...

(a) That the plaintiff is the owner of the property claimed, particularly describing it, or is entitled to the
possession thereof; xxx

As correctly cited by respondent in his Comment:27

x x x [A] party praying for the recovery of possession of personal property must show by his own
affidavit or that of some other person who personally knows the facts that he is the owner of the
property claimed, particularly describing it, or is entitled to the possession thereof It must be borne in
mind that replevin is a possessory action the gist of which focuses on the right of possession that, in
turn, is dependent on a legal basis that, not infrequently, looks to the ownership of the object sought
to be replevied. Wrongful detention by the defendant of the properties sought in an action for
replevin must be satisfactorily established. If only a mechanistic averment thereof is offered, the writ
should not be issued.28
Petitioner admits and claims in his pleadings that on July 22, 2009, he purchased the subject vehicle
from Lopez, who executed and signed in blank a deed of sale and sun-endered all documents of title
to him;29 that he did not register the sale in his favor, such that the vehicle remained in the name
ofLopez;30 that in September, 2010, he delivered the subject vehicle, together with all its documents
of title and the blank deed of sale, to Ong, with the express intention of selling the vehicle through
the latter as broker/second hand car dealer; that Ong appears to have issued in his favor two
guarantee checks amounting to P4.95 million; and that these checks bounced.31Thereafter, Ong was
able to sell the vehicle using the deed of sale executed and signed in blank by Lopez to Chua, who
secured a certificate of registration in his name.32 Chua then sold the vehicle, via a Deed of Sale of
Motor Vehicle dated December 7, 2010, to respondent, who caused registration of the vehicle in his
name on March 7, 2011.33 Apparently, Ong did not remit Chua's payment to petitioner, prompting the
latter to file formal complaints/charges for 1) estafa and carna1ming on May 18, 2011 before the
Office of the City Prosecutor of Quezon City, and 2) camapping on June 15, 2011 before the PNP-
HPG in Camp Crame, Quezon City against Ong and Centeno.34 It appears as well that prior to the
filing of these fonnal complaints, or sometime in November, 2010, petitioner appeared before the
Quezon City Anti-Carnapping Unit based in Camp Karingal, Quezon City and, claiming that the
subject vehicle was cainapped, filed a "Failed to Return Vehicle" report; that on February 23, 2011,
petitioner, respondent, Ong, and Chua appeared at Can1p Karingal to shed light on the claimed
camapping; that the parties were requested to voluntarily surrender the subject vehicle, but the
request proved futile; and that petitioner was instead advised to file appropriate charges and file a
complaint with the PNP-HPG in order to include the subject vehicle in the "hold order list".

This Court is not unaware of the practice by many vehicle buyers and second-hand car traders of not
transferring registration and ownership over vehicles purchased from their original owners, and
rather instructing the latter to execute and sign in blank deeds of sale covering these vehicles, so
that these buyers and dealers may freely and readily trade or re-sell the vehicles in the second-hand
car market without difficulty. This way, multiple transfers, sales, or trades of the vehicle using these
undated deeds signed in blank become possible, until the latest purchaser decides to actually
transfer the certificate of registration in his name. For many car owners-sellers, this is an easy
concession; so long as they actually receive the sale price, they will sign sale deeds in blank and
surrender them to the buyers or dealers; and for the latter, this is convenient since they can "flip'' or
re-sell the vehicles to the public many times over with ease, using these blank deeds of sale.

In many cases as well, busy vehicle owners selling their vehicles actually leave them, together with
all the documents of title, spare keys, and deeds of sale signed in blank, with second-hand car
traders they know and trust, in order for the latter to display these vehicles for actual viewing and
inspection by prospective buyers at their lots, warehouses, garages, or showrooms, and to enable
the traders to facilitate sales on-the-spot, as-is-where-is, without having to inconvenience the owners
with random viewings and inspections of their vehicles. For this kind of arrangement, an agency
relationship is created between the vehicle owners, as principals, and the car traders, as agents.
The situation is akin to an owner of jewelry who sells the same through an agent, who receives the
jewelry in trust and offers it for sale to his/her regular clients; if a sale is made, the agent takes
payment under the obligation to remit the same to the jewelry owner, minus the agreed commission
or other compensation.

From petitioner's own account, he constituted and appointed Ong as his agent to sell the vehicle,
surrendering to the latter the vehicle, all documents of title pertaining thereto, and a deed of sale
signed in blank, with full understanding that Ong would offer and sell the same to his clients or to the
public. In return, Ong accepted the agency by his receipt of the vehicle, the blank deed of sale, and
documents of title, and when he gave bond in the form of two guarantee checks worth ₱4.95 million.
All these gave Ong the authority to act for and in behalf of petitioner. Under the Civil Code on
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.

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

Art. 1870. Acceptance by the agent may also be express or implied from his acts which carry
out the agency, or from his silence or inaction according to the circumstances. (Emphasis and
underscoring supplied)

"The basis of agency is representation and the same may be constituted expressly or impliedly. In
an implied agency, the principal can be bound by the acts of the implied agent. "35 The same is true
with an oral agency.

Acting for and in petitioner's behalf by virtue of the implied or oral agency, Ong was thus able to sell
the vehicle to Chua, but he failed to remit the proceeds thereof to petitioner; his guarantee checks
bounced as well. This entitled petitioner to sue for estafa through abuse of confidence. This is
exactly what petitioner did: on May 18, 2011, he filed a complaint for estafa and carnapping against
Ong before the Quezon City Prosecutor's Office.

Since Ong was able to sell the subject vehicle to Chua, petitioner thus ceased to be the owner
thereof. Nor is he entitled to the possession of the vehicle; together with his ownership, petitioner
lost his right of possession over the vehicle. His argument that respondent is a buyer in bad faith,
when the latter nonetheless proceeded with the purchase and registration of the vehicle on March 7,
2011, despite having been apprised of petitioner's earlier November, 2010 "Failed to Return Vehicle"
report filed with the PNP-HPG, is unavailing. Petitioner had no right to file said report, as he was no
1âwphi1

longer the owner of the vehicle at the time; indeed, his right of action is only against Ong, for
collection of the proceeds of the sale.

Considering that he was no longer the owner or rightful possessor of the subject vehicle at the time
he filed Civil Case No. Q-11-69644 in July, 2011, petitioner may not seek a return of the same
through replevin. Quite the contrary, respondent, who obtained the vehicle from Chua and registered
the transfer with the Land Transportation Office, is the rightful owner thereof, and as such, he is
entitled to its possession. For this reason, the CA was correct in decreeing the dismissal of Civil
Case No. Q-11-69644, although it e1red in ordering the return of the vehicle to the PNP-HPG, which
had no further right to hold the vehicle in its custody. As the registered and rightful owner of the
subject vehicle, the trial court must return the same to respondent.

Petitioner cannot be allowed to cut his losses by ostensibly securing the recovery of the subject
vehicle in lieu of its price, which Ong failed and continues to fail to remit. On the other hand, Ong's
declarations contained in his Affidavit,36 to the effect that petitioner remains the owner of the vehicle,
and that Chua came into illegal possession and ownership of the same by unlawfully appropriating
the same for himself without paying for it, are unavailing. Faced with a possible criminal charge for
estafa initiated by petitioner for failing or refusing to remit the price for the subject vehicle, Ong's
declarations are considered self-serving, that is, calculated to free himself from the criminal charge.
The premise is that by helping petitioner to actually recover his vehicle by insisting that the same
was unlawfully taken from him, instead of remitting its price to petitioner, Ong expects that he and
petitioner may redeem themselves from their bad judgment; for the petitioner, the mistake of
bestowing his full faith and confidence upon Ong, and blindly surrendering the vehicle, its documents
of title, and a deed of sale executed and signed in blank, to the latter; and for Ong, his failure to remit
the proceeds of the sale to petitioner; and petitioner might then opt to desist from pursuing the estafa
and other criminal charges against him.
Having disposed of the case in the foregoing manner, there is no need to discuss the other issues
raised by the parties.

WHEREFORE, the Petition is DENIED. The October 9, 2012 Decision and February 19, 2013
Resolution of the Court of Appeals in CA-G.R. SP No. 124967 are AFFIRMED WITH
MODIFICATION, in that the subject Land Rover Range Rover, with Plate Number ZMG 272 and
particularly described in and made subject of these proceedings, is ORDERED RETURNED to
respondent Alvin Tomlin as its registered owner.

SO ORDERED.

MARIANO C. DEL CASTILLO,

Associate Justice

WE CONCUR:

MARIA LOURDES P.A. SERENO

Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO ESTELA M. PERLAS-BERNABE

Associate Justice Associate Justice

ALFREDO BENJAMIN S. CAGUIOA

Associate Justice

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation,
I certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

1
Rollo, pp. 12-37.

2
Id. at 42-52; penned by Associate Justice Marlene Gonzales-Sison and concurred in by
Associate Justices Hakim S. Abdulwahid and Edwin D. Sorongon.

3
Id. at 39-40.

4
Id. at 274-287.

5
Id. at 62-7 l.
6
Id. at 91-92; penned by Presiding Judge Tita Marilyn Payoyo-Villordon.

7
Id. at 92.

8
Id. at 93.

9
Id. at 94.

10
Id. at 95-96.

11
Id. at 99-100.

12
Id. at 101-134.

13
Id. at 397-398.

14
Sec. 2. Affidavit and bond. - The applicant must show by his own affidavit or that of some
other person who personally knows the facts:

(a) That the applicant is the owner of the property claimed, pruticularly describing it,
or is entitled to the possession thereof;

(b) That the property is wrongfully detained by the adverse party, alleging the cause
of detention thereof according to the best of his knowledge, information, and belief;

(c) That the property has not been distrained or taken for a tax assessment or a fine
pursuant to law, or seized under a writ of execution or preliminary attachment, or
otherwise placed under custodia legis, or if so seized, that it is exempt from such
seizure or custody; and

(d) The actual market value of the property.

The applicant must also give a bond, executed to the adverse party in double the
value of the property as stated in the affidavit aforementioned. for the return of the
property to the adverse party if such return be adjudged, and for the payment to the
adverse party of such sum as he may recover from the application in the action.

15
Rollo, pp. 137-171.

16
Id. at 195-198.

17
Id.at201-245.

18
Id. at 51.

19
Id. at 435-436.

20
Id. at 27.
 Citing Sun insurance Office, Ltd. v. Judge Asuncion, 252 Phil. 280 (1989) and United
21

Overseas Bank v. Judge Ros, 556 Phil. 178 (2007).

22
Rollo, pp. 410-427.

23
Id. at 302-320.

Superlines Transoortation Company, Inc. v. Philippine National Construction

24

Company, 548 Phil. 354, 364 (2007).

25
BA Finance Corporation v. Court of Appeals, 327 Phil. 716, 726-727 (1996),
citing Servicewide Specialists, Inc. v. Court of Appeals, 321 Phil. 427 (1995).

26
318 Phil. 653, 669 (1995).

27
Rollo, p. 310.

28
Twin Ace Holdings Corporation v. Rufina and Company, 523 Phil. 766, 779 (2006).

29
Rollo, pp. 16, 74-75.

30
Id. at 19.

31
Id. at 145, 179, 181.

32
Id. at 387, 389.

33
Id. at 393, 397-3Q8.

34
Id. at 77-82.

M.V. Casaclang Construction and Supp(v v. flora, G.R. No. 149881, Resolution of the
35

Court dated July 26, 2006.

36
Rollo, pp. 177-178.
 THIRD DIVISION

EUROTECH INDUSTRIAL G.R. No. 167552

TECHNOLOGIES, INC.,
Present:
Petitioner,

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,

CALLEJO, SR.,
- versus -
CHICO-NAZARIO, and

NACHURA, JJ.

Promulgated:

EDWIN CUIZON and ERWIN

April 23, 2007
CUIZON,

Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
 DECISION

CHICO-NAZARIO, J.:

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

The generative facts of the case are as follows:

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

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

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

1.) That ASSIGNOR[5] has an outstanding receivables from Toledo Power

Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00)
PESOS as payment for the purchase of one unit of Selwood Spate 100D Sludge Pump;

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

3.) That the ASSIGNEE does hereby accept this assignment.[7]

Following the execution of the Deed of Assignment, petitioner delivered to

respondents the sludge pump as shown by Invoice No. 12034 dated 30 June
1995.[8]

Allegedly unbeknownst to petitioner, respondents, despite the existence of

the Deed of Assignment, proceeded to collect from Toledo Power Company the
amount of P365,135.29 as evidenced by Check Voucher No. 0933[9] prepared by
said power company and an official receipt dated 15 August 1995 issued by
Impact Systems.[10] Alarmed by this development, petitioner made several
demands upon respondents to pay their obligations. As a result, respondents
were able to make partial payments to petitioner. On 7 October 1996, 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 instituted a complaint for sum of money, damages, with
application for preliminary attachment against herein respondents before
the Regional Trial Court of Cebu City.[12]

On 8 January 1997, the trial court granted petitioners prayer for the
issuance of writ of preliminary attachment.[13]
 On 25 June 1997, respondent EDWIN filed his Answer[14] 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]

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 Memorandum[21] in support of his
special and affirmative defenses and petitioners opposition[22] 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 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]

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:

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.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:
 CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
 REYNATO S. PUNO

Chief Justice

[1]
Penned by Associate Justice Vicente L. Yap with Associate Justices Arsenio J. Magpale and Ramon M. Bato , Jr.,
concurring; rollo, pp. 33-36.
[2]
Id. at 37-39.
[3]
Id. at 83-84.
[4]
Annex H of the Complaint; records, p. 18.
[5]
Referring to Impact Systems Sales.
[6]
Referring to petitioner Eurotech Industrial Technologies, Inc.
[7]
Annex G of the Complaint; records, p. 17.
[8]
Annex H of the Complaint; id. at 18.
[9]
Annex I of the Complaint; id. at 19.
[10]
Annex J of the Complaint; id. at 20.
[11]
Annex L of the Complaint; id. at 22.
[12]
The case was raffled off to Branch 8 of the RTC Cebu City.
[13]
Records, p. 27.
[14]
Id. at 38-41.
[15]
Id. at 38.
[16]
Ibid.
[17]
Id. at 1.
[18]
Id. at 50.
[19]
Id. at 61.
[20]
Edwin Cuizons counsel requested that the Special and Affirmative Defenses in his Answer be treated as his
Motion to Dismiss; Order dated 16 October 2001; id. at 78.
[21]
Id. at 82-86.
[22]
Memorandum dated 16 November 2001; id. at 87-91.
[23]
Id. at 95-96.
[24]
Rollo, p. 35.
[25]
Id. at 17.
[26]
Id. at 21-22.
[27]
Id. at 25-26.
[28]
Id. at 98-114.
[29]
Article 1868 of the Civil Code.
[30]
Reuschlein and Gregory, Agency and Partnership (1979 edition), p. 1.
[31]
3 Am Jur 2d, 1.
[32]
Padilla, Agency Text and Cases, (1986 edition), p. 2.
[33]
He who acts through another acts by or for himself; id. at 2.
[34]
Yu Eng Cho v. Pan American World Airways, Inc., 385 Phil. 453, 465 (2000).
[35]
3 Am Jur 2d, 91, p. 602.
[36]
Records, p. 2.
[37]
Annex H of the Complaint; records, p. 18.
[38]
Annex G of the Complaint; id. at 17.
[39]
Philippine Products Company v. Primateria Societe Anonyme Pour Le Commerce Exterieur, 122 Phil. 698, 702
(1965).
[40]
De Leon and De Leon, Jr., Comments and Cases on Partnership, Agency, and Trusts (1999 edition), p. 512.
[41]
Rule 3, 1 of the Revised Rules of Court.
 Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

CARIDAD SEGARRA SAZON, G.R. No. 192085

Petitioner,

Present:

- versus - CARPIO, J., Chairperson,

VILLARAMA,

PEREZ,

SERENO, and

REYES, JJ.

LETECIA VASQUEZ-MENANCIO,
represented by attorney-in-fact EDGAR
Promulgated:
S. SEGARRA,

Respondent.
February 22, 2012

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
 DECISION

SERENO, J.:

The present case stems from a Complaint for Recovery of Possession of

Real Properties, Accounting and Injunction[1] filed by Leticia Vasquez-Menancio
(respondent) against Caridad S. Sazon (petitioner) in the Regional Trial Court (RTC)
of Ligao City, Albay. The RTC ruled in favor of respondent, but reversed itself
when petitioner filed a Motion for Reconsideration (MR). Respondent appealed
the case to the Court of Appeals (CA), but it affirmed the first Decision of the RTC.
She filed another MR, but the CA denied it for lack of merit.

The Case

Before us is a Petition for Review[2] under Rule 45 of the Rules of Court,

assailing the 26 November 2009 Decision[3] of the appellate court in CA-GR CV No.
91570. The challenged Decision disposed as follows:

WHEREFORE, the appeal is DISMISSED. The Decision dated 31 July 2007 of the
Regional Trial Court, Branch 13, Ligao City, in Civil Case No. T-1944
is AFFIRMED with MODIFICATION in that Caridad S. Sazon is ORDERED to pay Leticia
Vasquez-Menancio the amount of ₱908,112.62, representing the unremitted fruits and
income of the subject properties from 1979 to 1997. This is already net of
administration expenses, allowance for compensation and proved real estate taxes paid.
The Decision is affirmed in all other respects.

SO ORDERED.[4]

Antecedents
 Respondent is a resident of the United States of America. Sometime in
1979, she entrusted the management, administration, care and preservation of
her properties to petitioner. These properties are more specifically described as
follows:
I. Residential lot, with an area of 573 sq. m., located in Zone III, Libon,
Albay, declared under Tax No. 097-03-0066 in the sum of
₱24,070.00

II. Residential lot, with an area of 299 sq. m., located in Zone III, Libon,
Albay, declared under Tax No. 097-003-00115 in the sum of
₱12,560.00

III. Residential lot, with an area of 873 sq. m., located in San Antonio
St., Libon, Albay, declared under Tax No. 097-003-00068 in the
sum of ₱36,670.00

IV. Irrigated riceland, Cad. Lot No. 852, with an area of 3.1304 hectares,
located at San Isidro, Libon, Albay, declared under Tax No. 07-
039-235 in the sum of ₱96,580.00

V. Irrigated riceland, with an area of 1.5652 hectares, located at Bololo

Centro, Libon, Albay, declared under Tax No. 07-005-104 in the
sum of ₱48,290.00

VI. Irrigated riceland, with an area of .6720 hectares, located at Bololo

Centro, Libon, Albay, declared under Tax No. 07-005-103 in the
sum of ₱29,730.00

VII. Irrigated riceland, with an area of .6380 hectares, located at

Balagon Centro, Libon, Albay, declared under Tax No. 07-005-
222 in the sum of ₱19,680.00

VIII. Coconut land, with an area of ten (10) hectares, located at

Macabugos, Libon, Albay, declared under Tax No. 07-023-85 in
the sum of ₱42,840.00
 IX. Coconut land, with an area of 3.7102 hectares, located at
Macabugos, Libon, Albay, declared under Tax No. 07-023-86 in
the sum of ₱15,740.00[5]

The properties shall hereinafter be referred to individually as Lot I, Lot II

and so on for brevity.

Respondent avers that Lots I to IX are productive, and that petitioner as the
administrator has collected and received all the fruits and income accruing
therefrom. Petitioner, on the other hand, claims that several of the properties do
not produce any fruit or generate any income at all,[6] and that any supposed
income derived from them is not sufficient to answer for all the expenses incurred
to maintain them.[7]

According to respondent, petitioner never rendered a full accounting of the

fruits and income derived from the properties, but has instead appropriated and
in fact applied these for her own use and benefit. Denying this allegation,
petitioner presented five lettersdated 21 January 1983, 12 March 1984, 15
September 1986, 2 December 1988, and one undatedwhich had been sent to
respondent as proof of the accounting.[8]

Furthermore, petitioner denies receipt of any letter asking her to make an

accounting or to remit the fruits collected from the properties. [9] She further avers
that, since the start of her agency agreement with respondent, the latter never
answered any of the communications petitioner had sought to initiate.[10]

As a result of the foregoing, respondent revoked, in writing, all the powers

and authority of administration granted to petitioner effective March 1997.
Thereafter, the former demanded that petitioner return and/or turn over the
possession and administration of the properties.

Respondent claims that she made repeated verbal, and served written,
demands upon petitioner, asking the latter to render an accounting and to remit
the owners share of the fruits. Petitioner, however, continued to fail and to refuse
to perform her obligation.[11] In fact, she continues to hold on to the properties
and the management and administration thereof. Further, she continues to
collect, receive, and keep all the income generated by the properties.
 Thus, on 30 October 1997, respondent filed her Complaint with Preliminary
Injunction,[12] praying that the RTC order petitioner to render an accounting and
remit all the fruits and income the latter, as the administrator, received from the
properties.

In her Answer with Counterclaim,[13] petitioner alleges as follows:

2.a. Lot area of 573 sq.m.-is being leased by Salome S. Segarra which is duly
covered by a Lease Contract executed during the effectivity of the Special
Power of Attorney granted to the herein defendant. Furthermore, the said
Lease Contract was entered into with the express consent, and without any
objection on the part of the plaintiff since she was consulted prior to its
execution; xxx,

2.b. Lot area of 299 sq. m. This is included in the [L]ease [C]ontract above-
mentioned.

2.c. Lot area of 873 sq. m. This is likewise duly covered by a Lease Contract
executed between the herein defendant as lessee and Ana C. Segarra when
the latter was still the administrator of the properties of the plaintiff. The
said Lease Contract was likewise entered into with the express consent and
without any objection on the part of the plaintiff since she was again
consulted prior to its execution; xxx.

2.d. Lot area of 3.1304 hectares this is administered as to 2/3 of the total land
area but not as to the other 1/3 as the same is owned by the defendants
mother Ana C. Segarra by virtue of a contract of sale from Mrs. Josefina
Segarra, the co-owner of the plaintiff over the said land; xxx,

2.e. Lot area of 1.5652 hectares and .6720 hectares are not owned by the
plaintiff but that of the mother of the herein defendant Ana C. Segarra by
virtue of a Deed of Redemption, as in fact, they are in possession thereof
as owners and not as administrator of the plaintiff; xxx,
 2.f. Lot area of .6380 hectares said land is presently possessed by the alleged
administrator of the plaintiff yet the plaintiff still seeks the return of the
same which constitutes an act that trifles with the administration of justice
and further prove that this groundless case was filed with this court purely
to harass the herein defendant;

2.g. Lot area of 10 hectares and Lot area of 3.7102 hectares the herein
defendant is no longer in possession of these lots as in fact, the fruits of
these lands are not being turned over to the defendant ever since the
plaintiff revoked the authority given to the defendant, xxx.[14]

In short, petitioner argues that respondent has no cause of action against

her for the following reasons:[15]

1. The properties that cannot be returned because they are under valid
lease agreementsLots I-IIIand those that have been transferred to a
third party by virtue of contracts of sale with corresponding deeds of
redemptionLots V and VIcan no longer be given to respondent;[16]

2. Some properties are already in respondents possessionLots IV and VII-

IX.[17]

By way of compulsory counterclaim, petitioner is asking this Court to order

respondent to return the one-third portion of Lot IV allegedly owned by
petitioners mother and the fruits collected therefrom.[18]

During the pretrial conference held on 24 July 1998, the parties agreed that
respondent already had possession over Lots IV, VII, VIII, and IX. They also agreed
that all the income derived from Lots I to IX since 1979 were received by
petitioner.[19]

In a Decision[20] dated 31 July 2007, the RTC ruled in favor of respondents.

The dispositive portion thereof reads:
 WHEREFORE, the foregoing premises duly considered, judgment is hereby
rendered in favor of plaintiff Leticia Vasquez-Menancio and against defendant
Caridad S. Sazon, as follows:

a) ordering the defendant to turn over the possession,

management and administration of all the properties enumerated in
paragraph 2 of the complaint, except parcels 4, 7, 8 and 9 which were
already under plaintiffs possession since August, 1977, to the plaintiff,
thru attorney-in-fact Edgar S. Segarra;

b) ordering the defendant to remit to the plaintiff the total

sum of ₱1,265,493.75 representing unremitted fruits and income of
the subject properties, less the amount of ₱150,000.00 by way of
administration expenses incurred by defendant;

c) ordering the defendant to pay the plaintiff the sum of

₱50,000.00 as moral damages;

d) ordering the defendant to reimburse the plaintiff the sum of

₱20,000.00 as and for attorneys fees, plus the sum of ₱1,000.00 for
every court appearance of counsel; and

e) ordering the defendant to pay the costs of the suit.

On the other hand, plaintiff Leticia Vasquez-Menancio is hereby ordered to

pay defendant Caridad S. Sazon the total sum of ₱180,000.00, representing the
latters compensation in administering the formers properties based on quantum
meruit.

SO ORDERED.[21]
 Petitioner filed her MR on 20 August 2007 questioning the trial courts
Decision to rely on the computation made by respondents attorney-in-fact. These
computations, reflected in paragraph (b) of the dispositive portion, were used by
the RTC to determine the prices of palay, corn and copra at the time that
petitioner administered the properties. Realizing, however, that it should have
considered the Certifications issued by the National Food Authority (NFA) and the
Philippine Coconut Authority (PCA) for that purpose, the RTC ruled in favor of
respondent and partly reversed its 28 March 2008 Decision, the dispositive
portion of which reads:

WHEREFORE, the foregoing premises duly considered, the Court resolves to

set aside the Decision dated July 31, 2007. In lieu thereof, a new decision is hereby
rendered as follows:

a) ordering the defendant Caridad S. Sazon to turn over the

possession, management and administration of all the properties
enumerated in paragraph 2 of the complaint, except parcels 4, 7, 8 and 9
which were already under plaintiffs possession since August, 2007, to
plaintiff Leticia Vasquez-Menancio, thru her attorney-in-fact Edgar S.
Segarra;

b) ordering the defendant to render full, accurate and complete

accounting of all the fruits and proceeds of the subject properties during
the period of her administration; and

c) ordering the defendant to reimburse the plaintiff the sum of

₱20,000.00, as and for attorneys fees;

Costs against defendant.

SO ORDERED.[22] (Emphasis supplied in the original)

 Still aggrieved, petitioner raised the matter to the CA, but it dismissed her
appeal. It affirmed the trial courts 31 July 2007 Decision, except for the amount
ordered to be remitted to respondent, which was reduced to ₱908,112.62. The
MR filed by petitioner was also denied on 29 April 2010.[23]

Petitioner is now asking this Court to set aside the CAs Decision.[24]

In questioning the Decision of the CA, petitioner first raises a procedural

issue. She argues that the appellate court should not have affirmed the RTC
Decision in this case, because when the trial court abandoned its original
Decision, the latter impliedly admitted that it had committed erroneous findings
of facts.[25] Respondent argues that the CA had the power to affirm the RTCs
second Decisionthe Resolution on the MRbecause the entire case was opened for
review upon appeal.

We agree with respondent.

In Heirs of Carlos Alcaraz v. Republic of the Philippines,[26] we reiterated the

cardinal rule that when a case is appealed, the appellate court has the power the
review the case in its entirety, to wit:

In any event, when petitioners interposed an appeal to the Court of Appeals,

the appealed case was thereby thrown wide open for review by that court, which is thus
necessarily empowered to come out with a judgment as it thinks would be a just
determination of the controversy. Given this power, the appellate court has the
authority to either affirm, reverse or modify the appealed decision of the trial court. To
withhold from the appellate court its power to render an entirely new decision would
violate its power of review and would, in effect, render it incapable of correcting patent
errors committed by the lower courts.

Thus, we agree with respondent that the CA was free to affirm, reverse, or
modify either the Decision or the Order of the RTC.

Next, petitioner avers that she cannot turn over possession of Lots I to III,
because these are subject of valid lease agreements. None of the parties question
the appellate courts finding that the lease agreements covering Lots I-III should be
respected. After all, when petitioner entered into these agreements, she acted
within her authority as respondents agent.[27]

In this matter, we agree with the CA in its ruling that even though the lease
agreements covering these lots should be respected, petitioner must turn over
the administration of the leases to respondents attorney-in-fact.[28] The reason is
that respondent has already revoked the authority of petitioner as administrator.
Hence, the latter no longer has the right to administer the properties or to receive
the income they generate on respondents behalf.

With respect to the one-third portion of Lot IV, the parties also agree that
the sale of one-third of this lot to petitioners mother should be respected by
respondent.[29] Lot IV has been in the latters possession since 1997. Since it is not
controverted that one-third of this lot is now owned by petitioners mother,
respondent should turn over possession of the corresponding one-third portion
and remit all fruits collected therefrom since 1997.

Petitioner questions the factual findings of the appellate court. She claims
that the CA erred in finding that the reason why petitioner allegedly never
rendered an accounting of income is because the respondent never demanded
it.[30] According to petitioner, she never claimed that this was the reason why she
never rendered an accounting of income. In fact, she insists that she actually sent
letters of accounting to respondent. Supposedly, she only said that respondent
never demanded accounting from her to refute the claim of respondent that such
demand letter was sent to her.

Petitioner insists, however, that Article 1891 of the Civil Code contains a
few of the obligations owed by an agent to his principal, viz:

Art. 1891. Every agent is bound to render an account of his

transactions and to deliver to the principal whatever he may have
received by virtue of the agency, even though it may not be owing to
the principal.

Every stipulation exempting the agent from the obligation to render

an account shall be void.
It is evident that the reason behind the failure of petitioner to render an
accounting to respondent is immaterial. What is important is that the former
fulfill her duty to render an account of the relevant transactions she entered into
as respondents agent.

Petitioner claims that in the course of her administration of the properties, the
letters she sent to respondent should be considered as a fulfillment of her
obligation, as respondents agent, to render an accounting of her
administration.[31] Both the RTC and the CA found these letters insufficient. We
agree. Petitioner was the administrator of respondents properties for 18 years or
from 1979 to 1997, and four letters within 18 years can hardly be considered as
sufficient to keep the principal informed and updated of the condition and status
of the latters properties.

As to Lots V and VI, petitioner avers that ownership thereof was transferred
to her mother through a Deed of Redemption,[32] viz:

Defendant averred that her mother owned parcels 5 and 6. She Identified a
Deed of Redemption purporting to have transferred the property to her mother. When
the deed was executed, plaintiff was in the United States but defendants mother
notified her. She saw her mother putting 100-peso bills amounting to ₱6,500.00 in a big
brown envelope to pay for the lot. Her father Simeon Segarra who just came from the
United States gave her the money.[33]

On this matter, the RTC found thus:

As regards parcels 5 and 6, the defendant averred that they were owned by her
mother Ana Segarra because she was the one who redeemed the properties. But the
evidence extant in the records disclosed that the said parcels of land were declared for
taxation purposes in the name of plaintiff Leticia Vasquez-Menancio. In many cases, it
has been repeatedly held that although tax declarations are not conclusive evidence of
ownership, nevertheless, they are good indicia of possession in the concept of an owner
for no one in his right mind would be paying taxes for a property that is not under his
actual or at least constructive possession. Hence, the fruits and profits of these
properties shall still incur to the plaintiff.[34]
 For its part, the CA held as follows:

To prove that one of Leticias properties now belongs to her mother, Ana
Segarra, Sazon presented evidence showing that when Ana was still the administrator of
Leticias properties, she redeemed Leticias property that was sold by Leticias father to
vendee-a-retro, Loreto San Andres-Seda. However, the Deed of Redemption clearly
shows that Ana redeemed the property only in her capacity as attorney-in-fact of
Leticia, and not in her personal capacity.[35]

Factual findings of the trial court are accorded high respect and are
generally not disturbed by appellate courts, unless found to be clearly arbitrary or
baseless.[36] This Court does not review the factual findings of an appellate court,
unless these findings are mistaken, absurd, speculative, conjectural, conflicting,
tainted with grave abuse of discretion, or contrary to the findings culled by the
trial court of origin.[37]

Although the pronouncement of the trial court is not identical to that of the CA,
the declaration of one corroborates the findings of the other. We rule that the
findings of the lower court and the CA regarding Lots V and VI should be
respected. The mother of petitioner purchased both of these lots in her capacity
as respondents attorney-in-fact, which explains why these lots werefor taxation
purposesdeclared in the name of respondent.

Petitioner bewails the appellate courts supposed failure to rule on her

claim that respondent promised to give the former a 20% commission for the sale
of respondents properties in Las Pias, Quiapo; and Fraternal, Sampaloc,
Manila.[38] We rule that petitioner failed to prove that this agreement had been
entered into. No other evidence, except for her testimony, was presented to
prove that an agreement of this nature had been entered into between the
parties.[39]

Finally, the crux of the present Petition is the determination of the value of all the
fruits and proceeds collected from respondents properties from 1979 to 1997 and
the total sum thereof.

Petitioner does not deny that she never remitted to respondent any of the
fruits or income derived from the properties. Instead, petitioner claims that (1)
the properties did not produce any fruit or generate any income at all;[40] (2) any
supposed income derived from the properties was not sufficient to answer for all
the expenses incurred to maintain them;[41] and (3) she was never compensated
for the services she rendered as the administrator of respondents properties.

As previously mentioned, every agent is bound to deliver to the principal

whatever the former may have received by virtue of the agency, even though that
amount may not be owed to the principal.[42]

In determining the value of the fruits, the RTCin its original Decisionrelied
on the computation submitted by respondents attorney-in-fact and ordered
petitioner to remit to respondent the total sum of ₱1,265,493.75, to wit:

At the outset, it may be stated that plaintiffs attorney-in-fact Edgar S. Segarra,

being a farmer himself and a resident of the area where the subject properties are
located can best testify regarding the income thereof. In preparing a computation of
income of his principal, plaintiff Leticia Vasquez-Menancio, he consulted people from
the agrarian sector, as well as grains buyers. He also referred to the lease contracts
entered into between the former administratrix and the tenants. Based on his
computation, the amount which represented the fruits of the properties being
administered by the defendant but were not remitted to the plaintiff totaled
₱1,265,493.75 xxx, which amount to the mind of the Court, is not colossal but a
reasonable claim, especially in this instance where the subject properties have been
administered by defendant and her mother for more than (10) years.[43]

The computation is based on the alleged prevailing price of ₱8.75 per kilo
for palay and ₱12 per kilo for copra. The trial court also ordered respondent to
reimburse petitioner in the amount of ₱150,000 representing the administrative
expenses the latter incurred as the agent. Furthermore, petitioner was awarded
₱180,000 as compensation for administering respondents properties. Lastly,
petitioner was ordered to pay respondent attorneys fees in the amount of
₱20,000 plus ₱1,000 for every appearance of counsel.

In the Order of the RTC reversing its Decision, it found that it should have
considered the Certifications issued by the NFA and PCA with respect to the
prevailing prices of palay, corn, and copra at the time of petitioners
administration. These Certifications revealed that the prevailing prices from 1979
to 1997 were as follows: (1) from ₱1.75 to ₱8 per kilo for palay; (2) from ₱1to ₱6
per kilo for corn; and (3) from ₱3.15 to ₱10.77 per kilo for copra. The RTC found
that the parties failed to prove the exact quantity and quality of harvests for the
period. Consequently, it ordered petitioner to render full, accurate, and complete
accounting of all the fruits and proceeds of the subject properties during the
period of her administration.[44]

The CA affirmed the RTCs original Decision and ordered petitioner to pay
respondent the amount of ₱1,315,533.75even though the trial court had ordered
the return of only ₱1,265,493.75representing the total value of the fruits and
rents derived from the properties from 1979 to 1997 less the ₱150,000
administrative expenses, the ₱180,000 compensation for administering the
properties, and the ₱77,221.13 real estate taxes paid by petitioner from 1979 to
1997.

We disagree with the appellate courts finding with respect to the total
value of fruits and rents earned by the properties from 1979 to 1997.

As found by the RTC, the following computation of the amounts owed by

petitioner to respondent was submitted by the latters attorney-in-fact, Edgar S.
Segarra:

Witness Edgar S. Segarra testified that the properties which were administered by
defendant Caridad S. Sazon consisted of residential and agricultural lands. Caridad Sazon
leased the residential lots to one Salome Segarra in the amount of 100 pesos a month
since 1988. Another parcel of land was leased to defendants mother Ana Segarra in
exchange for one sack or 46 kilograms of palay for a period of 20 years. A cornland
which is being tenanted by Orlando Macalinao produced ₱72,000.00. The computation
was based on a 75/25 sharing plan multiplied by the price of corn at 6 pesos and again
multiplied by 15 years, the number of years that the properties were being tenanted.
Another riceland was tilled by the defendants husband. This 1.56 hectares Riceland
produced 1,932 kilograms of rice per year and at ₱8.75 a kilogram, for 14 years, the
amount which was not remitted to the plaintiff amounted to ₱836,670.00. Another
property, located at Libon, Albay, containing an area of .6720 hectare and tilled by
defendants husband produced harvest amounting to ₱121,030.00. Further, a riceland
with an area of .6380 hectare being farmed by the defendants daughter produced
₱183,720.00. Two coconut lands, located at Macabugos, Libon, Albay, produced
coconuts made into copras, thus bringing in profits of about ₱705,600.00.
 The foregoing amounts correspond to the years by which the properties were
administered by the defendant, the number of crops they harvested, the sharing plan,
and the prevailing price of the produce during the years of administration. He also asked
the comprador (buyer of grains) about the prices and consulted employees of the
department of Agrarian Reform regarding the sharing of the crops. The lease contracts
affecting the properties were also considered. All these amounts were never remitted
by the defendant to the owner-plaintiff. [45]

Petitioner correctly posits that it was wrong for the CA to base the
computation of unremitted fruits and rents solely on the evidence submitted by
respondents attorney-in-fact, as this computation was obviously self-serving.
Furthermore, the Certifications issued by the NFA and PCA should have been be
given weight, as they are documentary evidence issued by government
offices mainly responsible for determining the buying/selling price of palay, corn,
and other food and coconut products.

We shall review the findings of fact of the Court of Appeals in view of some
inconsistencies with those of the trial court and the evidence on record.

This Court is convinced that the Certifications are genuine, authentic, valid,
and issued in the proper exercise and regular performance of the issuing
authoritys official duties. Under Section 3(m), Rule 131 of the Revised Rules of
Court, there is a legal presumption that official duty has been regularly
performed. No evidence was presented to rebut or dispute this presumption.

Petitioner claims that several of the properties did not produce any fruit or
generate any income at all.[46] However, the trial court found that not only was
there evidence on record showing that the properties administered yielded
agricultural produce and rents, but petitioner herself had testified that the
properties increased when she served as administrator. In effect, she admitted
that the properties indeed generated income.[47]

This Court is left with no other choice but to order both parties to present
their evidence in support of their respective claims considering that no evidence
was submitted to prove the quantity and quality of harvests for the relevant
period. Neither the RTC nor the CA was able to explain or present a breakdown to
show how it arrived at the supposed amount representing the total value of the
fruits and rents derived from the properties.

The trial court correctly ordered petitioner to render full, accurate, and
complete accounting of all the fruits and proceeds of the subject properties
during the period of her administration. However, it should have also ordered
petitioner to present all her evidence regarding the alleged transportation
expenses, attorneys fees, docket fees, and other fees; [48] the total amount
expended for the purchase of respondents Las Pias property;[49] and the total
amount of real property taxes paid. These claimed expenses, if and when duly
proven by sufficient evidence, should be deducted from the total income earned
by the properties.

Both parties should be required to present their evidence to finally resolve

the following issues: (1) the total amount of the income generated by Lots I to IX
during the administration of petitioner; and (2) the total amount of expenses
incurred by petitioner that should be borne by respondent as the owner of the
properties, or the total deductibles in petitioners favor.

There is no doubt that petitioner is entitled to compensation for the

services she rendered. Respondent does not deny that she never paid the former,
since they had no agreement regarding the amount, the determination of which
she left to petitioner.[50]

Petitioner now argues that since the expenses for the maintenance of the
properties exceeded whatever income they generated, then whatever is left of
the income should now belong to her as compensation.[51] She says that the
admission of the respondent admitted during cross-examination that she
expected petitioner to fix her own salary out of the remaining income, if any, of
the administered property is enough reason to reverse and Decision and
Resolution of the CA.[52]

The contention is not acceptable. Considering that neither of the parties

was able to prove how much the properties earned, this Court cannot just agree
with petitioners claim that whatever is left of this income, after the expenses
have been deducted, should be considered as her salary. To begin with, she
repeatedly claimed that all the income derived from these properties was
insufficient to cover even just the expenses; thus, there is no remaining income
left to speak of.

We have already ruled that petitioner should be compensated for the

services she rendered. Since there was no exact amount agreed upon, and she
failed to fix her own salary despite the authority given to her, the RTC correctly
applied the doctrine of quantum meruit. With respect to this matter, the trial
court found thus:

And where the payment is based on quantum meruit, the amount of recovery would
only be the reasonable value of the thing or services rendered regardless of any
agreement as to value. In the instant case, the amount of ₱1,000.00 per month for 15
years representing defendants compensation for administering plaintiffs properties
appears to be just, reasonable and fair.[53]

The doctrine of quantum meruit (as much as one deserves) prevents undue
enrichment based on the equitable postulate that it is unjust for a person to
retain benefit without paying for it.[54] Being an equitable principle, it should only
be applied if no express contract was entered into, and no specific statutory
provision is applicable. Although petitioner was given the authority to set the
amount of her salary, she failed to do so. Thus, she should at least be given what
she merits for her services. We find no reason to reverse the finding of both the
RTC and the CA that ₱1,000 per month for 15 years is a just, reasonable, and fair
compensation to petitioner for administering respondents properties. The lower
court is ordered to add this amount to the deductibles that petitioner is able to
prove or, if the deductibles exceed the monetary value of the income generated
by the properties, to add this amount to whatever respondent ends up owing
petitioner.

We delete the award of moral damages and attorney's fees in the absence
of proof of bad faith and malice on the part of petitioner.

WHEREFORE, in view of the foregoing, the Petition is PARTLY GRANTED, as

follows:
(1) Petitioner Caridad S. Sazon is ordered to TURN OVER the possession,
management, and administration of Lots I, II, III, V, and VI to respondent
Leticia Vasquez-Menancio through the latters attorney-in-fact, Edgar S.
Segarra.
(2) Respondent is ordered to TURN OVER the possession, management, and
administration of one-third of Lot IV to petitioner.
(3) The case is REMANDED to the Regional Trial Court of Ligao City, Albay, the
court of origin, which is ordered to do the following:
(a) ORDER petitioner to render full, accurate, and complete
accounting of all the fruits and proceeds earned by respondents
properties during petitioners administration thereof;
(b) ORDER petitioner to submit a detailed list with a breakdown of
all her claimed expenses, including but not limited to the
following: maintenance expenses including transportation
expenses, legal expenses, attorneys fees, docket fees, etc; the
total amount expended for the purchase of respondents Las Pias
property;[55] and the total amount of real property taxes paid, all
for the period 1979 to 1997;
(c) ORDER the parties to submit their evidence to prove the exact
quantity and quality of the harvests or the fruits produced by
the properties and all the expenses incurred in maintaining
them from 1979 to 1997;
(d) DETERMINE the total amount earned by the properties by using
as basis the declaration of the National Food Authority and the
Philippine Coconut Authority with respect to the prevailing
prices of palay, corn, and copra for the period 1979 to 1997; and
(e) SUBTRACT from the determined total amount the expenses
proven by petitioner and the ₱180,000 serving as her
compensation for administering the properties from 1979 to
1997.

COSTS against petitioner.

 SO ORDERED.

MARIA LOURDES P. A. SERENO

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

 BIENVENID.O L. REYES

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

RENATO C. CORONA
 Chief Justice


Designated as Acting Member of the Second Division vice Associate Justice Arturo D. Brion per Special Order No.
1195 dated 15 February 2012.
[1]
Rollo, pp. 74-77.
[2]
Id. at 29-39.
[3]
Id. at 58-69; penned by Associate Justice Ricardo R. Rosario and concurred in by Associate Justices Jose C.
Reyes, Jr. and Magdangal M. de Leon.
[4]
Rollo, pp. 68-69.
[5]
Id. at 74-75.
[6]
Id. at 81.
[7]
Id. at 13-14.
[8]
Id. at 32.
[9]
Id. at 80.
[10]
Supra note 6.
[11]
Id. at 75.
[12]
Id. at 59.
[13]
Id. at 78-87.
[14]
Id. at 78-80.
[15]
Id. at 83.
[16]
Id. at 81-82.
[17]
Id. at 83-84.
[18]
Id. at 84.
[19]
Id. at 91.
[20]
Id. at 88-102, Civil Case No. T-1944, penned by Judge William B. Volante.
[21]
Id. at 101-102.
[22]
Id. at 17.
[23]
Id. at 72-73.
[24]
Id. at 54.
[25]
Id. at 21.
[26]
502 Phil. 521, 536 (2005).
[27]
Id. at 66.
[28]
Rollo, p. 67.
[29]
Id.
[30]
Id. at 28.
[31]
Id. at 32.
[32]
Id. at 96.
[33]
Id.
[34]
Id. at 99.
[35]
Id. at 61.
[36]
People v. Agunias, 344 Phil. 467 (1997).
[37]
Ramirez v. CA, 356 Phil. 10 (1998).
[38]
Rollo, pp. 45-46.
[39]
See rollo, pp. 45-47.
[40]
Supra note 6.
[41]
Supra note 7.
[42]
CIVIL CODE OF THE PHILIPPINES, Art. 1891.
[43]
Rollo, p. 98.
[44]
Id. at 125.
[45]
Id. at 93-94.
[46]
Supra note 6.
[47]
Supra note 34.
[48]
Rollo, p. 95.
[49]
TSN, 21 June 2002, pp. 34-35.
[50]
Rollo, pp. 92-93.
[51]
Id. at 53.
[52]
Id.
[53]
Id. at 101.
[54]
See Soler v. Court of Appeals, 410 Phil. 264, 273 (2001).
[55]
Supra note 48.
 FIRST DIVISION

[G.R. No. 130423. November 18, 2002]

VIRGIE SERONA, petitioner, vs. HON. COURT OF APPEALS and THE

PEOPLE OF THE PHILIPPINES, respondents.

DECISION
YNARES-SANTIAGO, J.:

During the period from July 1992 to September 1992, Leonida Quilatan delivered
pieces of jewelry to petitioner Virgie Serona to be sold on commission basis. By oral
agreement of the parties, petitioner shall remit payment or return the pieces of jewelry if
not sold to Quilatan, both within 30 days from receipt of the items.
Upon 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.

Unknown to Quilatan, petitioner had earlier entrusted the jewelry to one Marichu
Labrador for the latter to sell on commission basis. Petitioner was not able to collect
payment from Labrador, which caused her to likewise fail to pay her obligation to
Quilatan.
Subsequently, Quilatan, through counsel, sent a formal letter of demand [2] to
petitioner for failure to settle her obligation. Quilatan executed a complaint
affidavit[3] against petitioner before the Office of the Assistant Provincial Prosecutor.
Thereafter, an information for estafa under Article 315, paragraph 1(b)[4] of the Revised
Penal Code was filed against petitioner, which was raffled to Branch 255 of the
Regional Trial Court of Las Pinas. The information alleged:

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

CONTRARY TO LAW. [5]

Petitioner pleaded not guilty to the charge upon arraignment. [6] Trial on the merits
thereafter ensued.
Quilatan testified that petitioner was able to remit P100,000.00 and returned
P43,000.00 worth of jewelriy;[7] that at the start, petitioner was prompt in settling her
obligation; however, subsequently the payments were remitted late; [8] that petitioner still
owed her in the amount of P424,750.00.[9]
On the other hand, petitioner admitted that she received several pieces of jewelry
from Quilatan and that she indeed failed to pay for the same. She claimed that she
entrusted the pieces of jewelry to Marichu Labrador who failed to pay for the same,
thereby causing her to default in paying Quilatan.[10] She presented handwritten receipts
(Exhibits 1 & 2)[11] evidencing payments made to Quilatan prior to the filing of the criminal
case.
Marichu Labrador confirmed that she received pieces of jewelry from petitioner
worth P441,035.00. She identified an acknowledgment receipt (Exhibit 3)[12] signed by
her dated July 5, 1992 and testified that she sold the jewelry to a person who
absconded without paying her. Labrador also explained that in the past, she too had
directly transacted with Quilatan for the sale of jewelry on commission basis; however,
due to her outstanding account with the latter, she got jewelry from petitioner instead. [13]
On November 17, 1994, the trial court rendered a decision finding petitioner guilty
of estafa, the dispositive portion of which reads:

WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona
guilty beyond reasonable doubt, and as the amount misappropriated is P424,750.00
the penalty provided under the first paragraph of Article 315 of the Revised Penal
Code has to be imposed which shall be in the maximum period plus one (1) year for
every additional P10,000.00.

Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to
suffer the penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1)
DAY of prision correccional as minimum to TEN (10) YEARS and ONE (1) DAY
of prision mayor as maximum; to pay the sum of P424,750.00 as cost for the
unreturned jewelries; to suffer the accessory penalties provided by law; and to pay the
costs.

SO ORDERED. [14]

Petitioner appealed to the Court of Appeals, which affirmed the judgment of

conviction but modified the penalty as follows:

WHEREFORE, the appealed decision finding the accused-appellant guilty beyond

reasonable doubt of the crime of estafa is hereby AFFIRMED with the following
MODIFICATION:

Considering that the amount involved is P424,750.00, the penalty should be imposed
in its maximum period adding one (1) year for each additional P10,000.00 albeit the
total penalty should not exceed Twenty (20) Years (Art. 315). Hence, accused-
appellant is hereby SENTENCED to suffer the penalty of imprisonment ranging from
Four (4) Years and One (1) Day of Prision Correccional as minimum to Twenty (20)
Years of Reclusion Temporal.

SO ORDERED. [15]

Upon denial of her motion for reconsideration,[16] petitioner filed the instant petition
under Rule 45, alleging that:
I

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING

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

II

RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING

THAT THERE WAS MISAPPROPRIATION OR CONVERSION ON THE PART
OF PETITIONER WHEN SHE FAILED TO RETURN THE SUBJECT
JEWELRIES (sic) TO PRIVATE COMPLAINANT. [17]

Petitioner argues that the prosecution failed to establish the elements of estafa as
penalized under Article 315, par. 1(b) of the Revised Penal Code. In particular, she
submits that she neither abused the confidence reposed upon her by Quilatan nor
converted or misappropriated the subject jewelry; that her giving the pieces of jewelry to
a sub-agent for sale on commission basis did not violate her undertaking with
Quilatan. Moreover, petitioner delivered the jewelry to Labrador under the same terms
upon which it was originally entrusted to her. It was established that petitioner had not
derived any personal benefit from the loss of the jewelry. Consequently, it cannot be
said that she misappropriated or converted the same.
We find merit in the petition.
The elements of estafa through misappropriation or conversion as defined in Article
315, par. 1(b) of the Revised Penal Code are: (1) that the money, good or other
personal property is received by the offender in trust, or on commission, or for
administration, or under any other obligation involving the duty to make delivery of, or to
return, the same; (2) that there be misappropriation or conversion of such money or
property by the offender or denial on his part of such receipt; (3) that such
misappropriation or conversion or denial is to the prejudice of another; and (4) that there
is a demand made by the offended party on the offender. [18] While the first, third and
fourth elements are concededly present, we find the second element of
misappropriation or conversion to be lacking in the case at bar.
Petitioner did not ipso facto commit the crime of estafa through conversion or
misappropriation by delivering the jewelry to a sub-agent for sale on commission basis.
We are unable to agree with the lower courts conclusion that this fact alone is sufficient
ground for holding that petitioner disposed of the jewelry as if it were hers, thereby
committing conversion and a clear breach of trust.[19]
It must be pointed out that the law on agency in our jurisdiction allows the
appointment by an agent of a substitute or sub-agent in the absence of an express
agreement to the contrary between the agent and the principal. [20] In the case at bar, the
appointment of Labrador as 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.
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]
In the case at bar, it was established that the inability of petitioner as agent to
comply with her duty to return either the pieces of jewelry or the proceeds of its sale to
her principal Quilatan was due, in turn, to the failure of Labrador to abide by her
agreement with petitioner. Notably, Labrador testified that she obligated herself to sell
the jewelry in behalf of petitioner also on commission basis or to return the same if not
sold. In other words, the pieces of jewelry were given by petitioner to Labrador to
achieve the very same end for which they were delivered to her in the first place.
Consequently, there is no conversion since the pieces of jewelry were not devoted to a
purpose or use different from that agreed upon.
Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered
them to Labrador without right. Aside from the fact that no condition or limitation was
imposed on the mode or manner by which petitioner was to effect the sale, it is also
consistent with usual practice for the seller to necessarily part with the valuables in
order to find a buyer and allow inspection of the items for sale.
In People v. Nepomuceno,[22] the accused-appellant was acquitted of estafa on facts
similar to the instant case. Accused-appellant therein undertook to sell two diamond
rings in behalf of the complainant on commission basis, with the obligation to return the
same in a few days if not sold. However, by reason of the fact that the rings were
delivered also for sale on commission to sub-agents who failed to account for the rings
or the proceeds of its sale, accused-appellant likewise failed to make good his
obligation to the complainant thereby giving rise to the charge of estafa. In absolving the
accused-appellant of the crime charged, we held:

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

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

on People v. Flores[24] and U.S. v. Panes[25] 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.
Furthermore, in Lim v. Court of Appeals,[26] the Court, citing Nepomuceno and the
case of People v. Trinidad,[27] held that:

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

Labrador admitted that she received the jewelry from petitioner and sold the same
to a third person. She further acknowledged that she owed petitioner P441,035.00,
thereby negating any criminal intent on the part of petitioner. There is no showing that
petitioner derived personal benefit from or conspired with Labrador to deprive Quilatan
of the jewelry or its value. Consequently, there is no estafa within contemplation of the
law.
Notwithstanding the above, however, petitioner is not entirely free from any liability
towards Quilatan. The rule is that an accused acquitted of estafa may nevertheless be
held civilly liable where the facts established by the evidence so warrant. Then too, an
agent who is not prohibited from appointing a sub-agent but does so without express
authority is responsible for the acts of the sub-agent.[29] Considering that the civil action
for the recovery of civil liability arising from the offense is deemed instituted with the
criminal action,[30] petitioner is liable to pay complainant Quilatan the value of the unpaid
pieces of jewelry.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in
CA-G.R. CR No. 17222 dated April 30,1997 and its resolution dated August 28, 1997
are REVERSEDand SET ASIDE. Petitioner Virgie Serona is ACQUITTED of the crime
charged, but is held civilly liable in the amount of P424,750.00 as actual damages, plus
legal interest, without subsidiary imprisonment in case of insolvency.
SO ORDERED.
Davide, Jr., (Chairman), Vitug, Carpio, and Azcuna, JJ., concur.

[1]
Rollo, p. 42.

[2]
RTC Records, p. 8.

[3]
Ibid., at 6.

[4]
ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
xxxxxxxxx
1. With unfaithfulness or abuse of confidence, namely:
xxxxxxxxx
(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;
x x x x x x x x x.

[5]
Op. cit., note 1 at 46.

[6]
Op. cit., note 2 at 25.

[7]
TSN, July 26, 1993, pp. 15-16.

[8]
TSN, September 13, 1993, p. 8.

[9]
Op. cit., note 7 at 17.

[10]
TSN, November 8, 1993, p. 19.

[11]
Op. cit., note 2 at 49-50.

[12]
Ibid., at 51.

[13]
TSN, January 27, 1994, pp. 5-9 & 16-18.

[14]
Op. cit., note 1 at 51-52.

[15]
Ibid., at 40.

[16]
Id., at 41.

[17]
Op. cit., note 1 at 13-14.

Barrameda v. Court of Appeals, 313 SCRA 477, 484 (1999), citing Fontanilla v. People, 258 SCRA 460
[18]

(1996) and Manahan, Jr. v. Court of Appeals, 255 SCRA 202 (1996).
[19]
Op. cit., note 1 at 51.

[20]
Civil Code of the Philippines, Article 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 x x x x x x.

Amorsolo v. People, 154 SCRA 556, 563 (1987), citing U.S. v. Ramirez, 9 Phil. 67 and U.S. v. Panes,
[21]

37 Phil. 116 (1917).

[22]
CA 46 O. G. 6128 (1949).

[23]
Ibid., at 6135.

[24]
47 O.G. 6210 (1949).

[25]
37 Phil. 116 (1917).

[26]
271 SCRA 12 (1997).

[27]
CA 53 O.G. 731 (1956).

[28]
Op. cit., note 26 at 20.

[29]
Op. cit., note 20.

[30]
Revised Rules of Criminal Procedure, Rule 111, Section 1(a).
 Republic of the Philippines

Supreme Court

Manila

THIRD DIVISION

WILMA TABANIAG, G.R. No. 165411

Petitioner,

Present:

YNARES-SANTIAGO, J.,

Chairperson,

CHICO-NAZARIO,

- versus - VELASCO, JR.,

NACHURA, and

PERALTA, JJ.

Promulgated:

June 18, 2009

PEOPLE OF THE PHILIPPINES,

Respondent.

x--------------------------------------------------x

DECISION

PERALTA, J.:

For review before this Court is the February 27, 2004 Decision[1] and September
22, 2004 Resolution[2] of the Court of Appeals (CA) in CA-G.R. CR No. 24906, which
affirmed the October 16, 2000 Decision[3] of the Regional Trial Court (RTC),
National Capital Judicial Region, Branch 268, Pasig City, finding Wilma Tabaniag
(petitioner) guilty of the Crime of Estafa as defined and penalized under Article
315 of the Revised Penal Code, with modification as to the penalty.
The Information[4] dated September 15, 1994, in Criminal Case No. 106995, reads
as follows:

That on or about and during the month of January 1992, in the Municipality of Pasig,
Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the above-
named accused, conspiring and confederating together and mutually helping and aiding
each other, received in trust from one Dennis Espiritu assorted jewelries (sic) amounting
to P509,940.00 under the express obligation on the part of the accused to sell the same
and thereafter to remit the proceeds of the sale and/or return said jewelries (sic) if not
sold to said complainant, but the accused once in possession of said jewelries (sic), far
from complying with their aforesaid obligation, with unfaithfulness and abuse of
 confidence, did then and there willfully, unlawfully and feloniously misapply,
misappropriate, and convert to their own personal use and benefit and despite demands
to pay the proceeds of the sale and/or to return the said jewelries (sic) in the amount
of P509,940.00, they failed and refused, to the damage and prejudice of the complainant
in the aforementioned amount of P509,940.00.

CONTRARY TO LAW.[5]

When arraigned, petitioner pleaded not guilty. Co-accused Melandia Olandia

(Olandia) was dropped from the Information upon the request[6] of complainant
Dennis Espiritu (Dennis).[7] Thereafter, trial ensued.

The prosecution presented two witnesses, namely: Dennis and his wife Ma.
Victoria (Victoria) [complainants].

On March 5, 1997, the prosecution filed a Motion[8] for the admittance of

an Amended Information. The defense filed their Opposition[9] to the said motion.

On August 27, 1997, the RTC issued an Order[10] granting the motion of the
prosecution. The RTC ruled that the amendments to the Information sought by
the prosecution were merely amendments in form and thus allowable under the
rules.

The Amended Information[11] reads as follows:

 On or about and during the month of February 1992, in the Municipality of Pasig, Metro
Manila, Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused, conspiring and confederating together, and mutually helping and aiding each
other, received in trust from one Victoria Espiritu assorted jewelries (sic) amounting
to P155,252.50 under the express obligation on the part of the accused to sell the same
and thereafter to remit the proceeds of the sale and/or return said jewelries (sic) if not
sold to said complainant, but the accused once in possession of said jewelries (sic), far
from complying with their aforesaid obligation, with unfaithfulness and abuse of
confidence, did then and there willfully, unlawfully and feloniously misapply,
misappropriate, and convert to their own personal use and benefit and despite demands
to pay the proceeds of the sale and/or to return the said jewelries (sic) in the amount
of P155,252.50, they failed and refused, to the damage and prejudice of the complainant
in the aforementioned amount of P155,252.50.

CONTRARY TO LAW.[12]

The defense presented two witnesses, namely: petitioner Tabaniag and

Juan Tapang III (Tapang).

On October 16, 2000, the RTC found petitioner guilty of the crime of Estafa,
the dispositive portion of which reads:

WHEREFORE, premises considered, the Court finds the accused WILMA

TABANIAG guilty beyond reasonable doubt of the crime of Estafa as defined and
penalized under Article 315 of the Revised Penal Code and hereby sentences her to suffer
the penalty of imprisonment from ten (10) years and one (1) day of Prision Mayor in its
maximum period to fourteen (14) years and eight (8) months of Reclusion Temporal in its
minimum period and to indemnify the offended party in the amount of Sixty-Two
Thousand Nine Hundred (P62,900.00). With costs.
 SO ORDERED.[13]

The facts of the case as gleaned from the records are as follows:

Complainants, both doctors by profession, are engaged in part-time jewelry

business.[14] Petitioner, on the other hand, is an agent who sells the pieces of
jewelry of complainants on commission basis. On February 7, 1992, petitioner
received from Victoria several pieces of jewelry amounting to Php106,000.00 as
evidenced by a trust receipt[15] signed by petitioner. Later on February 16, 1992,
petitioner again received several pieces of jewelry amounting to Php64,515.00 as
evidenced by another trust receipt[16] signed by petitioner.

After weeks passed, Victoria alleged that she made several verbal
demands[17] to petitioner to return the pieces of jewelry. Likewise, complainants
filed a complaint[18] at Barangay Kapitolyo, Pasig City, against Tabaniag, Jane
Bisquera (Bisquera) and Olandia for estafa and violations of Batas Pambansa
Bilang 22 (BP 22).

Petitioner, in her defense, alleged that she entrusted the pieces of jewelry
to Bisquera who issued Security Bank Checks[19] as payment. Petitioner claimed
that Victoriaknew that she was planning to sell the pieces of jewelry to
Bisquera.[20] Moreover, petitioner contends that she and Olandia delivered the
said Security Bank checks to Victoria, who then deposited the same to her
account. The checks issued by Bisquera bounced as the accounts were closed and
thus Victoria asked petitioner to do something about it. Petitioner claimed that
she filed cases for estafa and violation of BP 22 against Bisquera. Likewise,
petitioner asked the court for the issuance of an alias warrant of arrest and a hold
departure order against Bisquera.[21]

On cross-examination, however, petitioner admitted that the cases she filed

against Bisquera did not involve the same checks which are the subject matter of
the case at bar.[22]
 On February 27, 2004, the CA affirmed with modification the RTC decision,
the dispositive portion of which reads as follows:

WHEREFORE, the Decision finding accused-appellant Wilma Tabaniag guilty

beyond reasonable doubt of the crime of estafa is AFFIRMED with the indeterminate
penalty modified to four (4) years and two (2) months of prision correccional, as
minimum, to twelve (12) years of prision mayor, as the maximum, and with the award of
indemnity in the amount of Php62,900.00, deleted.

SO ORDERED.[23]

The pertinent portions of the CA decision are hereunder reproduced, to

wit:
Tabaniag entered into an agreement with Victoria Espiritu for the sale of
jewelry. She obligated herself, among others, to deliver and account for the proceeds of
all jewelry sold and to return all other items she could not sell. The jewelry could not be
sold on installment. She abused the confidence reposed upon her by misrepresenting
herself to have sold the jewelry to a certain Bisquera and failing to remit the profit after
demand to do so by Espiritu. Due to her failure to forward the returns from the sale of
the jewelry, Espiritu suffered loss of income and profit.

The receipts issued to and signed by Tabaniag corroborate the prosecution's

testimonial proof that she personally received the jewelry. Tabaniag's uncorroborated
claim that Victoria Espiritu directly transferred the jewelry to a certain Jane Bisquera
cannot stand along against this factual finding. The checks issued by Bisquera do not
conclusively prove a direct transaction between her and Espiritu. x x x[24]
 On March 26, 2004, petitioner filed a Motion for
Reconsideration[25] assailing the CA decision.

On August 2, 2004, Dennis filed a Motion to Dismiss,[26] attaching thereto

an Affidavit of Desistance,[27] to the effect that he was withdrawing the criminal
complaint because he and petitioner had already reached an amicable
settlement, the latter obligating herself to pay the civil aspect of the case.

On September 22, 2004, the CA issued a Resolution[28] denying petitioner's

Motion for Reconsideration, as well as the Motion to Dismiss filed by Dennis.

Hence, herein appeal with the following assignment of errors:

First Assignment of Error

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE

WAS ABUSE OF CONFIDENCE ON THE PART OF ACCUSED/PETITIONER TABANIAG IN
ENTRUSTING THE SUBJECT JEWELRIES (SIC) TO BISQUERA FOR SALE ON COMMISSION
TO PROSPECTIVE BUYERS.

Second Assignment of Error

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN RULING ON THE VALIDITY

OF THE AMENDMENT OF INFORMATION DESPITE ITS VIOLATION OF SUBSTANTIAL
RIGHT OF ACCUSED TABANIAG.

Third Assignment of Error

 THE HONORABLE COURT OF APPEALS SERIOUSLY ABUSED ITS DISCRETION IN RULING
THAT THE LETTER COMPLAINT SENT TO THE BGY. CAPTAIN OF BGY. KAPITOLYO WHICH
WAS NEVER RECEIVED BY ACCUSED A DEMAND IN CONTEMPLATION OF SECTION 1(b)
OF ARTICLE 315 OF THE REVISED PENAL CODE.

Fourth Assignment of Error

THE RESPONDENT COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT THE
MOTION TO DISMISS/AFFIDAVIT OF DESISTANCE OF ESPIRITU WILL NOT EXONERATE
ACCUSED TABANIAG DESPITE IT BEING THE SAME PERSON WHO EXECUTED THE SAME
AFFIDAVIT TO DISMISS CASE VERSUS ACCUSED MELANIA OLANDIA.

Fifth Assignment of Error

THE RESPONDENT COURT OF APPEALS SERIOUSLY ERRED WHEN IT FAILED TO RENDER

A JUDGMENT OF ACQUITTAL OF THE ACCUSED ON GROUND OF REASONABLE
DOUBT.[29]

The petition is impressed with merit.

The elements of estafa under Article 315, par. 1 (b) of the Revised Penal Code are
the following: (a) that money, goods 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; (b) that
there be misappropriation or conversion of such money or property by the
offender, or denial on his part of such receipt; (c) that such misappropriation or
conversion or denial is to the prejudice of another; and (d) there is demand by the
offended party to the offender.[30]

Anent the first error raised by petitioner, this Court finds that, given the
facts of the case and the evidence on record, the evidence is wanting to prove
that petitioner hadmisappropriated or converted the pieces of jewelry entrusted
to her by Victoria.

In his Complaint-Affidavit,[31] Dennis alleged that petitioner gave the pieces of

jewelry to her sub-agent Bisquera for the latter to sell the same. Furthermore,
Dennis alleged that the checks issued as payment were dishonored, the reason
being that the accounts were closed.

Petitioner does not deny entrusting the pieces of jewelry to Bisquera. The records
of the case reveal that petitioner had in fact entrusted the pieces of jewelry to
Bisquera as evidenced by two receipts[32] dated February 16, 1992. The same is
bolstered by the testimony of Tapang, who testified that he witnessed petitioner
give the pieces of jewelry to Bisquera.[33] Thus, since the pieces of jewelry were
transferred to Bisquera, petitioner argues that she could not be guilty of
misappropriation or conversion as contemplated by Article 315, par. 1(b) of the
Revised Penal Code.
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 misappropriate 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.[34]

The factual milieu of the case at bar is similar to Serona v. Court of

Appeals[35](Serona) where pieces of jewelry were also transferred to a sub-
agent. The Solicitor General, however, contends that the doctrine laid down
in Serona is inapplicable as the agreement between complainants and petitioner
provide a clear prohibition against sub-agency.[36]

The conditions set forth in the two trust receipts signed by petitioner read:
x x x in good condition, to be sold in CASH ONLY within _____, days from date of signing
this receipt. 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 the sale thereof to the owner of the jewelries (sic) 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 credits or by installment, deposit, give
for safekeeping, lend pledge or give as security or guarantee under any circumstances
or manner, any jewelry to other person or persons, and that I received the above
jewelry in the capacity of agent.[37]

Contrary to the claim of the Solicitor General, the aforementioned conditions do

not, in any way, categorically state that petitioner cannot employ a sub-agent. A
plain reading of the conditions clearly shows that the restrictions only pertain to
the manner in which petitioner may dispose of the property: (1) to sell the jewelry
on credit; (2) to sell the jewelry by installment; (3) to give the jewelry for
safekeeping; (4) to lend the jewelry; (5) to pledge the jewelry; (6) to give the
jewelry as security; and (7) to give the jewelry as guarantee. To this Court's mind,
to maintain the position that the said conditions also prohibit the employment of
a sub-agent would be stretching the plain meaning of the words too thinly.

Petitioner is thus correct in citing Serona, which is instructive and may be

applied by analogy, to wit:

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. x
xx
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. 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.
xxxx
In the case at bar, it was established that the inability of petitioner as agent to comply
with her duty to return either the pieces of jewelry or the proceeds of its sale to her
principal Quilatan was due, in turn, to the failure of Labrador to abide by her agreement
with petitioner. Notably, Labrador testified that she obligated herself to sell the jewelry in
behalf of petitioner also on commission basis or to return the same if not sold. In other
words, the pieces of jewelry were given by petitioner to Labrador to achieve the very
same end for which they were delivered to her in the first place. Consequently, there is
no conversion since the pieces of jewelry were not devoted to a purpose or use different
from that agreed upon.
Similarly, it cannot be said that petitioner misappropriated the jewelry or delivered them
to Labrador without right. Aside from the fact that no condition or limitation was
imposed on the mode or manner by which petitioner was to effect the sale, it is also
consistent with usual practice for the seller to necessarily part with the valuables in order
to find a buyer and allow inspection of the items for sale.
In People v. Nepomuceno, the accused-appellant was acquitted of estafa on facts similar
to the instant case. Accused-appellant therein undertook to sell two diamond rings in
behalf of the complainant on commission basis, with the obligation to return the same in
a few days if not sold. However, by reason of the fact that the rings were delivered also
for sale on commission to sub-agents who failed to account for the rings or the proceeds
of its sale, accused-appellant likewise failed to make good his obligation to the
complainant thereby giving rise to the charge of estafa. In absolving the accused-
appellant of the crime charged, we held:
Where, as in the present case, the agents to whom personal property was
entrusted for sale, conclusively proves the inability to return the same is
solely due to malfeasance of a sub-agent 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
doso and the chattel being delivered to the sub-agent before the owner
demands its return or before such return becomes due, we hold that the
first agent cannot 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.
 Furthermore, in Lim v. Court of Appeals, the Court, citing Nepomuceno and the case
of People v. Trinidad, held that:
In cases of estafa, the profit or gain must be obtained by the accused personally,
through his own acts, and his mere negligence in permitting another to
take advantage or benefit from the entrusted chattel cannot
constitute estafa under Article 315, paragraph 1-b, of the Revised Penal
Code; unless of course the evidence should disclose that the agent acted
in conspiracy or connivance with the one who carried out the actual
misappropriation, then the accused would be answerable for the acts of
his co-conspirators. If there is no such evidence, direct or circumstantial,
and if the proof is clear that the accused herself was the innocent victim
of her sub-agents faithlessness, her acquittal is in order.[38]

Petitioner thus cannot be criminally held liable for estafa. Although it

cannot be denied that she received the pieces of jewelry from
complainants, evidence is wanting in proving that she misappropriated or
converted the amount of the pieces of jewelry for her own personal use. Likewise,
the prosecution failed to present evidence to show that petitioner had conspired
or connived with Bisquera. The mere fact that petitioner failed to return the
pieces of jewelry upon demand is not proof of conspiracy, nor is it proof of
misappropriation or conversion.

In addition, this Court takes notice of the findings of fact by the RTC in the
separate civil action instituted by complainants, the same docketed as Civil Case
No. 63131, dealing with the civil aspect of the case at bar:
xxxx
Jane Bisquera cannot interpose the defense that she is not privy to the
transaction. Her admission that she has indeed received the pieces of jewelry which is
the subject matter of the controversy and her offer to extinguish the obligation by
payment or dacion en pago is contradictory to her defense. Therefore, she is estopped
from interposing such a defense.
Furthermore, earlier in her transaction with Wilma Tabaniag, the principals, Sps.
Espiritu, were not alien to her but were in fact disclosed to her, hence, she has
knowledge that the spouses are the principals of Tabaniag.
Bisquera, being a sub-agent to Tabaniag, is in fact privy to the agreement. x x
[39]
x
Based on the foregoing, it is clear that petitioner had in fact transferred the pieces
of jewelry to Bisquera. Thus, contrary to the finding of the CA, petitioner could
not have converted the same for her own benefit, especially since the pieces of
jewelry were not with her, and there was no evidence of conspiracy or
connivance between petitioner and Bisquera.
Moreover, even Victoria cannot deny knowing that petitioner had given the
pieces of jewelry to Bisquera, as Victoria herself was the one who deposited the
checks issued by Bisquera to her account, to wit:

Q. Now, madam witness, there is a (sic) mentioned here an amount of P300,000.00

regarding the violation of bouncing check, am I correct?
A. Yes, sir.

Q. And according to you, these were payments made by Wilma Tabaniag, am I correct?
A. Yes, sir.

Q. Who is the drawer of these checks with a P300,000.00 that you mentioned in this
particular document, not less than P300,000.00?
A. The total check P300,000.00 was under my name.

Q. No, I mean, who is the drawer?

A. Mrs. Tabaniag issued and the other pieces of jewelry were issued by a certain Jane
Bisquera.

Q. No, not jewelries, checks.

A. I'm sorry, checks.

Q. How much was issued by Jane Bisquera?

A. The total is P320,872.00

Q. That was by Jane Bisquera alone?

A. Yes, sir.[40]

Lastly, although petitioner may have admitted that the cases she filed
against Bisquera do not involve the same checks, which are the subject matter of
the case at bar, the same does not necessarily manifest a criminal intent on her
part. On the contrary, what it shows is that petitioner too may be an unwilling
victim of this day-to-day malady of bouncing checks, common in our business
field. Certainly, petitioner may have been negligent in entrusting the pieces
of jewelry to Bisquera, but in no way can such constitute estafa as defined in the
RPC.

As a final note, a reading of the records and transcript of the case seemingly
shows an unintentional reference by the parties in describing the transaction as
one of sale.[41] The foregoing notwithstanding, if this Court were to consider the
transaction as one of sale and not one of sub-agency, the same conclusion would
nevertheless be reached, as the critical elements of misappropriation or
conversion, as previously discussed, are absent in the case at bar.

It is the primordial duty of the prosecution to present its side with clarity
and persuasion so that conviction becomes the only logical and inevitable
conclusion.[42] What is required of it is to justify the conviction of the accused with
moral certainty.[43] In the case at bar, the prosecution has failed to discharge its
burden. Based on the foregoing, it would then be unnecessary to discuss the
other assigned errors.

Notwithstanding the above, however, petitioner is not entirely free from

any liability towards complainants. The rule is that an accused acquitted
of estafa may nevertheless be held civilly liable where the facts established by the
evidence so warrant.[44] However, since there is a separate civil action instituted
by complainants, this Court deems it proper for the civil aspect of the case at bar
to be resolved therein.

WHEREFORE, the petition is GRANTED. The Decision of the Court of

Appeals in CA-G.R. CR No. 24906, dated February 27, 2004, and its Resolution
dated September 22, 2004 are REVERSED and SET ASIDE. Petitioner Wilma
Tabaniag is ACQUITTED of the crime charged, without prejudice, however, to the
recovery of civil liability in Civil Case No. 63131, before the Regional Trial Court,
National Capital Judicial Region, Branch 268, Pasig City.
SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson

MINITA V. CHICO-NAZARIO PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

 ANTONIO EDUARDO B. NACHURA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO

Associate Justice

Third Division, Chairperson

 CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.

REYNATO S. PUNO

Chief Justice

[1]
Penned by Associate Justice Mariano C. Del Castillo, with Associate Justices Rodrigo V. Cosico and Vicente Q.
Roxas, concurring; rollo, pp. 36-46.
[2]
Id. at 61-62.
[3]
CA rollo, pp. 22-28.
[4]
Id. at 8-9.
[5]
Id. at 8.
[6]
Affidavit dated July 27, 1995; records, p. 98.
[7]
TSN, May 23, 1996, pp. 11-12; records, p. 104.
[8]
Records, pp. 186-188.
[9]
Id. at 193-195.
[10]
Id. at 206-207.
[11] CA rollo, pp. 10-11.
[12] Id. at 10.
[13] Id. at 28.
[14]
TSN, October 10, 1996, p. 5.
[15]
Exhibit B, folder of exhibits, p. 2.
[16]
Exhibit C, folder of exhibits, p. 3.
[17]
TSN, October 16, 1997, p. 14.
[18]
Exhibit D, folder of exhibits, p. 4.
[19]
Exhibit 4, folder of exhibits, pp. 2-4.
[20]
CA rollo, pp. 51-53.
[21]
TSN, August 12, 1999, p. 8.
[22]
Id. at 19.
[23]
CA rollo, p. 154.
[24]
Rollo, p. 43.
[25]
CA rollo, pp. 160-172.
[26]
Id. at 185-186.
[27]
Id. at 187.
[28]
Id. at 194-195.
[29]
Rollo, p. 16.
[30]
Salazar v. People of the Philippines, G.R. No. 149472, August 18, 2004, 437 SCRA 41, 46.
[31]
Records, p. 6.
[32]
Exhibits 11 and 12 for the defense, folder of exhibits, pp. 19-20.
[33]
TSN, January 20, 2000, p. 6.
[34]
Amorsolo v. People, G.R. No. L-76647, September 30, 1987, 154 SCRA 556, 563, citing U.S. v. Ramirez, 9 Phil. 67
(1907) and U.S. v. Panes, 37 Phil. 116 (1917).

[35]
G.R. No. 130423, November 18, 2002, 392 SCRA 35.
[36]
Rollo, p. 131.
[37]
Exhibit B and C, folder of exhibits, pp. 2-3. (Emphasis and underscoring supplied.)
[38]
Serona v. Court of Appeals, supra note 35, at 41-44. (Emphasis and underscoring supplied.)
[39]
Rollo, pp. 105-106. (Emphasis supplied.)
[40]
TSN, October 16, 1997, pp. 24-25.
[41]
See TSN, October 17, 1997, p. 12; TSN, October 10, 1996, pp. 6-7.
[42]
People v. Fernandez, G.R. Nos. 139341-45, July 25, 2002, 385 SCRA 224, 232.
[43]
Rules of Court, Rule 133, Section 2.
[44]
Serona v. Court of Appeals, supra note 35.
 Republic of the Philippines
Supreme Court
Manila
FIRST DIVISION

COUNTRY BANKERS INSURANCE G.R. No. 166044

CORPORATION,
Petitioner, Present:

LEONARDO-DE CASTRO,*
- versus - Acting Chairperson,

BERSAMIN,
KEPPEL CEBU SHIPYARD, DEL CASTILLO,
UNIMARINE SHIPPING LINES, INC.,
PAUL RODRIGUEZ, PETER VILLARAMA, JR., and
RODRIGUEZ, ALBERT PERLAS-BERNABE,** JJ.
HONTANOSAS, and BETHOVEN
QUINAIN,
Respondents.

Promulgated:

June 18, 2012

x--------------------------------------------------x
 DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari[1] to reverse and set aside the
January 29, 2004 Decision[2] and October 28, 2004 Resolution[3] of the Court of
Appeals in CA-G.R. CV No. 58001, wherein the Court of Appeals affirmed with
modification the February 10, 1997 Decision[4] of the Regional Trial Court (RTC) of
Cebu City, Branch 7, in Civil Case No. CBB-13447.

Hereunder are the undisputed facts as culled from the records of the case.

On January 27, 1992, Unimarine Shipping Lines, Inc. (Unimarine), a

corporation engaged in the shipping industry, contracted the services of Keppel
Cebu Shipyard, formerly known as Cebu Shipyard and Engineering Works, Inc.
(Cebu Shipyard), for dry docking and ship repair works on its vessel, the M/V
Pacific Fortune.[5]

On February 14, 1992, Cebu Shipyard issued Bill No. 26035 to Unimarine in
consideration for its services, which amounted to P4,486,052.00.[6] Negotiations
between Cebu Shipyard and Unimarine led to the reduction of this amount
to P3,850,000.00. The terms of this agreement were embodied in Cebu Shipyards
February 18, 1992 letter to the President/General Manager of Unimarine, Paul
Rodriguez, who signed his conformity to said letter, quoted in full below:

18 February 1992
Ref No.: LL92/0383

UNIMARINE SHIPPING LINES, INC.

C/O Autographics, Inc.

Gorordo Avenue, Lahug, Cebu City

Attention: Mr. Paul Rodriguez

President/General Manager

This is to confirm our agreement on the shiprepair bills charged for the repair of MV
Pacific Fortune, our invoice no. 26035.

The shiprepair bill (Bill No. 26035) is agreed at a negotiated amount of P3,850,000.00
excluding VAT.

Unimarine Shipping Lines, Inc. (Unimarine) will pay the above amount of
[P3,850,000.00] in US Dollars to be fixed at the prevailing USDollar to Philippine Peso
exchange rate at the time of payment. The payment terms to be extended to Unimarine
is as follows:

Installments Amount Due Date

1st Installment P2,350,000.00 30 May 1992

2nd Installment P1,500,000.00 30 Jun 1992

Unimarine will deposit post-dated checks equivalent to the above amounts in Philippine
Peso and an additional check amount of P385,000.00, representing 10% [Value Added
Tax] VAT on the above bill of P3,850,000.00. In the event that Unimarine fails to make
full payment on the above due dates in US Dollars, the post-dated checks will be
 deposited by CSEW in payment of the amounts owned by Unimarine and Unimarine
agree that the 10% VAT (P385,000.00) shall also become payable to CSEW.

Unimarine in consideration of the credit terms extended by CSEW and the release of the
vessel before full payment of the above debt, agree to present CSEW surety bonds equal
to 120% of the value of the credit extended. The total bond amount shall
be P4,620,000.00.

Yours faithfully,

CEBU SHIPYARD & ENGG WORKS, INC Conforme:

(SGD) (SGD)______

SEET KENG TAT PAUL RODRIGUEZ

Treasurer/VP-Admin. Unimarine Shipping

Lines, Inc.[7]

In compliance with the agreement, Unimarine, through Paul Rodriguez,

secured from Country Bankers Insurance Corp. (CBIC), through the latters agent,
Bethoven Quinain (Quinain), CBIC Surety Bond No. G (16) 29419[8] (the surety
bond) on January 15, 1992 in the amount of P3,000,000.00. The expiration of this
surety bond was extended to January 15, 1993, through Endorsement No.
33152[9] (the endorsement), which was later on attached to and formed part of
the surety bond. In addition to this, Unimarine, on February 19, 1992, obtained
another bond from Plaridel Surety and Insurance Co. (Plaridel), PSIC Bond No. G
(16)-00365[10] in the amount of P1,620,000.00.
 On February 17, 1992, Unimarine executed a Contract of Undertaking in
favor of Cebu Shipyard. The pertinent portions of the contract read as follows:

Messrs, Uni-Marine Shipping Lines, Inc. (the Debtor) of Gorordo Avenue, Cebu City
hereby acknowledges that in consideration of Cebu Shipyard & Engineering Works,
Inc. (Cebu Shipyard) at our request agreeing to release the vessel specified in part A of
the Schedule (name of vessel) prior to the receipt of the sum specified in part B of the
Schedule (Moneys Payable) payable in respect of certain works performed or to be
performed by Cebu Shipyard and/or its subcontractors and/or material and equipment
supplied or to be supplied by Cebu Shipyard and/or its subcontractors in connection
with the vessel for the party specified in part C of the Schedule (the Debtor), we hereby
unconditionally, irrevocably undertake to make punctual payment to Cebu Shipyard of
the Moneys Payable on the terms and conditions as set out in part B of the
Schedule. We likewise hereby expressly waive whatever right of excussion we may have
under the law and equity.

This contract shall be binding upon Uni-Marine Shipping Lines, Inc., its heirs, executors,
administrators, successors, and assigns and shall not be discharged until all obligation of
this contract shall have been faithfully and fully performed by the Debtor.[11]

Because Unimarine failed to remit the first installment when it became due on
May 30, 1992, Cebu Shipyard was constrained to deposit the peso check
corresponding to the initial installment of P2,350,000.00. The check, however,
was dishonored by the bank due to insufficient funds.[12] Cebu Shipyard faxed a
message to Unimarine, informing it of the situation, and reminding it to settle its
account immediately.[13]
On June 24, 1992, Cebu Shipyard again faxed a message[14] to Unimarine, to
confirm Paul Rodriguezs promise that Unimarine will pay in full
the P3,850,000.00, in US Dollars on July 1, 1992.
 Since Unimarine failed to deliver on the above promise, Cebu Shipyard, on
July 2, 1992, through a faxed letter, asked Unimarine if the payment could be
picked up the next day. This was followed by another faxed message on July 6,
1992, wherein Cebu Shipyard reminded Unimarine of its promise to pay in full on
July 28, 1992. On August 24, 1992, Cebu Shipyard again faxed[15] Unimarine, to
inform it that interest charges will have to be imposed on their outstanding debt,
and if it still fails to pay before August 28, 1992, Cebu Shipyard will have to
enforce payment against the sureties and take legal action.

On November 18, 1992, Cebu Shipyard, through its counsel, sent Unimarine
a letter,[16] demanding payment, within seven days from receipt of the letter, the
amount of P4,859,458.00, broken down as follows:

B#26035 MV PACIFIC FORTUNE 4,486,052.00

LESS: ADJUSTMENT:

CN#00515-03/19/92 (636,052.00)

------------------

3,850,000.00

Add: VAT on repair bill no. 26035 385,000.00

------------------

4,235,000.00

Add: Interest/penalty charges:

Debit Note No. 02381 189,888.00

Debit Note No. 02382 434,570.00

------------------

4,859,458.00[17]
Due to Unimarines failure to heed Cebu Shipyards repeated demands, Cebu
Shipyard, through counsel, wrote the sureties CBIC[18] on November 18, 1992, and
Plaridel,[19] on November 19, 1992, to inform them of Unimarines nonpayment,
and to ask them to fulfill their obligations as sureties, and to respond within seven
days from receipt of the demand.

However, even the sureties failed to discharge their obligations, and so Cebu
Shipyard filed a Complaint dated January 8, 1993, before the RTC, Branch 18 of
Cebu City, against Unimarine, CBIC, and Plaridel. This was docketed as Civil Case
No. CBB-13447.

CBIC, in its Answer,[20] said that Cebu Shipyards complaint states no cause of
action. CBIC alleged that the surety bond was issued by its agent, Quinain, in
excess of his authority. CBIC claimed that Cebu Shipyard should have doubted the
authority of Quinain to issue the surety bond based on the following:

1. The nature of the bond undertaking (guarantee payment), and the amount
involved.
2. The surety bond could only be issued in favor of the Department of
Public Works and Highways, as stamped on the upper right portion of the
face of the bond.[21] This stamp was covered by documentary stamps.
3. The issuance of the surety bond was not reported, and the corresponding
premiums were not remitted to CBIC.[22]

CBIC added that its liability was extinguished when, without its knowledge
and consent, Cebu Shipyard and Unimarine novated their agreement several
times.Furthermore, CBIC stated that Cebu Shipyards claim had already been paid
or extinguished when Unimarine executed an Assignment of Claims[23] of the
proceeds of the sale of its vessel M/V Headline in favor of Cebu Shipyard. CBIC
also averred that Cebu Shipyards claim had already prescribed as the
endorsement that extended the surety bonds expiry date, was not reported to
CBIC. Finally, CBIC asseverated that if it were held to be liable, its liability should
be limited to the face value of the bond and not for exemplary damages,
attorneys fees, and costs of litigation.[24]

Subsequently, CBIC filed a Motion to Admit Cross and Third Party

Complaint[25] against Unimarine, as cross defendant; Paul Rodriguez, Albert
Hontanosas, and Peter Rodriguez, as signatories to the Indemnity Agreement they
executed in favor of CBIC; and Bethoven Quinain, as the agent who issued the
surety bond and endorsement in excess of his authority, as third party
defendants.[26]

CBIC claimed that Paul Rodriguez, Albert Hontanosas, and Peter Rodriguez
executed an Indemnity Agreement, wherein they bound themselves, jointly and
severally, to indemnify CBIC for any amount it may sustain or incur in connection
with the issuance of the surety bond and the endorsement.[27] As for Quinain, CBIC
alleged that he exceeded his authority as stated in the Special Power of Attorney,
wherein he was authorized to solicit business and issue surety bonds not
exceeding P500,000.00 but only in favor of the Department of Public Works and
Highways, National Power Corporation, and other government agencies.[28]

On August 23, 1993, third party defendant Hontanosas filed his Answer with
Counterclaim, to the Cross and Third Party Complaint. Hontanosas claimed that he
had no financial interest in Unimarine and was neither a stockholder, director nor
an officer of Unimarine. He asseverated that his relationship to Unimarine was
limited to his capacity as a lawyer, being its retained counsel. He further denied
having any participation in the Indemnity Agreement executed in favor of CBIC,
and alleged that his signature therein was forged, as he neither signed it nor
appeared before the Notary Public who acknowledged such undertaking.[29]

Various witnesses were presented by the parties during the course of the trial
of the case. Myrna Obrinaga testified for Cebu Shipyard. She was the Chief
Accountant in charge of the custody of the documents of the company. She
corroborated Cebu Shipyards allegations and produced in court the documents to
support Cebu Shipyards claim. She also testified that while it was true that the
proceeds of the sale of Unimarines vessel, M/V Headline, were assigned to Cebu
Shipyard, nothing was turned over to them.[30]

Paul Rodriguez admitted that Unimarine failed to pay Cebu Shipyard for the
repairs it did on M/V Pacific Fortune, despite the extensions granted to
Unimarine. He claimed that he signed the Indemnity Agreement because he trusted
Quinain that it was a mere pre-requisite for the issuance of the surety bond. He
added that he did not bother to read the documents and he was not aware of the
consequences of signing an Indemnity Agreement. Paul Rodriguez also alleged to
not having noticed the limitation Valid only in favor of DPWH stamped on the
surety bond.[31] However, Paul Rodriguez did not contradict the fact that Unimarine
failed to pay Cebu Shipyard its obligation.[32]

CBIC presented Dakila Rianzares, the Senior Manager of its Bonding

Department. Her duties included the evaluation and approval of all applications for
and reviews of bonds issued by their agents, as authorized under the Special Power
of Attorney and General Agency Contract of CBIC. Rianzares testified that she
only learned of the existence of CBIC Surety Bond No. G (16) 29419 when she
received the summons for this case. Upon investigation, she found out that the
surety bond was not reported to CBIC by Quinain, the issuing agent, in violation of
their General Agency Contract, which provides that all bonds issued by the agent
be reported to CBICs office within one week from the date of issuance. She further
stated that the surety bond issued in favor of Unimarine was issued beyond
Quinains authority. Rianzares added that she was not aware that an endorsement
pertaining to the surety bond was also issued by Quinain.[33]

After the trial, the RTC was faced with the lone issue of whether or not
CBIC was liable to Cebu Shipyard based on Surety Bond No. G (16) 29419.[34]
On February 10, 1997, the RTC rendered its Decision, the fallo of which
reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Cebu Shipyard &
Engineering Works, Incorporated and against the defendants:
 1. Ordering the defendants Unimarine Shipping Lines, Incorporated,
Country Bankers Insurance Corporation and Plaridel Surety and Insurance
Corporation to pay plaintiff jointly and severally the amount of P4,620,000.00
equivalent to the value of the surety bonds;

2. Ordering further defendant Unimarine to pay plaintiff the amount

of P259,458.00 to complete its entire obligation of P4,859,458.00;

3. To pay plaintiff jointly and severally the amount of P100,000.00 in

attorneys fees and litigation expenses;

4. For Cross defendant Unimarine Shipping Lines, Incorporated and

Third party defendants Paul Rodriguez, Peter Rodriguez and Alber[t] Hontanosas:
To indemnify jointly and severally, cross plaintiff and third party plaintiff
Country Bankers Insurance Corporation whatever amount the latter is made to
pay to plaintiff.[35]

The RTC held that CBIC, in its capacity as surety is bound with its principal
jointly and severally to the extent of the surety bond it issued in favor of [Cebu
Shipyard] because although the contract of surety is in essence secondary only to
a valid principal obligation, his liability to [the] creditor is said to be direct,
primary[,] and absolute, in other words, he is bound by the principal.[36] The RTC
added:

Solidary obligations on the part of Unimarine and CBIC having been established
and expressly stated in the Surety Bond No. 29419 (Exh. C), [Cebu Shipyard], therefore,
is entitled to collect and enforce said obligation against any and or both of them, and if
and when CBIC pays, it can compel its co-defendant Unimarine to reimburse to it the
amount it has paid.[37]

The RTC found CBICs contention that Quinain acted in excess of his
authority in issuing the surety bond untenable. The RTC held that CBIC is bound
by the surety bond issued by its agent who acted within the apparent scope of his
authority. The RTC said:
 [A]s far as third persons are concerned, an act is deemed to have been performed
within the scope of the agents authority, if such act is within the terms of the powers of
attorney as written, even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the agent.[38]

All the defendants appealed this Decision to the Court of Appeals.

Unimarine, Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas argued

that Unimarines obligation under Bill No. 26035 had been extinguished by
novation, as Cebu Shipyard had agreed to accept the proceeds of the sale of the
M/V Headline as payment for the ship repair works it did on M/V Pacific
Fortune. Paul Rodriguez and Peter Rodriguez added that such novation also freed
them from their liability under the Indemnity Agreement they signed in favor of
CBIC. Albert Hontanosas in turn reiterated that he did not sign the Indemnity
Agreement.[39][SC1]

CBIC, in its Appellants Brief,[40] claimed that the RTC erred in enforcing its
liability on the surety bond as it was issued in excess of Quinains
authority. Moreover, CBIC averred, its liability under such surety had been
extinguished by reasons of novation, payment, and prescription. CBIC also
questioned the RTCs order, holding it jointly and severally liable with Unimarine
and Plaridel for the amount of P4,620,000.00, a sum larger than the face value of
CBIC Surety Bond No. G (16) 29419, and why the RTC did not hold Quinain liable
to indemnify CBIC for whatever amount it was ordered to pay Cebu Shipyard.

On January 29, 2004, the Court of Appeals promulgated its decision, with
the following dispositive portion:
 WHEREFORE, in view of the foregoing, the respective appeal[s] filed by Defendants-
Appellants Unimarine Shipping Lines, Inc. and Country Bankers Insurance Corporation;
Cross-Defendant-Appellant Unimarine Shipping Lines, Inc. and; Third-Party Defendants-
Appellants Paul Rodriguez, Peter Rodriguez and Albert Hontanosas are
hereby DENIED. The decision of the RTC in Civil Case No. CEB-13447 dated February 10,
1997 is AFFIRMED with modification that Mr. Bethoven Quinain, CBICs agent is hereby
held jointly and severally liable with CBIC by virtue of Surety Bond No. 29419 executed
in favor of plaintiff-appellee CSEW.[41]

In its decision, the Court of Appeals resolved the following issues, as it had
summarized from the parties pleadings:

I. Whether or not UNIMARINE is liable to [Cebu Shipyard] for a sum of

money arising from the ship-repair contract;

II. Whether or not the obligation of UNIMARINE to [Cebu Shipyard] has been
extinguished by novation;

III. Whether or not Defendant-Appellant CBIC, allegedly being the Surety of

UNIMARINE is liable under Surety Bond No. 29419[;]

IV. Whether or not Cross Defendant-Appellant UNIMARINE and Third-Party

Defendants-Appellants Paul Rodriguez, Peter Rodriguez, Albert Hontanosas and
Third-Party Defendant Bethoven Quinain are liable by virtue of the Indemnity
Agreement executed between them and Cross and Third Party Plaintiff CBIC;

V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is entitled to the award

of P100,000.00 in attorneys fees and litigation expenses.[42]

The Court of Appeals held that it was duly proven that Unimarine was liable
to Cebu Shipyard for the ship repair works it did on the formers M/V Pacific
Fortune. The Court of Appeals dismissed CBICs contention of novation for lack of
merit.[43] CBIC was held liable under the surety bond as there was no novation on
the agreement between Unimarine and Cebu Shipyard that would discharge CBIC
from its obligation. The Court of Appeals also did not allow CBIC to disclaim
liability on the ground that Quinain exceeded his authority because third persons
had relied upon Quinains representation, as CBICs agent.[44] Quinain was,
however, held solidarily liable with CBIC under Article 1911 of the Civil Code.[45]

Anent the liability of the signatories to the Indemnity Agreement, the Court
of Appeals held Paul Rodriguez, Peter Rodriguez, and Albert Hontanosas jointly
and severally liable thereunder. The Court of Appeals rejected Hontanosass claim
that his signature in the Indemnity Agreement was forged, as he was not able to
prove it.[46]

The Court of Appeals affirmed the award of attorneys fees and litigation expenses
to Cebu Shipyard since it was able to clearly establish the defendants liability,
which they tried to dodge by setting up defenses to release themselves from their
obligation.[47]

CBIC[48]and Unimarine, together with third party defendants-appellants[49] filed

their respective Motions for Reconsideration. This was, however, denied by the
Court of Appeals in its October 28, 2004 Resolution for lack of merit.

Unimarine elevated its case to this Court via a petition for review on certiorari,
docketed as G.R. No. 166023, which was denied in a Resolution dated January 19,
2005.[50]

The lone petitioner in this case, CBIC, is now before this Court, seeking the
reversal of the Court of Appeals decision and resolution on the following grounds:

A.
 THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN APPLYING THE
PROVISIONS OF ARTICLE 1911 OF THE CIVIL CODE TO HOLD PETITIONER LIABLE FOR
THE ACTS DONE BY ITS AGENT IN EXCESS OF AUTHORITY.

B.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT AN

EXTENSION OF THE PERIOD FOR THE PERFORMANCE OF AN OBLIGATION GRANTED BY
THE CREDITOR TO THE PRINCIPAL DEBTOR IS NOT SUFFICIENT TO RELEASE THE
SURETY.

C.

ASSUMING THAT PETITIONER IS LIABLE UNDER THE BOND, THE HONORABLE COURT
OF APPEALS NONETHELESS SERIOUSLY ERRED IN AFFIRMING THE SOLIDARY LIABILITY
OF PETITIONER BEYOND THE VALUE OF THE BOND.

D.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER JOINTLY AND

SEVERALLY LIABLE FOR ATTORNEYS FEES IN THE AMOUNT OF P100,000.00.[51]

Issue

The crux of the controversy lies in CBICs liability on the surety bond Quinain
issued to Unimarine, in favor of Cebu Shipyard.
CBIC avers that the Court of Appeals erred in interpreting and applying the rules
governing the contract of agency. It argued that the Special Power of Attorney
granted to Quinain clearly set forth the extent and limits of his authority with
regard to businesses he can transact for and in behalf of CBIC. CBIC added that it
was incumbent upon Cebu Shipyard to inquire and look into the power of
authority conferred to Quinain. CBIC said:

The authority to bind a principal as a guarantor or surety is one of those powers which
requires a Special Power of Attorney pursuant to Article 1878 of the Civil Code. Such
power could not be simply assumed or inferred from the mere existence of an
agency. A person who enters into a contract of suretyship with an agent without
confirming the extent of the latters authority does so at his peril. x x x.[52]

CBIC claims that the foregoing is true even if Quinain was granted the
authority to transact in the business of insurance in general, as the authority to
bind the principal in a contract of suretyship could nonetheless never be
presumed.[53] Thus, CBIC claims, that:

[T]hird persons seeking to hold the principal liable for transactions entered into by an
agent should establish the following, in case the same is controverted:

6.6.1. The fact or existence of the agency.

6.6.2. The nature and extent of authority.[54]

To go a little further, CBIC said that the correct Civil Code provision to apply
in this case is Article 1898. CBIC asserts that Cebu Shipyard was charged with
knowledge of the extent of the authority conferred on Mr. Quinain by its failure
to perform due diligence investigations.[55]
 Cebu Shipyard, in its Comment[56] first assailed the propriety of the petition
for raising factual issues. In support, Cebu Shipyard claimed that the Court of
Appeals application of Article 1911 of the Civil Code was founded on findings of
facts that CBIC now disputes. Thus, the question is not purely of law.
Discussion

The fact that Quinain was an agent of CBIC was never put in issue. What has
always been debated by the parties is the extent of authority or, at the very least,
apparent authority, extended to Quinain by CBIC to transact insurance business
for and in its behalf.

In a contract of agency, a person, the agent, binds himself to represent

another, the principal, with the latters consent or authority.[57] Thus, agency is
based on representation, where the agent acts for and in behalf of the principal
on matters within the scope of the authority conferred upon him.[58] Such acts
have the same legal effect as if they were personally done by the principal. By this
legal fiction of representation, the actual or legal absence of the principal is
converted into his legal or juridical presence.[59]

The RTC applied Articles 1900 and 1911 of the Civil Code in holding CBIC
liable for the surety bond. It held that CBIC could not be allowed to disclaim
liability because Quinains actions were within the terms of the special power of
attorney given to him.[60] The Court of Appeals agreed that CBIC could not be
permitted to abandon its obligation especially since third persons had relied on
Quinains representations. It based its decision on Article 1911 of the Civil Code
and found CBIC to have been negligent and less than prudent in conducting its
insurance business for its failure to supervise and monitor the acts of its agents,
to regulate the distribution of its insurance forms, and to devise schemes to
prevent fraudulent misrepresentations of its agents.[61]
 This Court does not agree. Pertinent to this case are the following
provisions of the Civil Code:

Art. 1898. If the agent contracts in the name of the principal, exceeding the
scope of his authority, and the principal does not ratify the contract, it shall be void if
the party with whom the agent contracted is aware of the limits of the powers granted
by the principal. In this case, however, the agent is liable if he undertook to secure the
principals ratification.

Art. 1900. So far as third persons are concerned, an act is deemed to have been
performed within the scope of the agents authority, if such act is within the terms of the
power of attorney, as written, even if the agent has in fact exceeded the limits of his
authority according to an understanding between the principal and the agent.

Art. 1902. 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. Private or secret orders and instructions of the principal do not
prejudice third persons who have relied upon the power of attorney or instructions
shown to them.

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

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

Art. 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he had
full powers.

Our law mandates an agent to act within the scope of his authority.[62] The
scope of an agents authority is what appears in the written terms of the power of
attorney granted upon him.[63] Under Article 1878(11) of the Civil Code, a special
power of attorney is necessary to obligate the principal as a guarantor or surety.

In the case at bar, CBIC could be held liable even if Quinain exceeded the
scope of his authority only if Quinains act of issuing Surety Bond No. G (16) 29419
is deemedto have been performed within the written terms of the power of
attorney he was granted.[64]

However, contrary to what the RTC held, the Special Power of Attorney
accorded to Quinain clearly states the limits of his authority and particularly
provides that in case of surety bonds, it can only be issued in favor of the
Department of Public Works and Highways, the National Power Corporation, and
other government agencies; furthermore, the amount of the surety bond is
limited to P500,000.00, to wit:

SPECIAL POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS:

That, COUNTRY BANKERS INSURANCE CORPORATION, a corporation duly organized and

existing under and by virtue of the laws of the Philippines, with head offices at 8th Floor,
G.F. Antonino Building, T.M. Kalaw Street, Ermita, Manila, now and hereinafter referred
to as the Company hereby appoints BETHOVEN B. QUINAIN with address at x x x to be
its General Agent and Attorney-in-Fact, for and in its place, name and stead, and for its
own use and benefit, to do and perform the following acts and things:

1. To conduct, manage, carry on and transact insurance business as

usually pertains to a General Agency of Fire, Personal Accident, Bond, Marine,
Motor Car (Except Lancer).

2. To accept, underwrite and subscribe policies of insurance for and in

behalf of the Company under the terms and conditions specified in the General
 Agency Contract executed and entered into by and between it and its said
Attorney-in-Fact subject to the following Schedule of Limits:

- SCHEDULE OF LIMITS -

a. FIRE:

xxxx
b. PERSONAL ACCIDENT:

xxxx

c. MOTOR CAR:

xxxx

d. MARINE:

xxxx

e. BONDS:

xxxx

Surety Bond (in favor of Dept. of Pub. Works and

Highways, Natl. Power Corp. & other. 500,000.00
Government agencies)[65]

CBIC does not anchor its defense on a secret agreement, mutual

understanding, or any verbal instruction to Quinain. CBICs stance is grounded on
its contract with Quinain, and the clear, written terms therein. This Court finds
that the terms of the foregoing contract specifically provided for the extent and
scope of Quinains authority, and Quinain has indeed exceeded them.
 Under Articles 1898 and 1910, an agents act, even if done beyond the
scope of his authority, may bind the principal if he ratifies them, whether
expressly or tacitly. It must be stressed though that only the principal, and not the
agent, can ratify the unauthorized acts, which the principal must have knowledge
of.[66] Expounding on the concept and doctrine of ratification in agency, this Court
said:

Ratification in agency is the adoption or confirmation by one person of an act

performed on his behalf by another without authority. The substance of the doctrine is
confirmation after conduct, amounting to a substitute for a prior authority. Ordinarily,
the principal must have full knowledge at the time of ratification of all the material facts
and circumstances relating to the unauthorized act of the person who assumed to act as
agent. Thus, if material facts were suppressed or unknown, there can be no valid
ratification and this regardless of the purpose or lack thereof in concealing such facts
and regardless of the parties between whom the question of ratification may
arise. Nevertheless, this principle does not apply if the principals ignorance of the
material facts and circumstances was willful, or that the principal chooses to act in
ignorance of the facts. However, in the absence of circumstances putting a reasonably
prudent man on inquiry, ratification cannot be implied as against the principal who is
ignorant of the facts.[67] (Emphases supplied.)

Neither Unimarine nor Cebu Shipyard was able to repudiate CBICs

testimony that it was unaware of the existence of Surety Bond No. G (16) 29419
and Endorsement No. 33152. There were no allegations either that CBIC should
have been put on alert with regard to Quinains business transactions done on its
behalf. It is clear, and undisputed therefore, that there can be no ratification in
this case, whether express or implied.

Article 1911, on the other hand, is based on the principle of estoppel, which
is necessary for the protection of third persons. It states that the principal is
solidarily liable with the agent even when the latter has exceeded his authority, if
the principal allowed him to act as though he had full powers. However, for an
agency by estoppel to exist, the following must be established:
 1. The principal manifested a representation of the agents authority or
knowingly allowed the agent to assume such authority;
2. The third person, in good faith, relied upon such representation; and
3. Relying upon such representation, such third person has changed his
position to his detriment.[68]

In Litonjua, Jr. v. Eternit Corp.,[69] this Court said that [a]n 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.[70]

This Court cannot agree with the Court of Appeals pronouncement of

negligence on CBICs part. CBIC not only clearly stated the limits of its agents
powers in their contracts, it even stamped its surety bonds with the restrictions,
in order to alert the concerned parties. Moreover, its company procedures, such
as reporting requirements, show that it has designed a system to monitor the
insurance contracts issued by its agents. CBIC cannot be faulted for Quinains
deliberate failure to notify it of his transactions with Unimarine. In fact, CBIC did
not even receive the premiums paid by Unimarine to Quinain.

Furthermore, nowhere in the decisions of the lower courts was it stated

that CBIC let the public, or specifically Unimarine, believe that Quinain had the
authority to issue a surety bond in favor of companies other than the Department
of Public Works and Highways, the National Power Corporation, and other
government agencies. Neither was it shown that CBIC knew of the existence of
the surety bond before the endorsement extending the life of the bond, was
issued to Unimarine. For one to successfully claim the benefit of estoppel on the
ground that he has been misled by the representations of another, he must show
that he was not misled through his own want of reasonable care and
circumspection.[71]
 It is apparent that Unimarine had been negligent or less than prudent in its
dealings with Quinain. In Manila Memorial Park Cemetery, Inc. v.
Linsangan,[72] this Court held:

It is a settled rule that persons dealing with an agent are bound at their peril, if
they would hold the principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the burden of proof is
upon them to establish it. 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. If he does not make such an inquiry, he is chargeable with knowledge of the
agents authority and his ignorance of that authority will not be any excuse.

In the same case, this Court added:

[T]he ignorance of a person dealing with an agent as to the scope of the latters authority
is no excuse to such person and the fault cannot be thrown upon the principal. A person
dealing with an agent assumes the risk of lack of authority in the agent. He cannot
charge the principal by relying upon the agents assumption of authority that proves to
be unfounded. The principal, on the other hand, may act on the presumption that third
persons dealing with his agent will not be negligent in failing to ascertain the extent of
his authority as well as the existence of his agency.[73]

Unimarine undoubtedly failed to establish that it even bothered to inquire

if Quinain was authorized to agree to terms beyond the limits indicated in his
special power of attorney. While Paul Rodriguez stated that he has done business
with Quinain more than once, he was not able to show that he was misled by CBIC
as to the extent of authority it granted Quinain. Paul Rodriguez did not even
allege that he asked for documents to prove Quinains authority to contract
business for CBIC, such as their contract of agency and power of attorney. It is
also worthy to note that even with the Indemnity Agreement, Paul Rodriguez
signed it on Quinains mere assurance and without truly understanding the
consequences of the terms of the said agreement. Moreover, both Unimarine and
Paul Rodriguez could have inquired directly from CBIC to verify the validity and
effectivity of the surety bond and endorsement; but, instead, they blindly relied
on the representations of Quinain. As this Court held in Litonjua, Jr. v. Eternit
Corp.[74]:

A person dealing with a known agent is not authorized, under any circumstances, blindly
to trust the agents; statements as to the extent of his powers; such person must not act
negligently but must use reasonable diligence and prudence to ascertain whether the
agent acts within the scope of his authority. 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. In this case, the petitioners failed to discharge their burden; hence, petitioners are
not entitled to damages from respondent EC.[75]

In light of the foregoing, this Court is constrained to release CBIC from its liability
on Surety Bond No. G (16) 29419 and Endorsement No. 33152. This Court sees no
need to dwell on the other grounds propounded by CBIC in support of its prayer.

WHEREFORE, this petition is hereby GRANTED and the complaint against CBIC
is DISMISSED for lack of merit. The January 29, 2004 Decision and October 28,
2004 Resolution of the Court of Appeals in CA-G.R. CV No.
58001 is MODIFIED insofar as it affirmed CBICs liability on Surety Bond No. G (16)
29419 and Endorsement No. 33152.

SO ORDERED.
 TERESITA J. LEONARDO-DE CASTRO
Associate Justice

Acting Chairperson, First Division

WE CONCUR:

LUCAS P. BERSAMIN
Associate Justice
 MARIANO C. DEL CASTILLO MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
TERESITA J. LEONARDO-DE CASTRO

Associate Justice

Acting Chairperson, First Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Acting
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296,

The Judiciary Act of 1948, as amended)

*
Per Special Order No. 1226 dated May 30, 2012.
**
Per Special Order No. 1227 dated May 30, 2012.
[1]
Under Rule 45 of the 1997 Rules of Court.
[2]
Rollo, pp. 31-55; penned by Associate Justice Jose C. Reyes, Jr. with Associate Justices Romeo A. Brawner and
Rebecca De Guia-Salvador, concurring.
[3]
Id. at 57-58.
[4]
CA rollo, pp. 25-33.
[5]
Rollo, pp. 81-82.
[6]
Id. at 94-114.
[7]
Id. at 115.
[8]
Id. at 116-117.
[9]
Id. at 118.
[10]
Id. at 119-120.
[11]
Id. at 121.
[12]
Id. at 85.
[13]
Id. at 123.
[14]
Id. at 124.
[15]
Id. at 125-127.
[16]
Id. at 128-129.
[17]
Id. at 130.
[18]
Id. at 131-132.
[19]
Id. at 133.
[20]
Id. at 136-143.
[21]
Id. at 236.
[22]
Id. at 137.
[23]
CA rollo, p. 27.
[24]
Rollo, pp. 138-141.
[25]
Id. at 144-145.
[26]
CA rollo, pp. 42-43.
[27]
Rollo, p. 150.
[28]
Id. at 233-234.
[29]
Id. at 153-155.
[30]
CA rollo, p. 27.
[31]
Id. at 28.
[32]
Id. at 30.
[33]
Id. at 28-29.
[34]
Id. at 31.
[35]
Id. at 33.
[36]
Id. at 31.
[37]
Id.
[38]
Id. at 33.
[39]
Id. at 21-22.
[40]
Id. at 39-63.
[41]
Rollo, pp. 54-55.
[42]
Id. at 38.
[43]
Id. at 39-40.
[44]
Id. at 44-46.
[45]
Id. at 53.
[46]
Id. at 49-51.
[47]
Id. at 54.
[48]
CA rollo, pp. 240-252.
[49]
Id. at 253-256.
[50]
Rollo, p. 389.
[51]
Id. at 13-14.
[52]
Id. at 15.
[53]
Id. at 16.
[54]
Id. at 18.
[55]
Id. at 19.
[56]
Id. at 248-287.
[57]
CIVIL CODE, Art. 1868.
[58]
Id., Art. 1881.
[59]
Siredy Enterprises, Inc. v. Court of Appeals, 437 Phil. 580, 591 (2002).
[60]
CA rollo, pp. 31-32.
[61]
Rollo, pp. 46-47.
[62]
CIVIL CODE, Art. 1881.
[63]
Id., Art. 1900.
[64]
Id.
[65]
Rollo, pp. 233-234.
[66]
Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No. 151319, November 22, 2004, 443 SCRA 377,
394.
[67]
Id. at 394-395.
[68]
Litonjua, Jr. v. Eternit Corp., G.R. No. 144805, June 8, 2006, 490 SCRA 204, 224-225.
[69]
Id.
[70]
Id. at 225.
[71]
Manila Memorial Park Cemetery, Inc. v. Linsangan, supra note 66 at 397.
[72]
Id. at 391-392.
[73]
Id. at 392.
[74]
Supra note 68.
[75]
Id. at 223-224.

[SC1]Arguments raised with the RTC?

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No.171692 June 3, 2013

SPOUSES DELFIN O. TUMIBAY and AURORA T. TUMIBAY-deceased; GRACE JULIE ANN

TUMIBAY MANUEL, legal representative, Petitioners,
vs.
SPOUSES MELVIN A. LOPEZ and ROWENA GAY T. VISITACION LOPEZ, Respondents.

DECISION

DEL CASTILLO, J.:

In a contract to sell, the seller retains ownership of the property until the buyer has paid the price in
full. A -buyer who covertly usurps the seller's ownership of the property prior to the full payment of
the price is in breach of the contract and the seller is entitled to rescission because the breach is
substantial and fundamental as it defeats the very object of the parties in entering into the contract to
sell.

The Petition for Review on Certiorari1 assails the May 19, 2005 Decision2 of the Court of Appeals
(CA) in CA-G.R. CV No. 79029, which reversed the January 6, 2003 Decision3 of the Regional Trial
Court (RTC) of Malaybalay City, Branch 9 in Civil Case No. 2759-98, and the February 10, 2006
Resolution4 denying petitioner-spouses Delfin O. Tumibay and Aurora5 T. Tumibay’s Motion for
Reconsideration.6

Factual Antecedents

On March 23, 1998, petitioners filed a Complaint7 for declaration of nullity ab initio of sale, and
recovery of ownership and possession of land with the RTC of Malaybalay City. The case was
raffled to Branch 9 and docketed as Civil Case No. 2759-98.

In their Complaint, petitioners alleged that they are the owners of a parcel of land located in
Sumpong, Malaybalay, Bukidnon covered by Transfer Certificate of Title (TCT) No. T-
253348 (subject land) in the name of petitioner Aurora; that they are natural born Filipino citizens but
petitioner Delfin acquired American citizenship while his wife, petitioner Aurora, remained a Filipino
citizen; that petitioner Aurora is the sister of Reynalda Visitacion (Reynalda);9that on July 23, 1997,
Reynalda sold the subject land to her daughter, Rowena Gay T. Visitacion Lopez (respondent
Rowena), through a deed of sale10 for an unconscionable amount of ₱95,000.00 although said
property had a market value of more than ₱2,000,000.00; that the subject sale was done without the
knowledge and consent of petitioners; and that, for these fraudulent acts, respondents should be
held liable for damages. Petitioners prayed that (1) the deed of sale dated July 23, 1997 be declared
void ab initio, (2) the subject land be reconveyed to petitioners, and (3) respondents be ordered to
pay damages.

On May 19, 1998, respondents filed their Answer11 with counterclaim. Respondents averred that on
December 12, 1990, petitioners executed a special power of attorney (SPA)12 in favor of Reynalda
granting the latter the power to offer for sale the subject land; that sometime in 1994, respondent
Rowena and petitioners agreed that the former would buy the subject land for the price of
₱800,000.00 to be paid on installment; that on January 25, 1995, respondent Rowena paid in cash
to petitioners the sum of $1,000.00; that from 1995 to 1997, respondent Rowena paid the monthly
installments thereon as evidenced by money orders; that, in furtherance of the agreement, a deed of
sale was executed and the corresponding title was issued in favor of respondent Rowena; that the
subject sale was done with the knowledge and consent of the petitioners as evidenced by the receipt
of payment by petitioners; and that petitioners should be held liable for damages for filing the subject
Complaint in bad faith. Respondents prayed that the Complaint be dismissed and that petitioners be
ordered to pay damages.

On May 25, 1998, petitioners filed an Answer to Counterclaim.13 Petitioners admitted the existence of
the SPA but claimed that Reynalda violated the terms thereof when she (Reynalda) sold the subject
land without seeking the approval of petitioners as to the selling price. Petitioners also claimed that
the monthly payments from 1995 to 1997 were mere deposits as requested by respondent Rowena
so that she (Rowena) would not spend the same pending their agreement as to the purchase price;
and that Reynalda, acting with evident bad faith, executed the deed of sale in her favor but placed it
in the name of her daughter, respondent Rowena, which sale is null and void because an agent
cannot purchase for herself the property subject of the agency.

Ruling of the Regional Trial Court

On January 6, 2003, the RTC rendered a Decision in favor of petitioners, viz:

WHEREFORE, Decision is hereby rendered, as follows;

(1) Ordering the petitioners, jointly and severally, to return the said amount of $12,000.00 at
the present rate of exchange less the expenses to be incurred for the transfer of the property
in question under the name of the petitioners;

(2) Ordering the Register of Deeds of Bukidnon to cancel TCT No. T-62674 in the name of
the respondent Rowena Gay T. Visitacion-Lopez and to issue a new TCT in the name of the
petitioners;

(3) Ordering respondents, spouses Melvin and Rowena Gay Lopez, to execute a Deed of
Reconveyance in favor of the petitioners, or if said respondents should refuse to do so or are
unable to do so, the Clerk of Court of the RTC and ex-officio Provincial Sheriff to execute
such Deed of Reconveyance;

(4) No x x x damages are awarded. The respective parties must bear their own expenses
except that respondents, jointly and severally, must pay the costs of this suit.

SO ORDERED.14

In ruling in favor of petitioners, the trial court held: (1) the SPA merely authorized Reynalda to offer
for sale the subject land for a price subject to the approval of the petitioners; (2) Reynalda violated
the terms of the SPA when she sold the subject land to her daughter, respondent Rowena, without
first seeking the approval of petitioners as to the selling price thereof; (3) the SPA does not
sufficiently confer on Reynalda the authority to sell the subject land; (4) Reynalda, through fraud and
with bad faith, connived with her daughter, respondent Rowena, to sell the subject land to the latter;
and, (5) the sale contravenes Article 1491, paragraph 2, of the Civil Code which prohibits the agent
from acquiring the property subject of the agency unless the consent of the principal has been given.
The trial court held that Reynalda, as agent, acted outside the scope of her authority under the SPA.
Thus, the sale is null and void and the subject land should be reconveyed to petitioners. The trial
court further ruled that petitioners are not entirely free from liability because they received from
respondent Rowena deposits totaling $12,000.00. Under the principle of unjust enrichment,
petitioners should, thus, be ordered to reimburse the same without interest.

Petitioners filed a partial motion for reconsideration15 praying for the award of attorney’s fees. In its
January 14, 2003 Order16 denying the aforesaid motion, the trial court clarified that the
reimbursement of $12,000.00 in favor of respondents was without interest because there was also
no award of rental income in favor of petitioners. Both parties are deemed mutually compensated
and must bear their own expenses.

From this Decision, respondents appealed to the CA.

Ruling of the Court of Appeals

On May 19, 2005, the CA rendered the assailed Decision reversing the judgment of the trial court,
viz:

WHEREFORE, premises considered, the appealed Decision of the Court a quo is hereby
REVERSED and SET ASIDE. Accordingly, title to the subject property shall remain in the name of
the Appellant ROWENA GAY VISITACION-LOPEZ. The latter and her spouse MELVIN LOPEZ are
directed to pay the balance of Four Hundred Eighty Eight Thousand Pesos (₱488,000.00) to the
petitioners effective within 30 days from receipt of this Decision and in case of delay, to pay the legal
rate of interests [sic] at 12% per annum until fully paid.

SO ORDERED.17

In reversing the trial court’s Decision, the appellate court ruled that: (1) the SPA sufficiently conferred
on Reynalda the authority to sell the subject land; (2) although there is no direct evidence of
petitioners’ approval of the selling price of the subject land, petitioner Aurora’s acts of receiving two
money orders and several dollar checks from respondent Rowena over the span of three years
amount to the ratification of any defect in the authority of Reynalda under the SPA; (3) petitioners
are estopped from repudiating the sale after they had received the deposits totaling $12,000.00; (4)
the sale is not contrary to public policy because there is no rule or law which prohibits the sale of
property subject of the agency between the agent and his children unless it would be in fraud of
creditors which is not the case here; (5) petitioners impliedly ratified the subject SPA and contract of
sale as well as its effects; and, (6) the selling price of ₱800,000.00 for the subject land is deemed
reasonable based on the testimony of respondent Rowena as this was the selling price agreed upon
by her and petitioner Delfin. Considering that respondent Rowena proved that she remitted a total of
$12,000.00 to petitioners and pegging the exchange rate at that time at ₱26.00 per dollar, the
appellate court ruled that ₱312,000.00 of the ₱800,000.00 selling price was already received by
petitioners. Thus, respondents are only liable for the balance of ₱488,000.00.

Hence, this Petition.

Issues

Petitioners raise the following issues for our resolution:

I. Whether the CA erred in resolving the issue in the case at bar.

 II. Whether under the SPA Reynalda had the power to sell the subject land.

III. Whether the actuations of petitioner Aurora in receiving money from respondent Rowena
amounted to the ratification of the breach in the exercise of the SPA.

IV. Whether the CA erred in not declaring the sale void on grounds of public policy.

V. Whether the CA erred in adopting the testimony of respondent Rowena as to the

₱800,000.00 selling price of the subject land.18

Petitioners’ Arguments

Petitioners argue that the appellate court went beyond the issues of this case when it ruled that there
was a contract of sale between respondent Rowena and petitioner Aurora because the issues before
the trial court were limited to the validity of the deed of sale dated July 23, 1997 for being executed
by Reynalda beyond the scope of her authority under the SPA. Further, the existence of the alleged
contract of sale was not proven because the parties failed to agree on the purchase price as stated
by petitioner Aurora in her testimony. The money, in cash and checks, given to petitioners from 1995
to 1997 were mere deposits until the parties could agree to the purchase price. Moreover, Reynalda
acted beyond the scope of her authority under the SPA because she was merely authorized to look
for prospective buyers of the subject land. Even assuming that she had the power to sell the subject
land under the SPA, she did not secure the approval as to the price from petitioners before
executing the subject deed of sale, hence, the sale is null and void. Petitioners also contend that
there was no ratification of the subject sale through petitioners’ acceptance of the monthly checks
from respondent Rowena because the sale occurred subsequent to the receipt of the aforesaid
checks. They further claim that the sale was void because it was not only simulated but violates
Article 1491 of the Civil Code which prohibits the agent from acquiring the property subject of the
agency. Here, Reynalda merely used her daughter, respondent Rowena, as a dummy to acquire the
subject land. Finally, petitioners question the determination by the appellate court that the fair market
value of the subject land is ₱800,000.00 for lack of any factual and legal basis.

Respondents’ Arguments

Respondents counter that the issue as to whether there was a perfected contract of sale between
petitioners and respondent Rowena is inextricably related to the issue of whether the deed of sale
dated July 23, 1997 is valid, hence, the appellate court properly ruled on the former. Furthermore,
they reiterate the findings of the appellate court that the receipt of monthly installments constitutes
an implied ratification of any defect in the SPA and deed of sale dated July 23, 1997. They
emphasize that petitioners received a total of $12,000.00 as consideration for the subject land.

Our Ruling

The Petition is meritorious.

As a general rule, we do not disturb the factual findings of the appellate court. However, this case
falls under one of the recognized exceptions thereto because the factual findings of the trial court
and appellate court are conflicting.19Our review of the records leads us to conclude that the following
are the relevant factual antecedents of this case.

Petitioners were the owners of the subject land covered by TCT No. T-25334 in the name of
petitioner Aurora. On December 12, 1990, petitioners, as principals and sellers, executed an SPA in
favor of Reynalda, as agent, to, among others, offer for sale the subject land provided that the
purchase price thereof should be approved by the former. Sometime in 1994, petitioners and
respondent Rowena agreed to enter into an oral contract to sell over the subject land for the price of
₱800,000.00 to be paid in 10 years through monthly installments.

On January 25, 1995, respondent Rowena paid the first monthly installment of $1,000.00 to
petitioner Aurora which was followed by 22 intermittent monthly installments of $500.00 spanning
almost three years. Sometime in 1997, after having paid a total of $10,000.00, respondent Rowena
called her mother, Reynalda, claiming that she had already bought the subject land from petitioners.
Using the aforesaid SPA, Reynalda then transferred the title to the subject land in respondent
Rowena’s name through a deed of sale dated July 23, 1997 without the knowledge and consent of
petitioners. In the aforesaid deed, Reynalda appeared and signed as attorney-in-fact of petitioner
Aurora, as seller, while respondent Rowena appeared as buyer. After which, a new title, i.e., TCT
No. 62674,20 to thesubject land was issued in the name of respondent Rowena.

We explain these factual findings and the consequences thereof below.

Petitioners and respondent

Rowena entered into a contract to sell over the subject land.

Petitioners deny that they agreed to sell the subject land to respondent Rowena for the price of
₱800,000.00 payable in 10 years through monthly installments. They claim that the payments
received from respondent Rowena were for safekeeping purposes only pending the final agreement
as to the purchase price of the subject land.

We are inclined to give credence to the claim of the respondents for the following reasons.

First, the payment of monthly installments was duly established by the evidence on record consisting
of money orders21 and checks22 payable to petitioner Aurora. Petitioners do not deny that they
received 23 monthly installments over the span of almost three years. As of November 30, 1997
(i.e., the date of the last monthly installment), the payments already totaled $12,000.00, to wit:

Date Amount Paid

(in dollars)
January 25, 1995 1,000.0023
February 21, 1995 500.00
March 27, 1995 500.00
April 25, 1995 500.00
June 1, 1995 500.00
June 30, 1995 500.00
July 31, 1995 500.00
May 29, 1996 500.00
June 30, 1996 500.00
July 31, 1996 500.00
 August 31, 1996 500.00
September 30, 1996 500.00
October 29, 1996 500.00
December 31, 1996 500.00
January 31, 1997 500.00
February 28, 1997 500.00
March 31, 1997 500.00
May 31, 1997 500.00
July 19, 1997 500.00
August 31, 1997 500.00
September 30, 1997 500.00
October 31, 1997 500.00
November 30, 1997 500.00
Total 12,000.00

Second, in her testimony, petitioner Aurora claimed that the $1,000.00 in cash that she received
from respondent Rowena on January 25, 1995 was a mere deposit until the purchase price of the
subject land would have been finally agreed upon by both parties.24 However, petitioner Aurora failed
to explain why, after receiving this initial sum of $1,000.00, she thereafter accepted from respondent
Rowena 22 intermittent monthly installments in the amount of $500.00. No attempt was made on the
part of petitioners to return these amounts and it is fair to assume that petitioners benefited
therefrom.

Third, it strains credulity that respondent Rowena would make such monthly installments for a
substantial amount of money and for a long period of time had there been no agreement between
the parties as to the purchase price of the subject land.

We are, thus, inclined to rule that there was, indeed, a contractual agreement between the parties
for the purchase of the subject land and that this agreement partook of an oral contract to sell for the
sum of ₱800,000.00. A contract to sell has been defined as "a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price."25 In a
contract to sell, "ownership is retained by the seller and is not to pass until the full payment of the
price x x x."26 It is "commonly entered into so as to protect the seller against a buyer who intends to
buy the property in installments by withholding ownership over the property until the buyer effects full
payment therefor."27

In the case at bar, while there was no written agreement evincing the intention of the parties to enter
into a contract to sell, its existence and partial execution were sufficiently established by, and may
be reasonably inferred from the actuations of the parties, to wit: (1) the title to the subject land was
not immediately transferred, through a formal deed of conveyance, in the name of respondent
Rowena prior to or at the time of the first payment of $1,000.00 by respondent Rowena to petitioner
Aurora on January 25, 1995;28 (2) after this initial payment, petitioners received 22 intermittent
monthly installments from respondent Rowena in the sum of $500.00; and, (3) in her testimony,
respondent Rowena admitted that she had the title to the subject land transferred in her name only
later on or on July 23, 1997, through a deed of sale, because she believed that she had substantially
paid the purchase price thereof,29 and that she was entitled thereto as a form of security for the
installments she had already paid.30

Respondent Rowena was in breach of the contract to sell.

Although we rule that there was a contract to sell over the subject land between petitioners and
respondent Rowena, we find that respondent Rowena was in breach thereof because, at the time
the aforesaid deed of sale was executed on July 23, 1997, the full price of the subject land was yet
to be paid. In arriving at this conclusion, we take judicial notice31 of the prevailing exchange rates at
the time, as published by the Bangko Sentral ng Pilipinas,32 and multiply the same with the monthly
installments respondent Rowena paid to petitioners, as supported by the evidence on record, to wit:

Amount Paid Exchange Rate

Date Peso Equivalent
(in dollars) (peso per dollar)
January 25, 1995 1,000.00 24.7700 24,770.00
February 21, 1995 500.00 25.1140 12,557.00
March 27, 1995 500.00 25.9670 12,983.50
April 25, 1995 500.00 26.0270 13,013.50
June 1, 1995 500.00 25.8040 12,902.00
June 30, 1995 500.00 25.5750 12,787.50
July 31, 1995 500.00 25.5850 12,792.50
May 29, 1996 500.00 26.1880 13,094.00
June 30, 1996 500.00 26.203033 13,101.50
July 31, 1996 500.00 26.2280 13,114.00
August 31, 1996 500.00 26.202034 13,101.00
September 30, 1996 500.00 26.2570 13,128.50
October 29, 1996 500.00 26.2830 13,141.50
December 31, 1996 500.00 26.288035 13,144.00
January 31, 1997 500.00 26.3440 13,172.00
February 28, 1997 500.00 26.3330 13,166.50
March 31, 1997 500.00 26.3670 13,183.50
May 31, 1997 500.00 26.374036 13,187.00
July 19, 1997 500.00 28.574037 14,287.00
Total 260,626.50
Thus, as of July 19, 1997 or prior to the execution of the deed of sale dated July 23, 1997, the total
amount of monthly installments paid by respondent Rowena to petitioners was only ₱260,626.50 or
32.58%38 of the ₱800,000.00 purchase price. That the full price was yet to be paid at the time of the
subject transfer of title was admitted by respondent Rowena on cross-examination, viz:

ATTY. OKIT:

Q - Let us make this clear. You now admit that x x x you agreed to buy the lot at eight hundred
thousand, to which the Plaintiff x x x agreed. Now based on the dollar rate, your total payment did
not reach x x x eight hundred thousand pesos? Is that correct? [sic]

A - Yes.

Q - Since notwithstanding the fact this eight hundred thousand which you have agreed is not fully
paid why did your mother finalize the deed of sale?

A - My mother is equipped with the SPA to transfer the lot to me only for security purposes but
actually there is no full payment.39 (Emphasis supplied)

Respondent Rowena tried to justify the premature transfer of title by stating that she had
substantially paid the full amount of the purchase price and that this was necessary as a security for
the installments she had already paid. However, her own evidence clearly showed that she had, by
that time, paid only 32.58% thereof. Neither can we accept her justification that the premature
transfer of title was necessary as a security for the installments she had already paid absent proof
that petitioners agreed to this new arrangement. Verily, she failed to prove that petitioners agreed to
amend or novate the contract to sell in order to allow her to acquire title over the subject land even if
she had not paid the price in full.

Significantly, the evidence on record indicates that the premature transfer of title in the name of
respondent Rowena was done without the knowledge and consent of petitioners. In particular,
respondent Rowena’s narration of the events leading to the transfer of title showed that she and her
mother, Reynalda, never sought the consent of petitioners prior to said transfer of title, viz:

COURT:

Q- Why is this check (in the amount of $1,000.00) in your possession now?

A- This is the check I paid to her (referring to petitioner Aurora) which is in cash. [sic]

ATTY. BARROSO:

Q - Now did you continue x x x paying the $500.00 dollar to him (referring to petitioner Delfin)?

A - Yes.

xxxx

Q - Now having stated substantially paid, what did you do with the land subject of this case? [sic]

A - I called my mother who has equipped with SPA to my Uncle that I have already bought the land.
[sic]
Q - And you called your mother?

A - Yes.

xxxx

Q - Then what transpired next?

A - After two years my mother called me if how much I have paid the land and being equipped with
SPA, so she transferred the land to me. [sic]40 (Emphases supplied)

Respondent Rowena’s reliance on the SPA as the authority or consent to effect the premature
transfer of title in her name is plainly misplaced. The terms of the SPA are clear. It merely authorized
Reynalda to sell the subject land at a price approved by petitioners. The SPA could not have
amended or novated the contract to sell to allow respondent Rowena to acquire the title over the
subject land despite non-payment of the price in full for the reason that the SPA was executed four
years prior to the contract to sell. In fine, the tenor of her testimony indicates that respondent
Rowena made a unilateral determination that she had substantially paid the purchase price and that
she is entitled to the transfer of title as a form of security for the installments she had already paid,
reasons, we previously noted, as unjustified.

The contract to sell is rescissible.

Article 1191 of the Civil Code provides:

Art. 1191. 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 injured party may choose between fulfillment 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.

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

As a general rule, "rescission will not be permitted for a slight or casual breach of the contract, but
only for such breaches as are substantial and fundamental as to defeat the object of the parties in
making the agreement."41

In the case at bar, we find that respondent Rowena’s act of transferring the title to the subject land in
her name, without the knowledge and consent of petitioners and despite non-payment of the full
price thereof, constitutes a substantial and fundamental breach of the contract to sell. As previously
noted, the main object or purpose of a seller in entering into a contract to sell is to protect himself
against a buyer who intends to buy the property in installments by withholding ownership over the
property until the buyer effects full payment therefor.42 As a result, the seller’s obligation to convey
and the buyer’s right toconveyance of the property arise only upon full payment of the price. Thus, a
buyer who willfully contravenes this fundamental object or purpose of the contract, by covertly
transferring the ownership of the property in his name at a time when the full purchase price has yet
to be paid, commits a substantial and fundamental breach which entitles the seller to rescission of
the contract.43
Indeed, it would be highly iniquitous for us to rule that petitioners, as sellers, should continue with the
contract to sell even after the discovery of the aforesaid breach committed by respondent Rowena,
as buyer, considering that these acts betrayed in no small measure the trust reposed by petitioners
in her and her mother, Reynalda. Put simply, respondent Rowena took advantage of the SPA, in the
name of her mother and executed four years prior to the contract to sell, to effect the transfer of title
to the subject land in her (Rowena’s) name without the knowledge and consent of petitioners and
despite non-payment of the full price.

We, thus, rule that petitioners are entitled to the rescission of the subject contract to sell.

Petitioners are entitled to moral damages and attorney’s fees while respondent Rowena is entitled to
the reimbursement of the monthly installments with legal interest.

Article 1170 of the Civil Code provides:

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

Fraud or malice (dolo) has been defined as a "conscious and intentional design to evade the normal
fulfillment of existing obligations" and is, thus, incompatible with good faith.44 In the case at bar, we
find that respondent Rowena was guilty of fraud in the performance of her obligation under the
subject contract to sell because (1) she knew that she had not yet paid the full price (having paid
only 32.58% thereof) when she had the title to the subject land transferred to her name, and (2) she
orchestrated the aforesaid transfer of title without the knowledge and consent of petitioners. Her own
testimony and documentary evidence established this fact. Where fraud and bad faith have been
established, the award of moral damages is proper.45 Further, under Article 2208(2)46 of the Civil
Code, the award of attorney’s fees is proper where the plaintiff is compelled to litigate with third
persons or incur expenses to protect his interest because of the defendant’s act or omission. Here,
respondent Rowena’s aforesaid acts caused petitioners to incur expenses in litigating their just
claims. We, thus, find respondent Rowena liable for moral damages and attorney’s fees which we fix
at ₱100,000.00 and ₱50,000.00, respectively.47

Anent the monthly installments respondent Rowena paid to petitioners, our review of the records
leads us to conclude that respondent Rowena is entitled to the reimbursement of the same with legal
interest. Although respondent Rowena was clearly unjustified in prematurely and covertly
transferring the title to the subject land in her name, we deplore petitioners’ lack of candor in
prosecuting their claims before the trial court and intent to evade recognition of the monthly
installments that they received from respondent Rowena. The records indicate that, in their
Complaint, petitioners made no mention of the fact that they had entered into a contract to sell with
respondent Rowena and that they had received 23 monthly installments from the latter. The
Complaint merely alleged that the subject sale was done without the knowledge and consent of
petitioners. It was only later on, when respondent Rowena presented the proof of payment of the
monthly installments in her Answer to the Complaint, that this was brought to light to which
petitioners readily admitted. Further, no evidence was presented to prove that respondent Rowena
occupied the subject land or benefited from the use thereof upon commencement of the contract to
sell which would have justified the setting off of rental income against the monthly installments paid
by respondent Rowena to petitioners.

In view of the foregoing, the sums paid by respondent Rowena as monthly installments to petitioners
should, thus, be returned to her with legal interest. The total amount to be reimbursed by petitioners
to respondent Rowena is computed as follows:
 Amount Paid Exchange Rate
Date Peso Equivalent
(in dollars) (peso per dollar)
January 25, 1995 1,000.00 24.7700 24,770.00
February 21, 1995 500.00 25.1140 12,557.00
March 27, 1995 500.00 25.9670 12,983.50
April 25, 1995 500.00 26.0270 13,013.50
June 1, 1995 500.00 25.8040 12,902.00
June 30, 1995 500.00 25.5750 12,787.50
July 31, 1995 500.00 25.5850 12,792.50
May 29, 1996 500.00 26.1880 13,094.00
June 30, 1996 500.00 26.2030 13,101.50
July 31, 1996 500.00 26.2280 13,114.00
August 31, 1996 500.00 26.2020 13,101.00
September 30, 1996 500.00 26.2570 13,128.50
October 29, 1996 500.00 26.2830 13,141.50
December 31, 1996 500.00 26.2880 13,144.00
January 31, 1997 500.00 26.3440 13,172.00
February 28, 1997 500.00 26.3330 13,166.50
March 31, 1997 500.00 26.3670 13,183.50
May 31, 1997 500.00 26.3740 13,187.00
July 19, 1997 500.00 28.5740 14,287.00
August 31, 1997 500.00 30.1650 15,082.50
September 30, 1997 500.00 33.8730 16,936.50
October 31, 1997 500.00 34.9380 17,469.00
November 30, 1997 500.00 34.6550 17,327.50
Total 327,442.00

Since this amount is neither a loan nor forbearance of money, we set the interest rate at 6% per
annum computed from the time of the filing of the Answer48 to the Complaint on May 19, 199849 until
finality of judgement and thereafter at 12% per annum until fully paid in accordance with our ruling in
Eastern Shipping Lines, Inc. v. Court of Appeals.50 Petitioners are, thus, ordered to pay respondent
Rowena the sum of ₱327,442.00 with an interest of 6% per annum computed from May 19, 1998
until finality of judgment and thereafter of 12% per annum until fully paid.

The sale of the subject land, effected through the deed of sale dated July 23, 1997, is void.
Having ruled that respondent Rowena was in substantial breach of the contract to sell because she
had the title to the subject land transferred in her name without the knowledge and consent of
petitioners and despite lack of full payment of the purchase price, we now rule on the validity of the
deed of sale dated July 23, 1997 which was used to effect the aforesaid transfer of ownership.

It will be recalled that on December 12, 1990, petitioners, as principals and sellers, executed an SPA
in favor of Reynalda, as agent. The SPA stated in part:

That we spouses, AURORA TUMIBAY and DELFIN TUMIBAY, of legal age and presently residing at
36 Armstrong Drive, Clark, New Jersey, 07066 name, constitute and appoint REYNALDA
VISITACION, widow, of legal age and residing at Don Carlos, Bukidnon, Philippines, to be our true
and lawful Attorney-in-fact, for us and in our name, place and stead and for our use and benefit to do
and perform the following acts and deed:

To administer our real property located in the Province of Bikidnon, Town of Malaybalay, Barrio of
Bantaunon, Towns of Maramag, Paradise, Maramag and Barrio of Kiburiao, Town of Quezon.

To offer for sale said properties, the selling price of which will be subject to our approval.

xxxx

To sign all papers and documents on our behalf in a contract of sale x x x.51.

As can be seen, the SPA gave Reynalda the power and duty to, among others, (1) offer for sale the
subject land to prospective buyers, (2) seek the approval of petitioners as to the selling price thereof,
and (3) sign the contract of sale on behalf of petitioners upon locating a buyer willing and able to
purchase the subject land at the price approved by petitioners. Although the SPA was executed four
years prior to the contract to sell, there would have been no obstacle to its use by Reynalda had the
ensuing sale been consummated according to its terms. However, as previously discussed, when
Reynalda, as attorney-in-fact of petitioner Aurora, signed the subject deed of sale dated July 23,
1997, the agreed price of ₱800,000.00 (which may be treated as the approved price) was not yet
fully paid because respondent Rowena at the time had paid only ₱260,262.50.52 Reynalda,
therefore, acted beyond the scope of her authority because she signed the subject deed of sale, on
behalf of petitioners, at a price of ₱95,000.00 which was not approved by the latter. For her part,
respondent Rowena cannot deny that she was aware of the limits of Reynalda’s power under the
SPA because she (Rowena) was the one who testified that the agreed price for the subject land was
₱800,000.00.

Article 1898 of the Civil Code provides:

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

It should be noted that, under Article 1898 of the Civil Code, the principal’s ratification of the acts of
the agent, done beyond the scope of the latter’s authority, may cure the defect in the contract
entered into between the agent and a third person. This seems to be the line of reasoning adopted
by the appellate court in upholding the validity of the subject sale. The appellate court conceded that
there was no evidence that respondents sought the approval of petitioners for the subject sale but it,
nonetheless, ruled that whatever defect attended the sale of the subject land should be deemed
impliedly ratified by petitioners’ acceptance of the monthly installments paid by respondent Rowena.
Though not clearly stated in its Decision, the appellate court seemed to rely on the four monthly
installments (i.e., August 31, September 30, October 31, and November 30, 1997) respondent
Rowena paid to petitioners which the latter presumably received and accepted even after the
execution of the deed of sale dated July 23, 1997.

We disagree.

That petitioners continued to receive four monthly installments even after the premature titling of the
subject land in the name of respondent Rowena, through the deed of sale dated July 23, 1997, did
not, by itself, establish that petitioners ratified such sale. On the contrary, the fact that petitioners
continued to receive the aforesaid monthly installments tended to establish that they had yet to
discover the covert transfer of title in the name of respondent Rowena. As stated earlier, the
evidence on record established that the subject sale was done without petitioners’ knowledge and
consent which would explain why receipt or acceptance by petitioners of the aforementioned four
monthly installments still occurred. Further, it runs contrary to common human experience and
reason that petitioners, as sellers, would forego the reservation or retention of the ownership over
the subject land, which was intended to guarantee the full payment of the price under the contract to
sell, especially so in this case where respondent Rowena, as buyer, had paid only 32.58% of the
purchase price. In a contract to sell, it would be unusual for the seller to consent to the transfer of
ownership of the property to the buyer prior to the full payment of the purchase price because the
reservation of the ownership in the seller is precisely intended to protect the seller from the buyer.
We, therefore, find that petitioners’ claim that they did not ratify the subject sale, which was done
without their knowledge and consent, and that the subsequent discovery of the aforesaid fraudulent
sale led them to promptly file this case with the courts to be more credible and in accord with the
evidence on record. To rule otherwise would be to reward respondent Rowena for the fraud that she
committed on petitioners.

Based on the foregoing, we rule that (1) Reynalda, as agent, acted beyond the scope of her
authority under the SPA when she executed the deed of sale dated July 23, 1997 in favor of
respondent Rowena, as buyer, without the knowledge and consent of petitioners, and conveyed the
subject land to respondent Rowena at a price not approved by petitioners, as principals and sellers,
(2) respondent Rowena was aware of the limits of the authority of Reynalda under the SPA, and (3)
petitioners did not ratify, impliedly or expressly, the acts of Reynalda. Under Article 1898 of the Civil
Code, the sale is void and petitioners are, thus, entitled to the reconveyance of the subject land.

WHEREFORE, the Petition is GRANTED. The May 19, 2005 Decision and February 10, 2006
Resolution of the Court of Appeals in CA-G.R. CV No. 79029 are ANNULLED and SET ASIDE. The
January 6, 2003 Decision of the Regional Trial Court of Malaybalay City, Branch 9 in Civil Case No.
2759-98 is REINSTATED and MODIFIED to read as follows:

1. The deed of sale dated July 23, 1997 over the subject land, covered by TCT No. T-62674,
between petitioner Aurora, represented by Reynalda as her attorney-in-fact, and respondent
Rowena is declared void.

2. The contract to sell over the subject land, covered by TCT No. T-25334, between
petitioners, as sellers, and respondent Rowena, as buyer, is declared rescinded. 1âw phi1

3. The Register of Deeds of Malaybalay City is ordered to cancel TCT No. T-62674 in the
name of respondent Rowena and to reinstate TCT No. T-25334 in the name of petitioner
Aurora.
 4. Respondent Rowena is ordered to pay petitioners the sum of ₱100,000.00 as moral
damages and ₱50,000.00 as attorney’s fees.

5. Petitioners are ordered to pay respondent Rowena the sum of ₱327,442.00 with legal
interest of 6% per annum from May 19, 1998 until finality of this Decision. In case petitioners
fail to pay the amount due upon finality of this Decision, they shall pay legal interest thereon
at the rate of 12% per annum until fully paid.

No costs.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice
Acting Chairperson

JOSE PORTUGAL PEREZ ESTELA M. PERLAS-BERNABE

Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

ARTURO D. BRION
Associate Justice
Acting Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Acting Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes
* Per Special Order No. 1460 dated May 29,2013.

** Per Special Order No. 1461 dated May29,2013.

1 Rollo, pp. 6-41.

2Id. at 43-53; penned by Associate Justice Myrna Dimaranan-Vidal and concurred in by

Associate Justices Teresita Dy-Liacco Flores and Edgardv A. Camello.

3 Id. at 107-128; penned by Judge Rolando S. Venadas, Sr.

4Id. at 72-73; penned by Associate Justice Myrna Dimaranan-Vidal and concurred in by

Associate Justices Teresita Dy-Liacco Flores and Edgardo A. Camello.

5Deceased and substituted by her daughter, Grace Julie Ann Tumibay-Manuel, and
surviving spouse, petitioner Delfin, as per our Resolution dated February 15, 2012 (Id. at
251).

6 CA rollo, pp. 98-124.

7 Records, pp. 1-4.

8 Folder of Exhibits, unpaginated.

9Deceased and substituted by her daughters, Blesilda V. Coruna and respondent Rowena,
as per the trial court’s Order dated August 19, 1999 (Records, p. 57).

10 Folder of Exhibits, unpaginated.

11 Records, pp. 9-14.

12 Folder of Exhibits, unpaginated.

13 Records, pp. 40-42.

14 Id. at 122.

15 Id. at 124-126.

16 Id. at 131.

17 Rollo, pp. 52-53. Emphases in the original.

18 Id. at 170-171.

19 American Express International, Inc. v. Court of Appeals, 367 Phil. 333, 339 (1999).

20 Records, p. 5.

21 Id. at 17.
22 Id. at 18-38.

23The $1,000.00 was received in cash by petitioner Aurora from respondent Rowena. The
rest of the monthly installments were paid either through money orders or checks payable to
petitioner Aurora.

24 TSN, February 3, 2000, pp.17-18.

25 Coronel v. Court of Appeals, 331 Phil. 294, 310 (1996).

26 Manuel v. Rodriguez, 109 Phil. 1, 10 (1960).

27 Coronel v. Court of Appeals, supra at 314.

28See Roque v. Lapuz [185 Phil. 525, 540-541 (1980)] where we ruled that the absence of a
formal deed of conveyance is a very strong indication that the parties did not intend
immediate transfer of ownership and title but only a transfer after full payment of the price so
that the nature of the agreement is a contract to sell.

29 TSN, January 11, 2002, p. 12.

30 Id. at 16.

31We are constrained to rely on these published historical exchange rates because
respondent Rowena testified that the parties did not agree on the exchange rate that will be
used in computing the value in pesos of the monthly installments. (TSN, January 11, 2002, p.
13) Due to the peculiar circumstances of this case, we deem these published historical
exchange rates as reasonable and fair basis for the aforesaid purpose because they
constitute the actual exchange rates at the time.

32 http://www.bsp.gov.ph/statistics/statistics_online.asp, last visited 27 February 2013.

33The June 28, 1996 exchange rate was used because it is the nearest prior transacting day
to June 30, 1996.

There is no published exchange rate value for June 30, 1996 because it was a non-
transacting day.

34The August 30, 1996 exchange rate was used because it is the nearest prior transacting
day to August 31, 1996. There is no published exchange rate value for August 30, 1996
because it was a non-transacting day.

35 The December 27, 1996 exchange rate was used because it is the nearest prior
transacting day to December 31, 1996. There is no published exchange rate value for
December 31, 1996 because it was a nontransacting day.

36The May 30, 1997 exchange rate was used because it is the nearest prior transacting day
to May 31, 1997.

There is no published exchange rate value for May 31, 1997 because it was a non-
transacting day.
37The July 18, 1997 exchange rate was used because it is the nearest prior transacting day
to July 19, 1997.

There is no published exchange rate value for July 19, 1997 because it was a non-
transacting day.

38 260,626.50/800,000 x 100 = 32.58%

39 TSN, January 11, 2002, p. 16.

40 Id. at 10-12.

41 Song Fo and Company v. Hawaiian-Philippine Co., 47 Phil. 821, 827 (1925).

42 Coronel v. Court of Appeals, supra note 25 at 314.

43Parenthetically, we distinguish the present case from a long line of cases, starting with
Manuel v. Rodriguez (supra note 26), where we have consistently ruled that the failure of the
buyer to pay the price in full under a contract to sell is not a breach, casual or serious, but
simply an event that prevents the obligation of the seller to convey the title to the buyer from
acquiring binding force. In the case at bar, the breach is not due to the non-payment of the
purchase price but results from the premature transfer of the title of the property by the buyer
in her name without the knowledge and consent of the seller.

44 Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 150 Phil. 114, 125 (1972).

45 Titong v. Court of Appeals, 350 Phil. 544, 559 (1998).

46Art. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:

xxxx

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest; x x x

47As to the liability of Reynalda for damages, the evidence did not sufficiently establish that
Reynalda was similarly guilty of fraud. It appears that respondent Rowena was solely
responsible for the premature transfer of title of the subject land when she misrepresented to
Reynalda that she (Rowena) had already bought the land. (TSN, January 11, 2002, pp. 10-
12)

48This is deemed to be the time when the demand was established with reasonable certainty
because the documents evincing the monthly installments paid by respondent Rowena to
petitioners were appended to the Answer to the Complaint.

49 Records, p. 9.

50 G.R. No. 97412, July 12, 1994, 234 SCRA 78, 96.
51 Folder of Exhibits, unpaginated.

52The price stated in the deed of sale dated July 23, 1997 is ₱95,000.00 but, as previously
discussed, at the time the aforesaid deed was executed, respondent Rowena had already
paid a total of ₱260,262.50 to petitioners.
 THIRD DIVISION

January 18, 2017

G.R. No. 192602

SPOUSES MAY S. VILLALUZ and JOHNNY VILLALUZ, JR., Petitioners

vs.
LAND BANK OF THE PHILIPPINES and the REGISTER OF DEEDS FOR DAVAO CITY,
Respondents

DECISION

JARDELEZA, J.:

The Civil Code sets the default rule that an agent may appoint a substitute if the principal has not
prohibited him from doing so. The issue in this petition for review on certiorari, 1 which seeks to set
aside the Decision2 dated September 22, 2009 and Resolution3 dated May 26, 2010 of the Court of
Appeals (CA) in CA-G.R. CV No. 01307, is whether the mortgage contract executed by the
substitute is valid and binding upon the principal.

Sometime in 1996, Paula Agbisit (Agbisit), mother of petitioner May S. Villaluz (May), requested the
latter to provide her with collateral for a loan. At the time, Agbisit was the chairperson of Milflores
Cooperative and she needed ₱600,000 to ₱650,000 for the expansion of her backyard cut flowers
business.4 May convinced her husband, Johnny Villaluz (collectively, the Spouses Villaluz), to allow
Agbisit to use their land, located in Calinan, Davao City and covered by Transfer Certificate of Title
(TCT) No. T-202276, as collateral. 5 On March 25, 1996, the Spouses Villaluz executed a Special
Power of Attorney6 in favor of Agbisit authorizing her to, among others, "negotiate for the sale
mortgage, or other forms of disposition a parcel of land covered by Transfer Certificate of Title No. T-
202276" and "sign in our behalf all documents relating to the sale, loan or mortgage, or other
disposition of the aforementioned property. "7 The one-page power of attorney neither specified the
conditions under which the special powers may be exercised nor stated the amounts for which the
subject land may be sold or mortgaged.

On June 19, 1996, Agbisit executed her own Special Power of Attorney, 8 appointing Milflores
Cooperative as attorney-in-fact in obtaining a loan from and executing a real mortgage in favor of
Land Bank of the Philippines (Land Bank). On June 21, 1996, Milflores Cooperative, in a
representative capacity, executed a Real Estate Mortgage9 in favor of Land Bank in consideration of
the ₱3,000,000 loan to be extended by the latter. On June 24, 1996, Milflores Cooperative also
executed a Deed of Assignment of the Produce/Inventory 10 as additional collateral for the loan. Land
Bank partially released one-third of the total loan amount, or ₱995,500, to Milflores Cooperative on
June 25, 1996. On the same day, Agbisit borrowed the amount of ₱604,750 from Milflores
Cooperative. Land Bank released the remaining loan amount of ₱2,000,500 to Milflores Cooperative
on October 4, 1996. 11

Unfortunately, Milflorcs Cooperative was unable to pay its obligations to Land Bank. Thus, Land
Bank filed a petition for extra-judicial foreclosure sale with the Office of the Clerk of Court of Davao
City. Sometime in August, 2003, the Spouses Villaluz learned that an auction sale covering their
land had been set for October 2, 2003. Land Bank won the auction sale as the sole bidder. 12
The Spouses Villaluz filed a complaint with the Regional Trial Court (RTC) of Davao City seeking the
annulment of the foreclosure sale. The sole question presented before the RTC was whether Agbisit
could have validly delegated her authority as attorney-in-fact to Milflores Cooperative. Citing Article
1892 of the Civil Code, the RTC held that the delegation was valid since the Special Power of
Attorney executed by the Spouses Villaluz had no specific prohibition against Agbisit appointing a
substitute. Accordingly, the RTC dismissed the complaint. 13

On appeal, the CA affirmed the RTC Decision. In its Decision14 dated September 22, 2009, the CA
similarly found Article 1892 to be squarely applicable. According to the CA, the rule is that an agent
is allowed to appoint a sub-agent in the absence of an express agreement to the contrary and that "a
scrutiny of the Special Power of Attorney dated March 25, 1996 executed by appellants in favor of
[Agbisit] contained no prohibition for the latter to appoint a sub-agent." 15 Therefore, Agbisit was
allowed to appoint Milflores Cooperative as her sub-agent.

After the CA denied their motion for reconsideration, the Spouses Villaluz filed this petition for
review. They argue that the Real Estate Mortgage was void because there was no loan yet when the
mortgage contract was executed and that the Special Power of Attorney was extinguished when
Milflores Cooperative assigned its produce and inventory to Land Bank as additional collateral. 16 In
response, Land Bank maintains that the CA and RTC did not err in applying Article 1892, that the
Real Estate Mortgage can only be extinguished after the amount of the secured loan has been paid,
and that the additional collateral was executed because the deed of assignment was meant to cover
any deficiency in the Real Estate Mortgage. 17

II

Articles 1892 and 1893 of the Civil Code provide the rules regarding the appointment of a substitute
by an agent:

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;

(2) When he was given such power, but without designating the person, and the person appointed
was notoriously incompetent or insolvent.

All acts of the substitute appointed against the prohibition of the principal shall be void.

Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may
furthermore bring an action against the substitute with respect to the obligations which the latter has
contracted under the substitution.

The law creates a presumption that an agent has the power to appoint a substitute. The
consequence of the presumption is that, upon valid appointment of a substitute by the agent,
there ipso jure arises an agency relationship between the principal and the substitute, i.e., the
substitute becomes the agent of the principal. As a result, the principal is bound by the acts of the
substitute as if these acts had been performed by the principal's appointed agent. Concomitantly, the
substitute assumes an agent's obligations to act within the scope of authority, 18to act in accordance
with the principal's instructions, 19 and to carry out the agency, 20 among others. In order to make the
presumption inoperative and relieve himself from its effects, it is incumbent upon the principal to
prohibit the agent from appointing a substitute.
Although the law presumes that the agent is authorized to appoint a substitute, it also imposes an
obligation upon the agent to exercise this power conscientiously. To protect the principal, Article
1892 allocates responsibility to the agent for the acts of the substitute when the agent was not
expressly authorized by the principal to appoint a substitute; and, if so authorized but a specific
person is not designated, the agent appoints a substitute who is notoriously incompetent or
insolvent. In these instances, the principal has a right of action against both the agent and the
substitute if the latter commits acts prejudicial to the principal.

The case of Escueta v. Lim21illustrates the prevailing rule. In that case, the father, through a special
power of attorney, appointed his daughter as his attorney-in-fact for the purpose of selling real
properties. The daughter then appointed a substitute or sub-agent to sell the properties. After the
properties were sold, the father sought to nullify the sale effected by the subagent on the ground that
he did not authorize his daughter to appoint a subagent. We refused to nullify the sale because it is
clear from the special power of attorney executed by the father that the daughter is not prohibited
from appointing a substitute. Applying Article 1892, we held that the daughter "merely acted within
the limits of the authority given by her father, but she will have to be 'responsible for the acts of the
sub-agent,' among which is precisely the sale of the subject properties in favor of respondent."22

In the present case, the Special Power of Attorney executed by the Spouses Villaluz contains no
restrictive language indicative of an intention to prohibit Agbisit from appointing a substitute or sub-
agent. Thus, we agree with the findings of the CA and the RTC that Agbisit's appointment of
Milflores Cooperative was valid.

III

Perhaps recognizing the correctness of the CA and the RTC's legal position, the Spouses Villaluz
float a new theory in their petition before us. They now seek to invalidate the Real Estate Mortgage
for want of consideration. Citing Article 1409(3), which provides that obligations "whose cause or
object did not exist at the time of the transaction" are void ab initio, the Spouses Villaluz posit that
the mortgage was void because the loan was not yet existent when the mortgage was executed on
June 21, 1996. Since the loan was released only on June 25, 1996, the mortgage executed four
days earlier was without valuable consideration.

Article 1347 provides that "[a]ll things which are not outside the commerce of men, including future
things, may be the object of a contract." Under Articles 1461 and 1462, things having a potential
existence and "future goods," i.e., those that are yet to be manufactured, raised, or acquired, may be
the objects of contracts of sale. The narrow interpretation advocated by the Spouses Villaluz would
1âwphi 1

create a dissonance between Articles 1347, 1461, and 1462, on the one hand, and Article 1409(3),
on the other. A literal interpretation of the phrase "did not exist at the time of the transaction" in
Article 1409(3) would essentially defeat the clear intent and purpose of Articles 1347, 1461, and
1462 to allow future things to be the objects of contracts. To resolve this apparent conflict, Justice
J.B.L. Reyes commented that the phrase "did not exist" should be interpreted as "could not come
into existence" because the object may legally be a future thing.23 We adopt this interpretation.

One of the basic rules in statutory interpretation is that all parts of a statute are to be harmonized
and reconciled so that effect may be given to each and every part thereof, and that conflicting
intentions in the same statute are never to be supposed or so regarded.24 Thus, in order to give effect
to Articles 134 7, 1461, and 1462, Article 1409(3) must be interpreted as referring to contracts
whose cause or object is impossible of existing at the time of the transaction. 25

The cause of the disputed Real Estate Mortgage is the loan to be obtained by Milflores Cooperative.
This is clear from the terms of the mortgage document, which expressly provides that it is being
executed in "consideration of certain loans, advances, credit lines, and other credit facilities or
accommodations obtained from [Land Bank by Milflores Cooperative] x x x in the principal amount of
[₱3,000,000]."26 The consideration is certainly not an impossible one because Land Bank was
capable of granting the ₱3,000,000 loan, as it in fact released one-third of the loan a couple of days
later. Although the validity of the Real Estate Mortgage is dependent upon the validity of the
loan,27 what is essential is that the loan contract intended to be secured is actually perfected,28 not at
the time of the execution of the mortgage contract vis-a-vis the loan contract. In loan transactions, it
is customary for the lender to require the borrower to execute the security contracts prior to initial
drawdown. This is understandable since a prudent lender would not want to release its funds without
the security agreements in place. On the other hand, the borrower would not be prejudiced by mere
execution of the security contract, because unless the loan proceeds are delivered, the obligations
under the security contract will not arise.29 In other words, the security contract-in this case, the Real
Estate Mortgage-is conditioned upon the release of the loan amount. This suspensive condition was
satisfied when Land Bank released the first tranche of the ₱3,000,000 loan to Milflores Cooperative
on June 25, 1996, which consequently gave rise to the Spouses Villaluz's obligations under the Real
Estate Mortgage. 1awp++i 1

IV

The Spouses Villaluz claim that the Special Power of Attorney they issued was mooted by the
execution of the Deed of Assignment of the Produce/Inventory by Milflores Cooperative in favor of
Land Bank. Their theory is that the additional security on the same loan extinguished the agency
because the Deed of Assignment "served as payment of the loan of the [Milflores] Cooperative."30

The assignment was for the express purpose of "securing the payment of the Line/Loan, interest and
charges thereon."31 Nowhere in the deed can it be reasonably deduced that the collaterals assigned
by Milflores Cooperative were intended to substitute the payment of sum of money under the loan. It
was an accessory obligation to secure the principal loan obligation.

The assignment, being intended to be a mere security rather than a satisfaction of indebtedness, is
not a elation in payment under Article 124532 and did not extinguish the loan obligation. 33 "Dation in
payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed
upon by the parties or as may be proved, unless the parties by agreement-express or implied, or by
their silence-consider the thing as equivalent to the obligation, in which case the obligation is totally
extinguished."34 As stated in the second condition of the Deed of Assignment, the "Assignment shall
in no way release the ASSIGNOR from liability to pay the Line/Loan and other obligations, except
only up to the extent of any amount actually collected and paid to ASSIGNEE by virtue of or under
this Assignment."35 Clearly, the assignment was not intended to substitute the payment of sums of
money. It is the delivery of cash proceeds, not the execution of the Deed of Assignment, that is
considered as payment. Absent any proof of delivery of such proceeds to Land Bank, the Spouses
Villaluz' s claim of payment is without basis.

Neither could the assignment have constituted payment by cession under Article 125536 for the plain
and simple reason that there was only one creditor, Land Bank. Article 1255 contemplates the
existence of two or more creditors and involves the assignment of all the debtor's property. 37

The Spouses Villaluz understandably feel shorthanded because their property was foreclosed by
reason of another person's inability to pay. However, they were not coerced to grant a special power
of attorney in favor of Agbisit. Nor were they prohibited from prescribing conditions on how such
power may be exercised. Absent such express limitations, the law recognizes Land Bank's right to
rely on the terms of the power of attorney as written.38 "Courts cannot follow one every step of his life
and extricate him from bad bargains, protect him from unwise investments, relieve him from one-
sided contracts, or annul the effects of [unwise] acts."39 The remedy afforded by the Civil Code to the
Spouses Villaluz is to proceed against the agent and the substitute in accordance with A1iicles 1892
and 1893.

WHEREFORE, the petition is DENIED. The Decision dated September 22, 2009 and Resolution
dated May 26, 2010 of the Court of Appeals in CA-G.R. CV No. 01307 are AFFIRMED.

SO ORDERED.

FRANCIS H. JARDELEZA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

LUCAS P. BERSAMIN BIENVENIDO L. REYES

Associate Justice Associate Justice

ALFREDO BENJAMIN S. CAGUIOA*

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P.A. SERENOPRESBITERO J. VELASCO, JR.MARIA LOURDES P.A.

SERENO MARIA LOURDES P.A.SERENO
Chief Justice MARIA LOURDES P.A. SERENO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution, and the Division Chairperson’s attestation,
it is hereby certified that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes
*
Designated as Fifth Member of the Third Division per Special Order No. 2417 dated
January 4, 2017.

1
Rollo, pp. 30-44.

2
Id. at 10-18. Penned by Associate Justice Leoncia R. Dimagiba, with Associate Justices
Edgardo A. Camello and Edgardo T. Lloren, concurring.

3
Id. at 19.

4
Id. at 11.

5
Id.

6
Rollo, p. 55.

7
Id

8
Rollo, pp. 56-57.

9
Id at 58-61.

10
Id. at 62-66.

11
Id. at 13.

12
Id.

13
Rollo, pp. 69-72.

14
Supra note 2.

15
Rollo, pp. 14-15.

16
Id. at 37-39.

17
Id. at 93-105.

18
CIVIL CODE, Art. 1881.

19
CIVIL CODE, Art. 1887.

20
CIVIL CODE, Art. 1884.

21
G.R. No. 137162: January 24, 2007, 512 SCRA 411.

22
Id. at 423-424. Citation omitted.
 The Lawyers Journal, Vol. XVI, January 31, 1951, p. 50, as cited by
23

Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. IV,
1991, p. 629; and Paras, Civil Code of the Philippines Annotated, Vol. IV, 2012, p. 818.

24
People v. Garcia, 85 Phil. 651, 654-655 (1950).

CIVIL CODE, Art. 1348 provides: Impossible things or services cannot be the object of
25

contracts.

26
Rollo, p. 58.

27
CIVIL CODE, Act. 2086.

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the
28

delivery of the object of the contract. See Naguiat v. Court of Appeals, G.R. No. 118375,
October 3, 2003, 412 SCRA 591, 597.

29
Id. at 599.

30
Rollo, pp. 38-39.

31
Rollo, p. 62.

32
Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of
n debt in money, shall be governed by the law of sales.

Development Bank of the Philippines v. Court of Appeals, G.R. No. 118342, January 5,
33

1998, 284 SCRA 14, 25.

Philippine National Bank v. Dee, G. R. No. 182128, February 19, 2014, 717 SCRA 14, 27-
34

28.

35
Rollo, p. 63.

36
Art. 1255. The debtor may cede or assign his property to his creditors in payment of his
debts. This cession, unless there is stipulation to the contrary, shall only release the debtor
from responsibility for the net proceeds of the thing assigned. The agreements which, on the
effect of the cession, are made between the debtor and his creditors shall be governed by
special laws.

Yulim International Company Ltd. v. International Exchange Bank (now Union Bank of the
37

Philippines), G.R. No. 203133, February 18, 2015, 751 SCRA 129, 143. Citation omitted.

Art. 1900. So far as third persons are concerned, an act is deemed to have been
38

performed within the scope of the agent's authority, if such act is within the terms of the
power of attorney, as written, even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the agent.

39
Vales v. Villa, 35 Phil. 769, 788 (1916).
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 158907 February 12, 2007

EDUARDO B. OLAGUER, Petitioner,

vs.
EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, Respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the
Decision,1 dated 30 June 2003, promulgated by the Court of Appeals, affirming the Decision of the
Regional Trial Court, dated 26 July 1995, dismissing the petitioner’s suit.

The parties presented conflicting accounts of the facts.

EDUARDO B. OLAGUER’S VERSION

Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of
Businessday Corporation (Businessday) with a total par value of ₱600,000.00, with Certificates of
Stock No. 005, No. 028, No. 034, No. 070, and No. 100.2 At the time he was employed with the
corporation as Executive Vice-President of Businessday, and President of Businessday Information
Systems and Services and of Businessday Marketing Corporation, petitioner, together with
respondent Raul Locsin (Locsin) and Enrique Joaquin (Joaquin), was active in the political
opposition against the Marcos dictatorship.3 Anticipating the possibility that petitioner would be
arrested and detained by the Marcos military, Locsin, Joaquin, and Hector Holifeña had an unwritten
agreement that, in the event that petitioner was arrested, they would support the petitioner’s family
by the continued payment of his salary.4 Petitioner also executed a Special Power of Attorney (SPA),
on 26 May 1979, appointing as his attorneys-in-fact Locsin, Joaquin and Hofileña for the purpose of
selling or transferring petitioner’s shares of stock with Businessday. During the trial, petitioner
testified that he agreed to execute the SPA in order to cancel his shares of stock, even before they
are sold, for the purpose of concealing that he was a stockholder of Businessday, in the event of a
military crackdown against the opposition.5 The parties acknowledged the SPA before respondent
Emilio Purugganan, Jr., who was then the Corporate Secretary of Businessday, and at the same
time, a notary public for Quezon City.6

On 24 December 1979, petitioner was arrested by the Marcos military by virtue of an Arrest, Search
and Seizure Order and detained for allegedly committing arson. During the petitioner’s detention,
respondent Locsin ordered fellow respondent Purugganan to cancel the petitioner’s shares in the
books of the corporation and to transfer them to respondent Locsin’s name.7

As part of his scheme to defraud the petitioner, respondent Locsin sent Rebecca Fernando, an
employee of Businessday, to Camp Crame where the petitioner was detained, to pretend to borrow
Certificate of Stock No. 100 for the purpose of using it as additional collateral for Businessday’s then
outstanding loan with the National Investment and Development Corporation. When Fernando
returned the borrowed stock certificate, the word "cancelled" was already written therein. When the
petitioner became upset, Fernando explained that this was merely a mistake committed by
respondent Locsin’s secretary.8

During the trial, petitioner also agreed to stipulate that from 1980 to 1982, Businessday made regular
deposits, each amounting to ₱10,000.00, to the Metropolitan Bank and Trust Company accounts of
Manuel and Genaro Pantig, petitioner’s in-laws. The deposits were made on every 15th and 30th of
the month.9 Petitioner alleged that these funds consisted of his monthly salary, which Businessday
agreed to continue paying after his arrest for the financial support of his family.10 After receiving a
total of ₱600,000.00, the payments stopped. Thereafter, respondent Locsin and Fernando went to
ask petitioner to endorse and deliver the rest of his stock certificates to respondent Locsin, but
petitioner refused. 11

On 16 January 1986, petitioner was finally released from detention. He then discovered that he was
no longer registered as stockholder of Businessday in its corporate books. He also learned that
Purugganan, as the Corporate Secretary of Businessday, had already recorded the transfer of
shares in favor of respondent Locsin, while petitioner was detained. When petitioner demanded that
respondents restore to him full ownership of his shares of stock, they refused to do so. On 29 July
1986, petitioner filed a Complaint before the trial court against respondents Purugganan and Locsin
to declare as illegal the sale of the shares of stock, to restore to the petitioner full ownership of the
shares, and payment of damages.12

RESPONDENT RAUL LOCSIN’S VERSION

In his version of the facts, respondent Locsin contended that petitioner approached him and
requested him to sell, and, if necessary, buy petitioner’s shares of stock in Businessday, to assure
support for petitioner’s family in the event that something should happen to him, particularly if he was
jailed, exiled or forced to go underground.13 At the time petitioner was employed with Businessday,
respondent Locsin was unaware that petitioner was part of a group, Light-a-Fire Movement, which
actively sought the overthrow of the Marcos government through an armed struggle.14 He denied that
he made any arrangements to continue paying the petitioner’s salary in the event of the latter’s
imprisonment.15

When petitioner was detained, respondent Locsin tried to sell petitioner’s shares, but nobody wanted
to buy them. Petitioner’s reputation as an oppositionist resulted in the poor financial condition of
Businessday and discouraged any buyers for the shares of stock.16 In view of petitioner’s previous
instructions, respondent Locsin decided to buy the shares himself. Although the capital deficiency
1aw phi 1.net

suffered by Businessday caused the book value of the shares to plummet below par value,
respondent Locsin, nevertheless, bought the shares at par value.17 However, he had to borrow from
Businessday the funds he used in purchasing the shares from petitioner, and had to pay the
petitioner in installments of ₱10,000.00 every 15th and 30th of each month.18

The trial court in its Decision, dated 26 July 1995, dismissed the Complaint filed by the petitioner. It
ruled that the sale of shares between petitioner and respondent Locsin was valid. The trial court
concluded that petitioner had intended to sell the shares of stock to anyone, including respondent
Locsin, in order to provide for the needs of his family should he be jailed or forced to go
underground; and that the SPA drafted by the petitioner empowered respondent Locsin, and two
other agents, to sell the shares for such price and under such terms and conditions that the agents
may deem proper. It further found that petitioner consented to have respondent Locsin buy the
shares himself. It also ruled that petitioner, through his wife, received from respondent Locsin the
amount of ₱600,000.00 as payment for the shares of stock.19 The dispositive part of the trial court’s
Decision reads:
WHEREFORE, for failure of the [herein petitioner] to prove by preponderance of evidence, his
causes of action and of the facts alleged in his complaint, the instant suit is hereby ordered
DISMISSED, without pronouncement as to costs.

[Herein respondents’] counterclaims, however, are hereby DISMISSED, likewise, for dearth of
substantial evidentiary support.20

On appeal, the Court of Appeals affirmed the Decision of the trial court that there was a perfected
contract of sale.21It further ruled that granting that there was no perfected contract of sale, petitioner,
nevertheless, ratified the sale to respondent Locsin by his receipt of the purchase price, and his
failure to raise any protest over the said sale.22 The Court of Appeals refused to credit the petitioner’s
allegation that the money his wife received constituted his salary from Businessday since the
amount he received as his salary, ₱24,000.00 per month, did not correspond to the amount he
received during his detention, ₱20,000.00 per month (deposits of ₱10,000.00 on every 15th and
30th of each month in the accounts of the petitioner’s in-laws). On the other hand, the total amount
received, ₱600,000.00, corresponds to the aggregate par value of petitioner’s shares in
Businessday. Moreover, the financial condition of Businessday prevented it from granting any form
of financial assistance in favor of the petitioner, who was placed in an indefinite leave of absence,
and, therefore, not entitled to any salary. 23

The Court of Appeals also ruled that although the manner of the cancellation of the petitioner’s
certificates of stock and the subsequent issuance of the new certificate of stock in favor of
respondent Locsin was irregular, this irregularity will not relieve petitioner of the consequences of a
consummated sale.24

Finally, the Court of Appeals affirmed the Decision of the trial court disallowing respondent Locsin’s
claims for moral and exemplary damages due to lack of supporting evidence.25

Hence, the present petition, where the following issues were raised:

I.

THE APPELLATE COURT ERRED IN RULING THAT THERE WAS A PERFECTED CONTRACT
OF SALE BETWEEN PETITIONER AND MR. LOCSIN OVER THE SHARES;

II.

THE APPELLATE COURT ERRED IN RULING THAT PETITIONER CONSENTED TO THE

ALLEGED SALE OF THE SHARES TO MR. LOCSIN;

III.

THE APPELLATE COURT ERRED IN RULING THAT THE AMOUNTS RECEIVED BY

PETITIONER’S IN LAWS WERE NOT PETITIONER’S SALARY FROM THE CORPORATION BUT
INSTALLMENT PAYMENTS FOR THE SHARES;

IV.

THE APPELLATE COURT ERRED IN RULING THAT MR. LOCSIN WAS THE PARTY TO THE
ALLEGED SALE OF THE SHARES AND NOT THE CORPORATION; AND
 V.

THE APPELLATE COURT ERRED IN RULING THAT THE ALLEGED SALE OF THE SHARES
WAS VALID ALTHOUGH THE CANCELLATION OF THE SHARES WAS IRREGULAR.26

The petition is without merit.

The first issue that the petitioner raised is that there was no valid sale since respondent Locsin
exceeded his authority under the SPA27 issued in his, Joaquin and Holifena’s favor. He alleged that
the authority of the afore-named agents to sell the shares of stock was limited to the following
conditions: (1) in the event of the petitioner’s absence and incapacity; and (2) for the limited purpose
of applying the proceeds of the sale to the satisfaction of petitioner’s subsisting obligations with the
companies adverted to in the SPA.28

Petitioner sought to impose a strict construction of the SPA by limiting the definition of the word
"absence" to a condition wherein "a person disappears from his domicile, his whereabouts being
unknown, without leaving an agent to administer his property,"29 citing Article 381 of the Civil Code,
the entire provision hereunder quoted:

ART 381. When a person disappears from his domicile, his whereabouts being unknown, and
without leaving an agent to administer his property, the judge, at the instance of an interested party,
a relative, or a friend, may appoint a person to represent him in all that may be necessary.

This same rule shall be observed when under similar circumstances the power conferred by the
absentee has expired.

Petitioner also puts forward that the word "incapacity" would be limited to mean "minority, insanity,
imbecility, the state of being deaf-mute, prodigality and civil interdiction."30 He cites Article 38 of the
Civil Code, in support of this definition, which is hereunder quoted:

ART. 38 Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil
interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person,
from certain obligations, as when the latter arise from his acts or from property relations, such as
easements.

Petitioner, thus, claims that his arrest and subsequent detention are not among the instances
covered by the terms "absence or incapacity," as provided under the SPA he executed in favor of
respondent Locsin.

Petitioner’s arguments are unpersuasive. It is a general rule that a power of attorney must be strictly
construed; the instrument will be held to grant only those powers that are specified, and the agent
may neither go beyond nor deviate from the power of attorney. However, the rule is not absolute and
should not be applied to the extent of destroying the very purpose of the power. If the language will
permit, the construction that should be adopted is that which will carry out instead of defeat the
purpose of the appointment. Clauses in a power of attorney that are repugnant to each other should
be reconciled so as to give effect to the instrument in accordance with its general intent or
predominant purpose. Furthermore, the instrument should always be deemed to give such powers
as essential or usual in effectuating the express powers.31

In the present case, limiting the definitions of "absence" to that provided under Article 381 of the Civil
Code and of "incapacity" under Article 38 of the same Code negates the effect of the power of
attorney by creating absurd, if not impossible, legal situations. Article 381 provides the necessarily
stringent standards that would justify the appointment of a representative by a judge. Among the
standards the said article enumerates is that no agent has been appointed to administer the
property. In the present case, petitioner himself had already authorized agents to do specific acts of
administration and thus, no longer necessitated the appointment of one by the court. Likewise,
limiting the construction of "incapacity" to "minority, insanity, imbecility, the state of being a deaf-
mute, prodigality and civil interdiction," as provided under Article 38, would render the SPA
ineffective. Article 1919(3) of the Civil Code provides that the death, civil interdiction, insanity or
insolvency of the principal or of the agent extinguishes the agency. It would be equally incongruous,
if not outright impossible, for the petitioner to require himself to qualify as a minor, an imbecile, a
deaf-mute, or a prodigal before the SPA becomes operative. In such cases, not only would he be
prevented from appointing an agent, he himself would be unable to administer his property.

On the other hand, defining the terms "absence" and "incapacity" by their everyday usage makes for
a reasonable construction, that is, "the state of not being present" and the "inability to act," given the
context that the SPA authorizes the agents to attend stockholders’ meetings and vote in behalf of
petitioner, to sell the shares of stock, and other related acts. This construction covers the situation
wherein petitioner was arrested and detained. This much is admitted by petitioner in his testimony.32

Petitioner’s contention that the shares may only be sold for the sole purpose of applying the
proceeds of the sale to the satisfaction of petitioner’s subsisting obligations to the company is far-
fetched. The construction, which will carry out the purpose, is that which should be applied.
Petitioner had not submitted evidence that he was in debt with Businessday at the time he had
executed the SPA. Nor could he have considered incurring any debts since he admitted that, at the
time of its execution, he was concerned about his possible arrest, death and disappearance. The
language of the SPA clearly enumerates, as among those acts that the agents were authorized to
do, the act of applying the proceeds of the sale of the shares to any obligations petitioner might have
against the Businessday group of companies. This interpretation is supported by the use of the word
"and" in enumerating the authorized acts, instead of phrases such as "only for," "for the purpose of,"
"in order to" or any similar terms to indicate that the petitioner intended that the SPA be used only for
a limited purpose, that of paying any liabilities with the Businessday group of companies.

Secondly, petitioner argued that the records failed to show that he gave his consent to the sale of
the shares to respondent Locsin for the price of ₱600,000.00. This argument is unsustainable.
Petitioner received from respondent Locsin, through his wife and in-laws, the installment payments
for a total of ₱600,000.00 from 1980 to 1982, without any protest or complaint. It was only four years
after 1982 when petitioner demanded the return of the shares. The petitioner’s claim that he did not
instruct respondent Locsin to deposit the money to the bank accounts of his in-laws fails to prove
that petitioner did not give his consent to the sale since respondent Locsin was authorized, under the
SPA, to negotiate the terms and conditions of the sale including the manner of payment. Moreover,
had respondent Locsin given the proceeds directly to the petitioner, as the latter suggested in this
petition, the proceeds were likely to have been included among petitioner’s properties which were
confiscated by the military. Instead, respondent Locsin deposited the money in the bank accounts of
petitioner’s in-laws, and consequently, assured that the petitioner’s wife received these amounts.
Article 1882 of the Civil Code provides that the limits of an agent’s authority shall not be considered
exceeded should it have been performed in a manner more advantageous to the principal than that
specified by him.

In addition, petitioner made two inconsistent statements when he alleged that (1) respondent Locsin
had not asked the petitioner to endorse and deliver the shares of stock, and (2) when Rebecca
Fernando asked the petitioner to endorse and deliver the certificates of stock, but petitioner refused
and even became upset.33 In either case, both statements only prove that petitioner refused to honor
his part as seller of the shares, even after receiving payments from the buyer. Had the petitioner not
known of or given his consent to the sale, he would have given back the payments as soon as
Fernando asked him to endorse and deliver the certificates of stock, an incident which unequivocally
confirmed that the funds he received, through his wife and his in-laws, were intended as payment for
his shares of stocks. Instead, petitioner held on to the proceeds of the sale after it had been made
clear to him that respondent Locsin had considered the ₱600,000.00 as payment for the shares, and
asked petitioner, through Fernando, to endorse and deliver the stock certificates for cancellation.

As regards the third issue, petitioner’s allegation that the installment payments he was adjudged to
have received for the shares were actually salaries which Businessday promised to pay him during
his detention is unsupported and implausible. Petitioner received ₱20,000.00 per month through his
in-laws; this amount does not correspond to his monthly salary at ₱24,000.00.34 Nor does the
amount received correspond to the amount which Businessday was supposed to be obliged to pay
petitioner, which was only ₱45,000.00 to ₱60,000.00 per annum.35 Secondly, the petitioner’s wife did
not receive funds from respondent Locsin or Businessday for the entire duration of petitioner’s
detention. Instead, when the total amount received by the petitioner reached the aggregate amount
of his shares at par value -- ₱600,000.00 -- the payments stopped. Petitioner even testified that
when respondent Locsin denied knowing the petitioner soon after his arrest, he believed respondent
Locsin’s commitment to pay his salaries during his detention to be nothing more than lip-service.36

Granting that petitioner was able to prove his allegations, such an act of gratuity, on the part of
Businessday in favor of petitioner, would be void. An arrangement whereby petitioner will receive
"salaries" for work he will not perform, which is not a demandable debt since petitioner was on an
extended leave of absence, constitutes a donation under Article 72637 of the Civil Code. Under
Article 748 of the Civil Code, if the value of the personal property donated exceeds ₱5,000.00, the
donation and the acceptance shall have to be made in writing. Otherwise, the donation will be void.
In the present case, petitioner admitted in his testimony38 that such arrangement was not made in
writing and, hence, is void.

The fact that some of the deposit slips and communications made to petitioner’s wife contain the
phrase "household expenses" does not disprove the sale of the shares. The money was being
deposited to the bank accounts of the petitioner’s in-laws, and not to the account of the petitioner or
his wife, precisely because some of his property had already been confiscated by the military. Had
they used the phrase "sale of shares," it would have defeated the purpose of not using their own
bank accounts, which was to conceal from the military any transaction involving the petitioner’s
property.

Petitioner raised as his fourth issue that granting that there was a sale, Businessday, and not
respondent Locsin, was the party to the transaction. The curious facts that the payments were
received on the 15th and 30th of each month and that the payor named in the checks was
Businessday, were adequately explained by respondent Locsin. Respondent Locsin had obtained
cash advances from the company, paid to him on the 15th and 30th of the month, so that he can pay
petitioner for the shares. To support his claim, he presented Businessday’s financial records and the
testimony of Leo Atienza, the Company’s Accounting Manager. When asked why the term "shares of
stock" was used for the entries, instead of "cash advances," Atienza explained that the term "shares
of stock" was more specific rather than the broader phrase "cash advances."39 More to the point, had
the entries been for "shares of stock," the issuance of shares should have been reflected in the stock
and transfer books of Businessday, which the petitioner presented as evidence. Instead the stock
and transfer books reveal that the increase in respondent Locsin’s shares was a result of the
cancellation and transfer of petitioner’s shares in favor of respondent Locsin.

Petitioner alleges that the purported sale between himself and respondent Locsin of the disputed
shares of stock is void since it contravenes Article 1491 of the Civil Code, which provides that:
ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction,
either in person or through the mediation of another:

xxxx

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the
consent of the principal has been given; x x x.

It is, indeed, a familiar and universally recognized doctrine that a person who undertakes to act as
agent for another cannot be permitted to deal in the agency matter on his own account and for his
own benefit without the consent of his principal, freely given, with full knowledge of every detail
known to the agent which might affect the transaction.40 The prohibition against agents purchasing
property in their hands for sale or management is, however, clearly, not absolute. It does not apply
where the principal consents to the sale of the property in the hands of the agent or administrator.>41

In the present case, the parties have conflicting allegations. While respondent Locsin averred that
petitioner had permitted him to purchase petitioner’s shares, petitioner vehemently denies having
known of the transaction. However, records show that petitioner’s position is less credible than that
taken by respondent Locsin given petitioner’s contemporaneous and subsequent acts.42 In 1980,
when Fernando returned a stock certificate she borrowed from the petitioner, it was marked
"cancelled." Although the petitioner alleged that he was furious when he saw the word cancelled, he
had not demanded the issuance of a new certificate in his name. Instead of having been put on his
guard, petitioner remained silent over this obvious red flag and continued receiving, through his wife,
payments which totalled to the aggregate amount of the shares of stock valued at par. When the
payments stopped, no demand was made by either petitioner or his wife for further payments.

From the foregoing, it is clear that petitioner knew of the transaction, agreed to the purchase price of
₱600,000.00 for the shares of stock, and had in fact facilitated the implementation of the terms of the
payment by providing respondent Locsin, through petitioner’s wife, with the information on the bank
accounts of his in-laws. Petitioner’s wife and his son even provided receipts for the payments that
were made to them by respondent Locsin,43 a practice that bespeaks of an onerous transaction and not an act of gratuity.

Lastly, petitioner claims that the cancellation of the shares and the subsequent transfer thereof were fraudulent, and, therefore, illegal. In the present
case, the shares were transferred in the name of the buyer, respondent Locsin, without the petitioner delivering to the buyer his certificates of stock.
Section 63 of the Corporation Code provides that:

Sec.63. Certificate of stock and transfer of shares.— xxx Shares of stock so issued are personal property and may be transferred by delivery of the
certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. (Emphasis provided.)

The aforequoted provision furnishes the procedure for the transfer of shares – the delivery of the endorsed certificates, in order to prevent the
fraudulent transfer of shares of stock. However, this rule cannot be applied in the present case without causing the injustice sought to be avoided. As
had been amply demonstrated, there was a valid sale of stocks. Petitioner’s failure to deliver the shares to their rightful buyer is a breach of his duty as
a seller, which he cannot use to unjustly profit himself by denying the validity of such sale. Thus, while the manner of the cancellation of petitioner’s
certificates of stock and the issuance of the new certificates in favor of respondent Locsin was highly irregular, we must, nonetheless, declare the
validity of the sale between the parties. Neither does this irregularity prove that the transfer was fraudulent. In his testimony, petitioner admitted that
they had intended to conceal his being a stockholder of Businessday.44 The cancellation of his name from the stock and transfer book, even before the
shares were actually sold, had been done with his consent. As earlier explained, even the subsequent sale of the shares in favor of Locsin had been
done with his consent.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed Decision of the Court of Appeals, promulgated on
30 June 2003, affirming the validity of the sale of the shares of stock in favor of respondent Locsin. No costs.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Asscociate Justice

On Leave
ANTONIO EDUARDO B. NACHURA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

1 Penned by Associate Justice Ruben T. Reyes with Associate Justices Elvi John S. Assuncion and Lucas P. Bersamin, concurring; rollo,
pp. 70-86.

2 Id. at 71.

3 Id. at 18-19.
4 Id. at 19.

5 Records, Volume 1, pp. 217-218.

6 Rollo, p. 19.

7 Id. at 20

8 Id. at 20-21.

9 Records, Volume II, pp. 519-520.

10 Rollo, pp. 21-22.

11 Id. at 23.

12 Id. at 23-24.

13 Id. at 925-926.

14 Id. at 927-928.

15 Id. at 928.

16 Id. at 929-930.

17 Id. at 930-931.

18 Id. at 933.

19 CA rollo, pp. 818-822.

20 Records, Vol. II, p. 822.

21 Rollo, pp. 76-79.

22 Id. at 80.

23 Id. at 81-82.

24 Id. at 83-84.

25 Id. at 85.

26 Id. at 29-30.

27 Id. at 199-200. The Special Power of Attorney executed by petitioner on 26 May 1979 reads:

KNOW ALL MEN BY THESE PRESENTS:

 THAT I, EDUARDO B. OLAGUER, of legal age, xxx, have named, appointed and constituted, and by these presents, do hereby
name, constitute and appoint Messers. RAUL L. LOCSIN, ENRIQUE M. JOAQUIN, and HECTOR HOFILEÑA, all of legal age
and with business address c/o Businessday Corporation, 113 West Avenue, Quezon City, jointly and individually, to be my true
and lawful attorneys-in-fact, for me and in my name, place and stead, in the event of my absence or incapacity, to do or perform
any or all of the following acts and things, to wit:

1. For me and in my stead to attend and vote my stock at any stockholders’ meeting of the Businessday Group of
Companies, consisting of the Businessday Corporation, Businessday Information Systems & Services, Inc., and
Businessday Marketing Corporation, of all of which I am a stockholder, and to take such action as may be in my
interest as fully as I could do if personally present, and for this purpose to sign and execute any proxies or other
instruments in my name or on my behalf, appointing my said attorneys, or any one of them, or any other person as
my proxy or proxies;

2. To sell, assign, transfer, endorse and deliver, for such price or prices, and under such terms and conditions, as
my said attorneys-in-fact may deem proper, any and all shares of stock now held or which may hereafter be held by
me in the aforesaid companies; to receive payment or payments from the buyer; buyers thereof; to make, execute
and deliver receipts for such payments; and to apply the net proceeds of any such sale, assignment and transfer to
the liquidation of and satisfaction for any and all obligations that I may have with the said companies.

28 Rollo, p. 31.

29 Id.

30 Id. at 31-32.

31 3 Am. Jur. 2d, 536-537.

32 Records, Volume I, p. 188.

Q: In other words Mr. Witness, it is not correct to conclude that when you executed that special power of attorney, you
contemplated your possible arrest at that time?

A: Arrest, death and disappearance.

33 Rollo, pp. 34, 1929.

34 Records, Volume I, p. 196. Petitioner confirmed the Court of Appeal’s factual finding that he received a monthly salary of ₱24,000.00
when he testified receiving an equivalent amount estimated at ₱250,000.00 to ₱300,000.00 per annum.

35 Id. at 194-195.

36 Id. at 240.

37 ART. 726. When a person gives to another a thing or right on account of the latter’s merits or of the services rendered by him to the
donor, provided they do not constitute a demandable debt, or when the gift imposes upon the donee a burden which is less than the value
of the thing given, there is also a donation.

38 Records, Volume I, p. 243.

39 Records, TSN Duplicate, p. 2087.

40 3 Am. Jur. 2d, pp. 727-728.

41 Distajo v. Court of Appeals, 393 Phil. 426, 433 (2000); Pelayo v. Perez, G.R. No. 141323, 8 June 2005, 459 SCRA 475, 487-488.

42 Article 1371 of the Civil Code provides that:

ART. 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be
principally considered.

43 TSN, 28 January 1992, pp. 2208-2209.

44 Records, Volume I, pp. 217-218.

 SECOND DIVISION

[G.R. No. 156015. August 11, 2005]

REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M.

CALIMLIM, in his capacity as former Chief of the Intelligence
Service, Armed Forces of the Philippines (ISAFP), and former
Commanding General, Presidential Security Group (PSG), and
MAJ. DAVID B. DICIANO, in his capacity as an Officer of ISAFP
and former member of the PSG, petitioners, vs. HON.
VICTORINO EVANGELISTA, in his capacity as Presiding Judge,
Regional Trial Court, Branch 223, Quezon City, and DANTE
LEGASPI, represented by his attorney-in-fact, Paul
Gutierrez, respondents.

DECISION
PUNO, J.:

The case at bar stems from a complaint for damages, with prayer for the issuance
of a writ of preliminary injunction, filed by private respondent Dante Legaspi, through his
attorney-in-fact Paul Gutierrez, against petitioners Gen. Jose M. Calimlim, Ciriaco
Reyes and Maj. David Diciano before the Regional Trial Court (RTC) of Quezon City. [1]
The Complaint alleged that private respondent Legaspi is the owner of a land
located in Bigte, Norzagaray, Bulacan. In November 1999, petitioner Calimlim,
representing the Republic of the Philippines, and as then head of the Intelligence
Service of the Armed Forces of the Philippines and the Presidential Security Group,
entered into a Memorandum of Agreement (MOA) with one Ciriaco Reyes. The MOA
granted Reyes a permit to hunt for treasure in a land in Bigte, Norzagaray, Bulacan.
Petitioner Diciano signed the MOA as a witness.[2] It was further alleged that thereafter,
Reyes, together with petitioners, started, digging, tunneling and blasting works on the
said land of Legaspi. The complaint also alleged that petitioner Calimlim assigned about
80 military personnel to guard the area and encamp thereon to intimidate Legaspi and
other occupants of the area from going near the subject land.
On February 15, 2000, Legaspi executed a special power of attorney (SPA)
appointing his nephew, private respondent Gutierrez, as his attorney-in-fact. Gutierrez
was given the power to deal with the treasure hunting activities on Legaspis land and to
file charges against those who may enter it without the latters authority. [3] Legaspi
agreed to give Gutierrez 40% of the treasure that may be found in the land.
 On February 29, 2000, Gutierrez filed a case for damages and injunction against
petitioners for illegally entering Legaspis land. He hired the legal services of Atty.
Homobono Adaza. Their contract provided that as legal fees, Atty. Adaza shall be
entitled to 30% of Legaspis share in whatever treasure may be found in the land. In
addition, Gutierrez agreed to pay Atty. Adaza P5,000.00 as appearance fee per court
hearing and defray all expenses for the cost of the litigation.[4] Upon the filing of the
complaint, then Executive Judge Perlita J. Tria Tirona issued a 72-hour temporary
restraining order (TRO) against petitioners.
The case[5] was subsequently raffled to the RTC of Quezon City, Branch 223, then
presided by public respondent Judge Victorino P. Evangelista. On March 2, 2000,
respondent judge issued another 72-hour TRO and a summary hearing for its extension
was set on March 7, 2000.
On March 14, 2000, petitioners filed a Motion to Dismiss[6] contending: first, there is
no real party-in-interest as the SPA of Gutierrez to bring the suit was already revoked by
Legaspi on March 7, 2000, as evidenced by a Deed of Revocation, [7] and, second,
Gutierrez failed to establish that the alleged armed men guarding the area were acting
on orders of petitioners. On March 17, 2000, petitioners also filed a Motion for
Inhibition[8] of the respondent judge on the ground of alleged partiality in favor of private
respondent.
On March 23, 2000, the trial court granted private respondents application for a writ
of preliminary injunction on the following grounds: (1) the diggings and blastings appear
to have been made on the land of Legaspi, hence, there is an urgent need to maintain
the status quo to prevent serious damage to Legaspis land; and, (2) the SPA granted to
Gutierrez continues to be valid.[9] The trial court ordered thus:

WHEREFORE, in view of all the foregoing, the Court hereby resolves to GRANT
plaintiffs application for a writ of preliminary injunction. Upon plaintiffs filing of an
injunction bond in the amount of ONE HUNDRED THOUSAND PESOS
(P100,000.00), let a Writ of Preliminary Injunction issue enjoining the defendants as
well as their associates, agents or representatives from continuing to occupy and
encamp on the land of the plaintiff LEGASPI as well as the vicinity thereof; from
digging, tunneling and blasting the said land of plaintiff LEGASPI; from removing
whatever treasure may be found on the said land; from preventing and threatening the
plaintiffs and their representatives from entering the said land and performing acts of
ownership; from threatening the plaintiffs and their representatives as well as
plaintiffs lawyer.

On even date, the trial court issued another Order[10] denying petitioners motion to
dismiss and requiring petitioners to answer the complaint. On April 4, 2000, it likewise
denied petitioners motion for inhibition.[11]
On appeal, the Court of Appeals affirmed the decision of the trial court.[12]
Hence this petition, with the following assigned errors:
 I

WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND

PRIVATE RESPONDENT GUTIERREZ HAS BEEN EFFECTIVELY REVOKED
BY LEGASPI.

II

WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE

DISMISSED.

III

WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF

FROM FURTHER PROCEEDING WITH THE CASE.

We find no merit in the petition.

On the first issue, petitioners claim that the special power of attorney of Gutierrez to
represent Legaspi has already been revoked by the latter. Private respondent Gutierrez,
however, contends that the unilateral revocation is invalid as his agency is coupled with
interest.
We agree with private respondent.
Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds
himself to render some service or do something in representation or on behalf of
another, known as the principal, with the consent or authority of the latter.[13]
A contract of agency is generally revocable as it is a personal contract of
representation based on trust and confidence reposed by the principal on his agent. As
the power of the agent to act depends on the will and license of the principal he
represents, the power of the agent ceases when the will or permission is withdrawn by
the principal. Thus, generally, the agency may be revoked by the principal at will. [14]
However, an exception to the revocability of a contract of agency is when it is
coupled with interest, i.e., if a bilateral contract depends upon the agency.[15] The reason
for its irrevocability is because the agency becomes part of another obligation or
agreement. It is not solely the rights of the principal but also that of the agent and third
persons which are affected. Hence, the law provides that in such cases, the agency
cannot be revoked at the sole will of the principal.
In the case at bar, we agree with the finding of the trial and appellate courts that the
agency granted by Legaspi to Gutierrez is coupled with interest as a bilateral contract
depends on it. It is clear from the records that Gutierrez was given by Legaspi, inter
alia, the power to manage the treasure hunting activities in the subject land; to
file any case against anyone who enters the land without authority from Legaspi;
to engage the services of lawyers to carry out the agency; and, to dig for any
treasure within the land and enter into agreements relative thereto. It was likewise
agreed upon that Gutierrez shall be entitled to 40% of whatever treasure may be
found in the land. Pursuant to this authority and to protect Legaspis land from the
alleged illegal entry of petitioners, agent Gutierrez hired the services of Atty. Adaza to
prosecute the case for damages and injunction against petitioners. As payment for
legal services, Gutierrez agreed to assign to Atty. Adaza 30% of Legaspis share in
whatever treasure may be recovered in the subject land. It is clear that the treasure
that may be found in the land is the subject matter of the agency; that under the SPA,
Gutierrez can enter into contract for the legal services of Atty. Adaza; and, thus
Gutierrez and Atty. Adaza have an interest in the subject matter of the agency, i.e., in
the treasures that may be found in the land. This bilateral contract depends on the
agency and thus renders it as one coupled with interest, irrevocable at the sole will of
the principal Legaspi.[16] When an agency is constituted as a clause in a bilateral
contract, that is, when the agency is inserted in another agreement, the agency ceases
to be revocable at the pleasure of the principal as the agency shall now follow the
condition of the bilateral agreement.[17] Consequently, the Deed of Revocation executed
by Legaspi has no effect. The authority of Gutierrez to file and continue with the
prosecution of the case at bar is unaffected.
On the second issue, we hold that the issuance of the writ of preliminary injunction
is justified. A writ of preliminary injunction is an ancilliary or preventive remedy that is
resorted to by a litigant to protect or preserve his rights or interests and for no other
purpose during the pendency of the principal action.[18] It is issued by the court to prevent
threatened or continuous irremediable injury to the applicant before his claim can be
thoroughly studied and adjudicated.[19] Its aim is to preserve the status quo ante until the
merits of the case can be heard fully, upon the applicants showing of two important
conditions, viz.: (1) the right to be protected prima facie exists; and, (2) the acts sought
to be enjoined are violative of that right.[20]
Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a writ of
preliminary injunction may be issued when it is established:

(a) that the applicant is entitled to the relief demanded, the whole or part of such
relief consists in restraining the commission or continuance of the act or acts
complained of, or in requiring the performance of an act or acts, either for a
limited period or perpetually;

(b) that the commission, continuance or non-performance of the act or acts

complained of during the litigation would probably work injustice to the
applicant; or

(c) that a party, court, agency or a person is doing, threatening, or is attempting to

do, or is procuring or suffering to be done, some act or acts probably in
violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
 It is crystal clear that at the hearing for the issuance of a writ of preliminary
injunction, mere prima facie evidence is needed to establish the applicants rights or
interests in the subject matter of the main action.[21] It is not required that the applicant
should conclusively show that there was a violation of his rights as this issue will still
be fully litigated in the main case.[22]Thus, an applicant for a writ is required only to
show that he has an ostensible right to the final relief prayed for in his
complaint. [23]
In the case at bar, we find that respondent judge had sufficient basis to issue the
writ of preliminary injunction. It was established, prima facie, that Legaspi has a right
to peaceful possession of his land, pendente lite. Legaspi had title to the subject
land. It was likewise established that the diggings were conducted by petitioners in the
enclosed area of Legaspis land. Whether the land fenced by Gutierrez and claimed
to be included in the land of Legaspi covered an area beyond that which is
included in the title of Legaspi is a factual issue still subject to litigation and
proof by the parties in the main case for damages. It was necessary for the trial
court to issue the writ of preliminary injunction during the pendency of the main case in
order to preserve the rights and interests of private respondents Legaspi and Gutierrez.
On the third issue, petitioners charge that the respondent judge lacked the neutrality
of an impartial judge. They fault the respondent judge for not giving credence to the
testimony of their surveyor that the diggings were conducted outside the land of
Legaspi. They also claim that respondent judges rulings on objections raised by the
parties were biased against them.
We have carefully examined the records and we find no sufficient basis to hold that
respondent judge should have recused himself from hearing the case. There is no
discernible pattern of bias on the rulings of the respondent judge. Bias and partiality can
never be presumed. Bare allegations of partiality will not suffice in an absence of a clear
showing that will overcome the presumption that the judge dispensed justice without
fear or favor.[24] It bears to stress again that a judges appreciation or misappreciation of
the sufficiency of evidence adduced by the parties, or the correctness of a judges orders
or rulings on the objections of counsels during the hearing, without proof of malice on
the part of respondent judge, is not sufficient to show bias or partiality. As we held in the
case of Webb vs. People,[25] the adverse and erroneous rulings of a judge on the
various motions of a party do not sufficiently prove bias and prejudice to disqualify him.
To be disqualifying, it must be shown that the bias and prejudice stemmed from an
extrajudicial source and result in an opinion on the merits on some basis other than
what the judge learned from his participation in the case. Opinions formed in the course
of judicial proceedings, although erroneous, as long as based on the evidence adduced,
do not prove bias or prejudice. We also emphasized that repeated rulings against a
litigant, no matter how erroneously, vigorously and consistently expressed, do not
amount to bias and prejudice which can be a bases for the disqualification of a judge.
Finally, the inhibition of respondent judge in hearing the case for damages has
become moot and academic in view of the latters death during the pendency of the
case. The main case for damages shall now be heard and tried before another judge.
 IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case No. Q-00-
40115, dated March 23 and April 4, 2000, are AFFIRMED. The presiding judge of the
Regional Trial Court of Quezon City to whom Civil Case No. Q-00-40115 was assigned
is directed to proceed with dispatch in hearing the main case for damages. No
pronouncement as to costs.
SO ORDERED.
Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

[1]
Complaint, dated February 29, 2000; Rollo, pp. 84-90.
[2]
Petitioners have since retired from government service.
[3]
Rollo, p. 91.
[4]
Rollo, p. 177.
[5]
Docketed as Civil Case No. Q-00-40115.
[6]
Rollo, pp. 95-103.
[7]
Revocation of SPA, Rollo, p. 92.
[8]
Rollo, pp. 105-122.
[9]
Order, dated March 23, 2000, Rollo, pp. 124-127.
[10]
Order, dated March 23, 2000, Rollo, pp. 128-130.
[11]
Rollo, pp. 131-132.
[12]
Decision, dated November 8, 2000, penned by Associate Justice Eubulo G. Verzola and concurred in
by Associate Justices Marina L. Buzon and Perlita J. Tria Tirona; Rollo, pp. 72-80.
[13]
Saums v. Parfet, 270 Mich. 165, 258 N.W. 235.
[14]
Agency, Vicente J. Francisco, p. 353.
[15]
Art. 1927, Civil Code.
[16]
Cox v. Freeman, 1951 OK 16, 204 Okla. 138, 227 P. 2d 670.
[17]
Civil Code of the Philippines Annotated, Ambrosio Padilla, 1987 ed., Vol. VI, p. 447.
[18]
Philippine National Bank v. Ritratto Group, Inc., 362 SCRA 216 (2001).
[19]
Republic of the Philippines v. Silerio, 272 SCRA 280 (1997).
[20]
Heirs of Joaquin Asuncion v. Commission on Audit, 304 SCRA 322 (1999).
[21]
Buayan Cattle Co., Inc. v. Quintillan, 128 SCRA 276 (1984).
[22]
Developers Group of Companies, Inc. v. Court of Appeals, 219 SCRA 715 (1993).
[23]
Saulog v. Court of Appeals, 262 SCRA 51 (1996).
[24]
Spouses Causin v. Judge Demecillo, A.M. No. RTJ-04-1860, September 8, 2004.
[25]
276 SCRA 243 (1997).
 THIRD DIVISION paragraph

[ G . R . No . 110668 . February 6 , 1997 ] paragraph

SMITH , BELL & CO . , INC . , petitioner , vs . COURT OF APPEALS

and JOSEPH BENGZON CHUA , respondents . paragraph
[1]

D E C I S I O N paragraph
PANGANIBAN , J . : paragraph

The main issue raised in this case is whether a local claim or settling agent is
personally and / or solidarily liable upon a marine insurance policy issued by its
disclosed foreign principal . paragraph
This is a petition for review on certiorari of the Decision of respondent
Court[2] promulgated on January 20 , 1993 in CA - G . R . CV No . 31812 affirming the
decision[3] of the trial court[4] which disposed as follows : [5] paragraph

Wherefore , the Court renders judgment condemning the defendants ( petitioner and
First Insurance Co . Ltd . ) jointly and severally to pay the plaintiff ( private
respondent ) the amount of US$7 , 359 . 78 . plus 24% interest thereon annually until
the claim is fully paid , 10% as and for attorney s fees , and the cost . paragraph

The Facts paragraph

The facts are undisputed by the parties , [6] and are narrated by respondent Court
, quoting the trial court , as follows : [7] paragraph

The undisputed facts of the case have been succintly ( sic ) summarized by the
lower court ( , ) as follows : paragraph

x x x in July 1982 , the plaintiffs , doing business under the style of Tic Hin Chiong
, Importer , bought and imported to the Philippines from the firm Chin Gact Co
. , Ltd . of Taipei , Taiwan , 50 metric tons of Dicalcium Phospate , Feed Grade F -
15% valued at US$13 , 000 . 00 CIF Manila . These were contained in 1 , 250 bags
and shipped from the Port of Kaohsiung , Taiwan on Board S . S . GOLDEN
WEALTH for the Port on ( sic ) Manila . On July 27 , 1982 , this shipment was
insured by the defendant First Insurance Co . for US$19 , 500 . 00 `against all
risks at port of departure under Marine Policy No . 1000M82070033219 , with the
note `Claim , if any , payable in U . S . currency at Manila ( Exh . `1 , `D for the
plaintiff ) and with defendant Smith , Bell , and Co . stamped at the lower left side
of the policy as `Claim Agent . paragraph

The cargo arrived at the Port of Manila on September 1 , 1982 aboard the above -
mentioned carrying vessel and landed at port on September 2 , 1982 . Thereafter
, the entire cargo was discharged to the local arrastre contractor , Metroport Services
Inc . with a number of the cargo in apparent bad order condition . On September 27
, 1982 , the plaintiff secured the services of a cargo surveyor to conduct a survey of
the damaged cargo which were ( sic ) delivered by plaintiff s broker on said date to
the plaintiff s premises at 12th Avenue , Grace Park , Caloocan City . The surveyor
s report ( Exh . `E ) showed that of the 1 , 250 bags of the imported material , 600
were damaged by tearing at the sides of the container bags and the contents partly
empty . Upon weighing , the contents of the damaged bags were found to be 18 ,
546 . 0 kg short . Accordingly , on October 16 following , the plaintiff filed with
Smith , Bell , and Co . , Inc . a formal statement of claim ( Exh . `G ) with proof
of loss and a demand for settlement of the corresponding value of the losses , in the
sum of US$7 , 357 . 78 . 00 . ( sic ) After purportedly conveying the claim to its
principal , Smith , Bell , and Co . , Inc . informed the plaintiff by letter dated
February 15 , 1983 ( Exh . `G - 2 ) that its principal offered only 50% of the claim
or US$3 , 616 . 17 as redress , on the alleged ground of discrepancy between the
amounts contained in the shipping agent s reply to the claimant of only US$90 . 48
with that of Metroport s . The offer not being acceptable to the plaintiff , the latter
wrote Smith , Bell , & Co . expressing his refusal to the `redress offer , contending
that the discrepancy was a result of loss from vessel to arrastre to
consignees warehouse which losses were still within the `all risk insurance cover
. No settlement of the claim having been made , the plaintiff then caused the instant
case to be filed . ( p . 2 , RTC Decision ; p . 142 , Record ) . paragraph

Denying any liability , defendant - appellant averred in its answer that it is merely a
settling or claim agent of defendant insurance company and as such agent , it is not
personally liable under the policy in which it has not even taken part of . It then
alleged that plaintiff - appellee has no cause of action against it . paragraph

Defendant The First Insurance Co . Ltd . did not file an Answer , hence it was
declared in default . paragraph

After due trial and proceeding , the lower court rendered a decision favorable to
plaintiff - appellee . It ruled that plaintiff - appellee has fully established the liability
of the insurance firm on the subject insurance contract as the former presented
concrete evidence of the amount of losses resulting from the risks insured against
which were supported by reliable report and assessment of professional cargo
surveyor . As regards defendant - appellant , the lower court held that since it is
admittedly a claim agent of the foreign insurance firm doing business in the
Philippines justice is better served if said agent is made liable without prejudice to its
right of action against its principal , the insurance firm . x x x paragraph

The Issue paragraph

Whether or not a local settling or claim agent of a disclosed principal - - a foreign insurance
company - - can be held jointly and severally liable with said principal under the latter s marine
cargo insurance policy , given that the agent is not a party to the insurance contract [8] - - is the
sole issue raised by petitioner . paragraph

Petitioner rejects liability under the said insurance contract , claiming that : ( 1 ) it is merely an
agent and thus not personally liable to the party with whom it contracts on behalf of its principal
; ( 2 ) it had no participation at all in the contract of insurance ; and ( 3 ) the suit is not
brought against the real party - in - interest . [9] paragraph

On the other hand , respondent Court in ruling against petitioner disposed of the main issue by
citing a case it decided in 1987 , where petitioner was also a party - litigant . [10] In that case
, respondent Court held that petitioner as resident agent of First Insurance Co . Ltd
. was authorized to settle claims against its principal . Its defense that its authority excluded
personal liability must be proven satisfactorily . There is a complete dearth of evidence
supportive of appellant s non - responsibility as resident agent . The ruling continued with the
statement that the interest of justice is better served by holding the settling or claim agent
jointly and severally liable with its principal . [11] paragraph

Likewise , private respondent disputed the applicability of the cases of E . Macias

& Co . vs . Warner , Barnes & Co . [12] and Salonga vs . Warner , Barnes & Co . , Ltd
. [13] invoked by petitioner in its appeal . According to private respondent , these two
cases impleaded only the insurance agent and did not include the principal . While
both the foreign principal - - which was declared in default by the trial court - - and
petitioner , as claim agent , were found to be solidarily liable in this case , petitioner
still had recourse against its foreign principal . Also , being a contract of adhesion
, an insurance agreement must be strictly construed against the insurer . [14] paragraph

The Court s Ruling paragraph

There are three reasons why we find for petitioner . paragraph

First Reason : Existing Jurisprudence paragraph

 Petitioner , undisputedly a settling agent acting within the scope of its authority
, cannot be held personally and / or solidarily liable for the obligations of its disclosed
principal merely because there is allegedly a need for a speedy settlement of the claim
of private respondent . In the leading case of Salonga vs . Warner , Barnes & Co
. , Ltd . this Court ruled in this wise : [15] paragraph

We agree with counsel for the appellee that the defendant is a settlement and
adjustment agent of the foreign insurance company and that as such agent it has the
authority to settle all the losses and claims that may arise under the policies that may
be issued by or in behalf of said company in accordance with the instructions it may
receive from time to time from its principal , but we disagree with counsel in his
contention that as such adjustment and settlement agent , the defendant has assumed
personal liability under said policies , and , therefore , it can be sued in its own right
. An adjustment and settlement agent is no different from any other agent from the
point of view of his responsibilty ( sic ) , for he also acts in a representative capacity
. Whenever he adjusts or settles a claim , he does it in behalf of his principal , and
his action is binding not upon himself but upon his principal . And here again , the
ordinary rule of agency applies . The following authorities bear this out : paragraph

An insurance adjuster is ordinarily a special agent for the person or company for
whom he acts , and his authority is prima facie coextensive with the business
intrusted to him . * * * paragraph

An adjuster does not discharge functions of a quasi - judicial nature , but represents
his employer , to whom he owes faithful service , and for his acts , in the employer s
interest , the employer is responsible so long as the acts are done while the agent is
acting within the scope of his employment . ( 45 C . J . S . , 1338 - 1340
. ) paragraph

It , therefore , clearly appears that the scope and extent of the functions of an
adjustment and settlement agent do not include personal liability . His functions are
merely to settle and adjusts claims in behalf of his principal if those claims are proven
and undisputed , and if the claim is disputed or is disapproved by the principal , like in
the instant case , the agent does not assume any personal liability . The recourse of
the insured is to press his claim against the principal . ( Underscoring supplied
) . paragraph
The foregoing doctrine may have been enunciated by this Court in 1951 , but the
passage of time has not eroded its value or merit . It still applies with equal force and
vigor . paragraph
Private respondent s contention that Salonga does not apply simply because only
the agent was sued therein while here both agent and principal were impleaded and
found solidarily liable is without merit . Such distinction is immaterial . The agent can
not be sued nor held liable whether singly or solidarily with its principal . paragraph
 Every cause of action ex contractu must be founded upon a contract , oral or
written , either express or implied . [16] The only involvement of petitioner in the subject
contract of insurance was having its name stamped at the bottom left portion of the
policy as Claim Agent . Without anything else to back it up , such stamp cannot
even be deemed by the remotest interpretation to mean that petitioner participated in
the preparation of said contract . Hence , there is no privity of contract , and
correspondingly there can be no obligation or liability , and thus no cause of action
against petitioner attaches . Under Article 1311[17] of the Civil Code , contracts are
binding only upon the parties ( and their assigns and heirs ) who execute them . The
subject cargo insurance was between the First Insurance Company , Ltd . and the
Chin Gact Co . , Ltd . , both of Taiwan , and was signed in Taipei , Taiwan by the
president of the First Insurance Company , Ltd . and the president of the Chin Gact Co
. , Ltd . [18] There is absolutely nothing in the contract which mentions the personal
liability of petitioner . paragraph

Second Reason : Absence of Solidary Liability paragraph

May then petitioner , in its capacity as resident agent ( as found in the case cited
by the respondent Court ) [19] be held solidarily liable with the foreign insurer ? Article
1207 of the Civil Code clearly provides that ( t ) here is a solidary liability only when
the obligation expressly so states , or when the law or the nature of the obligation
requires solidarity . The well - entrenched rule is that solidary obligation cannot lightly
be inferred . It must be positively and clearly expressed . The contention that , in the
end , it would really be First Insurance Company , Ltd . which would be held liable is
specious and cannot be accepted . Such a stance would inflict injustice upon petitioner
which would be made to advance the funds to settle the claim without any assurance
that it can collect from the principal which disapproved such claim , in the first place
. More importantly , such position would have absolutely no legal basis . paragraph
The Insurance Code is quite clear as to the purpose and role of a resident agent
. Such agent , as a representative of the foreign insurance company , is tasked only
to receive legal processes on behalf of its principal and not to answer personally for any
insurance claims . We quote : paragraph

SEC . 190 . The Commissioner must require as a condition precedent to the

transaction of insurance business in the Philippines by any foreign insurance company
, that such company file in his office a written power of attorney designating some
person who shall be a resident of the Philippines as its general agent , on whom any
notice provided by law or by any insurance policy , proof of loss , summons and
other legal processes may be served in all actions or other legal proceedings against
such company , and consenting that service upon such general agent shall be admitted
and held as valid as if served upon the foreign company at its home office . Any such
foreign company shall , as further condition precedent to the transaction of insurance
business in the Philippines , make and file with the Commissioner an agreement or
stipulation , executed by the proper authorities of said company in form and
substance as follows : paragraph

The ( name of company ) does hereby stipulate and agree in consideration of the
permission granted by the Insurance Commissioner to transact business in the
Philippines , that if at any time such company shall leave the Philippines , or cease to
transact business therein , or shall be without any agent in the Philippines on whom
any notice , proof of loss , summons , or legal process may be served , then in any
action or proceeding arising out of any business or transaction which occurred in the
Philippines , service of any notice provided by law , or insurance policy , proof of
loss , summons , or other legal process may be made upon the Insurance
Commissioner shall have the same force and effect as if made upon the company
. paragraph

Whenever such service of notice , proof of loss , summons , or other legal process
shall be made upon the Commissioner he must , within ten days thereafter , transmit
by mail , postage paid , a copy of such notice , proof of loss , summons , or other
legal process to the company at its home or principal office . The sending of such copy
of the Commissioner shall be necessary part of the service of the notice , proof of loss
, or other legal process . ( Underscoring supplied ) . paragraph
Further , we note that in the case cited by respondent Court , petitioner was found
to be a resident agent of First Insurance Co . Ltd . In the instant case however , the
trial court had to order the service of summons upon First Insurance Co . , Ltd . which
would not have been necessary if petitioner was its resident agent . Indeed , from our
reading of the records of this case , we find no factual and legal bases for the finding of
respondent Court that petitioner is the resident agent of First Insurance Co . , Ltd
. . paragraph

Third Reason : Not Real Party - In - Interest paragraph

Lastly , being a mere agent and representative , petitioner is also not the real party
- in - interest in this case . An action is brought for a practical purpose , that is , to
obtain actual and positive relief . If the party sued is not the proper party , any decision
that may be rendered against him would be futile , for the decision cannot be enforced
or executed . Section 2 , Rule 3 of the Rules of Court identifies who the real parties -
in - interest are , thus : paragraph

Section 2 . Parties in interest . - Every action must be prosecuted and defended in

the name of the real party in interest . All persons having an interest in the subject of
the action and in obtaining the relief demanded shall be joined as plaintiffs . All
persons who claim an interest in the controversy or the subject thereof adverse to the
plaintiff , or who are necessary to a complete determination or settlement of the
questions involved therein shall be joined as defendants . paragraph

The cause of action of private respondent is based on a contract of insurance which

as already shown was not participated in by petitioner . It is not a person who claim (
s ) an interest adverse to the plaintiff nor is said respondent necessary to a complete
determination or settlement of the questions involved in the controversy . Petitioner is
improperly impleaded for not being a real - party - interest . It will not benefit or suffer
in case the action prospers . [20] paragraph

Resort to Equity Misplaced paragraph

Finally , respondent Court also contends that the interest of justice is better
served by holding the settling agent jointly and severally liable with its principal . As
no law backs up such pronouncement , the appellate Court is thus resorting to equity
. However , equity which has been aptly described as justice outside legality , is
availed of only in the absence of , and never against , statutory law or judicial
pronouncements . [21] Upon the other hand , the liability of agents is clearly provided for
by our laws and existing jurisprudence . paragraph
WHEREFORE , in view of the foregoing considerations , the Petition
is GRANTED and the Decision appealed from is REVERSED and SET
ASIDE . paragraph
No costs . paragraph
SO ORDERED . paragraph
Narvasa , C . J . , ( Chairman ) , Davide , Jr . , Melo , and Francisco , JJ
. , concur . paragraph

[1]
Doing business under the name and style Tic Hin Chiong Importer .
[2]
Tenth Division , composed of J . Regina G . Ordoez - Benitez , ponente , and JJ . Arturo B . Buena
and Eduardo G . Montenegro , concurring .
[3]
In Civil Case No . 83 - 17118 .
[4]
Regional Trial Court of Manila , Branch 22 , presided by Judge Ricarte N . Togonon .
[5]
Rollo , p . 20 .
[6]
Ibid . , pp . 8 - 9 & 30 - 32 .
[7]
Ibid . , pp . 18 - 20 ; assailed Decision , pp . 1 - 3 .
[8]
Ibid . , p . 72 ; petitioner s memorandum , p . 6 .
[9]
Ibid . , p . 73 - 74 ; ibid , pp . 7 - 8 .
[10]
Choa Tiek Seng vs . The First Insurance Company , Ltd . and / or Smith , Bell & Company , Inc
. , CA - G . R . CV No . 06768 , April 6 , 1987 .
[11]
Rollo , p . 21 ; assailed Decision , p . 4 .
[12]
43 Phil . 155 ( 1922 ) .
[13]
88 Phil . 125 ( 1951 ) .
[14]
Rollo , p . 58 ; private respondent s memorandum , p . 3 .
[15]
Salonga vs . Warner Barnes & Co . , Ltd . , supra , on pp . 131 - 132 .
[16]
E . Macias & Co . vs . Warner , Barnes & Co . , supra , at p . 162 .
[17]
Article 1311 . Contracts take effect only between the parties , their assigns and heirs , except in
case where the rights and obligations arising from the contract are not transmissible by their nature , or
by stipulation or by provision of law . The heir is not liable beyond the value of the property he received
from the decedent .
If a contract should contain some stipulation in favor of a third person , he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation . A mere
incidental benefit or interest of a person is not sufficient . The contracting parties must have
clearly and deliberately conferred a favor upon a third person .
[18]
Exhibit D ; Original Records , p . 57 .
[19]
Choa Tiek Seng vs . The First Insurance Company , Ltd . and / or Smith , Bell & Company , Inc
. , supra .
[20]
Ngo The Hua v . Chung Kiat Hua , 9 SCRA 113 , 116 , September 30 , 1963 .
[21]
Causapin vs . Court of Appeals , 233 SCRA 615 , 625 , July 4 , 1994 .
 THIRD DIVISION

LILLIAN N. MERCADO, CYNTHIA M. G.R. No. 171460

FEKARIS, and JULIAN MERCADO,
JR., represented by their
Attorney-In-Fact, ALFREDO M. Present:
PEREZ,

Petitioners, YNARES-SANTIAGO, J.,

Chairperson,
AUSTRIA-MARTINEZ,

CHICO-NAZARIO, and

- versus - NACHURA, JJ.

ALLIED BANKING CORPORATION, Promulgated:

Respondent.

July 24, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris
and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo M. Perez,
seeking to reverse and set aside the Decision[1] of the Court of Appeals dated 12
October 2005, and its Resolution[2] dated 15 February 2006 in CA-G.R. CV No.
82636. The Court of Appeals, in its assailed Decision and Resolution, reversed the
Decision[3] of the Regional Trial Court (RTC) of Quezon City, Branch 220 dated 23
September 2003, declaring the deeds of real estate mortgage constituted on TCT
No. RT-18206 (106338) null and void. The dispositive portion of the assailed Court
of Appeals Decision thus reads:

WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new
judgment is hereby entered dismissing the [petitioners] complaint.[4]

Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime,
owned several pieces of real property situated in different provinces of
the Philippines.

Respondent, on the other hand, is a banking institution duly authorized as

such under the Philippine laws.

On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor

of her husband, Julian D. Mercado (Julian) over several pieces of real property
registered under her name, authorizing the latter to perform the following acts:
 1. To act in my behalf, to sell, alienate, mortgage, lease and deal
otherwise over the different parcels of land described hereinafter, to wit:

a) Calapan, Oriental Mindoro Properties covered by

Transfer Certificates of Title Nos. T-53618 - 3,522
Square Meters, T-46810 3,953 Square Meters, T-
53140 177 Square Meters, T-21403 263 square
Meters, T- 46807 39 Square Meters of the Registry of
Deeds of Oriental Mindoro;

b) Susana Heights, Muntinlupa covered by Transfer

Certificates of Title Nos. T-108954 600 Square Meters
and RT-106338 805 Square Meters of the Registry of
Deeds of Pasig (now Makati);

c) Personal property 1983 Car with Vehicle Registration

No. R-16381; Model 1983; Make Toyota; Engine No. T-
2464

2. To sign for and in my behalf any act of strict dominion or ownership

any sale, disposition, mortgage, lease or any other transactions
including quit-claims, waiver and relinquishment of rights in and
over the parcels of land situated in General Trias, Cavite, covered by
Transfer Certificates of Title Nos. T-112254 and T-112255 of the
Registry of Deeds of Cavite, in conjunction with his co-owner and in
the person ATTY. AUGUSTO F. DEL ROSARIO;
 3. To exercise any or all acts of strict dominion or ownership over the
above-mentioned properties, rights and interest therein. (Emphasis
supplied.)

On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a

loan from the respondent in the amount of P3,000,000.00, secured by real estate
mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel of
land with an area of 805 square meters, registered with the Registry of Deeds of
Quezon City (subject property).[5]

Still using the subject property as security, Julian obtained an additional

loan from the respondent in the sum of P5,000,000.00, evidenced by a Promissory
Note[6] he executed on 5 February 1997 as another real estate mortgage (REM).

It appears, however, that there was no property identified in the SPA

as TCT No. RT 18206 (106338) and registered with the Registry of Deeds of
Quezon City. What was identified in the SPA instead was the property covered
by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.

Subsequently, Julian defaulted on the payment of his loan

obligations. Thus, respondent initiated extra-judicial foreclosure proceedings over
the subject property which was subsequently sold at public auction wherein the
respondent was declared as the highest bidder as shown in the Sheriffs Certificate
of Sale dated 15 January 1998.[7]

On 23 March 1999, petitioners initiated with the RTC an action for the
annulment of REM constituted over the subject property on the ground that the
same was not covered by the SPA and that the said SPA, at the time the loan
obligations were contracted, no longer had force and effect since it was
previously revoked by Perla on 10 March 1993, as evidenced by the Revocation of
SPA signed by the latter.[8]

Petitioners likewise alleged that together with the copy of the Revocation
of SPA, Perla, in a Letter dated 23 January 1996, notified the Registry of Deeds of
Quezon City that any attempt to mortgage or sell the subject property must be
with her full consent documented in the form of an SPA duly authenticated
before the Philippine Consulate General in New York. [9]

In the absence of authority to do so, the REM constituted by Julian over the
subject property was null and void; thus, petitioners likewise prayed that the
subsequent extra-judicial foreclosure proceedings and the auction sale of the
subject property be also nullified.

In its Answer with Compulsory Counterclaim,[10] respondent averred that,

contrary to petitioners allegations, the SPA in favor of Julian included the subject
property, covered by one of the titles specified in paragraph 1(b) thereof, TCT No.
RT- 106338 registered with the Registry of Deeds of Pasig (now Makati). The
subject property was purportedly registered previously under TCT No. T-
106338, and was only subsequently reconstituted as TCT RT-18206
(106338). Moreover, TCT No. T-106338 was actually registered with the Registry
of Deeds of Quezon City and not before the Registry of Deeds
of Pasig (now Makati). Respondent explained that the discrepancy in the
designation of the Registry of Deeds in the SPA was merely an error that must not
prevail over the clear intention of Perla to include the subject property in the said
SPA. In sum, the property referred to in the SPA Perla executed in favor of Julian
as covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and
the subject property in the case at bar, covered by RT 18206 (106338) of
the Registry of Deeds of Quezon City, are one and the same.
 On 23 September 2003, the RTC rendered a Decision declaring the REM
constituted over the subject property null and void, for Julian was not authorized
by the terms of the SPA to mortgage the same. The court a quo likewise ordered
that the foreclosure proceedings and the auction sale conducted pursuant to the
void REM, be nullified. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in

favor of the [herein petitioners] and against the [herein respondent] Bank:

1. Declaring the Real Estate Mortgages constituted and registered

under Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT
No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL
and VOID;

2. Declaring the Sheriffs Sale and Certificate of Sale under FRE No.
2217 dated January 15, 1998 over the property covered by TCT No. RT-
18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

3. Ordering the defendant Registry of Deeds of Quezon City to

cancel the annotation of Real Estate Mortgages appearing on Entry Nos.
PE-4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of
the Registry of Deeds of Quezon City;

4. Ordering the [respondent] Bank to deliver/return to the

[petitioners] represented by their attorney-in-fact Alfredo M. Perez, the
original Owners Duplicate Copy of TCT No. RT-18206 (106338) free from
the encumbrances referred to above; and
 5. Ordering the [respondent] Bank to pay the [petitioners] the
amount of P100,000.00 as for attorneys fees plus cost of the suit.

The other claim for damages and counterclaim are hereby DENIED
for lack of merit.[11]

Aggrieved, respondent appealed the adverse Decision before the Court of

Appeals.

In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC
Decision and upheld the validity of the REM constituted over the subject property
on the strength of the SPA. The appellate court declared that Perla intended the
subject property to be included in the SPA she executed in favor of Julian, and
that her subsequent revocation of the said SPA, not being contained in a public
instrument, cannot bind third persons.

The Motion for Reconsideration interposed by the petitioners was denied

by the Court of Appeals in its Resolution dated 15 February 2006.

Petitioners are now before us assailing the Decision and Resolution

rendered by the Court of Appeals raising several issues, which are summarized as
follows:

I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER SUBJECT

PROPERTY.

II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.

 III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD FAITH.

For a mortgage to be valid, Article 2085 of the Civil Code enumerates the
following essential requisites:

Art. 2085. The following requisites are essential to the contracts of

pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal

obligation;

(2) That the pledgor or mortgagor be the absolute owner of the

thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the
free disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose.

Third persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property.

In the case at bar, it was Julian who obtained the loan obligations from
respondent which he secured with the mortgage of the subject property. The
 property mortgaged was owned by his wife, Perla, considered a third party to
the loan obligations between Julian and respondent. It was, thus, a situation
recognized by the last paragraph of Article 2085 of the Civil Code afore-
quoted. However, since it was not Perla who personally mortgaged her own
property to secure Julians loan obligations with respondent, we proceed to
determining if she duly authorized Julian to do so on her behalf.

Under Article 1878 of the Civil Code, a special power of attorney is

necessary in cases where real rights over immovable property are created or
conveyed.[12] In the SPA executed by Perla in favor of Julian on 28 May 1992, the
latter was conferred with the authority to sell, alienate, mortgage, lease and deal
otherwise the different pieces of real and personal property registered in Perlas
name. The SPA likewise authorized Julian [t]o exercise any or all acts of strict
dominion or ownership over the identified properties, and rights and interest
therein. The existence and due execution of this SPA by Perla was not denied or
challenged by petitioners.

There is no question therefore that Julian was vested with the power to
mortgage the pieces of property identified in the SPA. However, as to whether
the subject property was among those identified in the SPA, so as to render
Julians mortgage of the same valid, is a question we still must resolve.

Petitioners insist that the subject property was not included in the SPA,
considering that it contained an exclusive enumeration of the pieces of property
over which Julian had authority, and these include only: (1) TCT No. T-53618, with
an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810,
with an area of 3,953 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140,
with an area of 177 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403,
with an area of 263 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (5) TCT No. T- 46807,
with an area of 39 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954,
with an area of 690 square meters and located at Susana Heights,
Muntinlupa; (7) RT-106338 805 Square Meters registered with the Registry of
Deeds of Pasig (now Makati); and (8) Personal Property consisting of a 1983 Car
with Vehicle Registration No. R-16381, Model 1983, Make Toyota, and Engine No.
T- 2464. Nowhere is it stated in the SPA that Julians authority extends to the
subject property covered by TCT No. RT 18206 (106338) registered with the
Registry of Deeds of Quezon City. Consequently, the act of Julian of constituting a
mortgage over the subject property is unenforceable for having been done
without authority.

Respondent, on the other hand, mainly hinges its argument on the

declarations made by the Court of Appeals that there was no property covered
by TCT No. 106338 registered with the Registry of Deeds of Pasig (now
Makati); but there exists a property, the subject property herein, covered by TCT
No. RT-18206 (106338) registered with the Registry of Deeds of Quezon
City. Further verification would reveal that TCT No. RT-18206 is merely a
reconstitution of TCT No. 106338, and the property covered by both certificates
of title is actually situated in Quezon City and not Pasig. From the foregoing
circumstances, respondent argues that Perla intended to include the subject
property in the SPA, and the failure of the instrument to reflect the recent TCT
Number or the exact designation of the Registry of Deeds, should not defeat
Perlas clear intention.

After an examination of the literal terms of the SPA, we find that the subject
property was not among those enumerated therein. There is no obvious
reference to the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City.
 There was also nothing in the language of the SPA from which we could
deduce the intention of Perla to include the subject property therein. We cannot
attribute such alleged intention to Perla who executed the SPA when the
language of the instrument is bare of any indication suggestive of such
intention. Contrariwise, to adopt the intent theory advanced by the respondent,
in the absence of clear and convincing evidence to that effect, would run afoul of
the express tenor of the SPA and thus defeat Perlas true intention.

In cases where the terms of the contract are clear as to leave no room for
interpretation, resort to circumstantial evidence to ascertain the true intent of
the parties, is not countenanced. As aptly stated in the case of JMA House,
Incorporated v. Sta. Monica Industrial and Development Corporation,[13] thus:

[T]he law is that if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. When the language of the contract is explicit,
leaving no doubt as to the intention of the drafters, the courts may not
read into it [in] any other intention that would contradict its main
import. The clear terms of the contract should never be the subject matter
of interpretation. Neither abstract justice nor the rule on liberal
interpretation justifies the creation of a contract for the parties which they
did not make themselves or the imposition upon one party to a contract or
obligation not assumed simply or merely to avoid seeming hardships. The
true meaning must be enforced, as it is to be presumed that the
contracting parties know their scope and effects.[14]

Equally relevant is the rule that a power of attorney must be strictly construed
and pursued. The instrument will be held to grant only those powers which are
specified therein, and the agent may neither go beyond nor deviate from the
power of attorney.[15] Where powers and duties are specified and defined in an
instrument, all such powers and duties are limited and are confined to those
which are specified and defined, and all other powers and duties are
excluded.[16] This is but in accord with the disinclination of courts to enlarge the
authority granted beyond the powers expressly given and those which
incidentally flow or derive therefrom as being usual and reasonably necessary and
proper for the performance of such express powers.[17]

Even the commentaries of renowned Civilist Manresa[18] supports a strict and

limited construction of the terms of a power of attorney:

The law, which must look after the interests of all, cannot permit a
man to express himself in a vague and general way with reference to the
right he confers upon another for the purpose of alienation or
hypothecation, whereby he might be despoiled of all he possessed and be
brought to ruin, such excessive authority must be set down in the most
formal and explicit terms, and when this is not done, the law reasonably
presumes that the principal did not mean to confer it.

In this case, we are not convinced that the property covered by TCT No.
106338 registered with the Registry of Deeds of Pasig (now Makati) is the same as
the subject property covered by TCT No. RT-18206 (106338) registered with the
Registry of Deeds of Quezon City. The records of the case are stripped of
supporting proofs to verify the respondents claim that the two titles cover the
same property. It failed to present any certification from the Registries of Deeds
concerned to support its assertion. Neither did respondent take the effort of
submitting and making part of the records of this case copies of TCTs No. RT-
106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of
the Registry of Deeds of Quezon City, and closely comparing the technical
descriptions of the properties covered by the said TCTs. The bare and sweeping
statement of respondent that the properties covered by the two certificates of
title are one and the same contains nothing but empty imputation of a fact that
could hardly be given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with the
authority to mortgage the subject property under the terms of the SPA, the real
estate mortgages Julian executed over the said property are therefore
unenforceable.

Assuming arguendo that the subject property was indeed included in the
SPA executed by Perla in favor of Julian, the said SPA was revoked by virtue of a
public instrument executed by Perla on 10 March 1993. To address respondents
assertion that the said revocation was unenforceable against it as a third party to
the SPA and as one who relied on the same in good faith, we quote with approval
the following ruling of the RTC on this matter:

Moreover, an agency is extinguished, among others, by its

revocation (Article 1999, New Civil Code of the Philippines). The principal
may revoke the agency at will, and compel the agent to return the
document evidencing the agency. Such revocation may be express or
implied (Article 1920, supra).

In this case, the revocation of the agency or Special Power of

Attorney is expressed and by a public document executed on March 10,
1993.

The Register of Deeds of Quezon City was even notified that any
attempt to mortgage or sell the property covered by TCT No. [RT-18206]
106338 located at No. 21 Hillside Drive, Blue Ridge, Quezon City must have
the full consent documented in the form of a special power of attorney
duly authenticated at the Philippine Consulate General, New York
City, N.Y., U.S.A.
 The non-annotation of the revocation of the Special Power of
Attorney on TCT No. RT-18206 is of no consequence as far as the
revocations existence and legal effect is concerned since actual notice is
always superior to constructive notice. The actual notice of the revocation
relayed to defendant Registry of Deeds of Quezon City is not denied by
either the Registry of Deeds of Quezon City or the defendant Bank. In
which case, there appears no reason why Section 52 of the Property
Registration Decree (P.D. No. 1529) should not apply to the situation. Said
Section 52 of P.D. No. 1529 provides:

Section 52. Constructive notice upon registration. Every

conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land shall, if
registered, filed or entered in the Office of the Register of Deeds for the
province or city where the land to which it relates lies, be constructive
notice to all persons from the time of such registering, filing or
entering. (Pres. Decree No. 1529, Section 53) (emphasis ours)

It thus developed that at the time the first loan transaction with
defendant Bank was effected on December 12, 1996, there was on record
at the Office of the Register of Deeds of Quezon City that the special
power of attorney granted Julian, Sr. by Perla had been revoked. That
notice, works as constructive notice to third parties of its being filed,
effectively rendering Julian, Sr. without authority to act for and in behalf of
Perla as of the date the revocation letter was received by the Register of
Deeds of Quezon City on February 7, 1996.[19]

Given that Perla revoked the SPA as early as 10 March 1993, and that she
informed the Registry of Deeds of Quezon City of such revocation in a letter dated
23 January 1996 and received by the latter on 7 February 1996, then third parties
to the SPA are constructively notified that the same had been revoked and Julian
no longer had any authority to mortgage the subject property. Although the
revocation may not be annotated on TCT No. RT-18206 (106338), as the RTC
pointed out, neither the Registry of Deeds of Quezon City nor respondent denied
that Perlas 23 January 1996 letter was received by and filed with the Registry of
Deeds of Quezon City. Respondent would have undoubtedly come across said
letter if it indeed diligently investigated the subject property and the
circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent
is a mortgagee-in-good faith. Respondent fervently asserts that it exercised
reasonable diligence required of a prudent man in dealing with the subject
property.

Elaborating, respondent claims to have carefully verified Julians authority

over the subject property which was validly contained in the SPA. It stresses that
the SPA was annotated at the back of the TCT of the subject property. Finally,
after conducting an investigation, it found that the property covered by TCT No.
106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in
the SPA, and the subject property, covered by TCT No. 18206 (106338) registered
with the Registry of Deeds of Quezon City, are one and the same property. From
the foregoing, respondent concluded that Julian was indeed authorized to
constitute a mortgage over the subject property.

We are unconvinced. The property listed in the real estate mortgages Julian
executed in favor of PNB is the one covered by TCT#RT-18206(106338). On the
other hand, the Special Power of Attorney referred to TCT No. RT-106338 805
Square Meters of the Registry of Deeds of Pasig now Makati. The palpable
difference between the TCT numbers referred to in the real estate mortgages and
Julians SPA, coupled with the fact that the said TCTs are registered in the
Registries of Deeds of different cities, should have put respondent on
guard. Respondents claim of prudence is debunked by the fact that it had
conveniently or otherwise overlooked the inconsistent details appearing on the
face of the documents, which it was relying on for its rights as mortgagee, and
which significantly affected the identification of the property being
mortgaged. In Arrofo v. Quio,[20] we have elucidated that:
 [Settled is the rule that] a person dealing with registered lands [is
not required] to inquire further than what the Torrens title on its face
indicates. This rule, however, is not absolute but admits of
exceptions. Thus, while its is true, x x x that a person dealing with
registered lands need not go beyond the certificate of title, it is likewise
a well-settled rule that a purchaser or mortgagee cannot close his eyes to
facts which should put a reasonable man on his guard, and then claim
that he acted in good faith under the belief that there was no defect in
the title of the vendor or mortgagor. His mere refusal to face up the fact
that such defect exists, or his willful closing of his eyes to the possibility of
the existence of a defect in the vendors or mortgagors title, will not make
him an innocent purchaser for value, if it afterwards develops that the title
was in fact defective, and it appears that he had such notice of the defect
as would have led to its discovery had he acted with the measure of
precaution which may be required of a prudent man in a like situation.

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

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

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

This principle is applied more strenuously when the mortgagee is a bank

or a banking institution. Thus, in the case of Cruz v. Bancom
Finance Corporation,[23] we ruled:

Respondent, however, is not an ordinary mortgagee; it is a

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

Hence, considering that the property being mortgaged by Julian was not
his, and there are additional doubts or suspicions as to the real identity of the
same, the respondent bank should have proceeded with its transactions with
Julian only with utmost caution. As a bank, respondent must subject all its
transactions to the most rigid scrutiny, since its business is impressed with
public interest and its fiduciary character requires high standards of integrity
and performance.[25] Where respondent acted in undue haste in granting the
mortgage loans in favor of Julian and disregarding the apparent defects in the
latters authority as agent, it failed to discharge the degree of diligence
required of it as a banking corporation.

Thus, even granting for the sake of argument that the subject property and
the one identified in the SPA are one and the same, it would not elevate
respondents status to that of an innocent mortgagee. As a banking institution,
jurisprudence stringently requires that respondent should take more precautions
than an ordinary prudent man should, to ascertain the status and condition of the
properties offered as collateral and to verify the scope of the authority of the
agents dealing with these. Had respondent acted with the required degree of
diligence, it could have acquired knowledge of the letter dated 23 January
1996 sent by Perla to the Registry of Deeds of Quezon City which recorded the
same. The failure of the respondent to investigate into the circumstances
surrounding the mortgage of the subject property belies its contention of good
faith.

On a last note, we find that the real estate mortgages constituted over the
subject property are unenforceable and not null and void, as ruled by the RTC. It is
best to reiterate that the said mortgage was entered into by Julian on behalf of
Perla without the latters authority and consequently, unenforceable under Article
1403(1) of the Civil Code. Unenforceable contracts are those which cannot be
enforced by a proper action in court, unless they are ratified, because either they
are entered into without or in excess of authority or they do not comply with the
statute of frauds or both of the contracting parties do not possess the required
legal capacity.[26] An unenforceable contract may be ratified, expressly or
impliedly, by the person in whose behalf it has been executed, before it is
revoked by the other contracting party.[27] Without Perlas ratification of the same,
the real estate mortgages constituted by Julian over the subject property cannot
be enforced by any action in court against Perla and/or her successors in interest.
In sum, we rule that the contracts of real estate mortgage constituted over
the subject property covered by TCT No. RT 18206 (106338) registered with the
Registry of Deeds of Quezon City are unenforceable. Consequently, the
foreclosure proceedings and the auction sale of the subject property conducted in
pursuance of these unenforceable contracts are null and void. This, however, is
without prejudice to the right of the respondent to proceed against Julian, in his
personal capacity, for the amount of the loans.

WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition

is GRANTED. The Decision dated 12 October 2005 and its Resolution dated 15
February 2006rendered by the Court of Appeals in CA-G.R. CV No. 82636, are
hereby REVERSED. The Decision dated 23 September 2003 of the Regional Trial
Court of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is
hereby REINSTATED and AFFIRMED with modification that the real estate
mortgages constituted over TCT No. RT 18206 (106338) are not null and void
but UNENFORCEABLE. No costs.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson
MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO

Associate Justice

Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.

REYNATO S. PUNO

Chief Justice

[1]
Penned by Associate Justice Delilah Vidallon-Magtolis with Associate Justices Josefina Guevara-Salonga and
Fernanda Lampas-Peralta, concurring. Rollo, pp. 44-59.
[2]
Id. at 61-64.
[3]
Id. at 71-84.
[4]
Id. at 59.
[5]
Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T-108954 690 square meters; and RT-
106338 805 square meters of the Registry of Deeds of Pasig (now Makati);

[6]
Id. at 106-109.
[7]
Id. at 73
[8]
Id. at 74.
[9]
Id. at 74-75.
[10]
Id. at 96-103.
[11]
Id. at 84.
[12]
Paragraph 12 of Article 1878, Civil Code of the Philippines.
[13]
G.R. No. 154156, 31 August 2006, 500 SCRA 526.
[14]
Id. at 545-546.
[15]
Angeles v. Philippine National Railways (PNR), G.R. No. 150128, 31 August 2006, 500 SCRA 444, 453.
[16]
Bank of the Philippine Islands v. De Coster, 49 Phil. 574, 589 (1926) as cited in Philippine National Bank v. Sta.
Maria, 139 Phil. 781, 786 (1969).
[17]
Philippine National Bank v. Sta. Maria, id.
[18]
Vol. II, p. 60.
[19]
Rollo, pp. 80-81.
[20]
G.R. No. 145794, 26 January 2005, 449 SCRA 284.
[21]
G.R. No. 157002, 29 July 2005, 465 SCRA 356.
[22]
Id. at 368-369.
[23]
429 Phil. 225 (2002).
[24]
Id. at 239.
[25]
THE GENERAL BANKING LAW OF 2000, Section 2.
[26]
Article 1403, Civil Code of the Philippines.
[27]
Article 1317, Civil Code of the Philippines.