ATP Cases - 92 To 124

G.R. No. 88866. February 18, 1991.
* Mercantile Law; Negotiable Instruments; Requisites of

METROPOLITAN BANK & TRUST COMPANY, Negotiabil-ity; An instrument to be negotiable must contain
petitioner, vs. COURT OF APPEALS, GOLDEN an unconditional promise or order to pay a sum certain in
SAVINGS & LOAN ASSOCIATION, INC., LUCIA money.—SEC. 3. When promise is unconditional.—An
unqualified order or promise to pay is unconditional within
CASTILLO, MAGNO CASTILLO and GLORIA
the meaning of this Act though coupled with—(a) An
CASTILLO, respondents.
indication of a particular fund out of which reimbursement
Civil Law; Obligations and Contracts; Agency; The is to be made or a particular account to be debited with the
agent is responsible not only for fraud, but also for negligence, amount; or (b) A statement of the trasaction which gives rise
which shall be judged with more or less rigor by the courts, to the instrument. But an order or promise to pay out of a
according to whether the agency was or was not for a particular fund is not unconditional. The indication of Fund
compensation.—The negligence of Metro-bank has been 501 as the source of the payment to be made on the treasury
sufficiently established. To repeat for emphasis, it was the warrants makes the order or promise to pay “not uncon-
clearance given by it that assured Golden Savings it was ditional” and the warrants themselves non-negotiable. There
already safe to allow Gomez to withdraw the proceeds of the should be no question that the exception on Section 3 of the
treasury warrants Negotiable Instruments Law is applicable in the case at bar.
_______________
PETITION to review the decision of the Court of
FIRST DIVISION.
Appeals.
*
170
The facts are stated in the opinion of the Court.
170 SUPREME COURT Angara, Abello, Concepcion, Regala & Cruz for
REPORTS ANNOTATED petitioner.
Metropolitan Bank and Trust Bengzon, Zarraga, Narciso, Cudala, Pecson &
Company vs. Court of Appeals Bengson for Magno and Lucia Castillo.
he had deposited. Metrobank misled Golden Savings. Agapito S. Fajardo and Jaime M. Cabiles for
There may have been no express clearance, as Metrobank respondent Golden Savings & Loan Association, Inc.
insists (although this is refuted by Golden Savings) but in
any case that clearance could be implied from its allowing CRUZ, J.:
Golden Savings to withdraw from its account not only once
or even twice but three times. The total withdrawal was in This case, for all its seeming complexity, turns on a
excess of its original balance before the treasury warrants simple question of negligence. The facts, pruned of all
were deposited, which only added to its belief that the
non-essentials, are easily told.
treasury warrants had indeed been cleared.
1
The Metropolitan Bank and Trust Co. is a allowed to withdraw from his account. Later, however,
commercial bank with branches throughout the “exasperated” over Gloria’s repeated inquiries and also
Philippines and even abroad. Golden Savings and Loan as an accommodation for a “valued client,” the
Association was, at the time these events happened, petitioner says it finally decided to allow Golden
operating in Calapan, Mindoro, with the other private Savings to withdraw from the proceeds of the
respondents as its principal officers. warrants. The first withdrawal was made on July 9,
3
171 1979, in the amount of P508,000.00, the second on July

VOL. 194, FEBRUARY 18, 1991 171 13, 1979, in the amount of P310,000.00, and the third
Metropolitan Bank and Trust Company vs. on July 16, 1979, in the amount of P150,000.00. The
Court of Appeals total withdrawal was P968,000.00. In turn, Golden
4
In January 1979, a certain Eduardo Gomez opened an Savings subsequently allowed Gomez to make
account with Golden Savings and deposited over a withdrawals from his own account, eventually
period of two months 38 treasury warrants with a total collecting the total amount of P1,167,500.00 from the
value of P1,755,228.37. They were all drawn by the proceeds of the apparently cleared warrants. The last
Philippine Fish Marketing Authority and purportedly withdrawal was made on July 16, 1979.
signed by its General Manager and countersigned by its On July 21, 1979, Metrobank informed Golden
Auditor. Six of these were directly payable to Gomez Savings that 32 of the warrants had been dishonored by
while the others appeared to have been indorsed by the Bureau of
their respective payees, followed by Gomez as second _______________
indorser. 1
1 Rollo, pp. 12-13.
On various dates between June 25 and July 16, 1979, 2 Ibid., p. 52.
all these warrants were subsequently indorsed by 3 Id., p. 14.
4 Id.
Gloria Castillo as Cashier of Golden Savings and
deposited to its Savings Account No. 2498 in the 172
Metrobank branch in Calapan, Mindoro. They were 172 SUPREME COURT REPORTS
then sent for clearing by the branch office to the ANNOTATED
principal office of Metrobank, which forwarded them to Metropolitan Bank and Trust Company vs.
the Bureau of Treasury for special clearing.
2
Court of Appeals
More than two weeks after the deposits, Gloria Treasury on July 19, 1979, and demanded the refund by
Castillo went to the Calapan branch several times to Golden Savings of the amount it had previously
ask whether the warrants had been cleared. She was withdrawn, to make up the deficit in its account.
told to wait. Accordingly, Gomez was meanwhile not
2
The demand was rejected. Metrobank then sued On appeal to the respondent court, the decision was
6
Golden Savings in the Regional Trial Court of affirmed, prompting Metrobank to file this petition for
Mindoro. After trial, judgment was rendered in favor of
5 review on the following grounds:
Golden Savings, which, however, filed a motion for
reconsideration even as Metrobank filed its notice of 1. 1.Respondent Court of Appeals erred in
appeal. On November 4, 1986, the lower court modified disregarding and fail-ing to apply the clear
its decision thus: contractual terms and conditions on the deposit
ACCORDINGLY, judgment is hereby rendered: slips allowing Metrobank to charge back any
amount erroneously credited.
1. 1.Dismissing the complaint with costs against the
plaintiff; ________________
2. 2.Dissolving and lifting the writ of attachment of the
properties of defendant Golden Savings and Loan 5 Through Judge Marciano T. Virola.
Association, Inc. and defendant Spouses Magno
6 Penned by Ejercito, J., with Pe and Victor, JJ.,concurring.
Castillo and Lucia Castillo; 173
3. 3.Directing the plaintiff to reverse its action of VOL. 194, FEBRUARY 18, 1991 173
debiting Savings Account No. 2498 of the sum of Metropolitan Bank and Trust Company vs.
P1,754,089.00 and to reinstate and credit to such
account such amount existing before the debit was
Court of Appeals
made including the amount of P812,033.37 in favor
of defendant Golden Savings and Loan Association, 1. (a)Metrobank’s right to charge back is not limited
Inc. and thereafter, to allow defendant Golden to instances where the checks or treasury
Savings and Loan Association, Inc. to withdraw the warrants are forged or unauthorized.
amount outstanding thereon before the debit; 2. (b)Until such time as Metrobank is actually paid,
4. 4.Ordering the plaintiff to pay the defendant Golden its obligation is that of a mere collecting agent
Savings and Loan Association, Inc. attorney’s fees which cannot be held liable for its failure to
and expenses of litigation in the amount of collect on the warrants.
P200,000.00.
5. 5.Ordering the plaintiff to pay the defendant Spouses
1. 2.Under the lower court’s decision, affirmed by
Magno Castillo and Lucia Castillo attorney’s fees
respondent Court of Appeals, Metrobank is
and expenses of litigation in the amount of
P100,000.00. made to pay for warrants already dishonored,
thereby perpetuating the fraud committed by
SO ORDERED. Eduardo Gomez.
3
2. 3.Respondent Court of Appeals erred in not The argument of Metrobank that Golden Savings
finding that as between Metrobank and Golden should have exercised more care in checking the
Savings, the latter should bear the loss. personal circumstances of Gomez before accepting his
3. 4.Respondent Court of Appeals erred in holding deposit does not hold water. It was Gomez who was
that the treasury warrants involved in this case entrusting the warrants, not Golden Savings
are not negotiable instruments. _______________
7 Rollo, p. 84.
The petition has no merit.
From the above undisputed facts, it would appear to 174
the Court that Metrobank was indeed negligent in 174 SUPREME COURT REPORTS
giving Golden Savings the impression that the treasury ANNOTATED
warrants had been cleared and that, consequently, it Metropolitan Bank and Trust Company vs.
was safe to allow Gomez to withdraw the proceeds Court of Appeals
thereof from his account with it. Without such that was extending him a loan; and moreover, the
assurance, Golden Savings would not have allowed the treasury warrants were subject to clearing, pending
withdrawals; with such assurance, there was no reason which the depositor could not withdraw its proceeds.
not to allow the withdrawal. Indeed, Golden Savings There was no question of Gomez’s identity or of the
might even have incurred liability for its refusal to genuineness of his signature as checked by Golden
return the money that to all appearances belonged to Savings. In fact, the treasury warrants were dishonored
the depositor, who could therefore withdraw it any time allegedly because of the forgery of the signatures of the
and for any reason he saw fit. drawers, not of Gomez as payee or indorser. Under the
It was, in fact, to secure the clearance of the treasury circumstances, it is clear that Golden Savings acted
warrants that Golden Savings deposited them to its with due care and diligence and cannot be faulted for
account with Metrobank. Golden Savings had no the withdrawals it allowed Gomez to make.
clearing facilities of its own. It relied on Metrobank to By contrast, Metrobank exhibited extraordinary
determine the validity of the warrants through its own carelessness. The amount involved was not trifling—
services. The proceeds of the warrants were withheld more than one and a half million pesos (and this was
from Gomez until Metrobank allowed Golden Savings 1979). There was no reason why it should not have
itself to withdraw them from its own deposit. It was
7
waited until the treasury warrants had been cleared; it
only when Metrobank gave the go-signal that Gomez would not have lost a single centavo by waiting. Yet,
was finally allowed by Golden Savings to withdraw despite the lack of such clearance—and
them from his own account. notwithstanding that it had not received a single
4
centavo from the proceeds of the treasury warrants, as due toinsufficiency of funds, forgery, unauthorized overdraft
it now repeatedly stresses—it allowed Golden Savings or any other reason. (Italics supplied.)
to withdraw—not once, not twice, but thrice—from According to Metrobank, the said conditions clearly
the uncleared treasury warrants in the total amount of show that it was acting only as a collecting agent for
P968,000.00 Golden Savings and give it the right to “charge back to
Its reason? It was “exasperated” over the persistent the depositor’s account any amount previously credited,
inquiries of Gloria Castillo about the clearance and it whether or not such item is returned. This also applies
also wanted to “accommodate” a valued client. It to checks “. . . which are unpaid due to insufficiency of
“presumed” that the warrants had been cleared simply funds, forgery, unauthorized overdraft of any other
because of “the lapse of one week.” For a bank with its
8
reason.” It is claimed that the said conditions are in the
long experience, this explanation is unbelievably naive. nature of contractual stipulations and became binding
And now, to gloss over its carelessness, Metrobank on Golden Savings when Gloria Castillo, as its Cashier,
would invoke the conditions printed on the dorsal side signed the deposit slips.
of the deposit slips through which the treasury Doubt may be expressed about the binding force of
warrants were deposited by Golden Savings with its the conditions, considering that they have apparently
Calapan branch. The conditions read as follows: been imposed by the bank unilaterally, without the
Kindly note that in receiving items on deposit, the bank
consent of the depositor. Indeed, it could be argued that
obligates itself only as the depositor’s collecting agent,
assuming no responsibility beyond care in selecting the depositor, in signing the deposit slip, does so only to
correspondents, and until such time as actual payment shall identify himself and not to agree to the conditions set
have come into possession of this bank, the right is reserved forth in the given permit at the back of the deposit slip.
to charge back to the depositor’s account any amount We do not have to rule on this matter at this time. At
_______________ any rate, the Court feels that even if the deposit slip
were considered a contract, the petitioner could still not
8 TSN, July 29, 1983, p. 20.
validly disclaim responsibility thereunder in the light of
175 the circumstances of this case.
VOL. 194, FEBRUARY 18, 1991 175 In stressing that it was acting only as a collecting
Metropolitan Bank and Trust Company vs. agent for Golden Savings, Metrobank seems to be
Court of Appeals suggesting that as a mere agent it cannot be liable to
previously credited, whether or not such item is returned. the principal. This is not exactly true. On the contrary,
This also applies to checks drawn on local banks and bankers Article 1909 of the Civil Code clearly provides that—
and their branches as well as on this bank, which are unpaid Art. 1909.—The agent is responsible not only for fraud, but
also for negligence, which shall be judged with more or less
5
rigor by the courts, according to whether the agency was or bar when it is considered that the supposed dishonor of
was not for a compensation. the warrants was not communicated to Golden Savings
The negligence of Metrobank has been sufficiently before it made its own payment to Gomez.
established. To repeat for emphasis, it was the The belated notification aggravated the petitioner’s
clearance given by it that assured Golden Savings it earlier negligence in giving express or at least implied
was already safe to allow Gomez to withdraw the clearance to the treasury warrants and allowing
proceeds of the treasury warrants he had depos- payments therefrom to Golden Savings. But that is not
176 all. On top of this, the supposed reason for the dishonor,
176 SUPREME COURT REPORTS to wit, the forgery of the signatures of the general
ANNOTATED manager and the auditor of the drawer corporation, has
Metropolitan Bank and Trust Company vs. not been established. This was the finding of the lower
9
Court of Appeals courts which we see no reason to disturb. And as we said

in MWSS v. Court of Appeals:
ited. Metrobank misled Golden Savings. There may
10
Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139

have been no express clearance, as Metrobank insists SCRA 238). It must be established by clear, positive and
(although this is refuted by Golden Savings) but in any convincing evidence. This was not done in the present case.
case that clearance could be implied from its allowing
Golden Savings to withdraw from its account not only A no less important consideration is the circumstance
once or even twice but three times. The total withdrawal that the treasury warrants in question are not
was in excess of its original balance before the treasury negotiable instruments. Clearly stamped on their face
warrants were deposited, which only added to its belief is the word “non-nego-
that the treasury warrants had indeed been cleared. _______________
Metrobank’s argument that it may recover the 9 Rollo, p. 61.
disputed amount if the warrants are not paid for any 10 143 SCRA 20.
reason is not acceptable. Any reason does not mean no
177
reason at all. Otherwise, there would have been no need
VOL. 194, FEBRUARY 18, 1991 177
at all for Golden Savings to deposit the treasury
Metropolitan Bank and Trust Company vs.
warrants with it for clearance. There would have been
Court of Appeals
no need for it to wait until the warrants had been
cleared before paying the proceeds thereof to Gomez. tiable.” Moreover, and this is of equal significance, it is
Such a condition, if interpreted in the way the petitioner indicated that they are payable from a particular fund,
suggests, is not binding for being arbitrary and to wit, Fund 501.
unconscionable. And it becomes more so in the case at
6
The following sections of the Negotiable Instruments that the exception on Section 3 of the Negotiable
Law, especially the underscored parts, are pertinent: Instruments Law is applicable in the case at bar. This
SECTION 1.—Form of negotiable instruments.—An conclusion conforms to Abubakar vs. Auditor
instrument to be negotiable must conform to the following General where the Court held:
11
requirements: The petitioner argues that he is a holder in good faith and for
value of a negotiable instrument and is entitled to the rights
1. (a)It must be in writing and signed by the maker or and privileges of a holder in due course, free from defenses.
drawer; But this
2. (b)Must contain an unconditional promise or order to _______________
pay a sum certain in money;
3. (c)Must be payable on demand, or at a fixed or
11 81 Phil. 359.
determinable future time; 178
4. (d)Must be payable to order or to bearer; and 178 SUPREME COURT REPORTS
5. (e)Where the instrument is addressed to a drawee, he ANNOTATED
must be named or otherwise indicated therein with
reasonable certainty.
Court of Appeals
xxx treasury warrant is not within the scope of the negotiable
SEC. 3. When promise is unconditional.—An unqualified instrument law. For one thing, the document bearing on its
order or promise to pay is unconditional within the meaning face the words “pay-able from the appropriation for food
of this Act though coupled with— administration, is actually an Order for payment out of “a
particular fund,” and is not unconditional and does not fulfill
1. (a)An indication of a particular fund out of which one of the essential requirements of a negotiable instrument
reimbursement is to be made or a particular account (Sec. 3 last sentence and section [1(b)] of the Negotiable
to be debited with the amount; or Instruments Law).
2. (b)A statement of the transaction which gives rise to Metrobank cannot contend that by indorsing the
the instrument.
warrants in general, Golden Savings assumed that they
were “genuine and in all respects what they purport to
But an order or promise to pay out of a particular fund is
not unconditional.
be,” in accordance with Section 66 of the Negotiable
Instruments Law. The simple reason is that this law is
The indication of Fund 501 as the source of the payment not applicable to the non-negotiable treasury warrants.
to be made on the treasury warrants makes the order The indorsement was made by Gloria Cas-tillo not for
or promise to pay “not unconditional” and the warrants the purpose of guaranteeing the genuineness of the
themselves non-negotiable. There should be no question
7
warrants but merely to deposit them with Metrobank VOL. 194, FEBRUARY 18, 1991 179
for clearing. It was in fact Metrobank that made the Metropolitan Bank and Trust Company vs.
guarantee when it stamped on the back of the warrants: Court of Appeals
“All prior indorsement and/or lack of endorsements P1,754,089.00, from which Gomez was allowed to
guaranteed, Metropolitan Bank & Trust Co., Calapan withdraw P1,167,500.00 before Golden Savings was
Branch.” notified of the dishonor. The amount he has withdrawn
The petitioner lays heavy stress on Jai Alai must be charged not to Golden Savings but to
Corporation v. Bank of the Philippine Islands, but we
12
Metrobank, which must bear the consequences of its
feel this case is inapplicable to the present controversy. own negligence. But the balance of P586,589.00 should
That case involved checks whereas this case involves be debited to Golden Savings, as obviously Gomez can
treasury warrants. Golden Savings never represented no longer be permitted to withdraw this amount from
that the warrants were negotiable but signed them only his deposit because of the dishonor of the warrants.
for the purpose of depositing them for clearance. Also, Gomez has in fact disappeared. To also credit the
the fact of forgery was proved in that case but not in the balance to Golden Savings would unduly enrich it at the
case before us. Finally, the Court found the Jai Alai expense of Metrobank, let alone the fact that it has
Corporation negligent in accepting the checks without already been informed of the dishonor of the treasury
question from one Antonio Ramirez notwithstanding warrants.
that the payee was the Inter-Island Gas Services, Inc. WHEREFORE, the challenged decision is
and it did not appear that he was authorized to indorse AFFIRMED, with the modification that Paragraph 3 of
it. No similar negligence can be imputed to Golden the dispositive portion of the judgment of the lower
Savings. court shall be reworded as follows: 3. Debiting Savings
We find the challenged decision to be basically Account No. 2498 in the sum of P586,589.00 only and
correct. However, we will have to amend it insofar as it thereafter allowing defendant Golden Savings & Loan
directs the petitioner to credit Golden Savings with the Association, Inc. to withdraw the amount outstanding
full amount of the treasury checks deposited to its thereon, if any, after the debit.
account. SO ORDERED.
The total value of the 32 treasury warrants
dishonored was
_______________
12 66 SCRA 29.
179
8
G.R. No. L-16671 March 30, 1921 It appears, however, that instead of fulfilling this duty punctually,
Cu Chiat, upon five different occasion, submitted false reports of
LIM CHAI SENG, plaintiff-appellant, the business of Lim Chai Seng, showing business to have
vs. transacted for five particular quarters in amounts must lower than
WENCESLAO TRINIDAD, Collector of Internal was really the case. By this means Cu Chiat contrived to make it
Revenue, defendant-appellant. appear that the taxes due from Lim Chai Seng were considerably
less than were in fact due, and he misappropriated the excess
Crossfield and O'Brien for plaintiff and appellant. that had been confided to him. Upon the three occasions when
Attorney-General Feria for defendant and appellant. checks had been given to him by Lim Chai Seng for the exact
amount really due, the misappropriation was accomplished by
causing the Collector of Internal Revenue to apply the excess
STREET, J.:
contained in those checks to the payment of similar taxes due
from other Chinese firms of whom Cu Chiat was also the
The plaintiff, Lim Chai Seng, is a merchant, of Chinese representative. The amounts thus misappropriated by Cu Chiat
nationality, doing business in Manila; and as such he is subject to were as follows:
the merchant's tax of 1 per cent imposed on all gross sales. In
order to comply with the law and regulations of the Bureau of
Internal Revenue, it is incumbent on the person liable to this tax For the second quarter, 1917, P100.
to keep records of their transactions and to make quarterly For the third quarter, 1917, P200.
reports from which the amount of tax due is computed; and it For the second quarter, 1918, P500.
seems sometimes to have been found convenient in the Chinese
For the third quarter, 1918, P500.
community for two or more firms to employ jointly a sort of
specialist to act as their representative in their relations with the For the fourth quarter, 1918, P200.
Bureau of Internal Revenue.
In the time these peculations were found out, and the Internal
It thus happened that during the years 1917 and 1918, one Cu Revenue Collector required Lim Chai Seng to make good the
Chiat was the agent and intermediary of the plaintiff, Lim Chai deficiency in the tax and to pay in addition thereto an additional
Seng, in making reports to the Collector of Internal Revenue of 25 per cent surcharge thereon under the authority of the second
business done by Lim Chai Seng as well as in the making of paragraph of section 1458 of the Administrative Code. This
payments for the taxes due from the latter. In the performance of payment having been made under protest the present action was
these services the books of Lim Chai Seng were consulted in instituted by Lim Chai Seng to recover the entire amount paid, or
order to discover the amount due to the Bureau of Internal P1,875. The trial judge decided that the amount of P375,
Revenue, and either the proper amount of money or a check was collected in the character of surcharge, was properly due, on
delivered by the merchant to Cu Chiat, whose duty is then account of the failure of Cu Chiat to submit correct returns for the
became to repair to the office of the collector, to make the proper five period with which his peculations were concerns. As to this
report of business done by Lim Chai Seng, and to make payment amount the trial judge held that there could be no recovery. The
accordingly. same was true, so he decided, in regard to those transactions in
connection with which Lim Chai Seng had delivered money to Cu
Chiat to be applied to the taxes due. In regard, however, to the
9
three payments when checks were delivered by Lim Chai Seng applied not only to the taxes of the latter but under the directions
for the exact amount due, the trial judge held that the Collector of of Cu Chia to the similar taxes of other merchants — the more so
Internal Revenue had no right to apply the excess to the taxes as according to the proof it was not unusual for checks drawn by
due from other merchants. He accordingly gave judgment in favor one firm to be thus applied to the taxes of another.
of the plaintiff for the excess, amounting to P1,200, carried in
these checks over the amount shown to be due on the face of the It cannot be overlooked that in the commercial world the checks
reports submitted by Cu Chiat and which the collector had, as the of persons of known solvency are customarily received as money;
trial judge held, improperly applied to other accounts. From this and that this check was received and applied by the Collector of
judgment both parties appealed; and for the plaintiff it is assigned Internal Revenue in entire good faith in the usual course of
as error that the trial judge erroneously refused to allow recovery business and without any knowledge whatever that the check, or
by the plaintiff of the sum of P300 which had been exacted as a part thereof, was being misapplied, is shown by the testimony.
surcharge upon the P1,200 above-mentioned. For the defendant Nor can it be maintained that the mere fact that the three checks
it is assigned as error that the trial judge allowed recovery of the in questions were made payable to the Collector of Internal
P1,200 as above stated. Revenue and not to Cu Chiat, is a circumstance from which it
could be argued that the Collector was put upon notice that the
It will be convenient first to discuss the point presented by the check was applicable only to the taxes of the plaintiff. Even if the
assignment of error of the defendant as appellant; that is, whether Collector had refunded the excess in money to Cu Chiat, the
the Collector of Internal Revenue has made himself liable to latter could have at once applied it to other taxes; and no
account to the plaintiff for the P1,200, which represents the question could have been made as to the propriety of the
excess of the plaintiff's three checks over the amount apparently Collector's then receiving it. A check when received and treated
due upon the returns made, and which the collector applied, as money is the same as money so far as legal consequences
under the directions of Cu Chiat, to the payment of the taxes due are concerned.
from other persons.
We hold the case to be one where the plaintiff, as principal, is
The point is simple enough and we think it is to be solved with bound by the act of his agent, and the effects of the dishonestly of
reference to the general rule that a principal is bound by the acts the latter must be borne by the principal, not by an innocent third
of his agent in the scope of the agency. In this connection it is party who has dealt with the dishonest agent in good faith.
undeniable that Cu Chiat had full authority to make returns to the
Collector of Internal Revenue of the business done each quarter It results that the action of the trial judge in allowing the plaintiff to
by Lim Chai Seng and to make payment of the proper amount of recover the sum or P1,200 representing the amount
the taxes due by those returns. This being undeniable, it follows misappropriated from said checks by Cu Chiat, must be reversed.
that when Cu Chiat made returns, as he did, showing a certain In view of this result it is obvious that the error assigned in the
amount of business transacted and the taxes due were computed brief of the plaintiff as appellant, with reference to the P300,
according to those returns, the Collector of Internal Revenue collected as a surcharge upon this sum of P1,200, is untenable,
could not legitimately collect a greater amount. Furthermore, in and said assignment need not be discussed.
view of the authority which, as the Collector of Internal Revenue
knew, had been confided to Cu Chiat by Lim Chai Seng it was The judgment appealed from is affirmed in so far as it absolves
entirely proper for him to allow the check of Lim Chai Seng to be the defendant from liability for the amount of P375, collected as
10
surcharge upon the delinquent taxes, and is reversed in so far as faith, that is, on his state of mind at the time he built the
it concedes to the plaintiff a recovery of the mount of P1,200 from improvements on Lot 9. These
the defendant; and the defendant will be wholly absolved from the
complaint. It is so ordered, without express pronouncement as to _______________
costs.
*THIRD DIVISION.
11
VOL. 253, FEBRUARY 1, 11
G.R. No. 79688. February 1, 1996. *
1996
PLEASANTVILLE DEVELOPMENT CORPORATION, Pleasantville Development
petitioner, vs. COURT OF APPEALS, WILSON KEE, Corporation vs. Court of Appeals
C.T. TORRES ENTERPRISES, INC. and ELDRED alleged violations may give rise to petitioner’s cause of
JARDINICO, respondents. action against Kee under the said contract (contractual
Civil Law; Property; Builder in Good Faith; Court breach), but may not be bases to negate the presumption that
agrees with the findings and conclusions of the Court of Kee was a builder in good faith.
Appeals that Kee was a builder in good faith.—Petitioner Same; Same; Waiver; Rights may be waived unless the
fails to persuade this Court to abandon the findings and waiver is contrary to law, public order, public policy, morals
conclusions of the Court of Appeals that Kee was a builder in or good customs or prejudicial to a third person with a right
good faith. recognized by law.—We do not agree with the interpretation
Same; Same; Same; Good faith consists in the belief of of petitioner that Kee contracted away his right to recover
the builder that the land he is building on is his and his damages resulting from petitioner’s negligence. Such waiver
ignorance of any defect or flaw in his title.—Good faith would be contrary to public policy and cannot be allowed.
consists in the belief of the builder that the land he is “Rights may be waived, unless the waiver is contrary to law,
building on is his and his ignorance of any defect or flaw in public order, public policy, morals, or good customs, or
his title. And as good faith is presumed, petitioner has the prejudicial to a third person with a right recognized by law.”
burden of proving bad faith on the part of Kee. At the time Same; Agency; Damages; Rule is that the principal is
he built improvements on Lot 8, Kee believed that said lot responsible for the acts of the agent, done within the scope of
was what he bought from petitioner. He was not aware that his authority and should bear the damage caused to third
the lot delivered to him was not Lot 8. Thus, Kee’s good faith. persons.—The rule is that the principal is responsible for the
Petitioner failed to prove otherwise. acts of the agent, done within the scope of his authority, and
Same; Same; Same; Violation of the Contract of Sale on should bear the damage caused to third persons. On the
Installment may not be the basis to negate the presumption other hand, the agent who exceeds his authority is personally
that Kee was a builder in good faith.—Such violations have liable for the damage.
no bearing whatsoever on whether Kee was a builder in good
11
PETITION for review on certiorari of a decision of the The Facts
Court of Appeals. The facts, as found by respondent Court, are as follows:
Edith Robillo purchased from petitioner a parcel of
The facts are stated in the opinion of the Court. land designated as Lot 9, Phase II and located at
Mirano, Mirano & Associates Law Offices for Taculing Road, Pleasantville Subdivision, Bacolod City.
petitioner. In 1975, respondent Eldred Jardinico bought the rights
Federico T. Tabino, Jr. for C.T. Torres to the lot from Robillo. At that time, Lot 9 was vacant.
Enterprises, Inc. Upon completing all payments, Jardinico secured
Abraham D. Caña for Wilson Kee. from the Register of Deeds of Bacolod City on December
19, 1978 Transfer Certificate of Title No. 106367 in his
PANGANIBAN, J.: name. It was then that he discovered that
improvements had been introduced on Lot 9 by
Is a lot buyer who constructs improvements on the
respondent Wilson Kee, who had taken possession
wrong property erroneously delivered by the owner’s
thereof.
agent, a builder in good faith? This is the main issue
It appears that on March 26, 1974, Kee bought on
resolved in this petition for review on certiorari to
installment Lot 8 of the same subdivision from C.T.
reverse the Decision of the Court of
1
Torres Enterprises, Inc. (CTTEI), the exclusive real

_______________ estate agent of petitioner. Under the Contract to Sell on
Installment, Kee could possess the lot even before the
1Rollo, pp. 37-46. completion of all installment payments. On January 20,
12
1975, Kee paid CTTEI the relocation fee of P50.00 and
12 SUPREME COURT REPORTS
another P50.00 on January 27, 1975, for the
ANNOTATED preparation of the lot plan. These amounts were paid
Pleasantville Development Corporation vs. prior to Kee’s taking actual possession of Lot 8. After
Court of Appeals the preparation of the lot plan and a copy thereof given
Appeals in CA-G.R. SP No. 11040, promulgated on
2
to Kee, CTTEI through its employee, Zenaida
August 20, 1987. Octaviano, accompanied Kee’s wife, Donabelle Kee, to
By resolution dated November 13, 1995, the First inspect Lot 8. Unfortu-
Division of this Court resolved to transfer this case
(along with several others) to the Third Division. After _______________
due deliberation and consultation, the Court assigned
the writing of this Decision to the undersigned ponente.
12
Eleventh Division, composed of J. Alfredo L. Benipayo, ponente,
2
However, the MTCC found that petitioner had
and JJ. Lorna S. Lombos-dela Fuente, chair, and Ricardo J. Francisco,
member.
already rescinded its contract with Kee over Lot 8 for
13 the latter’s failure to pay the installments due, and that
VOL. 253, FEBRUARY 1, 1996 13 Kee had not contested the rescission. The rescission was
Pleasantville Development Corporation vs. effected in 1979, before the complaint was instituted.
Court of Appeals The MTCC concluded that Kee no longer had any right
nately, the parcel of land pointed by Octaviano was Lot over the lot subject of the contract between him and
9. Thereafter, Kee proceeded to construct his residence, petitioner. Consequently, Kee must pay reasonable
a store, an auto repair shop and other improvements on rentals for the use of Lot 9, and, furthermore, he cannot
the lot. claim reimbursement for the improvements he
After discovering that Lot 9 was occupied by Kee, introduced on said lot.
Jardinico confronted him. The parties tried to reach an _______________
amicable settlement, but failed.
On January 30, 1981, Jardinico’s lawyer wrote Kee, 3Rollo, pp. 28-29.
demanding that the latter remove all improvements 14
and vacate Lot 9. When Kee refused to vacate Lot 9, 14 SUPREME COURT REPORTS
Jardinico filed with the Municipal Trial Court in Cities, ANNOTATED
Branch 3, Bacolod City (MTCC), a complaint for Pleasantville Development Corporation vs.
ejectment with damages against Kee. Court of Appeals
Kee, in turn, filed a third-party complaint against The MTCC thus disposed:
petitioner and CTTEI. “IN VIEW OF ALL THE FOREGOING, judgment is hereby
The MTCC held that the erroneous delivery of Lot 9 rendered as follows:
to Kee was attributable to CTTEI. It further ruled that
petitioner and CTTEI could not successfully invoke as a 1. 1.Defendant Wilson Kee is ordered to vacate the
premises of Lot 9, covered by TCT No. 106367 and to
defense the failure of Kee to give notice of his intention
remove all structures and improvements he
to begin construction required under paragraph 22 of introduced thereon;
the Contract to Sell on Installment and his having built 2. 2.Defendant Wilson Kee is ordered to pay to the
a sari-sari store without the prior approval of petitioner plaintiff rentals at the rate of P15.00 a day computed
required under paragraph 26 of said contract, saying from the time this suit was filed on March 12, 1981
that the purpose of these requirements was merely to until he actually vacates the premises. This amount
regulate the type of improvements to be constructed on shall bear interests (sic) at the rate of 12 per cent
the lot. 3 (sic) per annum.
13
3. 3.Third-Party Defendant C.T. Torres Enterprises, Pleasantville Development Corporation vs.
Inc. and Pleasantville Subdivision are ordered to pay Court of Appeals
the plaintiff jointly and severally the sum of mand, and not from the date of the filing of the complaint,
P3,000.00 as attorney’s fees and P700.00 as cost and until he had vacated (sic) the premises, with interest thereon
litigation expenses.”
4
at 12% per annum. This Court further renders judgment
against the defendant to pay the plaintiff the sum of Three
On appeal, the Regional Trial Court, Branch 48, Thousand (P3,000.00) Pesos as attorney’s fees, plus costs of
Bacolod City (RTC) ruled that petitioner and CTTEI litigation.
were not at fault or were not negligent, there being no “The third-party complaint against Third-Party
preponderant evidence to show that they directly Defendants Pleasantville Development Corporation and C.T.
participated in the delivery of Lot 9 to Kee. It found Kee
5 Torres Enterprises, Inc. is dismissed. The order against
a builder in bad faith. It further ruled that even Third-Party Defendants to pay attorney’s fees to plaintiff
assuming arguendo that Kee was acting in good faith, and costs of litigation is reversed.”
6
he was, nonetheless, guilty of unlawfully usurping the Following the denial of his motion for reconsideration
possessory right of Jardinico over Lot 9 from the time on October 20, 1986, Kee appealed directly to the
he was served with notice to vacate said lot, and thus Supreme Court, which referred the matter to the Court
was liable for rental. of Appeals.
The RTC thus disposed: The appellate court ruled that Kee was a builder in
“WHEREFORE, the decision appealed from is affirmed with good faith, as he was unaware of the “mix-up” when he
respect to the order against the defendant to vacate the began construction of the improvements on Lot 8. It
premises of Lot No. 9 covered by Transfer Certificate of Title further ruled that the erroneous delivery was due to the
No. T-106367 of the land records of Bacolod City; the removal negligence of CTTEI, and that such wrong delivery was
of all structures and improvements introduced thereon at his likewise imputable to its principal, petitioner herein.
expense and the payment to plaintiff (sic) the sum of Fifteen The appellate court also ruled that the award of rentals
(P15.00) Pesos a day as reasonable rental to be computed was without basis.
from January 30, 1981, the date of the de- Thus, the Court of Appeals disposed:
“WHEREFORE, the petition is GRANTED, the appealed
_______________
decision is REVERSED, and judgment is rendered as follows:
4 Rollo, pp. 30-31.
5 Rollo, p. 34. 1. 1.Wilson Kee is declared a builder in good faith with
15 respect to the improvements he introduced on Lot 9,
VOL. 253, FEBRUARY 1, 1996 15 and is entitled to the rights granted him under
Articles 448, 546 and 548 of the New Civil Code.
14
2. 2.Third-party defendants C.T. Torres Enterprises, proceedings in conformity with Article 448 of the New Civil
Inc. and Pleasantville Development Corporation are Code.” 7
solidarily liable under the following circumstances: Petitioner then filed the instant petition against Kee,
Jardinico and CTTEI.
1. a.If Eldred Jardinico decides to appropriate the The Issues
improvements and, thereafter, remove these The petition submitted the following grounds to justify
structures, the third-party defendants shall answer a review of the respondent Court’s Decision, as follows:
for all demolition expenses and the value of the
improvements thus destroyed or rendered useless;
1. “1.The Court of Appeals has decided the case in a way
probably not in accord with law or the the (sic)
_______________
applicable decisions of the Supreme Court on third-
6Rollo, p. 35. party complaints, by ordering third-party
16 defendants to pay the demolition expenses and/or
16 SUPREME COURT REPORTS price of the land;
ANNOTATED 2. “2.The Court of Appeals has so far departed from the
accepted course of judicial proceedings, by granting
Pleasantville Development Corporation vs.
to private respondent-Kee the rights of a builder in
Court of Appeals good faith in excess of what the law provides, thus
enriching private respondent Kee at the expense of
1. b.If Jardinico prefers that Kee buy the land, the third- the petitioner;
party defendants shall answer for the amount 3. “3.In the light of the subsequent events or
representing the value of Lot 9 that Kee should pay circumstances which changed the rights of the
to Jardinico. parties, it becomes imperative to set aside or at least
modify the judgment of the Court of Appeals to
1. 3.Third-party defendants C.T. Torres Enterprises, harmonize with justice and the facts;
Inc. and Pleasantville Development Corporation are 4. “4.Private respondent-Kee in accordance with the
ordered to pay in solidum the amount of P3,000.00 findings of facts of the lower court is clearly a builder
to Jardinico as attorney’s fees, as well as litigation in bad faith, having vio-
expenses.
2. 4.The award of rentals to Jardinico is dispensed with. _______________
“Furthermore, the case is REMANDED to the court of origin 7Rollo, pp. 45-46.
for the determination of the actual value of the 17
improvements and the property (Lot 9), as well as for further VOL. 253, FEBRUARY 1, 1996 17
15
Pleasantville Development Corporation vs. that a purchaser of a lot would knowingly and willingly build
Court of Appeals his residence on a lot owned by another, deliberately
lated several provisions of the contract to sell on exposing himself and his family to the risk of being ejected
from the land and losing all improvements thereon, not to
installments;
mention the social humiliation that would follow.
“Under the circumstances, Kee had acted in the manner
1. “5.The decision of the Court of Appeals, holding the
of a prudent man in ascertaining the identity of his property.
principal, Pleasantville Development Corporation
Lot 8 is covered by Transfer Certificate of Title No. T-69561,
(liable) for the acts made by the agent in excess of its
while Lot 9 is identified in Transfer Certificate of Title No.
authority is clearly in violation of the provision of
T-106367. Hence, under the Torrens system of land
the law;
registration, Kee is presumed to have knowledge of the metes
2. “6.The award of attorney’s fees is clearly without
and bounds of the property with which he is dealing. x x x
basis and is equivalent to putting a premium in (sic) 18
court litigation.” 18 SUPREME COURT REPORTS
ANNOTATED
From these grounds, the issues could be re-stated as
follows:
Court of Appeals
1. (1)Was Kee a builder in good faith? xxx xxx xxx
2. (2)What is the liability, if any, of petitioner and its “But as Kee is a layman not versed in the technical
agent, C.T. Torres Enterprises, Inc.? and description of his property, he had to find a way to ascertain
3. (3)Is the award of attorney’s fees proper? that what was described in TCT No. 69561 matched Lot 8.
Thus, he went to the subdivision developer’s agent and
applied and paid for the relocation of the lot, as well as for
The First Issue: Good Faith
the production of a lot plan by CTTEI’s geodetic engineer.
Petitioner contends that the Court of Appeals erred in Upon Kee’s receipt of the map, his wife went to the
reversing the RTC’s ruling that Kee was a builder in subdivision site accompanied by CTTEI’s employee,
bad faith. Octaviano, who authoritatively declared that the land she
Petitioner fails to persuade this Court to abandon the was pointing to was indeed Lot 8. Having full faith and
findings and conclusions of the Court of Appeals that confidence in the reputation of CTTEI, and because of the
Kee was a builder in good faith. We agree with the company’s positive identification of the property, Kee saw no
following observation of the Court of Appeals: reason to suspect that there had been a misdelivery. The
“The roots of the controversy can be traced directly to the steps Kee had taken to protect his interests were reasonable.
errors committed by CTTEI, when it pointed the wrong There was no need for him to have acted ex-abundantia
property to Wilson Kee and his wife. It is highly improbable cautela, such as being present during the geodetic engineer’s
16
relocation survey or hiring an independent geodetic engineer state of mind at the time he built the improvements on
to countercheck for errors, for the final delivery of Lot 9. These alleged violations may give rise to
subdivision lots to their owners is part of the regular course petitioner’s cause of action against Kee under the said
of everyday business of CTTEI. Because of CTTEI’s blunder, contract (contractual breach), but may not be bases to
what Kee had hoped to forestall did in fact transpire. Kee’s
negate the presumption that Kee was a builder in good
efforts all went to naught.” 8
faith.
Good faith consists in the belief of the builder that the
Petitioner also points out that, as found by the trial
land he is building on is his and his ignorance of any
court, the Contract of Sale on Installment covering Lot
defect or flaw in his title. And as good faith is
9
8 between it and Kee was rescinded long before the

presumed, petitioner has the burden of proving bad
present action was instituted. This has no relevance on
faith on the part of Kee. 10
the liability of petitioner, as such fact does not negate

At the time he built improvements on Lot 8, Kee
the negligence of its agent in pointing out the wrong lot
believed that said lot was what he bought from
to Kee. Such circumstance is relevant only as it gives
petitioner. He was not aware that the lot delivered to
Jardinico a cause of action for unlawful detainer against
him was not Lot 8. Thus, Kee’s good faith. Petitioner
Kee.
failed to prove otherwise.
Petitioner next contends that Kee cannot “claim that
To demonstrate Kee’s bad faith, petitioner points to
another lot was erroneously pointed out to him” because
Kee’s violation of paragraphs 22 and 26 of the Contract
the latter agreed to the following provision in the
of Sale on Installment.
Contract of Sale on Installment, to wit:
We disagree. Such violations have no bearing
“13. The Vendee hereby declares that prior to the execution
whatsoever on whether Kee was a builder in good faith, of his contract he/she has personally examined or inspected
that is, on his the property made subject-matter hereof, as to its location,
contours, as well as the natural condition of the lots and from
_______________
the date hereof whatever consequential change therein made
Rollo, pp. 43-44.
8
due to erosion, the said Vendee shall bear the expenses of the
Floreza vs. Evangelista, 96 SCRA 130 (February 21, 1980); cf. Art.
9 necessary fillings, when the same is so desired by him/her.” 11
526, Civil Code of the Philippines. The subject matter of this provision of the contract is
10 Art. 527, Civil Code of the Philippines.
the change of the location, contour and condition of the
19
lot due to erosion. It merely provides that the vendee,
VOL. 253, FEBRUARY 1, 1996 19
having examined the property prior to the execution of
Pleasantville Development Corporation vs. the contract, agrees to shoulder the expenses resulting
Court of Appeals from such change.
17
We do not agree with the interpretation of petitioner Petitioner’s contention is without merit.
that Kee contracted away his right to recover damages The rule is that the principal is responsible for the
resulting from petitioner’s negligence. Such waiver acts of the agent, done within the scope of his authority,
would be contrary to public policy and cannot be and should bear the damage caused to third
allowed. “Rights may be waived, unless the waiver is persons. On the other hand, the agent who exceeds his
14
contrary to law, public order, authority is personally liable for the damage. 15
CTTEI was acting within its authority as the sole

_______________
real estate representative of petitioner when it made
Rollo, p. 17.
11
the delivery to Kee. In acting within its scope of
20 authority, it was, however, negligent. It is this
20 SUPREME COURT REPORTS negligence that is the basis of petitioner’s liability, as
ANNOTATED principal of CTTEI, per Articles 1909 and 1910 of
_______________
Court of Appeals
public policy, morals, or good customs, or prejudicial to 12 Art. 6, Civil Code of the Philippines; see Cañete vs. San Antonio
a third person with a right recognized by law.”12 Agro-Industrial Development Corp., 113 SCRA 723 (April 27, 1982).
13 Rollo, p. 19.
The Second Issue: Petitioner’s Liability 14 Lopez vs. Alvendia, 120 Phil. 1424 (December 24, 1964); cf. Art.
Kee filed a third-party complaint against petitioner and 1910, Civil Code.
CTTEI, which was dismissed by the RTC after ruling 15 BA Finance Corporation vs. Court of Appeals, 211 SCRA
that there was no evidence from which fault or 112 (July 3, 1992); Art. 1897, Civil Code.
21
negligence on the part of petitioner and CTTEI can be
VOL. 253, FEBRUARY 1, 1996 21
inferred. The Court of Appeals disagreed and found
CTTEI negligent for the erroneous delivery of the lot by Pleasantville Development Corporation vs.
Octaviano, its employee. Court of Appeals
Petitioner does not dispute the fact that CTTEI was the Civil Code.
its agent. But it contends that the erroneous delivery of Pending resolution of the case before the Court of
Lot 9 to Kee was an act which was clearly outside the Appeals, Jardinico and Kee on July 24, 1987 entered
scope of its authority, and consequently, CTTEI alone into a deed of sale, wherein the former sold Lot 9 to Kee.
should be liable. It asserts that “while [CTTEI] was Jardinico and Kee did not inform the Court of Appeals
authorized to sell the lot belonging to the herein of such deal.
petitioner, it was never authorized to deliver the wrong The deed of sale contained the following provision:
lot to Kee.” 13
18
1. “1.That Civil Case No. 3815 entitled “Jardinico vs. _______________
Kee” which is now pending appeal with the Court of
Appeals, regardless of the outcome of the decision Rollo, p. 47.
16
Rollo, p. 61.
17
shall be mutually disregarded and shall not be 22

pursued by the parties herein and shall be
considered dismissed and without effect
whatsoever”;16
ANNOTATED
Kee asserts though that the “terms and conditions in Court of Appeals
said deed of sale are strictly for the parties thereto” and third-party defendants shall answer for all demolition
that “(t)here is no waiver made by either of the parties expenses and the value of the improvements thus destroyed
in said deed of whatever favorable judgment or award or rendered useless;
the honorable respondent Court of Appeals may make
1. “b.If Jardinico prefers that Kee buy the land, the
in their favor against herein petitioner Pleasantville
third-party defendants shall answer for the amount
Development Corporation and/or private respondent representing the value of Lot 9 that Kee should pay
C.T. Torres Enterprises, Inc.” 17
to Jardinico.”
18
Obviously, the deed of sale can have no effect on the

liability of petitioner. As we have earlier stated, Petitioner contends that if the above holding would be
petitioner’s liability is grounded on the negligence of its carried out, Kee would be unjustly enriched at its
agent. On the other hand, what the deed of sale expense. In other words, Kee would be able to own the
regulates are the reciprocal rights of Kee and Jardinico; lot, as buyer, without having to pay anything on it,
it stressed that they had reached an agreement because the aforequoted portion of respondent Court’s
independent of the outcome of the case. Decision would require petitioner and CTTEI jointly
Petitioner further assails the following holding of the and solidarily to “answer” or reimburse Kee therefor.
Court of Appeals: We agree with petitioner.
Petitioner’s liability lies in the negligence of its agent
1. “2.Third-party defendants C.T. Torres Enterprises, CTTEI. For such negligence, the petitioner should be
Inc. and Pleasantville Development Corporation are
held liable for damages. Now, the extent and/or amount
solidarily liable under the following circumstances:
of damages to be awarded is a factual issue which
1. “a.If Eldred Jardinico decides to appropriate the
should be determined after evidence is adduced.
improvements and, thereafter, remove these However, there is no showing that such evidence was
structures, the
19
actually presented in the trial court; hence no damages circumstances of each case. We shall not interfere with
19
could now be awarded. the discretion of the Court of Appeals. Jardinico was
The rights of Kee and Jardinico vis-a-vis each other, compelled to litigate for the protection of his interests
as builder in good faith and owner in good faith, and for the recovery of damages sustained as a result of
respectively, are regulated by law (i.e., Arts. 448, 546 the negligence of petitioner’s agent. 20
and 548 of the Civil Code). It was error for the Court of In sum, we rule that Kee is a builder in good faith.
Appeals to make a “slight modification” in the The disposition of the Court of Appeals that Kee “is
application of such law, on the ground of “equity.” At entitled to the rights granted him under Articles 448,
any rate, as it stands now, Kee and Jardinico have 546 and 548 of the New Civil Code” is deleted, in view
amicably settled through their deed of sale their rights of the deed of sale entered into by Kee and Jardinico,
and obligations with regards to Lot 9. Thus, we delete which deed now governs the rights of Jardinico and Kee
items 2 (a) and (b) of the dispositive portion of the Court as to each other. There is also no further need, as ruled
of Appeals’ Decision [as reproduced above] holding by the appellate Court, to remand the case to the court
petitioner and CTTEI solidarily liable. of origin “for determination of the actual value of the
improvements and the property (Lot 9), as well as for
_______________
further proceedings in conformity with Article 448 of
Rollo, pp. 9-10.
18
the New Civil Code.”
23 WHEREFORE, the petition is partially GRANTED.
23 VOL. 253, FEBRUARY 1, 1996 The Decision of the Court of Appeals is hereby
Pleasantville Development Corporation vs. MODIFIED as follows:
Court of Appeals
The Third Issue: Attorney’s Fees 1. (1)Wilson Kee is declared a builder in good faith;
2. (2)Petitioner Pleasantville Development Corporation
The MTCC awarded Jardinico attorney’s fees and costs
and respondent C.T. Torres Enterprises, Inc. are
in the amount of P3,000.00 and P700.00, respectively, declared solidarily liable for damages due to
as prayed for in his complaint. The RTC deleted the negligence;
award, consistent with its ruling that petitioner was
without fault or negligence. The Court of Appeals, _______________
however, reinstated the award of attorney’s fees after
19 Universal Shipping Lines, Inc. vs. Intermediate Appellate
ruling that petitioner was liable for its agent’s
Court, 188 SCRA 170 (July 31, 1990).
negligence. 20 Art. 2208, Civil Code of the Philippines.
The award of attorney’s fees lies within the 24

discretion of the court and depends upon the
20
24 SUPREME COURT REPORTS already safe to allow Gomez to withdraw the proceeds of the
ANNOTATED treasury warrants
Pleasantville Development Corporation vs. _______________
Court of Appeals
however, since the amount and/or extent of such *FIRST DIVISION.
170
damages was not proven during the trial, the same
170 SUPREME COURT
cannot now be quantified and awarded;
REPORTS ANNOTATED
1. (3)Petitioner Pleasantville Development Corporation Metropolitan Bank and Trust
and respondent C.T. Torres Enterprises, Inc. are Company vs. Court of Appeals
ordered to pay in solidum the amount of P3,000.00 he had deposited. Metrobank misled Golden Savings.
to Jardinico as attorney’s fees, as well as litigation There may have been no express clearance, as Metrobank
expenses; and insists (although this is refuted by Golden Savings) but in
2. (4)The award of rentals to Jardinico is dispensed any case that clearance could be implied from its allowing
with. Golden Savings to withdraw from its account not only once
or even twice but three times. The total withdrawal was in
SO ORDERED. excess of its original balance before the treasury warrants
were deposited, which only added to its belief that the
treasury warrants had indeed been cleared.
Mercantile Law; Negotiable Instruments; Requisites of
Negotiabil-ity; An instrument to be negotiable must contain
G.R. No. 88866. February 18, 1991. *
an unconditional promise or order to pay a sum certain in
METROPOLITAN BANK & TRUST COMPANY, money.—SEC. 3. When promise is unconditional.—An
petitioner, vs. COURT OF APPEALS, GOLDEN unqualified order or promise to pay is unconditional within
SAVINGS & LOAN ASSOCIATION, INC., LUCIA the meaning of this Act though coupled with—(a) An
CASTILLO, MAGNO CASTILLO and GLORIA indication of a particular fund out of which reimbursement
CASTILLO, respondents. is to be made or a particular account to be debited with the
Civil Law; Obligations and Contracts; Agency; The amount; or (b) A statement of the trasaction which gives rise
agent is responsible not only for fraud, but also for negligence, to the instrument. But an order or promise to pay out of a
which shall be judged with more or less rigor by the courts, particular fund is not unconditional. The indication of Fund
according to whether the agency was or was not for a 501 as the source of the payment to be made on the treasury
compensation.—The negligence of Metro-bank has been warrants makes the order or promise to pay “not uncon-
sufficiently established. To repeat for emphasis, it was the ditional” and the warrants themselves non-negotiable. There
clearance given by it that assured Golden Savings it was
21
should be no question that the exception on Section 3 of the Philippine Fish Marketing Authority and purportedly
Negotiable Instruments Law is applicable in the case at bar. signed by its General Manager and countersigned by its
Auditor. Six of these were directly payable to Gomez
PETITION to review the decision of the Court of while the others appeared to have been indorsed by
Appeals. their respective payees, followed by Gomez as second
indorser.
1

On various dates between June 25 and July 16, 1979,
Angara, Abello, Concepcion, Regala & Cruz for
all these warrants were subsequently indorsed by
petitioner.
Gloria Castillo as Cashier of Golden Savings and
Bengzon, Zarraga, Narciso, Cudala, Pecson &
deposited to its Savings Account No. 2498 in the
Bengson for Magno and Lucia Castillo.
Metrobank branch in Calapan, Mindoro. They were
Agapito S. Fajardo and Jaime M. Cabiles for
then sent for clearing by the branch office to the
respondent Golden Savings & Loan Association, Inc.
principal office of Metrobank, which forwarded them to
CRUZ, J.: the Bureau of Treasury for special clearing.
2
More than two weeks after the deposits, Gloria

This case, for all its seeming complexity, turns on a Castillo went to the Calapan branch several times to
simple question of negligence. The facts, pruned of all ask whether the warrants had been cleared. She was
non-essentials, are easily told. told to wait. Accordingly, Gomez was meanwhile not
The Metropolitan Bank and Trust Co. is a allowed to withdraw from his account. Later, however,
commercial bank with branches throughout the “exasperated” over Gloria’s repeated inquiries and also
Philippines and even abroad. Golden Savings and Loan as an accommodation for a “valued client,” the
Association was, at the time these events happened, petitioner says it finally decided to allow Golden
operating in Calapan, Mindoro, with the other private Savings to withdraw from the proceeds of the
respondents as its principal officers. warrants. The first withdrawal was made on July 9,
3
171 1979, in the amount of P508,000.00, the second on July

VOL. 194, FEBRUARY 18, 1991 171 13, 1979, in the amount of P310,000.00, and the third
Metropolitan Bank and Trust Company vs. on July 16, 1979, in the amount of P150,000.00. The
Court of Appeals total withdrawal was P968,000.00. In turn, Golden
4
In January 1979, a certain Eduardo Gomez opened an Savings subsequently allowed Gomez to make
account with Golden Savings and deposited over a withdrawals from his own account, eventually
period of two months 38 treasury warrants with a total collecting the total amount of P1,167,500.00 from the
value of P1,755,228.37. They were all drawn by the
22
proceeds of the apparently cleared warrants. The last Association, Inc. and defendant Spouses Magno
withdrawal was made on July 16, 1979. Castillo and Lucia Castillo;
On July 21, 1979, Metrobank informed Golden 3. 3.Directing the plaintiff to reverse its action of
Savings that 32 of the warrants had been dishonored by debiting Savings Account No. 2498 of the sum of
P1,754,089.00 and to reinstate and credit to such
the Bureau of
account such amount existing before the debit was
_______________ made including the amount of P812,033.37 in favor
of defendant Golden Savings and Loan Association,
1 Rollo, pp. 12-13. Inc. and thereafter, to allow defendant Golden
2 Ibid., p. 52. Savings and Loan Association, Inc. to withdraw the
3 Id., p. 14.
amount outstanding thereon before the debit;
4 Id.
4. 4.Ordering the plaintiff to pay the defendant Golden
172
Savings and Loan Association, Inc. attorney’s fees
172 SUPREME COURT REPORTS and expenses of litigation in the amount of
ANNOTATED P200,000.00.
Metropolitan Bank and Trust Company vs. 5. 5.Ordering the plaintiff to pay the defendant Spouses
Court of Appeals Magno Castillo and Lucia Castillo attorney’s fees
Treasury on July 19, 1979, and demanded the refund by and expenses of litigation in the amount of
Golden Savings of the amount it had previously P100,000.00.
withdrawn, to make up the deficit in its account.
The demand was rejected. Metrobank then sued SO ORDERED.
Golden Savings in the Regional Trial Court of On appeal to the respondent court, the decision was
6
Mindoro. After trial, judgment was rendered in favor of

5
affirmed, prompting Metrobank to file this petition for
Golden Savings, which, however, filed a motion for review on the following grounds:
reconsideration even as Metrobank filed its notice of
1. 1.Respondent Court of Appeals erred in disregarding
appeal. On November 4, 1986, the lower court modified
and fail-ing to apply the clear contractual terms and
its decision thus: conditions on the deposit slips allowing Metrobank
ACCORDINGLY, judgment is hereby rendered: to charge back any amount erroneously credited.
1. 1.Dismissing the complaint with costs against the ________________

plaintiff;
2. 2.Dissolving and lifting the writ of attachment of the 5Through Judge Marciano T. Virola.
properties of defendant Golden Savings and Loan 6Penned by Ejercito, J., with Pe and Victor, JJ.,concurring.
173
23
VOL. 194, FEBRUARY 18, 1991 173 not to allow the withdrawal. Indeed, Golden Savings
Metropolitan Bank and Trust Company vs. might even have incurred liability for its refusal to
Court of Appeals return the money that to all appearances belonged to
the depositor, who could therefore withdraw it any time
1. (a)Metrobank’s right to charge back is not limited to and for any reason he saw fit.
instances where the checks or treasury warrants are It was, in fact, to secure the clearance of the treasury
forged or unauthorized. warrants that Golden Savings deposited them to its
2. (b)Until such time as Metrobank is actually paid, its account with Metrobank. Golden Savings had no
obligation is that of a mere collecting agent which clearing facilities of its own. It relied on Metrobank to
cannot be held liable for its failure to collect on the determine the validity of the warrants through its own
warrants. services. The proceeds of the warrants were withheld
from Gomez until Metrobank allowed Golden Savings
1. 2.Under the lower court’s decision, affirmed by
itself to withdraw them from its own deposit. It was
7
respondent Court of Appeals, Metrobank is made to

pay for warrants already dishonored, thereby
only when Metrobank gave the go-signal that Gomez
perpetuating the fraud committed by Eduardo was finally allowed by Golden Savings to withdraw
Gomez. them from his own account.
2. 3.Respondent Court of Appeals erred in not finding The argument of Metrobank that Golden Savings
that as between Metrobank and Golden Savings, the should have exercised more care in checking the
latter should bear the loss. personal circumstances of Gomez before accepting his
3. 4.Respondent Court of Appeals erred in holding that deposit does not hold water. It was Gomez who was
the treasury warrants involved in this case are not entrusting the warrants, not Golden Savings
negotiable instruments.
_______________
The petition has no merit.
Rollo, p. 84.
From the above undisputed facts, it would appear to
7
174
the Court that Metrobank was indeed negligent in 174 SUPREME COURT REPORTS
giving Golden Savings the impression that the treasury ANNOTATED
warrants had been cleared and that, consequently, it
was safe to allow Gomez to withdraw the proceeds
Court of Appeals
thereof from his account with it. Without such
assurance, Golden Savings would not have allowed the that was extending him a loan; and moreover, the
withdrawals; with such assurance, there was no reason treasury warrants were subject to clearing, pending
which the depositor could not withdraw its proceeds.
24
There was no question of Gomez’s identity or of the Kindly note that in receiving items on deposit, the bank
genuineness of his signature as checked by Golden obligates itself only as the depositor’s collecting agent,
Savings. In fact, the treasury warrants were dishonored assuming no responsibility beyond care in selecting
allegedly because of the forgery of the signatures of the correspondents, and until such time as actual payment shall
have come into possession of this bank, the right is reserved
drawers, not of Gomez as payee or indorser. Under the
to charge back to the depositor’s account any amount
circumstances, it is clear that Golden Savings acted
with due care and diligence and cannot be faulted for _______________
the withdrawals it allowed Gomez to make.
By contrast, Metrobank exhibited extraordinary 8 TSN, July 29, 1983, p. 20.
175
carelessness. The amount involved was not trifling—
VOL. 194, FEBRUARY 18, 1991 175
more than one and a half million pesos (and this was
1979). There was no reason why it should not have
waited until the treasury warrants had been cleared; it Court of Appeals
previously credited, whether or not such item is returned.
would not have lost a single centavo by waiting. Yet,
This also applies to checks drawn on local banks and bankers
despite the lack of such clearance—and
and their branches as well as on this bank, which are unpaid
notwithstanding that it had not received a single due toinsufficiency of funds, forgery, unauthorized overdraft
centavo from the proceeds of the treasury warrants, as or any other reason. (Italics supplied.)
it now repeatedly stresses—it allowed Golden Savings According to Metrobank, the said conditions clearly
to withdraw—not once, not twice, but thrice—from show that it was acting only as a collecting agent for
the uncleared treasury warrants in the total amount of Golden Savings and give it the right to “charge back to
P968,000.00 the depositor’s account any amount previously credited,
Its reason? It was “exasperated” over the persistent whether or not such item is returned. This also applies
inquiries of Gloria Castillo about the clearance and it to checks “. . . which are unpaid due to insufficiency of
also wanted to “accommodate” a valued client. It funds, forgery, unauthorized overdraft of any other
“presumed” that the warrants had been cleared simply reason.” It is claimed that the said conditions are in the
because of “the lapse of one week.” For a bank with its
8
nature of contractual stipulations and became binding
long experience, this explanation is unbelievably naive. on Golden Savings when Gloria Castillo, as its Cashier,
And now, to gloss over its carelessness, Metrobank signed the deposit slips.
would invoke the conditions printed on the dorsal side Doubt may be expressed about the binding force of
of the deposit slips through which the treasury the conditions, considering that they have apparently
warrants were deposited by Golden Savings with its been imposed by the bank unilaterally, without the
Calapan branch. The conditions read as follows: consent of the depositor. Indeed, it could be argued that
25
the depositor, in signing the deposit slip, does so only to once or even twice but three times. The total withdrawal
identify himself and not to agree to the conditions set was in excess of its original balance before the treasury
forth in the given permit at the back of the deposit slip. warrants were deposited, which only added to its belief
We do not have to rule on this matter at this time. At that the treasury warrants had indeed been cleared.
any rate, the Court feels that even if the deposit slip Metrobank’s argument that it may recover the
were considered a contract, the petitioner could still not disputed amount if the warrants are not paid for any
validly disclaim responsibility thereunder in the light of reason is not acceptable. Any reason does not mean no
the circumstances of this case. reason at all. Otherwise, there would have been no need
In stressing that it was acting only as a collecting at all for Golden Savings to deposit the treasury
agent for Golden Savings, Metrobank seems to be warrants with it for clearance. There would have been
suggesting that as a mere agent it cannot be liable to no need for it to wait until the warrants had been
the principal. This is not exactly true. On the contrary, cleared before paying the proceeds thereof to Gomez.
Article 1909 of the Civil Code clearly provides that— Such a condition, if interpreted in the way the petitioner
Art. 1909.—The agent is responsible not only for fraud, but suggests, is not binding for being arbitrary and
also for negligence, which shall be judged with more or less unconscionable. And it becomes more so in the case at
rigor by the courts, according to whether the agency was or bar when it is considered that the supposed dishonor of
was not for a compensation. the warrants was not communicated to Golden Savings
The negligence of Metrobank has been sufficiently before it made its own payment to Gomez.
established. To repeat for emphasis, it was the The belated notification aggravated the petitioner’s
clearance given by it that assured Golden Savings it earlier negligence in giving express or at least implied
was already safe to allow Gomez to withdraw the clearance to the treasury warrants and allowing
proceeds of the treasury warrants he had depos- payments therefrom to Golden Savings. But that is not
176
all. On top of this, the supposed reason for the dishonor,
to wit, the forgery of the signatures of the general
ANNOTATED
manager and the auditor of the drawer corporation, has
Metropolitan Bank and Trust Company vs. not been established. This was the finding of the lower
9
Court of Appeals courts which we see no reason to disturb. And as we said

ited. Metrobank misled Golden Savings. There may in MWSS v. Court of Appeals: 10
have been no express clearance, as Metrobank insists Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139
(although this is refuted by Golden Savings) but in any SCRA 238). It must be established by clear, positive and
case that clearance could be implied from its allowing convincing evidence. This was not done in the present case.
Golden Savings to withdraw from its account not only
26
A no less important consideration is the circumstance SEC. 3. When promise is unconditional.—An unqualified
that the treasury warrants in question are not order or promise to pay is unconditional within the meaning
negotiable instruments. Clearly stamped on their face of this Act though coupled with—
is the word “non-nego-
1. (a)An indication of a particular fund out of which
_______________ reimbursement is to be made or a particular account
to be debited with the amount; or
9Rollo, p. 61. 2. (b)A statement of the transaction which gives rise to
143 SCRA 20.
10
the instrument.
177
VOL. 194, FEBRUARY 18, 1991 177 But an order or promise to pay out of a particular fund is
Metropolitan Bank and Trust Company vs. not unconditional.
Court of Appeals The indication of Fund 501 as the source of the payment
tiable.” Moreover, and this is of equal significance, it is to be made on the treasury warrants makes the order
indicated that they are payable from a particular fund, or promise to pay “not unconditional” and the warrants
to wit, Fund 501. themselves non-negotiable. There should be no question
The following sections of the Negotiable Instruments that the exception on Section 3 of the Negotiable
Law, especially the underscored parts, are pertinent: Instruments Law is applicable in the case at bar. This
SECTION 1.—Form of negotiable instruments.—An conclusion conforms to Abubakar vs. Auditor
instrument to be negotiable must conform to the following General where the Court held:
11
requirements: The petitioner argues that he is a holder in good faith and for
value of a negotiable instrument and is entitled to the rights
1. (a)It must be in writing and signed by the maker or and privileges of a holder in due course, free from defenses.
drawer; But this
2. (b)Must contain an unconditional promise or order to
pay a sum certain in money; _______________
3. (c)Must be payable on demand, or at a fixed or
determinable future time;
11 81 Phil. 359.
178
4. (d)Must be payable to order or to bearer; and
5. (e)Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with ANNOTATED
reasonable certainty. Metropolitan Bank and Trust Company vs.
Court of Appeals
xxx
27
treasury warrant is not within the scope of the negotiable that the payee was the Inter-Island Gas Services, Inc.
instrument law. For one thing, the document bearing on its and it did not appear that he was authorized to indorse
face the words “pay-able from the appropriation for food it. No similar negligence can be imputed to Golden
administration, is actually an Order for payment out of “a Savings.
particular fund,” and is not unconditional and does not fulfill
We find the challenged decision to be basically
one of the essential requirements of a negotiable instrument
correct. However, we will have to amend it insofar as it
(Sec. 3 last sentence and section [1(b)] of the Negotiable
Instruments Law). directs the petitioner to credit Golden Savings with the
Metrobank cannot contend that by indorsing the full amount of the treasury checks deposited to its
warrants in general, Golden Savings assumed that they account.
were “genuine and in all respects what they purport to The total value of the 32 treasury warrants
be,” in accordance with Section 66 of the Negotiable dishonored was
Instruments Law. The simple reason is that this law is _______________
not applicable to the non-negotiable treasury warrants.
The indorsement was made by Gloria Cas-tillo not for 66 SCRA 29.
12
the purpose of guaranteeing the genuineness of the 179

warrants but merely to deposit them with Metrobank VOL. 194, FEBRUARY 18, 1991 179
for clearing. It was in fact Metrobank that made the Metropolitan Bank and Trust Company vs.
guarantee when it stamped on the back of the warrants: Court of Appeals
“All prior indorsement and/or lack of endorsements P1,754,089.00, from which Gomez was allowed to
guaranteed, Metropolitan Bank & Trust Co., Calapan withdraw P1,167,500.00 before Golden Savings was
Branch.” notified of the dishonor. The amount he has withdrawn
The petitioner lays heavy stress on Jai Alai must be charged not to Golden Savings but to
Corporation v. Bank of the Philippine Islands, but we12 Metrobank, which must bear the consequences of its
feel this case is inapplicable to the present controversy. own negligence. But the balance of P586,589.00 should
That case involved checks whereas this case involves be debited to Golden Savings, as obviously Gomez can
treasury warrants. Golden Savings never represented no longer be permitted to withdraw this amount from
that the warrants were negotiable but signed them only his deposit because of the dishonor of the warrants.
for the purpose of depositing them for clearance. Also, Gomez has in fact disappeared. To also credit the
the fact of forgery was proved in that case but not in the balance to Golden Savings would unduly enrich it at the
case before us. Finally, the Court found the Jai Alai expense of Metrobank, let alone the fact that it has
Corporation negligent in accepting the checks without already been informed of the dishonor of the treasury
question from one Antonio Ramirez notwithstanding warrants.
28
WHEREFORE, the challenged decision is 428 SUPREME COURT
AFFIRMED, with the modification that Paragraph 3 of REPORTS ANNOTATED
the dispositive portion of the judgment of the lower Country Bankers Insurance
court shall be reworded as follows: 3. Debiting Savings Corporation vs. Keppel Cebu Shipyard
Account No. 2498 in the sum of P586,589.00 only and consent or authority; By this legal fiction of
thereafter allowing defendant Golden Savings & Loan representation, the actual or legal absence of the principal is
Association, Inc. to withdraw the amount outstanding converted into his legal or juridical presence.—In a contract
thereon, if any, after the debit. of agency, a person, the agent, binds himself to represent
SO ORDERED. another, the principal, with the latter’s consent or authority.
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. Such “acts have
the same legal effect as if they were personally done by the
principal. By this legal fiction of representation, the actual
Article 1910 or legal absence of the principal is converted into his legal or
juridical presence.”
Same; Same; Guaranty; Suretyship; Special Power of
Attorney; Under Article 1878(11) of the Civil Code, a special
G.R. No. 166044. June 18, 2012.* power of attorney is necessary to obligate the principal as a
COUNTRY BANKERS INSURANCE CORPORATION, guarantor or surety.—The scope of an agent’s authority is
petitioner, vs. KEPPEL CEBU SHIPYARD, what appears in the written terms of the power of attorney
UNIMARINE SHIPPING LINES, INC., PAUL granted upon him. Under Article 1878(11) of the Civil
RODRIGUEZ, PETER RODRIGUEZ, ALBERT Code, a special power of attorney is necessary to obligate
HONTANOSAS, and BETHOVEN QUINAIN, the principal as a guarantor or surety.
respondents. Same; Same; An agent’s act, even if done beyond the
scope of his authority, may bind the principal if he ratifies
Civil Law; Agency; In a contract of agency, a person, the them, whether expressly or tacitly.—Under Articles 1898 and
agent, binds himself to represent another, the principal, with 1910, an agent’s act, even if done beyond the scope of his
the latter’s authority, may bind the principal if he ratifies them, whether
_______________ expressly or tacitly. It must be stressed though that only the
* FIRST DIVISION.
principal, and not the agent, can ratify the unauthorized
428 acts, which the principal must have knowledge of.
Same; Same; Agency by Estoppel; The principal is
solidarily liable with the agent even when the latter has
29
exceeded his authority, if the principal allowed him to act as proof is upon them to prove it. In this case, the petitioners
though he had full powers.—Article 1911, on the other hand, failed to discharge their burden; hence, petitioners are not
is based on the principle of estoppel, which is necessary for entitled to damages from respondent EC.
the protection of third persons. It states that the principal is
solidarily liable with the agent even when the latter has PETITION for review on certiorari of the decision and
exceeded his authority, if the principal allowed him to act as resolution of the Court of Appeals.
though he had full powers. However, for an agency by The facts are stated in the opinion of the Court.
estoppel to exist, the following must be established: 1. The Velasquez and Associates for petitioner.
principal manifested a representation of the agent’s Angara, Abello, Concepcion, Regala and Cruz for
authority or knowingly allowed the agent to assume such respondent Keppel Cebu Shipyard, Inc.
authority; 2. The third person, in good faith, relied upon such Albert L. Hontanosas for himself and for
representation; and 3. Relying upon such representation, respondents Unimarine Shipping Lines, Inc., Paul
such third person has changed his position to his Rodriguez and Peter Rodriguez.
detriment.429
Lorenzo S. Paylado for respondent B. Quinain.
VOL. 673, JUNE 18, 429
LEONARDO-DE CASTRO,** J.:
2012 This is a petition for review on certiorari1 to reverse
Country Bankers Insurance and set
Corporation vs. Keppel Cebu Shipyard _______________
Same; Same; Same; Persons dealing with an assumed ** Acting Chairperson, Per Special Order No. 1226 dated May 30,
agent are bound at their peril, and if they would hold the 2012.
principal liable, to ascertain not only the fact of agency but 430
also the nature and extent of authority, and in case either is 430 SUPREME COURT REPORTS
controverted, the burden of proof is upon them to prove it.—
ANNOTATED
As this Court held in Litonjua, Jr. v. Eternit Corp., 490 SCRA
204, 224-225 (2006): A person dealing with a known agent is Country Bankers Insurance Corporation
not authorized, under any circumstances, blindly to trust the vs. Keppel Cebu Shipyard
agents; statements as to the extent of his powers; such aside the January 29, 2004 Decision2 and October 28,
person must not act negligently but must use reasonable 2004 Resolution3 of the Court of Appeals in CA-G.R. CV
diligence and prudence to ascertain whether the agent acts No. 58001, wherein the Court of Appeals affirmed with
within the scope of his authority. The settled rule is that, modification the February 10, 1997 Decision4 of the
persons dealing with an assumed agent are bound at their Regional Trial Court (RTC) of Cebu City, Branch 7, in
peril, and if they would hold the principal liable, to ascertain Civil Case No. CBB-13447.
not only the fact of agency but also the nature and extent of
authority, and in case either is controverted, the burden of
30
Hereunder are the undisputed facts as culled from Country Bankers Insurance Corporation
the records of the case. vs. Keppel Cebu Shipyard
On January 27, 1992, Unimarine Shipping Lines, Attention: Mr. Paul Rodriguez
Inc. (Unimarine), a corporation engaged in the shipping President/General Manager
industry, contracted the services of Keppel Cebu This is to confirm our agreement on the shiprepair bills
Shipyard, formerly known as Cebu Shipyard and charged for the repair of MV Pacific Fortune, our invoice no.
Engineering Works, Inc. (Cebu Shipyard), for dry 26035.
docking and ship repair works on its vessel, the M/V The shiprepair bill (Bill No. 26035) is agreed at a negotiated
amount of P3,850,000.00 excluding VAT.
Pacific Fortune.5
Unimarine Shipping Lines, Inc. (“Unimarine”) will pay the
On February 14, 1992, Cebu Shipyard issued Bill No. above amount of [P3,850,000.00] in US Dollars to be fixed at
26035 to Unimarine in consideration for its services, the prevailing USDollar to Philippine Peso exchange rate at
which amounted to P4,486,052.00.6 Negotiations the time of payment. The payment terms to be extended to
between Cebu Shipyard and Unimarine led to the Unimarine is as follows:
reduction of this amount to P3,850,000.00. The terms of
this agreement were embodied in Cebu Shipyard’s Installments Amount Due Date
February 18, 1992 letter to the President/General 1st Installment P2,350,000.00 30 May
Manager of Unimarine, Paul Rodriguez, who signed his 1992
conformity to said letter, quoted in full below: 2nd P1,500,000.00 30 Jun
18 February 1992 Installment 1992
Ref No.: LL92/0383 Unimarine will deposit post-dated checks equivalent to the
UNIMARINE SHIPPING LINES, INC. above amounts in Philippine Peso and an additional check
C/O Autographics, Inc. amount of P385,000.00, representing 10% [Value Added Tax]
Gorordo Avenue, Lahug, Cebu City 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
1 Under Rule 45 of the 1997 Rules of Court. in US Dollars, the post-dated checks will be deposited by
2 Rollo, pp. 31-55; penned by Associate Justice Jose C. Reyes, Jr. with
CSEW in payment of the amounts owned by Unimarine and
Associate Justices Romeo A. Brawner and Rebecca De Guia-Salvador,
concurring. Unimarine agree that the 10% VAT (P385,000.00) shall also
3 Id., at pp. 57-58. become payable to CSEW.
4 CA Rollo, pp. 25-33. Unimarine in consideration of the credit terms extended by
5 Rollo, pp. 81-82. CSEW and the release of the vessel before full payment of
6 Id., at pp. 94-114.
the above debt, agree to present CSEW surety bonds equal
431 to 120% of the value of the credit extended. The total bond
amount shall be P4,620,000.00.
VOL. 673, JUNE 18, 2012 431
31
Yours faithfully, consideration of Cebu Shipyard & Engineering Works,
CEBU SHIPYARD & ENG’G WORKS, INC Conforme: Inc. (“Cebu Shipyard”) at our request agreeing to release the
(SGD) (SGD vessel specified in part A of the Schedule (“name of vessel”)
_______________ prior to the receipt of the sum specified in part B of the
SEET KENG TAT PAUL RODRIGUEZ Schedule (“Moneys Payable”) payable in respect of certain
Treasurer/VP-Admin. Unimarine Shipping works performed or to be performed by Cebu Shipyard and/or
Lines, Inc.7 its subcontractors and/or material and equipment supplied
or to be supplied by Cebu Shipyard and/or its subcontractors
_______________
7 Id., at p. 115. in connection with the vessel for the party specified in part
C of the Schedule (“the Debtor”), we hereby unconditionally,
432 irrevocably undertake to make punctual payment to Cebu
432 SUPREME COURT REPORTS Shipyard of the Moneys Payable on the terms and conditions
ANNOTATED as set out in part B of the Schedule. We likewise hereby
Country Bankers Insurance Corporation expressly waive whatever right of excussion we may have
vs. Keppel Cebu Shipyard under the law and equity.
This contract shall be binding upon Uni-Marine Shipping
In compliance with the agreement, Unimarine,
Lines, Inc., its heirs, executors, administrators, successors,
through Paul Rodriguez, secured from Country Bankers and assigns and
Insurance Corp. (CBIC), through the latter’s agent, _______________
Bethoven Quinain (Quinain), CBIC Surety Bond No. G 8 Id., at pp. 116-117.
9 Id., at p. 118.
(16) 294198 (the surety bond) on January 15, 1992 in the 10 Id., at pp. 119-120.
amount of P3,000,000.00. The expiration of this surety
bond was extended to January 15, 1993, through 433
Endorsement No. 331529 (the endorsement), which was VOL. 673, JUNE 18, 2012 433
later on attached to and formed part of the surety bond. Country Bankers Insurance Corporation
In addition to this, Unimarine, on February 19, 1992, vs. Keppel Cebu Shipyard
obtained another bond from Plaridel Surety and shall not be discharged until all obligation of this contract
Insurance Co. (Plaridel), PSIC Bond No. G (16)- shall have been faithfully and fully performed by the
0036510 in the amount of P1,620,000.00. Debtor.”11
On February 17, 1992, Unimarine executed a
Contract of Undertaking in favor of Cebu Shipyard. The Because Unimarine failed to remit the first
pertinent portions of the contract read as follows: installment when it became due on May 30, 1992, Cebu
“Messrs, Uni-Marine Shipping Lines, Inc.(“the Debtor”) Shipyard was constrained to deposit the peso check
of Gorordo Avenue, Cebu City hereby acknowledges that in corresponding to the initial installment of
32
P2,350,000.00. The check, however, was dishonored by 434 SUPREME COURT REPORTS
the bank due to insufficient funds.12 Cebu Shipyard ANNOTATED
faxed a message to Unimarine, informing it of the Country Bankers Insurance Corporation
situation, and reminding it to settle its account vs. Keppel Cebu Shipyard
immediately.13 B#26035 MV PACIFIC FORTUNE 4,486,052.00
On June 24, 1992, Cebu Shipyard again faxed a LESS: ADJUSTMENT:
message14 to Unimarine, to confirm Paul Rodriguez’s CN#00515-03/19/92 (636,052.00)
promise that Unimarine will pay in full the ------------------
P3,850,000.00, in US Dollars on July 1, 1992. 3,850,000.00
Since Unimarine failed to deliver on the above Add: VAT on repair bill no. 26035 385,000.00
promise, Cebu Shipyard, on July 2, 1992, through a ------------------
4,235,000.00
faxed letter, asked Unimarine if the payment could be
Add: Interest/penalty charges:
picked up the next day. This was followed by another
Debit Note No. 02381 189,888.00
faxed message on July 6, 1992, wherein Cebu Shipyard Debit Note No. 02382 434,570.00
reminded Unimarine of its promise to pay in full on July ------------------
28, 1992. On August 24, 1992, Cebu Shipyard again 4,859,458.0017
faxed15 Unimarine, to inform it that interest charges
will have to be imposed on their outstanding debt, and Due to Unimarine’s failure to heed Cebu Shipyard’s
if it still fails to pay before August 28, 1992, Cebu repeated demands, Cebu Shipyard, through counsel,
Shipyard will have to enforce payment against the wrote the sureties CBIC18 on November 18, 1992, and
sureties and take legal action. Plaridel,19 on November 19, 1992, to inform them of
On November 18, 1992, Cebu Shipyard, through its Unimarine’s nonpayment, and to ask them to fulfill
counsel, sent Unimarine a letter,16 demanding payment, their obligations as sureties, and to respond within
within seven days from receipt of the letter, the amount seven days from receipt of the demand.
of P4,859,458.00, broken down as follows: However, even the sureties failed to discharge their
_______________ obligations, and so Cebu Shipyard filed a Complaint
11 Id., at p. 121. dated January 8, 1993, before the RTC, Branch 18 of
12 Id., at p. 85. Cebu City, against Unimarine, CBIC, and Plaridel. This
13 Id., at p. 123.
14 Id., at p. 124. was docketed as Civil Case No. CBB-13447.
15 Id., at pp. 125-127. CBIC, in its Answer,20 said that Cebu Shipyard’s
16 Id., at pp. 128-129. complaint states no cause of action. CBIC alleged that
434 the surety bond was issued by its agent, Quinain, in
33
excess of his authority. CBIC claimed that Cebu reported to CBIC. Finally, CBIC asseverated that if it
Shipyard should have doubted the authority of Quinain were held to be liable, its liability should be limited to
to issue the surety bond based on the following: the face value of the bond and not for exemplary
_______________ damages, attorney’s fees, and costs of litigation.24
17 Id., at p. 130.
Subsequently, CBIC filed a Motion to Admit Cross
18 Id., at pp. 131-132.
19 Id., at p. 133. and Third Party Complaint25against Unimarine, as
20 Id., at pp. 136-143. cross defendant; Paul Rodriguez, Albert Hontanosas,
435
and Peter Rodriguez, as signatories to the Indemnity
VOL. 673, JUNE 18, 2012 435 Agreement they executed in favor of CBIC; and
Country Bankers Insurance Corporation Bethoven Quinain, as the agent
_______________
vs. Keppel Cebu Shipyard 21 Id., at p. 236.
1.
The nature of the bond undertaking (guarantee 22 Id., at p. 137.
payment), and the amount involved. 23 CA Rollo, p. 27.
24 Rollo, pp. 138-141.
2. The surety bond could only be issued in favor of 25 Id., at pp. 144-145.
the Department of Public Works and Highways, as
436
stamped on the upper right portion of the face of
the bond.21 This stamp was covered by
documentary stamps. ANNOTATED
3. The issuance of the surety bond was not reported, Country Bankers Insurance Corporation
and the corresponding premiums were not vs. Keppel Cebu Shipyard
remitted to CBIC.22 who issued the surety bond and endorsement in excess
CBIC added that its liability was extinguished when, of his authority, as third party defendants.26
without its knowledge and consent, Cebu Shipyard and CBIC claimed that Paul Rodriguez, Albert
Unimarine novated their agreement several times. Hontanosas, and Peter Rodriguez executed an
Furthermore, CBIC stated that Cebu Shipyard’s claim Indemnity Agreement, wherein they bound themselves,
had already been paid or extinguished when Unimarine jointly and severally, to indemnify CBIC for any
executed an Assignment of Claims23 of the proceeds of amount it may sustain or incur in connection with the
the sale of its vessel M/V Headline in favor of Cebu issuance of the surety bond and the endorsement.27 As
Shipyard. CBIC also averred that Cebu Shipyard’s for Quinain, CBIC alleged that he exceeded his
claim had already prescribed as the endorsement that authority as stated in the Special Power of Attorney,
extended the surety bond’s expiry date, was not wherein he was authorized to solicit business and issue
surety bonds not exceeding P500,000.00 but only in
34
favor of the Department of Public Works and Highways, Country Bankers Insurance Corporation
National Power Corporation, and other government vs. Keppel Cebu Shipyard
agencies.28 Unimarine’s vessel, M/V Headline, were assigned to
On August 23, 1993, third party defendant Cebu Shipyard, nothing was turned over to them.30
Hontanosas filed his Answer with Counterclaim, to the Paul Rodriguez admitted that Unimarine failed to
Cross and Third Party Complaint. Hontanosas claimed pay Cebu Shipyard for the repairs it did on M/V Pacific
that he had no financial interest in Unimarine and was Fortune, despite the extensions granted to Unimarine.
neither a stockholder, director nor an officer of He claimed that he signed the Indemnity Agreement
Unimarine. He asseverated that his relationship to because he trusted Quinain that it was a mere pre-
Unimarine was limited to his capacity as a lawyer, requisite for the issuance of the surety bond. He added
being its retained counsel. He further denied having that he did not bother to read the documents and he was
any participation in the Indemnity Agreement executed not aware of the consequences of signing an Indemnity
in favor of CBIC, and alleged that his signature therein Agreement. Paul Rodriguez also alleged to not having
was forged, as he neither signed it nor appeared before noticed the limitation “Valid only in favor of DPWH”
the Notary Public who acknowledged such stamped on the surety bond.31 However, Paul Rodriguez
undertaking.29 did not contradict the fact that Unimarine failed to pay
Various witnesses were presented by the parties Cebu Shipyard its obligation.32
during the course of the trial of the case. Myrna CBIC presented Dakila Rianzares, the Senior
Obrinaga testified for Cebu Shipyard. She was the Manager of its Bonding Department. Her duties
Chief Accountant in charge of the custody of the included the evaluation and approval of all applications
documents of the company. She corroborated Cebu for and reviews of bonds issued by their agents, as
Shipyard’s allegations and produced in court the authorized under the Special Power of Attorney and
documents to support Cebu Shipyard’s claim. She also General Agency Contract of CBIC. Rianzares testified
testified that while it was true that the proceeds of the that she only learned of the existence of CBIC Surety
sale of Bond No. G (16) 29419 when she received the summons
_______________ for this case. Upon investigation, she found out that the
26 CA Rollo, pp. 42-43.
27 Rollo, p. 150. surety bond was not reported to CBIC by Quinain, the
28 Id., at pp. 233-234. issuing agent, in violation of their General Agency
29 Id., at pp. 153-155. Contract, which provides that all bonds issued by the
437 agent be reported to CBIC’s office within one week from
VOL. 673, JUNE 18, 2012 437 the date of issuance. She further stated that the surety
bond issued in favor of Unimarine was issued beyond
35
Quinain’s authority. Rianzares added that she was not jointly and severally, cross plaintiff and third party plaintiff
aware that an endorsement pertaining to the surety Country Bankers Insurance Corporation whatever amount
bond was also issued by Quinain.33 the latter is made to pay to plaintiff.”35
_______________
30 CA Rollo, p. 27. The RTC held that CBIC, “in its capacity as surety is
31 Id., at p. 28. bound with its principal jointly and severally to the
32 Id., at p. 30. extent of the surety bond it issued in favor of [Cebu
33 Id., at pp. 28-29. Shipyard]” because “although the contract of surety is
438 in essence secondary only to a valid principal obligation,
438 SUPREME COURT REPORTS his liability to [the] creditor is said to be direct,
ANNOTATED primary[,] and absolute, in other words, he is bound by
Country Bankers Insurance Corporation the principal.”36 The RTC added:
_______________
vs. Keppel Cebu Shipyard
34 Id., at p. 31.
After the trial, the RTC was faced with the lone issue 35 Id., at p. 33.
of whether or not CBIC was liable to Cebu Shipyard 36 Id., at p. 31.
based on Surety Bond No. G (16) 29419.34 439
On February 10, 1997, the RTC rendered its VOL. 673, JUNE 18, 2012 439
Decision, the fallo of which reads: Country Bankers Insurance Corporation
“WHEREFORE, judgment is hereby rendered in favor of
the plaintiff Cebu Shipyard & Engineering Works,
Incorporated and against the defendants: “Solidary obligations on the part of Unimarine and CBIC
1. Ordering the defendants Unimarine Shipping Lines, having been established and expressly stated in the Surety
Incorporated, Country Bankers Insurance Corporation and Bond No. 29419 (Exh. “C”), [Cebu Shipyard], therefore, is
Plaridel Surety and Insurance Corporation to pay plaintiff entitled to collect and enforce said obligation against any and
jointly and severally the amount of P4,620,000.00 equivalent or both of them, and if and when CBIC pays, it can compel
to the value of the surety bonds; its co-defendant Unimarine to reimburse to it the amount it
2. Ordering further defendant Unimarine to pay has paid.”37
plaintiff the amount of P259,458.00 to complete its entire The RTC found CBIC’s contention that Quinain
obligation of P4,859,458.00; acted in excess of his authority in issuing the surety
3. To pay plaintiff jointly and severally the amount of
bond untenable. The RTC held that CBIC is bound by
P100,000.00 in attorney’s fees and litigation expenses;
4. For Cross defendant Unimarine Shipping Lines,
the surety bond issued by its agent who acted within the
Incorporated and Third party defendants Paul Rodriguez, apparent scope of his authority. The RTC said:
Peter Rodriguez and Alber[t] Hontanosas: To indemnify
36
“[A]s far as third persons are concerned, an act is deemed extinguished by reasons of novation, payment, and
to have been performed within the scope of the agent’s prescription. CBIC also questioned the RTC’s order,
authority, if such act is within the terms of the powers of holding it jointly and severally liable with Unimarine
attorney as written, even if the agent has in fact exceeded and Plaridel for the amount of P4,620,000.00, a sum
the limits of his authority according to an understanding
larger than the face value of CBIC Surety Bond No.
between the principal and the agent.”38
G (16) 29419, and why the RTC did not hold Quinain
All the defendants appealed this Decision to the liable to indemnify CBIC for whatever amount it was
Court of Appeals. ordered to pay Cebu Shipyard.
Unimarine, Paul Rodriguez, Peter Rodriguez, and On January 29, 2004, the Court of Appeals
Albert Hontanosas argued that Unimarine’s obligation promulgated its decision, with the following dispositive
under Bill No. 26035 had been extinguished by portion:
novation, as Cebu Shipyard had agreed to accept the “WHEREFORE, in view of the foregoing, the respective
proceeds of the sale of the M/V Headline as payment for appeal[s] filed by Defendants-Appellants Unimarine
the ship repair works it did on M/V Pacific Fortune. Shipping Lines, Inc. and Country Bankers Insurance
Paul Rodriguez and Peter Rodriguez added that such Corporation; Cross-Defendant-Appellant Unimarine
Shipping Lines, Inc. and; Third-Party Defendants-
novation also freed them from their liability under the
Appellants Paul Rodriguez, Peter Rodriguez and Albert
Indemnity Agreement they signed in favor of CBIC. Hontanosas are hereby DENIED. The decision of the RTC in
Albert Hontanosas in turn reiterated that he did not Civil Case No. CEB-13447 dated February 10, 1997
sign the Indemnity Agreement.39 is AFFIRMED with modification that Mr. Bethoven
_______________ Quinain, CBIC’s agent is hereby held jointly and severally
37 Id.
38 Id., at p. 33.
liable with CBIC by virtue of Surety Bond No. 29419
39 Id., at pp. 21-22. executed in favor of plaintiff-appellee CSEW.”41
440 In its decision, the Court of Appeals resolved the

440 SUPREME COURT REPORTS following issues, as it had summarized from the parties’
ANNOTATED pleadings:
Country Bankers Insurance Corporation I. Whether or not UNIMARINE is liable to [Cebu Shipyard]
vs. Keppel Cebu Shipyard for a sum of money arising from the ship-repair contract;
II. Whether or not the obligation of UNIMARINE to [Cebu
CBIC, in its Appellant’s Brief,40claimed that the RTC Shipyard] has been extinguished by novation;
erred in enforcing its liability on the surety bond as it III. Whether or not Defendant-Appellant CBIC, allegedly
was issued in excess of Quinain’s authority. Moreover, being the Surety of UNIMARINE is liable under Surety Bond
CBIC averred, its liability under such surety had been No. 29419[;]
37
_______________ jointly and severally liable thereunder. The Court of
40 Id., at pp. 39-63.
41 Rollo, pp. 54-55. Appeals rejected Hontanosas’ claim that his signature
in the Indemnity Agreement was forged, as he was not
441
able to prove it.46
VOL. 673, JUNE 18, 2012 441 The Court of Appeals affirmed the award of
Country Bankers Insurance Corporation attorney’s fees and litigation expenses to Cebu Shipyard
vs. Keppel Cebu Shipyard since it was able to clearly establish the defendants’
IV. Whether or not Cross Defendant-Appellant liability, which they tried to
_______________
UNIMARINE and Third-Party Defendants-Appellants Paul
42 Id., at p. 38.
Rodriguez, Peter Rodriguez, Albert Hontanosas and Third- 43 Id., at pp. 39-40.
Party Defendant Bethoven Quinain are liable by virtue of the 44 Id., at pp. 44-46.
Indemnity Agreement executed between them and Cross and 45 Id., at p. 53.
Third Party Plaintiff CBIC; 46 Id., at pp. 49-51.
V. Whether or not Plaintiff-Appellee [Cebu Shipyard] is
442
entitled to the award of P100,000.00 in attorney’s fees and
litigation expenses.42
ANNOTATED
The Court of Appeals held that it was duly proven Country Bankers Insurance Corporation
that Unimarine was liable to Cebu Shipyard for the ship vs. Keppel Cebu Shipyard
repair works it did on the former’s M/V Pacific Fortune. dodge by setting up defenses to release themselves from
The Court of Appeals dismissed CBIC’s contention of their obligation.47
novation for lack of merit.43 CBIC was held liable under CBIC48 and Unimarine, together with third party
the surety bond as there was no novation on the defendants-appellants49 filed their respective Motions
agreement between Unimarine and Cebu Shipyard that for Reconsideration. This was, however, denied by the
would discharge CBIC from its obligation. The Court of Court of Appeals in its October 28, 2004 Resolution for
Appeals also did not allow CBIC to disclaim liability on lack of merit.
the ground that Quinain exceeded his authority because Unimarine elevated its case to this Court via a
third persons had relied upon Quinain’s representation, petition for review on certiorari, docketed as G.R. No.
as CBIC’s agent.44Quinain was, however, held solidarily 166023, which was denied in a Resolution dated
liable with CBIC under Article 1911 of the Civil Code.45 January 19, 2005.50
Anent the liability of the signatories to the The lone petitioner in this case, CBIC, is now before
Indemnity Agreement, the Court of Appeals held Paul this Court, seeking the reversal of the Court of Appeals’
Rodriguez, Peter Rodriguez, and Albert Hontanosas decision and resolution on the following grounds:
38
A. Issue
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN APPLYING THE PROVISIONS OF The crux of the controversy lies in CBIC’s liability on
ARTICLE 1911 OF THE CIVIL CODE TO HOLD the surety bond Quinain issued to Unimarine, in favor
PETITIONER LIABLE FOR THE ACTS DONE BY ITS of Cebu Shipyard.
AGENT IN EXCESS OF AUTHORITY. CBIC avers that the Court of Appeals erred in
B.
interpreting and applying the rules governing the
THE HONORABLE COURT OF APPEALS SERIOUSLY
contract of agency. It argued that the Special Power of
ERRED IN HOLDING THAT AN EXTENSION OF THE
PERIOD FOR THE PERFORMANCE OF AN Attorney granted to Quinain clearly set forth the extent
OBLIGATION GRANTED BY THE CREDITOR TO and limits of his authority with regard to businesses he
THE PRINCIPAL DEBTOR IS NOT SUFFICIENT TO can transact for and in behalf of CBIC. CBIC added that
RELEASE THE SURETY. it was incumbent upon Cebu Shipyard to inquire and
C. look into the power of authority conferred to Quinain.
ASSUMING THAT PETITIONER IS LIABLE UNDER CBIC said:
THE BOND, THE HONORABLE COURT OF APPEALS “The authority to bind a principal as a guarantor or surety is
NONETHE- one of those powers which requires a Special Power of
_______________ Attorney pursuant to Article 1878 of the Civil Code. Such
47 Id., at p. 54.
48 CA Rollo, pp. 240-252.
power could not be simply assumed or inferred from
49 Id., at pp. 253-256. the mere existence of an agency. A person who enters
50 Rollo, p. 389. into a contract of suretyship with an agent without
confirming the extent of the latter’s authority does so at his
443
peril. x x x.”52
VOL. 673, JUNE 18, 2012 443
CBIC claims that the foregoing is true even if
Country Bankers Insurance Corporation Quinain was granted the authority to transact in the
vs. Keppel Cebu Shipyard business of insurance in general, as “the authority to
LESS SERIOUSLY ERRED IN AFFIRMING THE bind the principal in a
SOLIDARY LIABILITY OF PETITIONER BEYOND _______________
THE VALUE OF THE BOND. 51 Id., at pp. 13-14.
D. 52 Id., at p. 15.
THE HONORABLE COURT OF APPEALS ERRED IN
444
HOLDING PETITIONER JOINTLY AND SEVERALLY
LIABLE FOR ATTORNEY’S FEES IN THE AMOUNT
OF P100,000.00.51 ANNOTATED
39
Country Bankers Insurance Corporation _______________
53 Id., at p. 16.
vs. Keppel Cebu Shipyard 54 Id., at p. 18.
contract of suretyship could nonetheless never be 55 Id., at p. 19.
presumed.”53Thus, CBIC claims, that: 56 Id., at pp. 248-287.
“[T]hird persons seeking to hold the principal liable for 445
transactions entered into by an agent should establish the VOL. 673, JUNE 18, 2012 445
following, in case the same is controverted:
6.6.1. The fact or existence of the agency.
Country Bankers Insurance Corporation
6.6.2. The nature and extent of authority.”54 vs. Keppel Cebu Shipyard
or authority.57 Thus, agency is based on representation,
To go a little further, CBIC said that the correct Civil where the agent acts for and in behalf of the principal
Code provision to apply in this case is Article 1898. on matters within the scope of the authority conferred
CBIC asserts that “Cebu Shipyard was charged with upon him.58 Such “acts have the same legal effect as if
knowledge of the extent of the authority conferred on they were personally done by the principal. By this legal
Mr. Quinain by its failure to perform due diligence fiction of representation, the actual or legal absence of
investigations.”55 the principal is converted into his legal or juridical
Cebu Shipyard, in its Comment56 first assailed the presence.”59
propriety of the petition for raising factual issues. In The RTC applied Articles 1900 and 1911 of the Civil
support, Cebu Shipyard claimed that the Court of Code in holding CBIC liable for the surety bond. It held
Appeals’ application of Article 1911 of the Civil Code that CBIC could not be allowed to disclaim liability
was founded on findings of facts that CBIC now because Quinain’s actions were within the terms of the
disputes. Thus, the question is not purely of law. special power of attorney given to him.60 The Court of
Appeals agreed that CBIC could not be permitted to
Discussion
abandon its obligation especially since third persons
The fact that Quinain was an agent of CBIC was had relied on Quinain’s representations. It based its
never put in issue. What has always been debated by decision on Article 1911 of the Civil Code and found
the parties is the extent of authority or, at the very CBIC to have been negligent and less than prudent in
least, apparent authority, extended to Quinain by CBIC conducting its insurance business for its failure to
to transact insurance business for and in its behalf. supervise and monitor the acts of its agents, to regulate
In a contract of agency, a person, the agent, binds the distribution of its insurance forms, and to devise
himself to represent another, the principal, with the schemes to prevent fraudulent misrepresentations of its
latter’s consent agents.61
40
This Court does not agree.Pertinent to this case Art. 1910. The principal must comply with all the
are the following provisions of the Civil Code: obligations which the agent may have contracted within the
“Art. 1898. If the agent contracts in the name of the scope of his authority.
principal, exceeding the scope of his authority, and the As for any obligation wherein the agent has exceeded his
principal does not ratify the contract, it shall be void if the power, the principal is not bound except when he ratifies it
party with whom the agent contracted is aware of the limits expressly or tacitly.
of the powers granted by the principal. In this case, however, Art. 1911. Even when the agent has exceeded his
the agent is liable if he undertook to secure the principal’s authority, the principal is solidarily liable with the agent if
ratification. the former allowed the latter to act as though he had full
_______________ powers.”
57 Civil Code, Art. 1868.
58 Id., Art. 1881. Our law mandates an agent to act within the scope
59 Siredy Enterprises, Inc. v. Court of Appeals, 437 Phil. 580, 591; 389 of his authority.62 The scope of an agent’s authority is
SCRA 34, 42-43 (2002).
60 CA Rollo, pp. 31-32. what appears in the written terms of the power of
61 Rollo, pp. 46-47. attorney granted upon him.63 Under Article 1878(11) of
446 the Civil Code, a special power of attorney is
necessary to obligate the principal as a guarantor or
446 SUPREME COURT REPORTS surety.
ANNOTATED In the case at bar, CBIC could be held liable even if
Country Bankers Insurance Corporation Quinain exceeded the scope of his authority only if
vs. Keppel Cebu Shipyard Quinain’s act of issuing Surety Bond No. G (16) 29419
Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the written
is deemed to have been performed within the scope of the terms of the power of attorney he was granted.64
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 62 CIVIL CODE, Art. 1881.
the limits of his authority according to an understanding 63 Id., Art. 1900.
64 Id.
between the principal and the agent.
Art. 1902. A third person with whom the agent wishes 447
to contract on behalf of the principal may require the VOL. 673, JUNE 18, 2012 447
presentation of the power of attorney, or the instructions as Country Bankers Insurance Corporation
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 However, contrary to what the RTC held, the Special
them. Power of Attorney accorded to Quinain clearly states
41
the limits of his authority and particularly provides 448 SUPREME COURT REPORTS
that in case of surety bonds, it can only be issued in ANNOTATED
favor of the Department of Public Works and Highways, Country Bankers Insurance Corporation
the National Power Corporation, and other government vs. Keppel Cebu Shipyard
agencies; furthermore, the amount of the surety bond is d. MARINE:
limited to P500,000.00, to wit: xxxx
SPECIAL POWER OF ATTORNEY e. BONDS:
KNOW ALL MEN BY THESE PRESENTS: xxxx
That, COUNTRY BANKERS INSURANCE Surety Bond (in favor of Dept. of Pub. Works and Highways,
CORPORATION, a corporation duly organized and existing Nat’l. Power Corp. & other Government
under and by virtue of the laws of the Philippines, with head agencies)65........................... 500,000.00
offices at 8th Floor, G.F. Antonino Building, T.M. Kalaw
Street, Ermita, Manila, now and hereinafter referred to as CBIC does not anchor its defense on a secret
“the Company” hereby appoints BETHOVEN B. agreement, mutual understanding, or any verbal
QUINAIN with address at x x x to be its General Agent and instruction to Quinain. CBIC’s stance is grounded on its
Attorney-in-Fact, for and in its place, name and stead, and contract with Quinain, and the clear, written terms
for its own use and benefit, to do and perform the following therein. This Court finds that the terms of the foregoing
acts and things: contract specifically provided for the extent and scope of
1. To conduct, manage, carry on and transact insurance Quinain’s authority, and Quinain has indeed exceeded
business as usually pertains to a General Agency of Fire, them.
Personal Accident, Bond, Marine, Motor Car (Except
Under Articles 1898 and 1910, an agent’s act, even if
Lancer).
2. To accept, underwrite and subscribe policies of done beyond the scope of his authority, may bind the
insurance for and in behalf of the Company under the terms principal if he ratifies them, whether expressly or
and conditions specified in the General Agency Contract tacitly. It must be stressed though that only the
executed and entered into by and between it and its said principal, and not the agent, can ratify the
Attorney-in-Fact subject to the following Schedule of Limits: unauthorized acts, which the principal must have
- SCHEDULE OF LIMITS - knowledge of.66Expounding on the concept and doctrine
a. FIRE: of ratification in agency, this Court said:
xxxx “Ratification in agency is the adoption or confirmation by
b. PERSONAL ACCIDENT: one person of an act performed on his behalf by another
xxxx without authority. The substance of the doctrine is
c. MOTOR CAR: confirmation after conduct, amounting to a substitute for a
x x x x448 prior authority. Ordinarily, the principal must have full
42
knowledge at the time of ratification of all the material facts Article 1911, on the other hand, is based on the
and circumstances relating to the unauthorized act of the principle of estoppel, which is necessary for the
person who assumed to act as agent. Thus, if material protection of third persons. It states that the principal
facts were suppressed or unknown, there can be no is solidarily liable with the agent even when the latter
valid ratification and this regardless of the purpose or
has exceeded his authority, if the principal allowed him
lack thereof in concealing such facts and regardless of
to act as though he had full powers. However, for an
the parties be-
_______________ agency by estoppel to exist, the following must be
65 Rollo, pp. 233-234. established:
66 Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No. 1. The principal manifested a representation of the
151319, November 22, 2004, 443 SCRA 377, 394.
agent’s authority or knowingly allowed the agent
449 to assume such authority;
VOL. 673, JUNE 18, 2012 449 2. The third person, in good faith, relied upon such
Country Bankers Insurance Corporation representation; and
vs. Keppel Cebu Shipyard 3. Relying upon such representation, such third
person has changed his position to his detriment.68
tween whom the question of ratification may
arise. Nevertheless, this principle does not apply if the In Litonjua, Jr. v. Eternit Corp.,69 this Court said
principal’s ignorance of the material facts and circumstances that “[a]n agency by estoppel, which is similar to the
was willful, or that the principal chooses to act in ignorance doctrine of appar-
of the facts. However, in the absence of circumstances _______________
67 Id., at pp. 394-395.
putting a reasonably prudent man on inquiry,
68 Litonjua, Jr. v. Eternit Corp., G.R. No. 144805, June 8, 2006,
ratification cannot be implied as against the principal 490 SCRA 204, 224-225.
who is ignorant of the facts.”67 (Emphases supplied.)
4450
Neither Unimarine nor Cebu Shipyard was able to 4450 SUPREME COURT REPORTS
repudiate CBIC’s testimony that it was unaware of the ANNOTATED
existence of Surety Bond No. G (16) 29419 and Country Bankers Insurance Corporation
Endorsement No. 33152. There were no allegations vs. Keppel Cebu Shipyard
either that CBIC should have been put on alert with ent authority, requires proof of reliance upon the
regard to Quinain’s business transactions done on its representations, and that, in turn, needs proof that the
behalf. It is clear, and undisputed therefore, that there representations predated the action taken in reliance.”70
can be no ratification in this case, whether express or This Court cannot agree with the Court of Appeals’
implied. pronouncement of negligence on CBIC’s part. CBIC not
43
only clearly stated the limits of its agents’ powers in 72 Id., at pp. 391-392.
their contracts, it even stamped its surety bonds with 451
the restrictions, in order to alert the concerned parties. VOL. 673, JUNE 18, 2012 451
Moreover, its company procedures, such as reporting Country Bankers Insurance Corporation
requirements, show that it has designed a system to vs. Keppel Cebu Shipyard
monitor the insurance contracts issued by its agents. “It is a settled rule that persons dealing with an agent are
CBIC cannot be faulted for Quinain’s deliberate failure bound at their peril, if they would hold the principal liable,
to notify it of his transactions with Unimarine. In fact, to ascertain not only the fact of agency but also the nature
CBIC did not even receive the premiums paid by and extent of authority, and in case either is controverted,
Unimarine to Quinain. the burden of proof is upon them to establish it. The basis for
Furthermore, nowhere in the decisions of the lower agency is representation and a person dealing with an agent
courts was it stated that CBIC let the public, or is put upon inquiry and must discover upon his peril the
specifically Unimarine, believe that Quinain had the authority of the agent. If he does not make such an inquiry,
authority to issue a surety bond in favor of companies he is chargeable with knowledge of the agent’s authority and
his ignorance of that authority will not be any excuse.”
other than the Department of Public Works and
Highways, the National Power Corporation, and other In the same case, this Court added:
government agencies. Neither was it shown that CBIC “[T]he ignorance of a person dealing with an agent as to the
knew of the existence of the surety bond before the scope of the latter’s authority is no excuse to such person and
endorsement extending the life of the bond, was issued the fault cannot be thrown upon the principal. A person
to Unimarine. For one to successfully claim the benefit dealing with an agent assumes the risk of lack of authority
of estoppel on the ground that he has been misled by the in the agent. He cannot charge the principal by relying upon
the agent’s assumption of authority that proves to be
representations of another, he must show that he was
unfounded. The principal, on the other hand, may act on the
not misled through his own want of reasonable care and
presumption that third persons dealing with his agent will
circumspection.71 not be negligent in failing to ascertain the extent of his
It is apparent that Unimarine had been negligent or authority as well as the existence of his agency.”73
less than prudent in its dealings with Quinain.
In Manila Memorial Park Cemetery, Inc. v. Unimarine undoubtedly failed to establish that it
Linsangan,72 this Court held: even bothered to inquire if Quinain was authorized to
_______________ agree to terms beyond the limits indicated in his special
69 Id. power of attorney. While Paul Rodriguez stated that he
70 Id., at p. 225.
71 Manila Memorial Park Cemetery, Inc. v. Linsangan, supra note
has done business with Quinain more than once, he was
66 at p. 397. not able to show that he was misled by CBIC as to the
44
extent of authority it granted Quinain. Paul Rodriguez discharge their burden; hence, petitioners are not entitled to
did not even allege that he asked for documents to prove damages from respondent EC.”75
Quinain’s authority to contract business for CBIC, such In light of the foregoing, this Court is constrained to
as their contract of agency and power of attorney. It is release CBIC from its liability on Surety Bond No. G
also worthy to note that even with the Indemnity (16) 29419 and Endorsement No. 33152. This Court sees
Agreement, Paul Rodriguez signed it on Quinain’s mere no need to dwell on the other grounds propounded by
assurance and without truly understanding the CBIC in support of its prayer.
consequences of the terms of the said agreement. WHEREFORE, this petition is hereby GRANTED
Moreover, both Unimarine and Paul Rodriguez could and the complaint against CBIC is DISMISSED for lack
have inquired directly from CBIC to verify the validity of merit. The January 29, 2004 Decision and October 28,
and effectivity of the surety 2004 Resolution of the Court of Appeals in CA-G.R. CV
_______________
73 Id., at p. 392. No. 58001 is MODIFIED insofar as it affirmed CBIC’s
liability on Surety Bond No.
452
G (16) 29419 and Endorsement No. 33152.
SO ORDERED.
ANNOTATED
Country Bankers Insurance Corporation
bond and endorsement; but, instead, they blindly relied
on the representations of Quinain. As this Court held
in Litonjua, Jr. v. Eternit Corp.:74 G.R. No. 114091. June 29, 1995. *
“A person dealing with a known agent is not authorized, BACALTOS COAL MINES and GERMAN A.
under any circumstances, blindly to trust the agents; BACALTOS, petitioners, vs.HON. COURT OF
statements as to the extent of his powers; such person must
APPEALS and SAN MIGUEL CORPORATION,
not act negligently but must use reasonable diligence and
prudence to ascertain whether the agent acts within the
respondents.
Agency; Contracts; Obligations; Every person dealing
scope of his authority. The settled rule is that, persons
dealing with an assumed agent are bound at their peril, and with an agent is put upon inquiry and must discover upon his
peril the authority of the agent.—Every person dealing with
if they would hold the principal liable, to ascertain not only
the fact of agency but also the nature and extent of authority, an agent is put upon inquiry and must discover upon his peril
and in case either is controverted, the burden of proof is upon the authority of the agent. If he does not make such inquiry,
them to prove it. In this case, the petitioners failed to he is chargeable with knowledge of the agent’s authority, and
his ignorance of that authority will not be any excuse.
45
Persons dealing with an assumed agent, whether the *FIRST DIVISION.
assumed agency be a general or special one, are bound at 461
their peril, if they would hold the principal, to ascertain not VOL. 245, JUNE 29, 1995 461
only the fact of the agency but also the nature and extent of Bacaltos Coal Mines vs. Court of
the authority, and in case either is controverted, the burden Appeals
of proof is upon them to establish it. authorizing the performance of a specific power and of
Same; Same; Same; The Authorization is a special express acts subsumed therein.
power of attorney for it refers to a clear mandate specifically Mines and Mining; Coal Operating Contract; Coal
authorizing the performance of a specific power and of express operating contract is one of the authorized ways of active
acts subsumed therein.—The conclusion then of the Court of exploration, development, and production of coal resources in
Appeals that the Authorization includes the power to enter a specified contract area.—A coal operating contract is
into the Trip Charter Party because the “five prerogatives” governed by P.D. No. 972 (The Coal Development Act of
are prefaced by such clause, is seriously flawed. It fails to 1976), as amended by P.D. No. 1174. It is one of the
note that the broadest scope of Savellon’s authority is limited authorized ways of active exploration, development, and
to the use of the coal operating contract and the clause cannot production of coal resources in a specified contract area.
contemplate any other power not included in the Agency; Contracts; Obligations; Rule that between two
enumeration or which are unrelated either to the power to innocent parties, the one who made it possible for the wrong
use the coal operating contract or to those already to be done should be the one to bear the resulting loss. In the
enumerated. In short, while the clause allows some room for present case, SMC is guilty of not ascertaining the extent and
flexibility, it can comprehend only additional prerogatives limits of the authority of Savellon. In not doing so, SMC dealt
falling within the primary power and within the same class with Savellon at its own peril.—We agree with the
as those enumerated. The trial court, however, went further petitioners that SMC committed negligence in drawing the
by hastily making a sweeping conclusion that “a company check in the manner aforestated. It even disregarded the
such as a coal mining company is not prohibited to engage in request of Savellon that it be drawn in favor of BACALTOS
entering into a Trip Charter Party contract.” But what the COAL MINES/RENE SAVELLON. Furthermore, assuming
trial court failed to consider was that there is no evidence at that the transaction was permitted in the Authorization, the
all that Bacaltos Coal Mines as a coal mining company owns check should still have been drawn in favor of the principal.
and operates vessels, and even if it owned any such vessels, SMC then made possible the wrong done. There is an
that it was allowed to charter or lease them. The trial court equitable maxim that between two innocent parties, the one
also failed to note that the Authorization is not a general who made it possible for the wrong to be done should be the
power of attorney. It is a special power of attorney for it refers one to bear the resulting loss. For this rule to apply, the
to a clear mandate specifically condition precedent is that both parties must be innocent. In
the present case, however, SMC is guilty of not ascertaining
_______________
the extent and limits of the authority of Savellon. In not
doing so, SMC dealt with Savellon at its own peril.
46
PETITION for review on certiorari of a decision of the I, GERMAN A. BACALTOS, of legal age, Filipino, widower,
Court of Appeals. and residing at second street, Espina Village, Cebu City,
province of Cebu, Philippines, do hereby authorize RENE R.
The facts are stated in the opinion of the Court. SAVELLON, of legal age, Filipino and residing at 376-R
Zosa & Quijano Law Offices for petitioners. Osmeña Blvd., Cebu City, Province of Cebu, Philippines, to
Angara, Abello, Concepcion, Regala & Cruz for use the coal operating contract of BACALTOS COAL MINES
of which I am the proprietor, for any legitimate purpose that
San Miguel Corporation.
it may serve. Namely, but not by way of limitation, as follows:
DAVIDE, JR., J.:
1. (1)To acquire purchase orders for and in behalf of
Petitioners seek the reversal of the decision of 30 BACALTOS COAL MINES;
2. (2)To engage in trading under the style of
September 1993 of the Court of Appeals in CA-G.R. CV
BACALTOS COAL MINES/RENE SAVELLON;
No. 3. (3)To collect all receivables due or in arrears from
462
people or companies having dealings under
462 SUPREME COURT REPORTS BACALTOS COAL MINES/ RENE SAVELLON;
ANNOTATED 4. (4)To extend to any person or company by
Bacaltos Coal Mines vs. Court of Appeals substitution the same extent of authority that is
35180, entitled “San Miguel Corporation vs. Bacaltos
1 granted to Rene Savellon;
Coal Mines, German A. Bacaltos and Rene R. Savellon,” 5. (5)In connection with the preceding paragraphs to
which affirmed the decision of 19 August 1991 of the execute and sign documents, contracts, and other
Regional Trial Court (RTC) of Cebu, Branch 9, in Civil pertinent papers.
Case No. CEB-8187 holding petitioners Bacaltos Coal
2
Further, I hereby give and grant to RENE SAVELLON

Mines and German A. Bacaltos and their co-defendant
full authority to do and perform all and every lawful act
Rene R. Savellon jointly and severally liable to private
requisite or neces-
respondent San Miguel Corporation under a Trip
Charter Party. _______________
The paramount issue raised is whether Savellon was
1 Annex “D” of Petition; Rollo, 64-71. Per Herrera, M., J., with
duly authorized by the petitioners to enter into the Trip Francisco, C., and Guerrero, B., JJ., concurring.
Charter Party (Exhibit “A”) under and by virtue of an
3
2 Annex “B,” Id.; Id., 24-32. Per Judge Benigno G. Gaviola.
Authorization (Exhibit “C” and Exhibit “1”), dated 1

4 3 Original Records (OR), 8-10.
4 Id., 11. The document is not acknowledged before a notary public.

March 1988, the pertinent portions of which read as
463
follows: VOL. 245, JUNE 29, 1995 463
47
Bacaltos Coal Mines vs. Court of Appeals into any contract with SMC. They further claimed that
sary to carry into effect the foregoing stipulations as fully to if it is true that SMC entered into a contract with them,
all intents and purposes as I might or would lawfully do if it should have issued the check in their favor. They set
personally present, with full power of substitution and up counterclaims for moral and exemplary damages
revocation. and attorney’s fees.
The Trip Charter Party was executed on 19 October Savellon did not file his Answer and was declared in
1988 “by and between BACALTOS COAL MINES, default on 17 July 1990. 8
represented . . . by its Chief Operating Officer, RENE At the pre-trial conference on 1 February 1991, the
ROSEL SAVELLON” and private respondent San petitioners and SMC agreed to submit the following
Miguel Corporation (hereinafter SMC), represented by issues for resolution:
Francisco B. Manzon, Jr., its “SAVP and Director, Plant
Operations-Mandaue.” Thereunder, Savellon claims _______________
that Bacaltos Coal Mines is the owner of the vessel M/V
5 OR, 12.
Premship II and that for P650,000.00 to be paid within 6 Id., 13.
seven days after the execution of the contract, it “lets, 7 Id., 16-18.
demises” the vessel to charterer SMC “for three round 8 Id., 44.
trips to Davao.” 464

As payment of the aforesaid consideration, SMC 464 SUPREME COURT REPORTS
issued a check (Exhibit “B”) payable to “RENE
5
ANNOTATED
SAVELLON IN TRUST FOR BACALTOS COAL Bacaltos Coal Mines vs. Court of Appeals
MINES” for which Savellon issued a receipt under the
heading of BACALTOS COAL MINES with the address Plaintiff—
at No. 376-R Osmeña Blvd., Cebu City (Exhibit “B-1”). 6
1. 1.Whether or not defendants are jointly liable to

The vessel was able to make only one trip. Its
plaintiff for damages on account of breach of
demands to comply with the contract having been contract;
unheeded, SMC filed against the petitioners and Rene 2. 2.Whether or not the defendants acted in good faith
Savellon the complaint in Civil Case No. CEB-8187 for in its representations to the plaintiff;
specific performance and damages. In their 3. 3.Whether or not defendant Bacaltos was duly
Answer, the petitioners alleged that Savellon was not
7
enriched on the payment made by the plaintiff for
their Chief Operating Officer and that the powers the use of the vessel;
granted to him are only those clearly expressed in the 4. 4.Whether or not defendant Bacaltos is estopped to
Authorization which do not include the power to enter deny the authorization given to defendant Savellon;
48
Defendants— 9OR, 57-58.
OR, 138; Rollo, 32.
10
465
1. 1.Whether or not the plaintiff should have first
investigated the ownership of vessel M/V VOL. 245, JUNE 29, 1995 465
PREM[SHIP] II before entering into any contract Bacaltos Coal Mines vs. Court of Appeals
with defendant Savellon; It ruled that the Authorization given by German
2. 2.Whether or not defendant Savellon was authorized Bacaltos to Savellon necessarily included the power to
to enter into a shipping contract with the [plaintiff] enter into the Trip Charter Party. It did not give
corporation; credence to the petitioners’ claim that the authorization
3. 3.Whether or not the plaintiff was correct and not refers only to coal or coal mining and not to shipping
mistaken in issuing the checks in payment of the
because, according to it, “the business of coal mining
contract in the name of defendant Savellon and not
may also involve the shipping of products” and “a
in the name of defendant Bacaltos Coal Mines;
4. 4.Whether or not the plaintiff is liable on defendants’ company such as a coal mining company is not
counterclaim.9
prohibited to engage in entering into a Trip Charter
Party contract.” It further reasoned out that even
After trial, the lower court rendered the assailed assuming that the petitioners did not intend to
decision in favor of SMC and against the petitioners and authorize Savellon to enter into the Trip Charter Party,
Savellon as follows: they are still liable because: (a) SMC appears to be an
“WHEREFORE, by preponderance of evidence, the Court innocent party which has no knowledge of the real
hereby renders judgment in favor of plaintiff and against intent of the parties to the Authorization and has
defendants, ordering defendants Rene Savellon, Bacaltos reason to rely on the written Authorization submitted
Coal Mines and German A. Bacaltos, jointly and severally, to by Savellon pursuant to Articles 1900 and 1902 of the
pay to plaintiff: Civil Code; (b) Savellon issued an official receipt of
Bacaltos Coal Mines (Exhibit “B-1”) for the
1. 1.The amount of P433,000.00 by way of consideration of the Trip Charter Party, and the
reimbursement of the consideration paid by petitioners’ denial that they caused the printing of such
plaintiff, plus 12% interest to start from date of
official receipt is “lame” because they submitted only a
written demand, which is June 14, 1989;
2. 2.The amount of P20,000.00 by way of exemplary cash voucher and not their official receipt; (c) the
damages; “Notice of Readiness” (Exhibit “A-1”) is written on a
3. 3.The amount of P20,000.00 as attorney’s fees and paper with the letterhead “Bacaltos Coal Mines” and
P5,000.00 as litigation expenses. Plus costs.10 the logo therein is the same as that appearing in their
voucher; (d) the petitioners were benefited by the
_______________
49
payment because the real payee in the check is actually that: (a) the credentials of Savellon is not an issue since
Bacaltos Coal Mines and since in the Authorization the petitioners impliedly admitted the agency while the
they authorized Savellon to collect receivables due or in ownership of the vessel was warranted on the face of the
arrears, the check was then properly delivered to Trip Charter Party; (b) SMC was not negligent when it
Savellon; and, (e) if indeed Savellon had not been issued the check in the name of Savellon in trust for
authorized or if indeed he exceeded his authority or if Bacaltos Coal Mines since the Authorization clearly
the Trip Charter Party was personal to him and the provides that collectibles of the petitioners can be
petitioners have nothing to do with it, then Savellon coursed through Savellon as the agent; (c) the
should have “bother[ed] to answer” the complaint and Authorization includes the power to enter into the Trip
the petitioners should have filed “a cross-claim” against Charter Party because the “five prerogatives”
him. enumerated in the former is prefaced by the phrase “but
In their appeal to the Court of Appeals in CA-G.R. not by way of limitation”; (d) the petitioners’ statement
CV No. 35180, the petitioners asserted that the trial that the check should have been issued in the name of
court erred in: (a) not holding that SMC was negligent Bacaltos Coal Mines is another implicit admission that
in (1) not verifying the credentials of Savellon and the the Trip Charter Party is part and parcel of the
ownership of the vessel, (2) issuing the check in the petitioners’ business notwithstanding German
name of Savellon in trust for Bacaltos Coal Mines Bacaltos’ contrary interpretation when he testified, and
thereby allowing Savellon to encash the check, and, (3) in any event, the construction of obscure words should
making full payment of P650,000.00 after the vessel not favor him since he prepared the Authorization in
made only one trip and before it completed three trips favor of Savellon; and, (e) German Bacaltos admitted in
as required in the Trip Charter Party; (b) holding that the Answer that he is the proprietor of Bacaltos Coal
under the authority Mines and he likewise represented himself to be so in
466 the Authorization itself, hence he should not now be
466 SUPREME COURT REPORTS permitted to disavow what he initially stated to be true
ANNOTATED and to interpose the defense that Bacaltos Coal Mines
Bacaltos Coal Mines vs. Court of Appeals has a distinct legal personality.
given to him Savellon was authorized to enter into the Their motion for a reconsideration of the above
Trip Charter Party; and, (c) holding German Bacaltos decision having been denied, the petitioners filed the
jointly and severally liable with Savellon and Bacaltos instant petition wherein they raise the following errors:
Coal Mines. 11
As stated at the beginning, the Court of Appeals 1. I.THE RESPONDENT COURT ERRED IN
affirmed in toto the judgment of the trial court. It held HOLDING THAT RENE SAVELLON WAS
50
AUTHORIZED TO ENTER INTO A TRIP Every person dealing with an agent is put upon
CHARTER PARTY CONTRACT WITH PRIVATE inquiry and must discover upon his peril the authority
RESPONDENT IN SPITE OF ITS FINDING THAT of the agent. If he does not make such inquiry, he is
SUCH AUTHORITY CANNOT BE FOUND IN THE chargeable with knowledge of the agent’s authority, and
FOUR CORNERS OF THE AUTHORIZATION;
his ignorance of that authority will not be any excuse.
2. II.THE RESPONDENT COURT ERRED IN NOT
Persons dealing with an assumed agent, whether the
HOLDING THAT BY ISSUING THE CHECK IN
THE NAME OF RENE assumed agency be a general or special one, are bound
at their peril, if they would hold the principal, to
_______________ ascertain not only the fact of the agency but also the
nature and extent of the authority, and in case either is
Annex “C” of Petition, Brief for Appellants; Rollo, 45-46.
11
controverted, the burden of proof is upon them to
467
establish it. American jurisprudence summarizes the
13 14
VOL. 245, JUNE 29, 1995 467

rule in dealing with an agent as follows:
Bacaltos Coal Mines vs. Court of Appeals A third person dealing with a known agent may not act
negligently with regard to the extent of the agent’s authority
1. SAVELLON IN TRUST FOR BACALTOS COAL or blindly trust the agent’s statements in such respect.
MINES, THE PRIVATE RESPONDENT WAS THE Rather, he must use reasonable diligence and prudence to
AUTHOR OF ITS OWN DAMAGE; AND ascertain whether the agent is acting and dealing with him
2. III.THE RESPONDENT COURT ERRED IN within the scope of his powers. The mere opinion of an agent
HOLDING PETITIONER GERMAN BACALTOS as to the extent of his powers, or his mere assumption of
JOINTLY AND SEVERALLY LIABLE WITH
RENE SAVELLON AND CO-PETITIONER _______________
BACALTOS COAL MINES IN SPITE OF THE
Rollo, 9.
FINDING OF THE COURT A QUO THAT
12
13 Veloso vs. La Urbana, 58 Phil. 681 [1933], citing Deen vs. Pacific
PETITIONER BACALTOS COAL MINES AND Commercial Co., 42 Phil. 738 [1922] and Harry E. Keller Electric Co. vs.
PETITIONER BACALTOS ARE TWO DISTINCT Rodriguez, 44 Phil. 19[1922]. See also Strong vs. Repide, 6 Phil.
AND SEPARATE LEGAL PERSONALITIES. 12 680 [1906], and Pineda vs. Court of Appeals, 226 SCRA 754 [1993].
14 3 Am Jur 2d Agency § 83 [1986].
468
After due deliberations on the allegations, issues raised,
and arguments adduced in the petition, and the
ANNOTATED
comment thereto and reply to the comment, the Court
resolved to give due course to the petition.
Bacaltos Coal Mines vs. Court of Appeals
authority without foundation, will not bind the principal;
and a third person dealing with a known agent must bear the
51
burden of determining for himself, by the exercise of BACALTOS COAL MINES, of which I am the proprietor, for
reasonable diligence and prudence, the existence or any legitimate purpose that it may serve. Namely, but not by
nonexistence of the agent’s authority to act in the premises. way of limitation, as follows: .... [emphasis supplied]
In other words, whether the agency is general or special, the There is only one express power granted to
third person is bound to ascertain not only the fact of agency, Savellon, viz., to use the coal operating contract for any
but the nature and extent of the authority. The principal, on legitimate purpose it may
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. Supra note 13.
15
Or, as stated in Harry E. Keller Electric Co. vs. 469

Rodriguez, quoting Mechem on Agency:
15
VOL. 245, JUNE 29, 1995 469
The person dealing with the agent must also act with Bacaltos Coal Mines vs. Court of Appeals
ordinary prudence and reasonable diligence. Obviously, if he serve. The enumerated “five prerogatives”—to employ
knows or has good reason to believe that the agent is the term used by the Court of Appeals—are nothing but
exceeding his authority, he cannot claim protection. So if the the specific prerogatives subsumed under or classified
suggestions of probable limitations be of such a clear and as part of or as examples of the power to use the coal
reasonable quality, or if the character assumed by the agent operating contract. The clause “but not by way of
is of such a suspicious or unreasonable nature, or if the limitation” which precedes the enumeration could only
authority which he seeks to exercise is of such an unusual or
refer to or contemplate other prerogatives which must
improbable character, as would suffice to put an ordinarily
prudent man upon his guard, the party dealing with him exclusively pertain or relate or be germane to the power
may not shut his eyes to the real state of the case, but should to use the coal operating contract. The conclusion then
either refuse to deal with the agent at all, or should ascertain of the Court of Appeals that the Authorization includes
from the principal the true condition of affairs. [emphasis the power to enter into the Trip Charter Party because
supplied] the “five prerogatives” are prefaced by such clause, is
In the instant case, since the agency of Savellon is based seriously flawed. It fails to note that the broadest scope
on a written document, the Authorization of 1 March of Savellon’s authority is limited to the use of the coal
1988 (Exhibits “C” and “1”), the extent and scope of his operating contract and the clause cannot contemplate
powers must be determined on the basis thereof. The any other power not included in the enumeration or
language of the Authorization is clear. It pertinently which are unrelated either to the power to use the coal
states as follows: operating contract or to those already enumerated. In
I, GERMAN A. BACALTOS . . . do hereby authorize RENE short, while the clause allows some room for flexibility,
R. SAVELLON . . . to use the ‘coal operating contract’ of it can comprehend only additional prerogatives falling
52
within the primary power and within the same class as instrument. If any obscurity or ambiguity indeed
those enumerated. The trial court, however, went existed, then there will be more reason to place SMC on
further by hastily making a sweeping conclusion that “a guard and for it to exercise due diligence in seeking
company such as a coal mining company is not clarification or enlightenment thereon, for that was
prohibited to engage in entering into a Trip Charter part of its duty to discover upon its peril the nature and
Party contract.” But what the trial court failed to
16 extent of Savellon’s written agency. Unfortunately, it
consider was that there is no evidence at all that did not.
Bacaltos Coal Mines as a coal mining company owns Howsoever viewed, the foregoing conclusions of the
and operates vessels, and even if it owned any such Court of Appeals and the trial court are tenuous and
vessels, that it was allowed to charter or lease them. farfetched, bringing to unreasonable limits the clear
The trial court also failed to note that the Authorization parameters of the powers granted in the Authorization.
is not a general power of attorney. It is a special power Furthermore, had SMC exercised due diligence and
of attorneyfor it refers to a clear mandate specifically prudence, it should have known in no time that there is
authorizing the performance of a specific power and of absolutely nothing on the face of the Authorization that
express acts subsumed therein. In short, both courts
17 confers upon Savellon the authority to enter into any
below unreasonably expanded the express terms of or Trip Charter Party. Its conclusion to the contrary is
otherwise gave unrestricted meaning to a clause which based solely on the second prerogative under the
was precisely intended to prevent unwarranted and Authorization, to wit:
unlimited expansion of the powers entrusted to (2) To engage in trading under the style of BACALTOS
Savellon. The suggestion of the Court of Appeals that COAL MINES/RENE SAVELLON;
there is obscurity in the Authorization which must be unmindful that such is but a part of the primary
construed against German Bacaltos because he authority to use the coal operating contract which it did
not even require Savellon to produce. Its principal
_______________ witness, Mr. Valdescona, expressly so admitted on
cross-examination, thus:
OR, 135; Rollo, 29.
16
See Article 1876, Civil Code.

17
Atty. Zosa (to witness—ON CROSS)
470 Q You said that in your office Mr. Rene
470 SUPREME COURT REPORTS Savellon presented to you this
ANNOTATED authorization marked Exhibit “C” and
Bacaltos Coal Mines vs. Court of Appeals Exhibit “1” for the defendant?
prepared the Authorization has no leg to stand on A Yes, sir.
inasmuch as there is no obscurity or ambiguity in the
53
Q Did you read in the first part[y] of this coal operating contract of
authorization Mr. Valdescona that Mr. Bacaltos Coal Mines?
Rene Savellon was authorized as the A Yes, sir.
coal operating contract of Bacaltos Coal Q You doubted his authority but
Mines? you found out in paragraph 2 that
A Yes, sir. he is authorized that’s why you
Q Did it not occur to you that you should agreed and entered into that trip
have examined further the authorization charter party?
of Mr. Rene Savellon, whether or not A We did not doubt his authority
this coal operating contract allows Mr. but we were questioning as to the
Savellon to enter into a trip charter extent of his operating contract.
party? Q Did you not require Mr. Savellon
A Yes, sir. We discussed about the extent to produce that coal operating
of his authorization and he referred us to contract of Bacaltos Coal Mines?
the number 2 provision of this autho A No sir. We did not.
18
471 Since the principal subject of the Authorization is the

VOL. 471 coal operating contract, SMC should have required its
245, presentation to determine what it is and how it may be
JUNE used by Savellon. Such a determination is
29, 1995 indispensable to an inquiry into the extent or scope of
Bacaltos Coal Mines vs. Court of Appeals his authority. For this reason, we now deem it necessary
rization which is to engage in to examine the nature of a coal operating contract.
trading under the style of A coal operating contract is governed by P.D. No. 972
Bacaltos Coal Mines/Rene (The Coal Development Act of 1976), as amended by
Savellon, which we followed up P.D. No. 1174. It is one of the authorized ways of active
to the check preparation because exploration, development, and production of coal
it is part of the authority. resources in a specified contract area. Section 9 of the
19 20
Q In other words, you examined decree prescribes the obligation of the contractor, thus:
SEC. 9. Obligations of Operator in Coal Operating
this and you found out that Mr.
Contract.—The operator under a coal operating contract
Savellon is authorized to use the shall undertake, manage and execute the coal operations
which shall include:
54
1. (a)The examination and investigation of lands and property, avoiding pollution of air, lands and
supposed to contain coal, by detailed surface geologic waters, and pursuant to an efficient and economic
mapping, core drilling, trenching, test pitting and program of operation;
other appropriate means, for the purpose of probing 5. (e)Furnish the Energy Development Board promptly
the presence of coal deposits and the extent thereof; with all information, data and reports which it may
require;
_______________ 6. (f)Maintain detailed technical records and account of
its expenditures;
18 TSN, 4 April 1991, 21-22. 7. (g)Conform to regulations regarding, among others,
19 Section 4.
20 Section 6.
safety demarcation of agreement acreage and work
472 areas, non-interference with the rights of the other
472 SUPREME COURT REPORTS petroleum, mineral and natural resources operators;
8. (h)Maintain all necessary equipment in good order
ANNOTATED
and allow access to these as well as to the
Bacaltos Coal Mines vs. Court of Appeals exploration, development and production sites and
operations to inspectors authorized by the Energy
1. (b)Steps necessary to reach the coal deposit so that it Development Board;
can be mined, including but not limited to shaft 9. (i)Allow representatives authorized by the Energy
sinking and tunneling; and Development Board full access to their accounts,
2. (c)The extraction and utilization of coal deposits. books and records for tax and other fiscal purposes.
The Government shall oversee the management of the Section 11 thereof provides for the minimum terms and
operation contemplated in a coal operating contract and in conditions of a coal operating contract. From the
this connection, shall require the operator to: foregoing, it is obvious that a scrutiny of the coal
operating contract of Bacaltos Coal Mines would have
1. (a)Provide all the necessary service and technology;
provided SMC knowledge of the activities which are
2. (b)Provide the requisite financing;
3. (c)Perform the work obligations and program germane, related, or incident to the power to use it. But
prescribed in the coal operating contract which shall it did not even require Savellon to produce the same.
473
not be less than those prescribed in this Decree;
4. (d)Operate the area on behalf of the Government in VOL. 245, JUNE 29, 1995 473
accordance with good coal mining practices using Bacaltos Coal Mines vs. Court of Appeals
modern methods appropriate for the geological SMC’s negligence was further compounded by its
conditions of the area to enable maximum economic failure to verify if Bacaltos Coal Mines owned a vessel.
production of coal, avoiding hazards to life, health A party desiring to charter a vessel must satisfy itself
55
that the other party is the owner of the vessel or is at vessel to see its sea worthiness, and we
least entitled to its possession with power to lease or assigned our in-house surveyor to check
charter the vessel. In the instant case, SMC made no the sea worthiness of the vessel which
such attempt. It merely satisfied itself with the claim of was on drydock that time in Danao.
Savellon that the vessel it was leasing is owned by Q What was the result of your inspection?
Bacaltos Coal Mines and relied on the presentation of A We found out the vessel’s sea
the Authorization as well as its test on the worthiness to be our cargo carrier.
seaworthiness of the vessel. Valdescona thus declared Q After that what did you do?
on direct examination as follows: A After that we were discussing the
A In October, a certain Rene Savellon condition of the contract.
called our office offering us shipping Q Were you able to execute that contract?
services. So I told him to give us a A Yes, sir.
21
formal proposal and also for him to He further declared as follows:

come to our office so that we can go Q When you entered into a trip charter
over his proposal and formally discuss contract did you check
his offer.
Q Did Mr. Rene Savellon go to your _______________
office?
TSN, 4 April 1991, 6-7.
21
A Few days later he came to our office and 474

gave us his proposal verbally offering a 474 SUPREME COURT REPORTS
vessel for us to use for our cargo. ANNOTATED
Q Did he mention the owner of that Bacaltos Coal Mines vs. Court of Appeals
vessel? the ownership of M/V Premship?
A Yes, sir. That it is Bacaltos. A The representation made by Mr. Rene
Q Did he present a document to you? Savellon was that Bacaltos Coal
A Yes, sir. He presented to us the Mines operates the vessel and on the
authorization. strength of the authorization he
Q When Mr. Rene Savellon presented to showed us we were made to believe
you the authorization what did you do? that it was Bacaltos Coal Mines that
A On the strength of that authorization we owned it.
initially asked him for us to check the COURT: (to witness)
56
Q In other words, you just believed Rene that they maintained a preprinted business form known
Savellon? as a “Notice of Readiness” (Exhibit “A-1”). This paper
24
A Yes, sir. is only a photocopy and, despite its reservation to

COURT: (to witness) present the original for purposes of comparison at the
Q You did not check with Bacaltos Coal next
Mines?
_______________
A That is the representation he made.
Q Did he show you document regarding 22 TSN, 4 April 1991, 14-15.
this M/V Premship II? 23 TSN, 30 April 1991, 23-24.
24 OR, 73.
A No document shown. 22
475
The Authorization itself does not state that Bacaltos VOL. 245, JUNE 29, 1995 475
Coal Mines owns any vessel, and since it is clear Bacaltos Coal Mines vs. Court of Appeals
therefrom that it is not engaged in shipping but in coal
hearing, SMC failed to produce the latter. This “Notice
25
mining or in coal business, SMC should have required

of Readiness” is not, therefore, the best evidence, hence
the presentation of pertinent documentary proof of
inadmissible under Section 3, Rule 130 of the Rules of
ownership of the vessel to be chartered. Its in-house
Court. It is true that when SMC made a formal offer of
surveyor who saw the vessel while drydocked in Danao
its exhibits, the petitioners did not object to the
and thereafter conducted a seaworthiness test could not
admission of Exhibit “A-1,” the “Notice of Readiness,”
have failed to ascertain the registered owner of the
under the best evidence rule but on the ground that
vessel. The petitioners themselves declared in open
Savellon was not authorized to enter into the Trip
court that they have not leased any vessel for they do
Charter Party and that the party who signed it, one
not need it in their coal operations thereby implying
23
Elmer Baliquig, is not the petitioners’ employee but of

that they do not even own one.
Premier Shipping Lines, the owner of the vessel in
The Court of Appeals’ asseveration that there was no
question. The petitioners raised the issue of
26
need to verify the ownership of the vessel because such

inadmissibility under the best evidence rule only
ownership is warranted on the face of the trip charter
belatedly in this petition. But although Exhibit “A-1”
party begs the question since Savellon’s authority to
remains admissible for not having been timely objected
enter into that contract is the very heart of the
to, it has no probative value as to the ownership of the
controversy.
vessel.
We are not prepared to accept SMC’s contention that
There is likewise no proof that the petitioners
the petitioners’ claim that they are not engaged in
received the consideration of the Trip Charter Party.
shipping and do not own any ship is belied by the fact
57
The petitioners denied having received it. The evidence
27 precedent is that both parties must be innocent. In the
for SMC established beyond doubt that it was Savellon present case, however, SMC is guilty of not ascertaining
who requested in writing on 19 October 1988 that the the extent and limits of the authority of Savellon. In not
check in payment therefor be drawn in favor of doing so, SMC dealt with Savellon at its own peril.
BACALTOS COAL MINES/RENE SAVELLON Having thus found that SMC was the author of its
(Exhibit “B-3”) and that SMC drew the check in favor of own damage and that the petitioners are, therefore, free
RENE SAVELLON IN TRUST FOR BACALTOS COAL from any liability, it has become unnecessary to discuss
MINES (Exhibit “B”) and delivered it to Savellon who the issue of whether Bacaltos Coal Mines is a
thereupon issued a receipt (Exhibit “B-1”). We agree corporation with a personality distinct and separate
with the petitioners that SMC committed negligence in from German Bacaltos.
drawing the check in the manner aforestated. It even WHEREFORE, the instant petition is GRANTED
disregarded the request of Savellon that it be drawn in and the challenged decision of 30 September 1993 of the
favor of BACALTOS COAL MINES/RENE Court of Appeals in CA-G.R. CV No. 35180 is hereby
SAVELLON. Furthermore, assuming that the REVERSED and SET ASIDE and another judgment is
transaction was permitted in the Authorization, the hereby rendered MODIFYING the judgment of the
check should still have been drawn in favor of the Regional Trial Court of Cebu, Branch 9, in Civil Case
principal. SMC then made possible the wrong done. No. CEB-8187 by setting aside the declaration of
There is an equitable maxim that between two innocent solidary liability, holding defendant RENE R.
parties, the one who made it possible for the wrong to SAVELLON solely liable for the amounts adjudged, and
be done should be the one to bear the resulting loss. For 28 ordering the dismissal of the case as against herein
this rule to apply, the condition petitioners.
SO ORDERED.
_______________
Bellosillo, Quiason and Kapunan, JJ., concur.
TSN, 4 April 1991, 11-12.
25
Padilla (Chairman) J., No part, in view of
OR, 74.
26 interest in private respondent.
27 TSN, 30 April 1991, 5-6.
Petition granted.
28 Francisco vs. Government Service Insurance System, 7 SCRA
577 [1963], cited in Cuison vs. Court of Appeals, 227 SCRA 391 [1993].
476
ANNOTATED
Bacaltos Coal Mines vs. Court of Appeals
58
Article 1911 principal ratified his agent’s acts beyond the latter’s
authority.—Filipinas Life cannot profess ignorance of Valle’s
G.R. No. 159489. February 4, 2008. *
acts. Even if Valle’s representations were beyond his
FILIPINAS LIFE ASSURANCE COMPANY (now authority as a debit/insurance agent, Filipinas Life thru
AYALA LIFE ASSURANCE, INC.), Alcantara and Apetrior expressly and knowingly ratified
petitioner, vs.CLEMENTE N. PEDROSO, TERESITA Valle’s acts. It cannot even be denied that Filipinas Life
O. PEDROSO and JENNIFER N. PALACIO thru her benefited from the investments deposited by Valle in the
Attorney-in-Fact PONCIANO C. MARQUEZ, account of Filipinas Life. In our considered
respondents. _______________
Civil Law; Agency; The general rule is that the principal
is responsible for the acts of its agent done within the scope of *SECOND DIVISION.
its authority and should bear the damage caused to third 543
persons; The acts of an agent beyond the scope of his authority VOL. 543, FEBRUARY 4, 543
do not bind the principal, unless the principal ratifies them, 2008
expressly or impliedly.—Filipinas Life, as the principal, is Filipinas Life Assurance Company vs.
liable for obligations contracted by its agent Valle. By the
Pedroso
contract of agency, a person binds himself to render some
view, Filipinas Life had clothed Valle with apparent
service or to do something in representation or on behalf of
authority; hence, it is now estopped to deny said authority.
another, with the consent or authority of the latter. The
Innocent third persons should not be prejudiced if the
general rule is that the principal is responsible for the acts
principal failed to adopt the needed measures to prevent
of its agent done within the scope of its authority, and should
bear the damage caused to third persons. When the agent misrepresentation, much more so if the principal ratified his
agent’s acts beyond the latter’s authority. The act of the
exceeds his authority, the agent becomes personally liable for
agent is considered that of the principal itself. Qui per alium
the damage. But even when the agent exceeds his authority,
facit per seipsum facere videtur. “He who does a thing by an
the principal is still solidarily liable together with the agent
if the principal allowed the agent to act as though the agent agent is considered as doing it himself.”
had full powers. In other words, the acts of an agent beyond
the scope of his authority do not bind the principal, unless
PETITION for review on certiorari of the decision and
the principal ratifies them, expressly or impliedly. resolution of the Court of Appeals.
Ratification in agency is the adoption or confirmation by one
person of an act performed on his behalf by another without The facts are stated in the opinion of the Court.
authority. Benedicto, Verzosa, Gealogo, Burkley &
Same; Same; Innocent third persons should not be Associates for petitioner.
prejudiced if the principal failed to adopt the needed Engelbert C. Caronan, Jr. for respondents.
measures to prevent misrepresentation, much more so if the
59
QUISUMBING, J.: interest a month for certain amounts deposited on a
monthly basis. Enticed, she initially invested and
This petition for review on certiorari seeks the reversal issued a post-dated check dated January 7, 1977 for
of the Decision and Resolution, dated November 29,
1 2
P10,000. In return, Valle issued Pedroso his personal
4
2002 and August 5, 2003, respectively, of the Court of check for P800 for the 8% prepaid interest and a
5
Appeals in CAG.R. CV No. 33568. The appellate court Filipinas Life “Agent’s Receipt” No. 807838. 6
had affirmed the Decision dated October 10, 1989 of the

3
Subsequently, she called the Escolta office and
Regional Trial Court (RTC) of Manila, Branch 3, finding talked to Francisco Alcantara, the administrative
petitioner as defendant and the co-defendants below assistant, who referred her to the branch manager,
jointly and severally liable to the plaintiffs, now herein Angel Apetrior. Pedroso inquired about the promotional
respondents. investment and Apetrior confirmed that there was such
The antecedent facts are as follows: a promotion. She was even told she could “push through
Respondent Teresita O. Pedroso is a policyholder of with the check” she issued. From the records, the check,
a 20year endowment life insurance issued by petitioner with the endorsement of Alcantara at the back, was
Filipinas Life Assurance Company (Filipinas Life). deposited in the account of Filipinas Life with the
Pedroso claims Renato Valle was her insurance agent Commercial Bank and Trust Company (CBTC), Escolta
since 1972 and Valle Branch.
Relying on the representations made by the
_______________
petitioner’s duly authorized representatives Apetrior
1 Rollo, pp. 43-55. Penned by Associate Justice Renato C. Dacudao, and Alcantara, as well as having known agent Valle for
with Associate Justices Eugenio S. Labitoria and Danilo B. Pine quite some time, Pedroso waited for the maturity of her
concurring. initial investment. A month after, her investment of
2 Id., at p. 56.
3 Id., at pp. 57-63. Penned by Judge Clemente M. Soriano.

P10,000 was returned to her after she made a written
544 request for its refund. The formal written request, dated
544 SUPREME COURT REPORTS February 3, 1977, was written on an inter-office
ANNOTATED memorandum form of Filipinas Life prepared by
Filipinas Life Assurance Company vs. Alcantara. To collect the amount, Pedroso personally
7
Pedroso went to the Escolta branch where Alcantara gave her

collected her monthly premiums. In the first week of the P10,000 in cash. After a second investment, she
January 1977, Valle told her that the Filipinas Life made 7 to 8 more investments in varying amounts,
Escolta Office was holding a promotional investment totaling P37,000 but at a
program for policyholders. It was offering 8% prepaid
60
_______________ On appeal, the Court of Appeals affirmed the trial
court’s ruling and subsequently denied the motion for
4 Records, p. 246.
5 TSN, October 7, 1983, pp. 9-10. reconsideration.
6 Records, p. 248. Petitioner now comes before us raising a single issue:
7 Id., at p. 247.
WHETHER OR NOT THE COURT OF APPEALS
545 COMMITTED A REVERSIBLE ERROR AND GRAVELY
VOL. 543, FEBRUARY 4, 2008 545 ABUSED ITS DISCRETION IN AFFIRMING THE
Filipinas Life Assurance Company vs. DECISION OF THE LOWER COURT HOLDING FLAC
Pedroso [FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY
lower rate of 5% prepaid interest a month. Upon
8
LIABLE WITH ITS CO-DEFENDANTS ON THE CLAIM
maturity of Pedroso’s subsequent investments, Valle OF RESPONDENTS INSTEAD OF HOLDING ITS AGENT,
RENATO VALLE, SOLELY LIABLE TO THE
would take back from Pedroso the corresponding
RESPONDENTS. 10
yellow-colored agent’s receipt he issued to the latter.

Pedroso told respondent Jennifer N. Palacio, also a _______________
Filipinas Life insurance policyholder, about the
investment plan. Palacio made a total investment of 8 Supra note 5.
9 Records, pp. 253-264.
P49,550 but at only 5% prepaid interest. However,
9
10 Rollo, p. 108.
when Pedroso tried to withdraw her investment, Valle 546

did not want to return some P17,000 worth of it. Palacio 546 SUPREME COURT REPORTS
also tried to withdraw hers, but Filipinas Life, despite ANNOTATED
demands, refused to return her money. With the Filipinas Life Assurance Company vs.
assistance of their lawyer, they went to Filipinas Life Pedroso
Escolta Office to collect their respective investments, Simply put, did the Court of Appeals err in holding
and to inquire why they had not seen Valle for quite petitioner and its co-defendants jointly and severally
some time. But their attempts were futile. Hence, liable to the herein respondents?
respondents filed an action for the recovery of a sum of Filipinas Life does not dispute that Valle was its
money. agent, but claims that it was only a life insurance
After trial, the RTC, Branch 3, Manila, held Filipinas company and was not engaged in the business of
Life and its co-defendants Valle, Apetrior and Alcantara collecting investment money. It contends that the
jointly and solidarily liable to the respondents. investment scheme offered to respondents by Valle,
Apetrior and Alcantara was outside the scope of their
61
authority as agents of Filipinas Life such that, it cannot VOL. 543, FEBRUARY 4, 2008 547
be held liable to the respondents. 11
Filipinas Life Assurance Company vs.
On the other hand, respondents contend that Pedroso
Filipinas Life authorized Valle to solicit investments ing with an agent is put upon inquiry and must discover
from them. In fact, Filipinas Life’s official documents at his own peril the agent’s authority, in this case,
and facilities were used in consummating the respondents did exercise due diligence in removing all
transactions. These transactions, according to doubts and in confirming the validity of the
respondents, were confirmed by its officers Apetrior and representations made by Valle.
Alcantara. Respondents assert they exercised all the Filipinas Life, as the principal, is liable for
diligence required of them in ascertaining the authority obligations contracted by its agent Valle. By the
of petitioner’s agents; and it is Filipinas Life that failed contract of agency, a person binds himself to render
in its duty to ensure that its agents act within the scope some service or to do something in representation or on
of their authority. behalf of another, with the consent or authority of the
Considering the issue raised in the light of the latter. The general rule is that the principal is
12
submissions of the parties, we find that the petition responsible for the acts of its agent done within the
lacks merit. The Court of Appeals committed no scope of its authority, and should bear the damage
reversible error nor abused gravely its discretion in caused to third persons. When the agent exceeds his
13
rendering the assailed decision and resolution. authority, the agent becomes personally liable for the
It appears indisputable that respondents Pedroso damage. But even when the agent exceeds his
14
and Palacio had invested P47,000 and P49,550, authority, the principal is still solidarily liable together
respectively. These were received by Valle and remitted with the agent if the principal allowed the agent to act
to Filipinas Life, using Filipinas Life’s official receipts, as though the agent had full powers. In other words,
15
whose authenticity were not disputed. Valle’s authority the acts of an agent beyond the scope of his authority do
to solicit and receive investments was also established not bind the principal, unless the principal ratifies
by the parties. When respondents sought confirmation, them, expressly or impliedly. Ratification in agency is
16
Alcantara, holding a supervisory position, and Apetrior, the adoption or confirmation by one person of an act
the branch manager, confirmed that Valle had performed on his behalf by another without authority. 17
authority. While it is true that a person deal-

_______________
_______________
CIVIL CODE, Art. 1868.
12
Id., at p. 109.
11 Lopez, et al. v. Hon. Alvendia, et al., 120 Phil. 1424, 14311432; 12
13
547 SCRA 634, 641 (1964).
62
14BA Finance Corporation v. Court of Appeals, G.R. No. 94566, July 29, 2002 and August 5, 2003, respectively, of the Court
3, 1992, 211 SCRA 112, 118.
15 CIVIL CODE, Art. 1911.
of Appeals in CAG.R. CV No. 33568 are AFFIRMED.
16 Id., Art. 1910. The principal must comply with all the obligations Costs against the petitioner.
which the agent may have contracted within the scope of his authority. SO ORDERED.
As for any obligation wherein the agent has exceeded his power, Carpio, Carpio-Morales, Tingaand Velasco, Jr.,
the principal is not bound except when he ratifies it expressly or
tacitly.
JJ., concur.
17 Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No. Petition denied, judgment and resolution affirmed.
151319, November 22, 2004, 443 SCRA 377, 394.
548
ANNOTATED
Filipinas Life Assurance Company vs.
Pedroso PROFESSIONAL SERVICES, INC.,
Filipinas Life cannot profess ignorance of Valle’s acts. petitioner, vs. THE COURT OF APPEALS and
Even if Valle’s representations were beyond his NATIVIDAD and ENRIQUE AGANA, respondents.
authority as a debit/insurance agent, Filipinas Life thru G.R. No. 126467. February 2, 2010.*
Alcantara and Apetrior expressly and knowingly NATIVIDAD [substituted by her children Marcelino
ratified Valle’s acts. It cannot even be denied that Agana III, Enrique Agana, Jr., Emma Agana-Andaya,
Filipinas Life benefited from the investments deposited Jesus Agana and Raymund Agana] and ENRIQUE
by Valle in the account of Filipinas Life. In our AGANA, petitioners, vs. THE COURT OF APPEALS
considered view, Filipinas Life had clothed Valle with and JUAN FUENTES, respondents.
apparent authority; hence, it is now estopped to deny
said authority. Innocent third persons should not be G.R. No. 127590. February 2, 2010.*
prejudiced if the principal failed to adopt the needed MIGUEL AMPIL, petitioner, vs.NATIVIDAD and
measures to prevent misrepresentation, much more so ENRIQUE AGANA, respondents.
if the principal ratified his agent’s acts beyond the Medical Negligence; Corporate Negligence; Ostensible
latter’s authority. The act of the agent is considered Agency; Court holds that Professional Services, Inc. (PSI) is
that of the principal itself. Qui per alium facit per liable to the Aganas not under the principle of respondent
seipsum facere videtur. “He who does a thing by an superior for lack of evidence of an employment relationship
agent is considered as doing it himself.” 18 with Dr. Ampil but under the principle of ostensible agency
WHEREFORE, the petition is DENIED for lack of for the negligence of Dr. Ampil and pro hac vice under the
merit. The Decision and Resolution, dated November principle of corporate negligence for its failure to perform its
63
duties as a hospital.—After gathering its thoughts on the to the patient that the doctor is its agent, the hospital may
issues, this Court holds that PSI is liable to the Aganas, not still be vicariously liable under Article 2176 in relation to
under the principle of respondeat superiorfor lack of evidence Article 1431 and Article 1869 of the Civil Code or the
of an employment relationship with Dr. Ampil but under the principle of apparent authority. Moreover, regardless of its
principle of ostensible agency for the negligence of Dr. Ampil relationship with the doctor, the hospital may be held
and, pro hac vice, under the principle of corporate negligence directly liable to the patient for its own negligence or failure
for its failure to perform its duties as a hospital. to follow established standard of conduct to which it should
Same; Same; Same; While in theory a hospital as a conform as a corporation.
juridical entity cannot practice medicine, in reality it utilizes Same; Same; Same; Employer-Employee Relationship;
doctors, surgeons and medical practitioners in the conduct of Court still employs the “control test” to determine the existence
its business of facilitating medical and surgical treatment; of an employer-employee relationship between hospital and
Three legal relationships crisscross doctor.—This Court still employs the “control test” to
_______________ determine the existence of an employer-employee
relationship between hospital and doctor. In Calamba
* EN BANC.
Medical Center, Inc. v. National Labor Relations
283within that reality.—While in theory a hospital as a Commission, et al., 571 SCRA 585 (2008), it held: Under the
juridical entity cannot practice medicine, in reality it utilizes “control test,” an employment relationship exists between a
doctors, surgeons and medical practitioners in the conduct of physician and a hospital if the hospital controls both the
its business of facilitating medical and surgical treatment. means and the details of the process by which the physician
Within that reality, three legal relationships crisscross: (1) is to accomplish his task.
between the hospital and the doctor practicing within its Same; Same; Same; Same; Control as a determinative
premises; (2) between the hospital and the patient being factor in testing the employer-employee relationship between
treated or examined within its premises and (3) between the doctor and hospital under which the hospital could be held
patient and the doctor. The exact nature of each relationship vicariously liable to a patient in medical negligence cases is a
determines the basis and extent of the liability of the hospital requisite fact to be established
for the negligence of the doctor. 284by preponderance of evidence.—To allay the anxiety
Same; Same; Same; Regardless of its relationship with of the intervenors, the Court holds that, in this particular
the doctor, the hospital may be held directly liable to the instance, the concurrent finding of the RTC and the CA that
patient for its own negligence or failure to follow established PSI was not the employer of Dr. Ampil is correct. Control as
standard of conduct to which it should conform as a a determinative factor in testing the employer-employee
corporation.—Where an employment relationship exists, the relationship between doctor and hospital under which the
hospital may be held vicariously liable under Article 2176 in hospital could be held vicariously liable to a patient in
relation to Article 2180 of the Civil Code or the principle medical negligence cases is a requisite fact to be established
of respondeat superior.Even when no employment by preponderance of evidence. Here, there was insufficient
relationship exists but it is shown that the hospital holds out evidence that PSI exercised the power of control or wielded
64
such power over the means and the details of the specific Benjamin M. Tongol for Juan Fuentes.
process by which Dr. Ampil applied his skills in the
treatment of Natividad. Consequently, PSI cannot be held RESOLUTION
vicariously liable for the negligence of Dr. Ampil under the
principle of respondeat superior. CORONA, J.:
Same; Same; Same; Same; Factors that Determine With prior leave of court,1 petitioner Professional
Apparent Authority.—There is, however, ample evidence Services, Inc. (PSI) filed a second motion for
that the hospital (PSI) held out to the patient (Natividad) reconsideration2 urging referral thereof to the Court en
that the doctor (Dr. Ampil) was its agent. Present are the two
banc and seeking modification of the decision dated
factors that determine apparent authority: first, the
January 31, 2007 and resolution dated February 11,
hospital’s implied manifestation to the patient which led the
latter to conclude that the doctor was the hospital’s agent; 2008 which affirmed its vicarious and direct liability for
and second, the patient’s reliance upon the conduct of the damages to respondents Enrique Agana and the heirs
hospital and the doctor, consistent with ordinary care and of Natividad Agana (Aganas).
prudence. Manila Medical Services, Inc. (MMSI),3Asian
Hospital, Inc. (AHI),4 and Private Hospital Association
SECOND MOTION FOR RECONSIDERATION of a of the Philippines (PHAP)5 all sought to intervene in
decision of the Supreme Court. these cases invoking the common ground that, unless
The facts are stated in the resolution of the Court. modified, the assailed decision and resolution will
Enrique Agana & Associates and Horacio Alvaro B. jeopardize the financial viability of private hospitals
Peralta for Natividad Agana and Enrique Agana. and jack up the cost of health care.
Castelo & Associates Law Offices collaborating The Special First Division of the Court granted the
counsel for the Heirs of Natividad Agana and Enrique motions for intervention of MMSI, AHI and PHAP
Agana. (hereafter intervenors),6 and referred en consulta to the
The Bengzon Law Firm for Professional Services, Court en banc the mo-
Inc. _______________
The Law Firm of Raymundo M. Armovit for Miguel
Ampil. 1 Rollo (G.R. No. 126297), p. 468.
2 Id., at p. 489.
Agcaoili Law Offices for Heirs of Natividad Agana. 3 Filed a motion for leave of court to intervene (by way of attached
Bu C. Castro for intervenor private hospitals.285 memorandum), id., at p. 512.
Caguioa & Gatmaitan for intervenor Asian 4 Filed a motion to intervene and for leave to file memorandum-in-
Hospital, Inc. intervention, id., p. 534. AHI did not file any memorandum.
5 Filed a motion for intervention (by way of attached brief/
Pilar Nenuca P. Almira for Manila Medical memorandum), id., p. 602.
Services, Inc. 6 Resolution dated June 16, 2008, id., at p. 647.
65
286tion for prior leave of court and the second motion Heirs of Agana in G.R. No. 126467 nor by Dr. Miguel Ampil in G.R.
No. 127467 from the January 31, 2007 Decision of the First Division
for reconsideration of PSI.7 of the Court.
Due to paramount public interest, the Court en 10 Docketed as Civil Case No. Q-43322, Record, p. 6.
banc accepted the referral8 and heard the parties on 11 Also referred to in the records as “sponges.”
oral arguments on one particular issue: whether a 12 Penned by then Presiding Judge and now Associate Justice of
the Supreme Court Lucas Bersamin.
hospital may be held liable for the negligence of 13 RTC Decision, Record, p. 133.
physicians-consultants allowed to practice in its
premises.9 287ject to the right of PSI to claim reimbursement from
To recall the salient facts, PSI, together with Dr. Dr. Ampil.14
Miguel Ampil (Dr. Ampil) and Dr. Juan Fuentes (Dr. On petition for review, this Court, in its January 31,
Fuentes), was impleaded by Enrique Agana and 2007 decision, affirmed the CA decision.15 PSI filed a
Natividad Agana (later substituted by her heirs), in a motion for reconsideration16 but the Court denied it in a
complaint10for damages filed in the Regional Trial Court resolution dated February 11, 2008.17
(RTC) of Quezon City, Branch 96, for the injuries The Court premised the direct liability of PSI to the
suffered by Natividad when Dr. Ampil and Dr. Fuentes Aganas on the following facts and law:
neglected to remove from her body two gauzes11 which First, there existed between PSI and Dr. Ampil an
were used in the surgery they performed on her on April employer-employee relationship as contemplated in the
11, 1984 at the Medical City General Hospital. PSI was December 29, 1999 decision in Ramos v. Court of
impleaded as owner, operator and manager of the Appeals18 that “for purposes of allocating responsibility
hospital. in medical negligence cases, an employer-employee
In a decision12 dated March 17, 1993, the RTC held relationship exists between hospitals and their
PSI solidarily liable with Dr. Ampil and Dr. Fuentes for consultants.”19 Although the Court in Ramos later
damages.13On appeal, the Court of Appeals (CA), issued a Resolution dated April 11, 200220 reversing its
absolved Dr. Fuentes but affirmed the liability of Dr. earlier finding on the existence of an employment
Ampil and PSI, sub- relationship between hospital and doctor, a similar
_______________ reversal was not warranted in the present case because
the defense raised by PSI consisted of a mere general
7 Resolution dated June 12, 2008, id., at p. 645.
8 Resolution dated August 12, 2008, id., at p. 649.
denial of control or responsibility over the actions of Dr.
9 As per Advisory dated March 4, 2009. It should be borne in mind Ampil.21
that the issues in G.R. No. 126467 on the exculpation of Dr. Juan Second, by accrediting Dr. Ampil and advertising his
Fuentes from liability, and in G.R. No. 127590 on the culpability of Dr. qualifications, PSI created the public impression that
Miguel Ampil for negligence and medical malpractice, are deemed
finally decided, no motion for reconsideration having been filed by the
66
he was its agent.22 Enrique testified that it was on committed a serious breach of its corporate duty when
account of Dr. Ampil’s it failed to conduct an immediate investigation into the
_______________ reported missing gauzes.28
PSI is now asking this Court to reconsider the
14 CA decision dated September 6, 1996, penned by then Court of
Appeals Associate Justice and later Supreme Court Associate Justice foregoing rulings for these reasons:
Cancio Garcia (Ret.); CA Rollo, pp. 136-137. I
15 G.R. Nos. 126297/126467/127590, 31 January 2007, 513 SCRA The declaration in the 31 January 2007 Decision vis-a-
478. vis the 11 February 2009 Resolution that the ruling
16 Rollo, p. 403. in Ramos vs. Court of Appeals (G.R. No. 134354, December
17 G.R. Nos. 126297/126467/127590, 11 February 2008, 544 SCRA
29, 1999) that “an employer-employee relations exists
170.
18 G.R. No. 124354, 29 December 1999, 321 SCRA 548. between hospital and their consultants” stays should be set
19 Supra at 15, p. 499. aside for being inconsistent with or contrary to the import of
20 G.R. No. 124354, 11 April 2002, 380 SCRA 467. the resolution granting the hospital’s motion for
21 Supra at 17, p. 179. reconsideration in Ramos vs. Court of Appeals(G.R. No.
22 Supra at 15, p. 502. 134354, April 11, 2002), which is applicable to PSI since the
288accreditation with PSI that he conferred with
Aganas failed to prove an
_______________
said doctor about his wife’s (Natividad’s)
condition. After his meeting with Dr. Ampil, Enrique
23 23 Supra at 17, p. 181, citing TSN, April 12, 1985, pp. 25-26.
asked Natividad to personally consult Dr. Ampil.24 In 24 Id.
25 G.R. No. 142625, 19 December 2006, 511 SCRA 204.
effect, when Enrigue and Natividad engaged the 26 Supra at 15, p. 505.
services of Dr. Ampil, at the back of their minds was 27 Supra at 17, p. 182.
that the latter was a staff member of a prestigious 28 Id.
hospital. Thus, under the doctrine of apparent authority 289employer-employee relationship between PSI and Dr.
applied in Nogales, et al. v. Capitol Medical Center, et Ampil and PSI proved that it has no control over Dr. Ampil.
al.,25 PSI was liable for the negligence of Dr. Ampil. In fact, the trial court has found that there is no employer-
Finally, as owner and operator of Medical City employee relationship in this case and that the doctor’s are
General Hospital, PSI was bound by its duty to provide independent contractors.
comprehensive medical services to Natividad Agana, to II
exercise reasonable care to protect her from harm,26 to Respondents Aganas engaged Dr. Miguel Ampil as their
doctor and did not primarily and specifically look to the
oversee or supervise all persons who practiced medicine
Medical City Hospital (PSI) for medical care and support;
within its walls, and to take active steps in fixing any
otherwise stated, respondents Aganas did not select Medical
form of negligence committed within its premises.27 PSI City Hospital (PSI) to provide medical care because of any
67
apparent authority of Dr. Miguel Ampil as its agent since the negligence for its failure to perform its duties as a
latter was chosen primarily and specifically based on his hospital.
qualifications and being friend and neighbor. While in theory a hospital as a juridical entity cannot
III practice medicine,32 in reality it utilizes doctors,
PSI cannot be liable under doctrine of corporate
surgeons and medical practitioners in the conduct of its
negligence since the proximate cause of Mrs. Agana’s injury
business of facilitating medical and surgical
was the negligence of Dr. Ampil, which is an element of the
principle of corporate negligence.29 treatment.33 Within that reality, three legal
relationships crisscross: (1) between the hospital and
In their respective memoranda, intervenors raise the doctor practicing within its premises; (2) between
parallel arguments that the Court’s ruling on the the hospital and the patient being treated or examined
existence of an employer-employee relationship within its premises and (3) between the patient and the
between private hospitals and consultants will force a doctor. The exact nature of each relationship
drastic and complex alteration in the long-established determines the basis and extent of the liability of the
and currently prevailing relationships among patient, hospital for the negligence of the doctor.
physician and hospital, with burdensome operational Where an employment relationship exists, the
and financial consequences and adverse effects on all hospital may be held vicariously liable under Article
three parties.30 217634 in relation to Article 218035 of the Civil Code or
The Aganas comment that the arguments of PSI the principle of respondeat
need no longer be entertained for they have all been _______________
traversed in the assailed decision and resolution.31
32 Section 8, Republic Act No. 2382 (RA 2382) or The Medical Act
After gathering its thoughts on the issues, this Court of 1959.
holds that PSI is liable to the Aganas, not under the 33 See Acebedo Optical Co. Inc. v. CA, G.R. No. 100152, 31 March
principle of respondeat superior for lack of evidence of 2000, 314 SCRA 315.
an employment 34 Article 2176. Whoever by act or omission causes damage to
_______________ another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties is called a quasi-delict and is
29 Rollo (G.R. No. 126297), pp. 489-490.
governed by the provisions of this Chapter.
30 Id., at pp. 518-527, 605-613.
35 Art. 2180. The obligation imposed by article 2176 is
31 Id., at p. 659.
demandable not only for one’s own acts or omissions, but also for those
290relationship with Dr. Ampil but under the principle of persons for whom one is responsible.
The father and, in case of his death or incapacity, the mother, are
of ostensible agency for the negligence of Dr. Ampil responsible for the damages caused by the minor children who live in
and, pro hac vice, under the principle of corporate their company.
68
Guardians are liable for damages caused by the minors or 37 Art. 1869. Agency may be express, or implied from the acts
incapacitated persons who are under their authority and live in their of the principal, from his silence or lack of action, or his failure to
company. repudiate the agency, knowing that another person is acting on his
behalf without authority.
291superior. Even when no employment relationship 38 Nogales v. Capitol Medical Center, et al., supraat 25.
exists but it is shown that the hospital holds out to the 39 Pedro Solis, Medical Jurisprudence (The Practice of Medicine
and the Law), Quezon City: R.P. Garcia Publishing Co., 1988, p. 321,
patient that the doctor is its agent, the hospital may
citing U.S. district and appellate cases. See also Darling v. Charles-
still be vicariously liable under Article 2176 in relation
to Article 143136 and Article 186937 of the Civil Code or 292This Court still employs the “control test” to
the principle of apparent authority.38Moreover, determine the existence of an employer-employee
regardless of its relationship with the doctor, the relationship between hospital and doctor. In Calamba
hospital may be held directly liable to the patient for its Medical Center, Inc. v. National Labor Relations
own negligence or failure to follow established standard Commission, et al.40 it held:
of conduct to which it should conform as a corporation.39 “Under the “control test,”,an employment relationship
_______________ exists between a physician and a hospital if the hospital
controls both the means and the details of the process by
The owners and managers of an establishment or enterprise are which the physician is to accomplish his task.
likewise responsible for damages caused by their employees in the xx xx xx
service of the branches in which the latter are employed or on the
occasion of their functions.
As priorly stated, private respondents maintained specific
Employers shall be liable for the damages caused by their work-schedules, as determined by petitioner through its
employees and household helpers acting within the scope of their medical director, which consisted of 24-hour shifts totaling
assigned tasks, even though the former are not engaged in any forty-eight hours each week and which were strictly to be
business or industry. observed under pain of administrative sanctions.
The State is responsible in like manner when it acts through a That petitioner exercised control over respondents
special agent; but not when the damage has been caused by the official
gains light from the undisputed fact that in the
to whom the task done properly pertains, in which case what is
provided in article 2176 shall be applicable. emergency room, the operating room, or any
Lastly, teachers or heads of establishments of arts and trades shall department or ward for that matter, respondents’
be liable for damages caused by their pupils and students or work is monitored through its nursing supervisors,
apprentices, so long as they remain in their custody. charge nurses and orderlies. Without the approval or
The responsibility treated of in this article shall cease when the consent of petitioner or its medical director, no
persons herein mentioned prove that they observed all the diligence of
operations can be undertaken in those areas. For
a good father of a family to prevent damage.
36 Article 1431. Through estoppel an admission or control test to apply, it is not essential for the
representation is rendered conclusive upon the person making it, and employer to actually supervise the performance of
cannot be denied or disproved as against the person relying thereon. duties of the employee, it being enough that it has the
right to wield the power.” (emphasis supplied)
69
Even in its December 29, 1999 decision41 and April issue of employment, though long settled, was
11, 2002 resolution42in Ramos, the Court found the unwittingly resurrected.
control test decisive. In fine, as there was no dispute over the RTC finding
In the present case, it appears to have escaped the that PSI and Dr. Ampil had no employer-employee
Court’s attention that both the RTC and the CA found relationship, such finding became final and conclusive
no employment even to this Court.47 There was no reason for PSI to have
_______________ raised it as an issue in its petition. Thus, whatever
discussion on the matter that may have ensued was
ton Community Memorial Hospital, 14 A.L.R. 3D 860 (Ill. September
29, 1965). purely academic.
Nonetheless, to allay the anxiety of the intervenors,
40 G.R. No. 176484, 25 November 2008, 571 SCRA 585. the Court holds that, in this particular instance, the
41 Supra at 18.
concurrent finding of the RTC and the CA that PSI was
42 Supra at 20.
not the employer
293relationship between PSI and Dr. Ampil, and _______________
that the Aganas did not question such finding. In
43 Supra at 13, p. 126.
its March 17, 1993 decision, the RTC found “that 44 Dr. Fuentes filed with the CA a petition for certiorari docketed
defendant doctors were not employees of PSI in its as CA-G.R. SP No. 32198 (CA Rollo, p. 1) while Dr. Ampil and PSI
hospital, they being merely consultants without any jointly filed an appeal docketed as CA-G.R. CV No. 42062 (CA Rollo,
pp. 40 and 152).
employer-employee relationship and in the capacity of
45 Supra at 14, p. 135.
independent contractors.”43 The Aganas never 46 Rollo (G.R. No. 126467), p. 8.
questioned such finding. 47 Elsie Ang v. Dr. Erniefel Grageda, G.R. No. 166239, 8 June
PSI, Dr. Ampil and Dr. Fuentes appealed44 from the 2006, 490 SCRA 424.
RTC decision but only on the issues of negligence, 294of Dr. Ampil is correct. Control as a determinative
agency and corporate liability. In its September 6, 1996 factor in testing the employer-employee relationship
decision, the CA mistakenly referred to PSI and Dr. between doctor and hospital under which the hospital
Ampil as employer-employee, but it was clear in its could be held vicariously liable to a patient in medical
discussion on the matter that it viewed their negligence cases is a requisite fact to be established by
relationship as one of mere apparent agency.45 preponderance of evidence. Here, there was insufficient
The Aganas appealed from the CA decision, but only evidence that PSI exercised the power of control or
to question the exoneration of Dr. Fuentes.46 PSI also wielded such power over the means and the details of
appealed from the CA decision, and it was then that the the specific process by which Dr. Ampil applied his
skills in the treatment of Natividad. Consequently, PSI
70
cannot be held vicariously liable for the negligence of On that particular occasion, April 2, 1984, what
Dr. Ampil under the principle of respondeat superior. was your reason for choosing Dr. Ampil to contact
There is, however, ample evidence that the hospital with in connection with your wife’s illness?
(PSI) held out to the patient (Natividad)48 that the A. First, before that, I have known him to be a
doctor (Dr. Ampil) was its agent. Present are the two specialist on that part of the body as a
factors that determine apparent authority: first, the surgeon, second, I have known him to be a staff
hospital’s implied manifestation to the patient which member of the Medical City which is
led the latter to conclude that the doctor was the a prominent and known hospital. And third,
hospital’s agent; and second, the patient’s reliance upon because he is a neighbor, I expect more than the
the conduct of the hospital and the doctor, consistent usual medical service to be given to us, than his
with ordinary care and prudence.49 ordinary patients.52(emphasis supplied)
Enrique testified that on April 2, 1984, he consulted
Clearly, the decision made by Enrique for Natividad
Dr. Ampil regarding the condition of his wife; that after
to consult Dr. Ampil was significantly influenced by the
the meeting and as advised by Dr. Ampil, he
impression that Dr. Ampil was a staff member of
“asked [his] wife to go to Medical City to be examined
Medical City General Hospital, and that said hospital
by [Dr. Ampil]”; and that the next day, April 3, he told
was well known and prominent. Enrique looked upon
his daughter to take her mother to Dr. Ampil.50 This
Dr. Ampil not as independent of but as integrally
timeline indicates that it was Enrique who actually
related to Medical City.
made the decision on whom Natividad should consult
PSI’s acts tended to confirm and reinforce, rather
and where, and that the latter merely acceded to it. It
than negate, Enrique’s view. It is of record that PSI
explains the testimony of Natividad that she consulted
required a “consent for hospital care”53 to be signed
Dr. Ampil at the instigation of her daughter.51
preparatory to the surgery of Natividad. The form
Moreover, when asked what impelled him to choose
reads:
Dr. Ampil, Enrique testified:
_______________
“Permission is hereby given to the medical, nursing and
laboratory staff of the Medical City General Hospital to
48 Through the patient’s husband Enrique. perform such diagnostic procedures and to administer such
49 Nogales v. Capitol Medical Center, et al., supraat 25. medications and treatments as may be deemed necessary
50 TSN, April 12, 1985, pp. 26-27. or advisable by thephysicians of this hospital for and
51 Second Motion for Reconsideration, Rollo, pp. 495-496. during the confinement of xxx.” (emphasis supplied)
295
By such statement, PSI virtually reinforced the
Atty. Agcaoili
public impression that Dr. Ampil was a physician of its
71
hospital, rather than one independently practicing in it; 51. Clearly, not being an agent or employee of petitioner
that the medications and treatments he prescribed were PSI, PSI [sic] is not liable for Dr. Ampil’s acts during the
necessary and desirable; and that the hospital staff was operation. Considering further that Dr. Ampil was
prepared to carry them out. personally engaged as a doctor by Mrs. Agana, it is
_______________ incumbent upon Dr. Ampil, as “Captain of the Ship,” and as
the Agana’s doctor to advise her on what to do with her
52 Supra at 50, pp. 25-26. situation vis-à-vis the two missing gauzes. In addition to
53 Exh. “D-1,” Exhibit Folder for Plaintiffs, p. 92. noting the missing gauzes, regular check-ups were
296
made and no signs of complications were exhibited
PSI pointed out in its memorandum that Dr. Ampil’s during her stay at the hospital, which could have
alerted petitioner PSI’s hospital to render and
hospital affiliation was not the exclusive basis of the
provide post-operation services to and tread on Dr.
Aganas’ decision to have Natividad treated in Medical Ampil’s role as the doctor of Mrs. Agana. The absence
City General Hospital, meaning that, had Dr. Ampil of negligence of PSI from the patient’s admission up
been affiliated with another hospital, he would still to her discharge is borne by the finding of facts in this
have been chosen by the Aganas as Natividad’s case. Likewise evident therefrom is the absence of any
surgeon.54 complaint from
The Court cannot speculate on what could have been _______________
behind the Aganas’ decision but would rather adhere 54 Petitioner’s Memorandum with Compliance, pp. 57-58.
strictly to the fact that, under the circumstances at that
time, Enrique decided to consult Dr. Ampil for he 297Mrs. Agana after her discharge from the hospital
believed him to be a staff member of a prominent and which had she brought to the hospital’s attention,
known hospital. After his meeting with Dr. Ampil, could have alerted petitioner PSI to act accordingly
and bring the matter to Dr. Ampil’s attention. But this
Enrique advised his wife Natividad to go to the Medical
was not the case. Ms. Agana complained ONLY to Drs.
City General Hospital to be examined by said doctor,
Ampil and Fuentes, not the hospital. How then could
and the hospital acted in a way that fortified Enrique’s PSI possibly do something to fix the negligence
belief. committed by Dr. Ampil when it was not informed
This Court must therefore maintain the ruling that about it at all.55(emphasis supplied)
PSI is vicariously liable for the negligence of Dr. Ampil
as its ostensible agent. PSI reiterated its admission when it stated that had
Moving on to the next issue, the Court notes that PSI Natividad Agana “informed the hospital of her
made the following admission in its Motion for discomfort and pain, the hospital would have
Reconsideration: been obliged to act on it.”56
72
The significance of the foregoing statements is Ampil’s role in it, bringing the matter to his attention,
critical. and correcting his negligence.
First, they constitute judicial admission by PSI that And finally, by such admission, PSI barred itself
while it had no power to control the means or method from arguing in its second motion for reconsideration
by which Dr. Ampil conducted the surgery on Natividad that the concept of corporate responsibility was not yet
Agana, it had the power to review or cause the in existence at the time Natividad underwent
review of what may have irregularly transpired within treatment;58 and that if it had any corporate
its walls strictly for the purpose of determining whether responsibility, the same was limited to reporting the
some form of negligence may have attended any missing gauzes and did not include “taking an active
procedure done inside its premises, with the ultimate step in fixing the negligence committed.”59 An admission
end of protecting its patients. made in the pleading cannot be controverted by the
Second, it is a judicial admission that, by virtue of party making such admission and is conclusive as to
the nature of its business as well as its prominence57 in him, and all proofs submitted by him contrary thereto
the hospital industry, it assumed a duty to “tread on” or inconsistent therewith should be ignored, whether or
the “captain of the ship” role of any doctor rendering not objection is interposed by a party.60
services within its premises for the purpose of ensuring Given the standard of conduct that PSI defined for
the safety of the patients availing themselves of its itself, the next relevant inquiry is whether the hospital
services and facilities. measured up to it.
Third, by such admission, PSI defined the standards PSI excuses itself from fulfilling its corporate duty on
of its corporate conduct under the circumstances of this the ground that Dr. Ampil assumed the personal
case, specifically: (a) that it had a corporate duty to responsibility of informing Natividad about the two
Natividad even after her operation to ensure her safety missing gauzes.61 Dr. Ricardo Jocson, who was part of
as a patient; (b) that the group of doctors that attended to Natividad,
_______________ testified that toward the end of the surgery, their group
talked about the missing gauzes but Dr. Ampil assured
55 Motion for Reconsideration, Rollo, pp. 429-430.
56 Id., at p. 434. them that he would personally notify the patient about
57 PSI has not denied its prominent place in the hospital industry it.62 Furthermore, PSI claimed that there was no
but has in fact asserted such role in its 1967 brochure (Annex “K” to _______________
its Manifestation filed on May 14, 2009).
58 Rollo, p. 505-506.
298its corporate duty was not limited to having its 59 Id., at pp. 506-507.
nursing staff note or record the two missing gauzes and 60 Luciano Tan v. Rodil Enterprises, G.R. No. 168071, 18
(c) that its corporate duty extended to determining Dr. December 2006, 511 SCRA 162; Heirs of Pedro Clemena Y. Zurbano v.
73
Heirs of Irene B. Bien, G.R. No. 155508, 11 September 2006, 501 SCRA would ensure the safety of Natividad. That Dr. Ampil
405.
61 Second Motion for Reconsideration, Rollo, pp. 502-503.
negligently failed to notify Natividad did not release
62 Id., at p. 503, citing TSN, February 26, 1987, p. 36. PSI from its self-imposed separate responsibility.
Corollary to its non-delegable undertaking to review
299reason for it to act on the report on the two missing potential incidents of negligence committed within its
gauzes because Natividad Agana showed no signs of premises, PSI had the duty to take notice of medical
complications. She did not even inform the hospital records prepared by its own staff and submitted to its
about her discomfort.63 custody, especially when these bear earmarks of a
The excuses proffered by PSI are totally surgery gone awry. Thus, the record taken during the
unacceptable. operation of Natividad which reported a gauze count
To begin with, PSI could not simply wave off the discrepancy should have given PSI sufficient
problem and nonchalantly delegate to Dr. Ampil the _______________
duty to review what transpired during the operation.
The purpose of such review would have been to pinpoint 63 Supra at 55.
when, how and by whom two surgical gauzes were 300reason to initiate a review. It should not have waited
mislaid so that necessary remedial measures could be for Natividad to complain.
taken to avert any jeopardy to Natividad’s recovery. As it happened, PSI took no heed of the record of
Certainly, PSI could not have expected that purpose to operation and consequently did not initiate a review of
be achieved by merely hoping that the person likely to what transpired during Natividad’s operation. Rather,
have mislaid the gauzes might be able to retrace his it shirked its responsibility and passed it on to others—
own steps. By its own standard of corporate conduct, to Dr. Ampil whom it expected to inform Natividad, and
PSI’s duty to initiate the review was non-delegable. to Natividad herself to complain before it took any
While Dr. Ampil may have had the primary meaningful step. By its inaction, therefore, PSI failed
responsibility of notifying Natividad about the missing its own standard of hospital care. It committed
gauzes, PSI imposed upon itself the separate and corporate negligence.
independent responsibility of initiating the inquiry into It should be borne in mind that the corporate
the missing gauzes. The purpose of the first would have negligence ascribed to PSI is different from the medical
been to apprise Natividad of what transpired during her negligence attributed to Dr. Ampil. The duties of the
surgery, while the purpose of the second would have hospital are distinct from those of the doctor-consultant
been to pinpoint any lapse in procedure that led to the practicing within its premises in relation to the patient;
gauze count discrepancy, so as to prevent a recurrence hence, the failure of PSI to fulfill its duties as a hospital
thereof and to determine corrective measures that
74
corporation gave rise to a direct liability to the Aganas to the Aganas have all but dwindled, for the status of
distinct from that of Dr. Ampil. Dr. Ampil can no longer be ascertained.66
All this notwithstanding, we make it clear that PSI’s Therefore, taking all the equities of this case into
hospital liability based on ostensible agency and consideration, this Court believes P15 million would be
corporate negligence applies only to this case, pro hac a fair and reasonable liability of PSI, subject to 12% p.a.
vice. It is not intended to set a precedent and should not interest from the finality of this resolution to full
serve as a basis to hold hospitals liable for every form of satisfaction.
negligence of their doctors-consultants under any and WHEREFORE, the second motion for
all circumstances. The ruling is unique to this case, for reconsideration is DENIED and the motions for
the liability of PSI arose from an implied agency with intervention are NOTED.
Dr. Ampil and an admitted corporate duty to Professional Services, Inc. is ORDERED pro hac
Natividad.64 vice to pay Natividad (substituted by her children
Other circumstances peculiar to this case warrant Marcelino Agana III, Enrique Agana, Jr., Emma
this ruling,65 not the least of which being that the agony Agana-Andaya, Jesus Agana and Raymund Agana) and
wrought Enrique Agana the total amount of P15 million, subject
_______________ to 12% p.a. interest from the finality of this resolution
to full satisfaction.
64 In Partido ng Manggagawa (PM) and Butil Farmers Party
(Butil) v. Comelec (G.R. No. 164702, March 15, 2006, 484 SCRA 671), No further pleadings by any party shall be
a ruling expressly qualified as pro hac vice is limited in application to entertained in this case.
one particular case only; it cannot be relied upon as a precedent to Let the long-delayed entry of judgment be made in
govern other cases.
this case upon receipt by all concerned parties of this
65 See Sps. Chua v. Hon. Jacinto Ang, et al., G.R. No. 156164, 4
September 2009, 598 SCRA 229. resolution.
SO ORDERED.
301upon the Aganas has gone on for 26 long years, with
Natividad coming to the end of her days racked in pain
and agony. Such wretchedness could have been avoided
had PSI simply done what was logical: heed the report
of a guaze count discrepancy, initiate a review of what
went wrong and take corrective measures to ensure the
safety of Natividad. Rather, for 26 years, PSI hemmed
and hawed at every turn, disowning any such
responsibility to its patient. Meanwhile, the options left
75
G.R. No. 163825. July 13, 2010.* 22 SUPREME COURT
VIOLETA TUDTUD BANATE, MARY MELGRID M. REPORTS ANNOTATED
CORTEL, BONIFACIO CORTEL, ROSENDO Banate vs. Philippines Countryside
MAGLASANG, and PATROCINIA MONILAR, Rural Bank (Liloan, Cebu), Inc.
petitioners, vs.PHILIPPINE COUNTRYSIDE RURAL mortgage contract indisputably provides that the
BANK (LILOAN, CEBU), INC. and TEOFILO SOON, subject properties serve as security, not only for the payment
JR., respondents. of the subject loan, but also for “such other loans or advances
already obtained, or still to be obtained.” The cross-collateral
Real Estate Mortgage; Blanket Mortgage Clause stipulation in the mortgage contract between the parties is
(Dragnet Clause); Cross-Collateral Stipulations; While thus simply a variety of a dragnet clause. After agreeing to
generally a mortgage liability is usually limited to the such stipulation, the petitioners cannot insist that the
amount mentioned in the contract, the amounts named as subject properties be released from mortgage since the
consideration in a contract of mortgage do not limit the security covers not only the subject loan but the two other
amount for which the mortgage may stand as security if, from loans as well.
the four corners of the instrument, the intent to secure future Novation; Extinctive Novation; Requisites; Novation is
and other indebtedness can be gathered; A cross-collateral extinctive when an old obligation is terminated by the
stipulation in a mortgage contract is simply a variety of a creation of a new obligation that takes the place of the former,
dragnet clause.—Before we resolve the issues directly posed, and it is merely modificatory when the old obligation subsists
we first dwell on the determination of the nature of the cross- to the extent that it remains compatible with the amendatory
collateral stipulation in the mortgage contract. As a general agreement.—Novation, in its broad concept, may either be
rule, a mortgage liability is usually limited to the amount extinctive or modificatory. It is extinctive when an old
mentioned in the contract. However, the amounts named as obligation is terminated by the creation of a new obligation
consideration in a contract of mortgage do not limit the that takes the place of the former; it is merely modificatory
amount for which the mortgage may stand as security if, when the old obligation subsists to the extent that it remains
from the four corners of the instrument, the intent to secure compatible with the amendatory agreement. An extinctive
future and other indebtednesscan be gathered. This novation results either by changing the object or principal
stipulation is valid and binding between the parties and is conditions (objective or real), or by substituting the person of
known as the “blanket mortgage clause” (also known as the the debtor or subrogating a third person in the rights of the
“dragnet clause).” In the present case, the creditor (subjective or personal). Under this mode, novation
_______________
would have dual functions—one to extinguish an existing
* THIRD DIVISION. obligation, the other to substitute a new one in its place—
requiring a conflux of four essential requisites: (1) a previous
22
valid obligation; (2) an agreement of all parties concerned to
76
a new contract; (3) the extinguishment of the old obligation; corporation. However, just as a natural person may
and (4) the birth of a valid new obligation. authorize another to do certain acts for and on his behalf, the
Same; Same; Corporation Law; As a general rule, no board of directors may validly delegate some of its functions
form of words or writing is necessary to give effect to a and powers to its officers, committees or agents. The
novation, but where either or both parties involved are authority of these individuals to bind the corporation is
juridical entities, proof that the second contract was executed generally derived from law, corporate by-laws or
by persons with the proper authority to bind their respective authorization from the board, either expressly or impliedly
principals is necessary.—The second requisite is lacking in by habit, custom or acquiescence in the general course of
this case. Novation presupposes not only the extinguishment business.
or modification of an existing obligation but, more Corporation Law; Doctrine of Apparent Authority;
importantly, the creation of a valid new obligation. For the Words and Phrases; The doctrine of “apparent authority,”
consequent creation of a new contractual obligation, consent with special reference to banks, had long been recognized in
of both parties is, thus, required. As a general rule, no form this jurisdiction; The authority to act for and to bind a
of words or writing is necessary to give effect to a novation. corporation may be presumed from acts of recognition in other
Nevertheless, where either or both parties involved are instances when the power was exercised without any objection
juridical entities, proof that the second contract was from its board or shareholders.—The authority of a corporate
23 officer or agent in dealing with third persons may be actual
or apparent. Actual authority is either express or implied.
VOL. 625, JULY 13, 2010 23
The extent of an agent’s express authority is to be measured
Banate vs. Philippines Countryside by the power delegated to him by the corporation, while the
Rural Bank (Liloan, Cebu), Inc. extent of his implied authority is measured by his prior acts
executed by persons with the proper authority to bind which have been ratified or approved, or their benefits
their respective principals is necessary. accepted by his principal. The doctrine of “apparent
Same; Same; Same; Just as a natural person may authority,” on the other hand, with special reference to
authorize another to do certain acts for and on his behalf, the banks, had long been recognized in this jurisdiction. The
board of directors may validly delegate some of its functions existence of apparent authority may be ascertained through:
and powers to its officers, committees or agents.—Section 23 1. the general manner in which the corporation holds out an
of the Corporation Code expressly provides that the officer or agent as having the power to act, or in other words,
corporate powers of all corporations shall be exercised by the the apparent authority to act in general, with which it
board of directors. The power and the responsibility to decide clothes him; or 2. the acquiescence in his acts of a particular
whether the corporation should enter into a contract that will nature, with actual or construc-
bind the corporation are lodged in the board, subject to the 24
articles of incorporation, by-laws, or relevant provisions of
law. In the absence of authority from the board of directors,
24 SUPREME COURT
no person, not even its officers, can validly bind a REPORTS ANNOTATED
77
Banate vs. Philippines Countryside apparent authority were we to consider the power to undo or
Rural Bank (Liloan, Cebu), Inc. nullify solemn agreements validly entered into as within the
tive knowledge thereof, within or beyond the scope of his doctrine’s ambit. Although a branch manager, within his
ordinary powers. Accordingly, the authority to act for and to field and as to third persons, is the general agent and is in
bind a corporation may be presumed from acts of recognition general charge of the corporation, with apparent authority
in other instances when the power was exercised without any commensurate with the ordinary business entrusted him
objection from its board or shareholders. and the usual course and conduct thereof, yet the power to
Same; Same; Apparent authority is determined only by modify or nullify corporate contracts remains generally in
the acts of the principal and not by the acts of the agent.— the board of directors. Being a mere branch manager alone is
Under the doctrine of apparent authority, acts and contracts insufficient to support the conclusion that Mondigo has
25
of the agent, as are within the apparent scope of the
authority conferred on him, although no actual authority to VOL. 625, JULY 13, 2010 25
do such acts or to make such contracts has been conferred, Banate vs. Philippines Countryside
bind the principal. The principal’s liability, however, is
Rural Bank (Liloan, Cebu), Inc.
limited only to third persons who have been led reasonably
to believe by the conduct of the principal that such actual been clothed with “apparent authority” to verbally alter
authority exists, although none was given. In other words, terms of written contracts, especially when viewed against
apparent authority is determined only by the acts of the the telling circumstances of this case: the unequivocal
principal and not by the acts of the agent. There can be no provision in the mortgage contract; PCRB’s vigorous denial
apparent authority of an agent without acts or conduct on that any agreement to release the mortgage was ever entered
the part of the principal; such acts or conduct must have been into by it; and, the fact that the purported agreement was
known and relied upon in good faith as a result of the not even reduced into writing considering its legal effects on
exercise of reasonable prudence by a third party as claimant, the parties’ interests. To put it simply, the burden of proving
and such acts or conduct must have produced a change of the authority of Mondigo to alter or novate the mortgage
position to the third party’s detriment. contract has not been established.
Same; Same; We would be unduly stretching the doctrine PETITION for review on certiorari of the decision and
of apparent authority were we to consider the power to undo resolution of the Court of Appeals.
or nullify solemn agreements validly entered into as within
the doctrine’s ambit; Although a branch manager, within his
field and as to third persons, is the general agent and is in
Ma. Antonnette Brillantes-Bolivar and Gilroy V.
general charge of the corporation, with apparent authority Billones for respondent PCRB.
commensurate with the ordinary business entrusted him and BRION,** J.:
the usual course and conduct thereof, yet the power to modify
Before the Court is a petition for review
or nullify corporate contracts remains generally in the board
on certiorari1 assailing the December 19, 2003
of directors.—We would be unduly stretching the doctrine of
78
decision2 and the May 5, 2004 resolution3 of the Court of mortgage over their property, Lot 12868-H-3-
Appeals (CA) in CA-G.R. CV No. 74332. The CA decision C,6 including the house constructed thereon (collectively
reversed the Regional Trial Court (RTC) decision4 of referred to as subject properties), owned by petitioners
June 27, 2001 granting the petitioners’ complaint for Mary Melgrid and Bonifacio Cortel (spouses Cortel), the
specific performance and damages against the spouses Maglasang’s daughter and son-in-law,
respondent Philippine Countryside Rural Bank, Inc. respectively. Aside from the subject loan, the spouses
(PCRB).5 Maglasang obtained two other loans from PCRB which
_______________ were covered by separate promissory notes7 and secured
by mortgages on their other properties.
** Designated Acting Chairperson of the Third Division, in view
of the leave of absence of Associate Justice Conchita Carpio-Morales, Sometime in November 1997 (before the subject loan
per Special Order No. 849 dated June 29, 2010. became due), the spouses Maglasang and the spouses
1 Under Rule 45 of the Rules of Court. Cortel asked PCRB’s permission to sell the subject
2 Penned by Associate Justice Remedios A. Salazar-Fernando,
properties. They likewise requested that the subject
with Associate Justice Eubulo G. Verzola and Associate Justice
Edgardo F. Sundiam, concurring; Rollo, pp. 23-36. properties be released from the mortgage since the two
3 Id., at pp. 37-38. other loans were adequately secured by the other
4 Penned by Judge Ulric R. Cañete; id., at pp. 69-75. mortgages. The spouses Maglasang and the spouses
5 On December 12, 2008, the Monetary Board of the Bangko
Sentral ng Pilipinas ordered the closure of PCRB, and placed it under
Cortel claimed that the PCRB, acting through its
the receivership of the Philippine Deposit Insurance Corporation. Branch Manager, Pancrasio Mondigo, verbally agreed
to their request but required first the full payment of
26
the subject loan. The spouses Maglasang and the
spouses Cortel thereafter sold to petitioner Violeta
ANNOTATED
Banate the subject properties for P1,750,000.00. The
Banate vs. Philippines Countryside Rural spouses Magsalang and the spouses Cortel used the
Bank (Liloan, Cebu), Inc. amount to pay the subject loan with PCRB. After
The Factual Antecedents settling the subject loan, PCRB gave the owner’s
On July 22, 1997, petitioner spouses Rosendo duplicate certificate of title of Lot 12868-H-3-C to
Maglasang and Patrocinia Monilar (spouses Banate, who was able to secure a new title in her name.
Maglasang) obtained a loan (subject loan) from PCRB The title, however, carried
for P1,070,000.00. The subject loan was evidenced by a _______________
promissory note and was payable on January 18, 1998.
To secure the payment of the subject loan, the spouses 6 Registered under Transfer Certificate of Title No. 82746, with an
area of 275 square meters and situated in Barangay Pitogo,
Maglasang executed, in favor of PCRB a real estate Consolacion, Cebu City.
79
7 Promissory notes dated December 19, 1997 and July 22, 1997. thereon, of which MORTGAGOR(s) represent(s) and
27
warrant(s) that MORTGAGOR(s) is/are the absolute
VOL. 625, JULY 13, 2010 27 owner(s) and that the same is/are free from all liens and
encumbrances;”
Banate vs. Philippines Countryside Rural
Bank (Liloan, Cebu), Inc. TRANSFER CERTIFICATE OF TITLE NO. 827468
the mortgage lien in favor of PCRB, prompting the Accordingly, PCRB claimed that full payment of the
petitioners to request from PCRB a Deed of Release of three loans, obtained by the spouses Maglasang, was
Mortgage. As PCRB refused to comply with the necessary before any of the mortgages could be released;
petitioners’ request, the petitioners instituted an action the settlement
for specific performance before the RTC to compel _______________
PCRB to execute the release deed. 8 Rollo, p. 62.
The petitioners additionally sought payment of
damages from PCRB, which, they claimed, caused the 28
publication of a news report stating that they 28 SUPREME COURT REPORTS
“surreptitiously” caused the transfer of ownership of ANNOTATED
Lot 12868-H-3-C. The petitioners considered the news Banate vs. Philippines Countryside Rural
report false and malicious, as PCRB knew of the sale of Bank (Liloan, Cebu), Inc.
the subject properties and, in fact, consented thereto. of the subject loan merely constituted partial payment
PCRB countered the petitioners’ allegations by of the total obligation. Thus, the payment does not
invoking the cross-collateral stipulation in the authorize the release of the subject properties from the
mortgage deed which states: mortgage lien.
“1. That as security for the payment of the loan or PCRB considered Banate as a buyer in bad faith as
advance in principal sum of one million seventy thousand she was fully aware of the existing mortgage in its favor
pesos only (P1,070,000.00) and such other loans or when she purchased the subject properties from the
advances already obtained, or still to be obtained by spouses Maglasang and the spouses Cortel. It explained
the MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or that it allowed the release of the owner’s duplicate
GUARANTOR(s) from the MORTGAGEE plus interest at certificate of title to Banate only to enable her to
the rate of _____ per annum and penalty and litigation
annotate the sale. PCRB claimed that the release of the
charges payable on the dates mentioned in the corresponding
promissory notes, the MORTGAGOR(s) hereby transfer(s) title should not indicate the corresponding release of the
and convey(s) to MORTGAGEE by way of first mortgage the subject properties from the mortgage constituted
parcel(s) of land described hereunder, together with the thereon.
improvements now existing for which may hereafter be made
80
After trial, the RTC ruled in favor of the petitioners. mortgage contract containing the cross-collateral
It noted that the petitioners, as “necessitous men,” stipulation. It ruled that Mondigo cannot orally amend
could not have bargained on equal footing with PCRB the mortgage contract between PCRB, and the spouses
in executing the mortgage, and concluded that it was a Maglasang and the spouses Cortel; therefore, the
contract of adhesion. Therefore, any obscurity in the claimed commitment allowing the release of the
mortgage contract should not benefit PCRB.9 mortgage on the subject properties cannot bind PCRB.
The RTC observed that the official receipt issued by Since the cross-collateral stipulation in the mortgage
PCRB stated that the amount owed by the spouses contract (requiring full settlement of all three loans
Maglasang under the subject loan was only about P1.2 before the release of any of the mortgages) is clear, the
million; that Mary Melgrid Cortel paid the subject loan parties must faithfully comply with its terms. The CA
using the check which Banate issued as payment of the did not consider as material the release of the owner’s
purchase price; and that PCRB authorized the release duplicate copy of the title, as it was done merely to allow
of the title further indicated that the subject loan had the annotation of the sale of the subject properties to
already been settled. Since the subject loan had been Banate.11
fully paid, the RTC considered the petitioners as Dismayed with the reversal by the CA of the RTC’s
rightfully entitled to a deed of release of mortgage, ruling, the petitioners filed the present appeal
pursuant to the verbal agreement that the petitioners by certiorari, claiming that the CA ruling is not in
made with PCRB’s branch manager, Mondigo. Thus, accord with established jurisprudence.
the RTC ordered PCRB to execute a deed of release of
mortgage over the subject properties, and to pay the The Petition
petitioners moral damages and attorney’s fees.10
_______________ The petitioners argue that their claims are
consistent with their agreement with PCRB; they
9 Id., at p. 73. complied with the required full payment of the subject
10 Id., at p. 75.
loan to allow the release of the subject properties from
29 the mortgage. Having carried out their part of the
VOL. 625, JULY 13, 2010 29 bargain, the petitioners maintain that PCRB must
Banate vs. Philippines Countryside Rural honor its commitment to release the mortgage over the
Bank (Liloan, Cebu), Inc. subject properties.
On appeal, the CA reversed the RTC’s decision. The CA The petitioners disregard the cross-collateral
did not consider as valid the petitioners’ new agreement stipulation in the mortgage contract, claiming that it
with Mondigo, which would novate the original had been novated by the subsequent agreement with
81
Mondigo. Even assuming that the cross-collateral collateral stipulation in the mortgage contract. As a
stipulation subsists for lack of authority on the part of general rule, a mortgage liability is usually limited to
Mondigo to novate the mortgage contract, the the amount mentioned in the contract. However, the
_______________ amounts named as consideration in a contract of
mortgage do not limit the amount for which the
11 Supra note 2, at p. 35.
mortgage may stand as security if, from the four corners
30 of the instrument, the intent to secure future and other
30 SUPREME COURT REPORTS indebtedness can be gathered. This stipulation is valid
ANNOTATED and bindingbetween the parties and is known as the
Banate vs. Philippines Countryside Rural “blanket mortgage clause” (also known as the “dragnet
Bank (Liloan, Cebu), Inc. clause).”12
petitioners contend that PCRB should nevertheless In the present case, the mortgage contract
return the amount paid to settle the subject loan since indisputably provides that the subject properties serve
the new agreement should be deemed rescinded. as security, not only
The basic issues for the Court to resolve are as _______________
follows:
12 Prudential Bank v. Alviar, G.R. No. 150197, July 28, 2005, 464
1. Whether the purported agreement between the SCRA 353.
petitioners and Mondigo novated the mortgage
31
contract over the subject properties and is thus
binding upon PCRB.
VOL. 625, JULY 13, 2010 31
2. If the first issue is resolved negatively, whether Banate vs. Philippines Countryside Rural
Banate can demand restitution of the amount paid Bank (Liloan, Cebu), Inc.
for the subject properties on the theory that the for the payment of the subject loan, but also for “such
new agreement with Mondigo is deemed other loans or advances already obtained, or still to be
rescinded. obtained.” The cross-collateral stipulation in the
The Court’s Ruling mortgage contract between the parties is thus simply a
We resolve to deny the petition. variety of a dragnet clause. After agreeing to such
The purported agreement did not novate stipulation, the petitioners cannot insist that the
the mortgage contract, particularly the subject properties be released from mortgage since the
cross-collateral stipulation thereon security covers not only the subject loan but the two
Before we resolve the issues directly posed, we first other loans as well.
dwell on the determination of the nature of the cross-
82
The petitioners, however, claim that their agreement 32 SUPREME COURT REPORTS
with Mondigo must be deemed to have novated the ANNOTATED
mortgage contract. They posit that the full payment of Banate vs. Philippines Countryside Rural
the subject loan extinguished their obligation arising Bank (Liloan, Cebu), Inc.
from the mortgage contract, including the stipulated The second requisite is lacking in this case. Novation
cross-collateral provision. Consequently, consistent presupposes not only the extinguishment or
with their theory of a novated agreement, the modification of an existing obligation but, more
petitioners maintain that it devolves upon PCRB to importantly, the creation of a valid new obligation.14For
execute the corresponding Deed of Release of Mortgage. the consequent creation of a new contractual obligation,
We find the petitioners’ argument unpersuasive. consent of both parties is, thus, required. As a general
Novation, in its broad concept, may either be extinctive rule, no form of words or writing is necessary to give
or modificatory. It is extinctive when an old obligation effect to a novation. Nevertheless, where either or both
is terminated by the creation of a new obligation that parties involved are juridical entities, proof that the
takes the place of the former; it is merely modificatory second contract was executed by persons with the
when the old obligation subsists to the extent that it proper authority to bind their respective principals is
remains compatible with the amendatory agreement. necessary.15
An extinctive novation results either by changing the Section 23 of the Corporation Code16expressly
object or principal conditions (objective or real), or by provides that the corporate powers of all corporations
substituting the person of the debtor or subrogating a shall be exercised by the board of directors. The power
third person in the rights of the creditor (subjective or and the responsibility to decide whether the corporation
personal). Under this mode, novation would have dual should enter into a contract that will bind the
functions—one to extinguish an existing obligation, corporation are lodged in the board, subject to the
the other to substitute a new one in its place—requiring articles of incorporation, by-laws, or relevant provisions
a conflux of four essential requisites: (1) a previous valid of law. In the absence of authority from the board of
obligation; (2) an agreement of all parties concerned to a directors, no person, not even its officers, can validly
new contract; (3) the extinguishment of the old bind a corporation.
obligation; and (4) the birth of a valid new obligation.13 However, just as a natural person may authorize
_______________
another to do certain acts for and on his behalf, the
13 Fabrigas v. San Franciso Del Monte, Inc., G.R. No. 152346, board of directors
November 25, 2005, 476 SCRA 253. _______________
32 14 Art. 1292 of the Civil Code states:
83
In order that an obligation may be extinguished by another which “apparent authority,” on the other hand, with special
substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every
reference to banks, had long been recognized in this
point incompatible with each other. jurisdiction. The existence of apparent authority may be
15 De Leon and De Leon, Jr., Comments and Cases on Obligations ascertained through:
and Contracts (2003 ed.), p. 431, citing Garcia, Jr. v. Court of Appeals, 1. the general manner in which the corporation holds
G.R. No. 80201, November 20, 1990, 191 SCRA 493. out an officer or agent as having the power to act, or in other
16 Section 23. The Board of directors or trustees.—Unless
words, the apparent authority to act in general, with which
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business it clothes him; or
conducted and all property of such corporations controlled and held by 2. the acquiescence in his acts of a particular nature,
the board of directors or trustees to be elected from among the holders with actual or constructive knowledge thereof, within or
of stocks, or where there are no stocks, from among the members of beyond the scope of his ordinary powers.
the corporation, who shall hold office for one (1) year and until their
successors are elected and qualified. Accordingly, the authority to act for and to bind a
33 corporation may be presumed from acts of recognition
VOL. 625, JULY 13, 2010 33 in other instances when the power was exercised
Banate vs. Philippines Countryside Rural without any objection from its board or shareholders.19
Bank (Liloan, Cebu), Inc. Notably, the petitioners’ action for specific
performance is premised on the supposed actual or
may validly delegate some of its functions and powers
apparent authority of the branch manager, Mondigo, to
to its officers, committees or agents. The authority of
release the subject properties
these individuals to bind the corporation is generally _______________
derived from law, corporate by-laws or authorization
from the board, either expressly or impliedly by habit, 17 People’s Aircargo and Warehousing Co., Inc. v. Court of Appeals,
custom or acquiescence in the general course of G.R. No. 117847, October 7, 1998, 297 SCRA 170.
18 19 C.J.S. § 994.
business.17 19 Associated Bank v. Spouses Rafael and Monaliza Pronstroller,
The authority of a corporate officer or agent in G.R. No. 148444, July 14, 2008, 558 SCRA 113.
dealing with third persons may be actual or apparent.
34
Actual authority is either express or implied. The extent
of an agent’s express authority is to be measured by the
ANNOTATED
power delegated to him by the corporation, while the
extent of his implied authority is measured by his prior Banate vs. Philippines Countryside Rural
acts which have been ratified or approved, or their Bank (Liloan, Cebu), Inc.
benefits accepted by his principal.18 The doctrine of from the mortgage, although the other obligations
remain unpaid. In light of our discussion above, proof of
84
the branch manager’s authority becomes indispensable 21 3 Am. Jur. 2d §79.
22 Yun Kwan Byung v. Philippine Amusement and Gaming
to support the petitioners’ contention. The petitioners Corporation, G.R. No. 163553, December 11, 2009, 608 SCRA 107, 132.
make no claim that Mondigo had actual authority from
PCRB, whether express or implied. Rather, adopting 35
the trial court’s observation, the petitioners posited that VOL. 625, JULY 13, 2010 35
PCRB should be held liable for Mondigo’s commitment, Banate vs. Philippines Countryside Rural
on the basis of the latter’s apparent authority. Bank (Liloan, Cebu), Inc.
We disagree with this position. tioners. No proof of the course of business, usages and
Under the doctrine of apparent authority, acts and practices of the bank about, or knowledge that the board
contracts of the agent, as are within the apparent scope had or is presumed to have of, its responsible officers’
of the authority conferred on him, although no actual acts regarding bank branch affairs, was ever adduced to
authority to do such acts or to make such contracts has establish the branch manager’s apparent authority to
been conferred, bind the principal.20 The principal’s verbally alter the terms of mortgage contracts.23 Neither
liability, however, is limited only to third persons who was there any allegation, much less proof, that PCRB
have been led reasonably to believe by the conduct of the ratified Mondigo’s act or is estopped to make a contrary
principalthat such actual authority exists, although claim.24
none was given. In other words, apparent authority is Further, we would be unduly stretching the doctrine
determined only by the acts of the principal and not by of apparent authority were we to consider the power to
the acts of the agent.21 There can be no apparent undo or nullify solemn agreements validly entered into
authority of an agent without acts or conduct on the as within the doctrine’s ambit. Although a branch
part of the principal; such acts or conduct must have manager, within his field and as to third persons, is the
been known and relied upon in good faith as a result of general agent and is in general charge of the
the exercise of reasonable prudence by a third party as corporation, with apparent authority commensurate
claimant, and such acts or conduct must have produced with the ordinary business entrusted him and the usual
a change of position to the third party’s detriment.22 course and conduct thereof,25yet the power to modify or
In the present case, the decision of the trial court was nullify corporate contracts remains generally in the
utterly silent on the manner by which PCRB, as board of directors.26 Being a mere branch
supposed principal, has “clothed” or “held out” its manager alone is insufficient to support the conclusion
branch manager as having the power to enter into an that Mondigo has been clothed with “apparent
agreement, as claimed by peti- authority” to verbally alter terms of written contracts,
_______________ especially when viewed against the telling
circumstances of this case: the unequivocal provision in
20 2 Am. Jur. §102.
85
the mortgage contract; PCRB’s vigorous denial that any Mondigo’s actual or apparent authority, as above
agreement to release the mortgage was ever entered discussed.
into by it; and, the fact that the purported agreement Rescission has no legal basis; there can
was not even reduced into writing considering its legal be no restitution of the amount paid
effects on the parties’ interests. To put it simply, the The petitioners, nonetheless, invoke equity and
burden of proving the authority of Mondigo alternatively pray for the restitution of the amount
_______________ paid, on the rationale that if PCRB’s branch manager
was not authorized to accept payment in consideration
23 Board of Liquidators v. Kalaw, August 14, 1967, No. L-18805,
20 SCRA 987. of separately releasing the mortgage, then the
24 Rural Bank of Milaor (Camarines Sur) v. Ocfemia, G.R. No. agreement should be deemed rescinded, and the
137686, February 8, 2000, 325 SCRA 99. amount paid by them returned.
25 19 C.J.S. § 1002.
PCRB, on the other hand, counters that the
26 No other officer or agent can make such modification even
though he has the power to make the contract, unless authority in this petitioners’ alternative prayer has no legal and factual
respect has been specially conferred on him (19 C.J.S. 1044). basis, and insists that the clear agreement of the parties
36
was for the full payment of the subject loan, and in
36 SUPREME COURT REPORTS return, PCRB would deliver the title to the subject
ANNOTATED properties to the buyer, only to enable the latter to
obtain a transfer of title in her own name.
We agree with PCRB. Even if we were to assume that
Bank (Liloan, Cebu), Inc.
the purported agreement has been sufficiently
to alter or novate the mortgage contract has not been
established, since it is not binding on the bank for lack
established.27
of authority of PCRB’s branch manager, then the prayer
It is a settled rule that persons dealing with an agent
for restitution of the amount paid would have no legal
are bound at their peril, if they would hold the principal
basis. Of course, it will be
liable, to ascertain not only the fact of agency but also _______________
the nature and extent of the agent’s authority, and in
case either is controverted, the burden of proof is upon 27 San Juan Structural and Steel Fabricators, Inc. v. Court of
them to establish it.28 As parties to the mortgage Appeals, G.R. No. 129459, September 29, 1998, 296 SCRA 631.
28 Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No.
contract, the petitioners are expected to abide by its 151319, November 22, 2004, 443 SCRA 377.
terms. The subsequent purported agreement is of no
37
moment, and cannot prejudice PCRB, as it is beyond
VOL. 625, JULY 13, 2010 37
86
Banate vs. Philippines Countryside Rural matured. Consequently, recovery of the amount paid,
Bank (Liloan, Cebu), Inc. even under a claim of premature payment, will not
asked: what then is the legal significance of the prosper.
payment made by Banate? Article 2154 of the Civil _______________
Code reads: 29 Rollo, p. 71.
“Art. 2154. If something is received when there is no 30 It is necessary that payment be in accordance with the
right to demand it, and it was unduly delivered through obligation; the person paying as well as the one receiving payment
mistake, the obligation to return it arises.” should have the requisite capacity; it should be made by the debtor to
the creditor; and at the right time and place. (Tolentino, Civil Code of
Notwithstanding the payment made by Banate, she the Philippines, Vol. IV (1991 ed.), p. 274.)
is not entitled to recover anything from PCRB under 8
Article 2154. There could not have been any payment 8 SUPREME COURT REPORTS
by mistake to PCRB, as the check which Banate issued ANNOTATED
as payment was to her co-petitioner Mary Melgrid
Cortel (the payee), and not to PCRB. The same check
Bank (Liloan, Cebu), Inc.
was simply endorsed by the payee to PCRB in payment
In light of these conclusions, the claim for moral
of the subject loan that the Maglasangs owed PCRB.29
damages must necessarily fail. On the alleged injurious
The mistake, if any, was in the perception of the
publication, we quote with approval the CA’s ruling on
authority of Mondigo, as branch manager, to verbally
the matter, viz.:
alter the mortgage contract, and not as to whether the
“Consequently, there is no rea nson to hold [respondent]
Cortels, as sellers, were entitled to payment. This PCRB liable to [petitioners] for damages. x x x [Petitioner]
mistake (on Mondigo’s lack of authority to alter the Maglasang cannot hold [respondent] PCRB liable for the
mortgage) did not affect the validity of the payment publication of the extrajudicial sale. There was no evidence
made to the bank as the existence of the loan was never submitted to prove that [respondent] PCRB authored the
disputed. The dispute was merely on the effect of the words “Mortgagors surreptitiously caused the transfer of
payment on the security given.30 ownership of Lot 12868-H-3-C x x x” contained in the
Consequently, no right to recover accrues in Banate’s publication since at the bottom was x x x Sheriff Teofilo C.
favor as PCRB never dealt with her. The borrowers- Soon, Jr.’s name. Moreover, there was not even an iota of
mortgagors, on the other hand, merely paid what was proof which shows damage on the part of [petitioner] Mary
really owed. Parenthetically, the subject loan was due Melgrid M. Cortel.”31
on January 18, 1998, but was paid sometime in WHEREFORE, we DENY the petitioners’ petition
November 1997. It appears, however, that at the time for review on certiorari for lack of merit, and AFFIRM
the complaint was filed, the subject loan had already
87
the decision of the Court of Appeals dated December 19, VOL. 191, NOVEMBER 22, 623
2003 and its resolution dated May 5, 2004 in CA-G.R. 1990
CV No. 74332. No pronouncement as to costs. Manila Remnant Co., Inc. vs. Court of
SO ORDERED. Appeals
Same; Same; Same; Same; Despite the fact that the
double sale was beyond the power of the agent, Manila
Remnant as principal was chargeable with the knowledge or
constructive notice of that fact and not having done anything
to correct such an irregularity was deemed to have ratified the
G.R. No. 82978. November 22, 1990. *
same.—However, the unique relationship existing between
THE MANILA REMNANT CO., INC., the principal and the agent at the time of the dual sale must
petitioner, vs. THE HONORABLE COURT OF be underscored. Bear in mind that the president then of both
APPEALS and OSCAR VENTANILLA, JR. and firms was Artemio U. Valencia, the individual directly
CARMEN GLORIA DIAZ, respondents. responsible for the sale scam. Hence, despite the fact that the
double sale was beyond the power of the agent, Manila
Civil Law; Sale; Agency; The agent who acts as such is Remnant as principal was chargeable with the knowledge or
not personally liable to that party with whom he contracts, constructive notice of that fact and not having done anything
unless he expressly binds himself or exceeds the limits of his to correct such an irregularity was deemed to
authority without giving such party sufficient notice of his have ratified the same.
powers.—In the case at bar, the Valencia realty firm had Same; Same; Same; Estoppel; By the principle of
clearly overstepped the bounds of its authority as agent— estoppel, Manila Remnant is deemed to have allowed its
and for that matter, even the law—when it undertook the agent to act as though it had plenary powers.—More in point,
double sale of the disputed lots. Such being the case, the we find that by the principle of estoppel, Manila Remnant is
principal, Manila Remnant, would have been in the clear deemed to have allowed its agent to act as though it had
pursuant to Article 1897 of the Civil Code which states that plenary powers.
“(t)he agent who acts as such is not personally liable to that Same; Same; Same; Same; Authority by estoppel has
party with whom he contracts, unless he expressly binds arisen in the instant case because by its negligence, the
himself or exceeds the limits of his authority without giving principal, Manila Remnant, has permitted its agent, A.N.
such party sufficient notice of his powers.” Valencia and Co. to exercise powers not granted to it.—
_______________ Authority by estoppel has arisen in the instant case because
by its negligence, the principal, Manila Remnant, has
* THIRD DIVISION.
permitted its agent, A.U. Valencia and Co., to exercise
623 powers not granted to it. That the principal might not have
had actual knowledge of the agent’s misdeed is of no moment.
88
Same; Same; Same; Same; The basis for Manila The facts as found by the trial court and adopted by
Remnant’s solidary liability is estoppel; Manila Remnant is the Appellate Court are as follows:
considered estopped from pleading the truth that it had no Petitioner Manila Remnant Co., Inc. is the owner of
direct hand in the deception employed by its agent.—In the parcels of land situated in Quezon City covered by
essence, therefore, the basis for Manila Remnant’s solidary
Transfer Certificates of Title Nos. 26400, 26401, 30783
liability is estoppel which, in turn, is rooted in the principal’s
and 31986 and constituting the subdivision known as
neglectfulness in failing to properly supervise and control the
affairs of its agent and to adopt the needed measures to Capital Homes Subdivision Nos. I and II. On July 25,
prevent further misrepresentation. As a consequence, 1972, Manila Remnant and A.U. Valencia & Co. Inc.
Manila Remnant is considered estopped from pleading the entered into a written agreement entitled
truth that it had no direct hand in the deception employed “Confirmation of Land Development and Sales
by its agent. Contract” to formalize an earlier verbal agreement
whereby for a consideration of 17 and 1/2% fee,
PETITION to review the decision of the Court of including sales commission and management fee, A.U.
Appeals. Valencia and Co., Inc. was to develop the aforesaid
subdivision with authority to manage the sales thereof,
The facts are stated in the opinion of the Court. execute contracts to sell to lot buyers and issue official
Bede S. Tabalingcos for petitioners. receipts. 1
624
At that time the President of both A.U. Valencia and
Co. Inc. and Manila Remnant Co., Inc. was Artemio U.
ANNOTATED
Valencia.
Manila Remnant Co., Inc. vs. Court of On March 3, 1970, Manila Remnant thru A.U.
Appeals Valencia and Co. executed two “contracts to sell”
Augusto Gatmaytan for private respondent. covering Lots 1 and 2 of Block 17 in favor of Oscar C.
Ventanilla and Carmen Gloria Diaz for the combined
FERNAN, C.J.:
contract price of P66,571.00 payable monthly for ten
Like any other couple, Oscar Ventanilla and his wife years. As thus agreed in the contracts to sell, the
2
Carmen, both faculty members of the University of the Ventanillas paid the down payments on the two lots
Philippines and renting a faculty unit, dreamed of even before the formal contract was signed on March 3,
someday owning a house and lot. Instead of attaining 1970.
this dream, they became innocent victims of deceit and Ten (10) days after the signing of the contracts with
found themselves in the midst of an ensuing squabble the Ventanillas or on March 13, 1970, Artemio U.
between a subdivision owner and its real estate agent. Valencia, as
89
_______________ account of the considerable amount of discrepancies and
irregularities discovered in its collections and
1 Exhibit U.
2 Exhibits 1 and 2. remittances by virtue of confirmations received from lot
buyers. As a consequence, on June 6, 1973, Artemio
4
625
Valencia was removed as President by the Board of
VOL. 191, NOVEMBER 22, 1990 625 Directors of Manila Remnant. Therefore, from May of
Manila Remnant Co., Inc. vs. Court of 1973, Valencia stopped transmitting Ventanilla’s
Appeals monthly installments which at that time had already
President of Manila Remnant, and without the amounted to P17,925.40 for Lot 1 and P18,141.95 for
knowledge of the Ventanilla couple, sold Lots 1 and 2 of Lot 2, (which appeared in Manila Remnant’s record as
Block 17 again, this time in favor of Carlos Crisostomo, credited in the name of Crisostomo). 5
one of his sales agents without any On June 8, 1973, A.U. Valencia and Co. sued Manila
consideration. Artemio Valencia then transmitted the
3
Remnant before Branch 19 of the then Court of First
fictitious Crisostomo contracts to Manila Remnant Instance of Manila to impugn the abrogation of their
6
while he kept in his files the contracts to sell in favor of agency agreement. On June
the Ventanillas. All the amounts paid by the _______________
Ventanillas were deposited in Valencia’s bank account.
Beginning March 13, 1970, upon orders of Artemio
3 Exhibits 3 and 4.
4 Exhibit Q.
Valencia, the monthly payments of the Ventanillas 5 Exhibits N to N-37.
were remitted to Manila Remnant as payments of 6 Civil Case No. 90979.
Crisostomo for which the former issued receipts in favor

626
of Crisostomo. Since Valencia kept the receipts in his 626 SUPREME COURT REPORTS
files and never transmitted the same to Crisostomo, the ANNOTATED
latter and the Ventanillas remained ignorant of
Manila Remnant Co., Inc. vs. Court of
Valencia’s scheme. Thus, the Ventanillas continued
Appeals
paying their monthly installments.
Subsequently, the harmonious business relationship 10 and July 10, 1973, said court ordered all lot buyers
between Artemio Valencia and Manila Remnant ended. to deposit their monthly amortizations with the
On May 30, 1973, Manila Remnant, through its General court. But on July 17, 1973, A.U. Valencia and Co.
7
Manager Karl Landahl, wrote Artemio Valencia wrote the Ventanillas that it was still authorized by the
informing him that Manila Remnant was terminating court to collect the monthly amortizations and
its existing collection agreement with his firm on requested them to continue remitting their
amortizations with the assurance that said payments
90
would be deposited later in court. On May 22, 1974, the
8 _______________
trial court issued an order prohibiting A.U. Valencia 7 Exhibit I.
and Co. from collecting the monthly installments. On9
8 Exhibit C.
July 22, 1974 and February 6, 1976 the same court 9 Exhibit J.
ordered the Valencia firm to furnish the court with a 10 Exhibits K and L.
11 Exhibits 0-6 to 8.
complete list of all lot buyers who had already made 12 Exhibits G and G-1.
down payments to Manila Remnant before December 13 Civil Case No. 22015; Exhibit H.
1972. Valencia complied with the court’s order on

10
627
August 6, 1974 by submitting a list which excluded the
VOL. 191, NOVEMBER 22, 1990 627
name of the Ventanillas.11
Since A.U. Valencia and Co. failed to forward its Manila Remnant Co., Inc. vs. Court of
collections after May 1973, Manila Remnant caused on Appeals
August 20, 1976 the publication in the Times Journalof P36,911.00 for Lot 2 or a grand total, inclusive of
a notice cancelling the contracts to sell of some lot interest, of P73,122.35 for the two lots, thereby leaving
buyers including that of Carlos Crisostomo in whose a balance of P13,531.58 for Lot 1 and P13,540.22 for Lot
name the payments of the Ventanillas had been 2, went directly to Manila Remnant and offered to pay
credited. 12
the entire outstanding balance of the purchase
To prevent the effective cancellation of their price. To their shock and utter consternation, they
14
contracts, Artemio Valencia instigated on September discovered from Gloria Caballes, an accountant of
22, 1976 the filing by Carlos Crisostomo and seventeen Manila Remnant, that their names did not appear in
(17) other lot vendees of a complaint for specific the records of A.U. Valencia and Co. as lot buyers.
performance with damages against Manila Remnant Caballes showed the Ventanillas copies of the contracts
before the Court of First Instance of Quezon City. The to sell in favor of Carlos Crisostomo, duly signed by
complaint alleged that Crisostomo had already paid a Artemio U. Valencia as President of Manila
total of P17,922.40 and P18,136.85 on Lots 1 and 2, Remnant. Whereupon, Manila Remnant refused the
15
respectively. 13
offer of the Ventanillas to pay for the remainder of the
It was not until March 1978 when the Ventanillas, contract price because they did not have the personality
after learning of the termination of the agency to do so. Furthermore, they were shown the published
agreement between Manila Remnant and A.U. Valencia Notice of Cancellation in the January 29, 1978 issue of
& Co., decided to stop paying their amortizations to the the Times Journal rescinding the contracts of
latter. The Ventanillas, believing that they had already delinquent buyers including Crisostomo.
remitted P37,007.00 for Lot 1 and
91
Thus, on November 21, 1978, the Ventanillas jointly and severally to the Ventanillas the total amount
commenced an action for specific performance, of P73,122.35 representing the total amount paid for
annulment of deeds and damages against Manila the two lots plus legal interest thereon from March 1970
Remnant, A.U. Valencia and Co. and Carlos Crisostomo plus damages as aforestated. With regard to the cross
before the Court of First Instance of Quezon City, claim of Manila Remnant against Valencia, the court
Branch 17-B. Crisostomo was declared in default for
16 found that Manila Remnant could have not been
failure to file an answer. dragged into this suit without the fraudulent
On November 17, 1980, the trial court rendered a manipulations of Valencia. Hence, it adjudged A.U.
decision 1) declaring the contracts to sell issued in favor Valencia and Co. to pay the Manila Remnant P5,000.00
of the Ventanillas valid and subsisting and annulling as moral damages and exemplary damages and
the contracts to sell in Crisostomo’s favor; 2) ordering P5,000.00 as attorney’s fees. 17
Manila Remnant to execute in favor of the Ventanillas Subsequently, Manila Remnant and A.U. Valencia
an Absolute Deed of Sale free from all liens and and Co. elevated the lower court’s decision to the Court
encumbrances; and 3) condemning defendants A.U. of Appeals through separate appeals. On October 13,
Valencia and Co. Inc., Manila Remnant and Carlos 1987, the Appellate Court affirmed in totothe decision
Crisostomo jointly and severally to pay the Ventanillas of the lower court. Reconsideration sought by petitioner
the amount of P100,000.00 as moral damages, Manila Remnant was denied, hence the instant
P100,000.00 as exemplary damages, and P100,000.00 petition.
as attorney’s fees. The lower court also added that if, for There is no question that the contracts to sell in favor
any legal reason, the transfer of the lots could no longer of the Ventanilla spouses are valid and subsisting. The
be effected, the defendants should reimburse only issue remaining is whether or not petitioner
_______________ Manila Remnant should be held solidarily liable
14 Exhibits A-7 to Exhibits A-74 and B-8 to B-82; TSN, Valencia,
together with A.U. Valencia and Co. and Carlos
July 17, 1979, p. 16. Crisostomo for the payment of moral, exemplary
15 Exhibits E and F. damages and attorney’s fees in favor of the
16 Civil Case No. 26411.
Ventanillas. 18
628 While petitioner Manila Remnant has not refuted

628 SUPREME COURT REPORTS the legality of the award of damages per se, it believes
ANNOTATED that it cannot be made jointly and severally liable with
Manila Remnant Co., Inc. vs. Court of its agent A.U. Valencia and Co. since it was not aware
Appeals of the illegal acts perpetrated nor did it consent or ratify
said acts of its agent.
92
The argument is devoid of merit. agent to act as though it had plenary powers. Article
In the case at bar, the Valencia realty firm had 1911 of the Civil Code provides:
clearly overstepped the bounds of its authority as “Even when the agent has exceeded his authority, the
agent—and for that matter, even the law—when it principal is solidarily liable with the agent if the former
undertook the double sale of the disputed lots. Such allowed the latter to act as though he had full
being the case, the principal, Manila Remnant, would powers.” (Italics supplied).
have been in the clear pursuant to Article 1897 of the The above-quoted article is new. It is intended to protect
Civil Code which states that “(t)he agent who acts as the rights of innocent persons. In such a situation, both
such is not personally liable to that party with whom he the principal and the agent may be considered as
contracts, unless he expressly binds himself or exceeds jointfeasors whose liability is joint and solidary.20
the limits of his authority without giving such party Authority by estoppel has arisen in the instant case
sufficient notice of his powers.” because by its negligence, the principal, Manila
_______________
Remnant, has permitted its agent, A.U. Valencia and
17 Rollo, p. 44. Co., to exercise powers not granted to it. That the
18 Rollo, p. 13. principal might not have had actual knowledge of the
629
agent’s misdeed is of no moment. Consider the following
VOL. 191, NOVEMBER 22, 19906 29 circumstances:
Firstly, Manila Remnant literally gave carte
Manila Remnant Co., Inc. vs. Court of
blanche to its agent A.U. Valencia and Co. in the sale
Appeals
and disposition of the subdivision lots. As a disclosed
However, the unique relationship existing between the
principal in the contracts to sell in favor of the
principal and the agent at the time of the dual sale must
Ventanilla couple, there was no doubt that they were in
be underscored. Bear in mind that the president then of
fact contracting with the principal. Section 7 of the
both firms was Artemio U. Valencia, the individual
Ventanillas’ contracts to sell states:
directly responsible for the sale scam. Hence, despite “7. That all payments whether deposits, down payment and
the fact that the double sale was beyond the power of monthly installment agreed to be made by the vendee shall
the agent, Manila Remnant as principal was chargeable be payable
with the knowledge or constructive notice of that fact _______________
and not having done anything to correct such an
See Art. 1910, Civil Code.
irregularity was deemed to have ratified the same.
19
19
20 Verzosa vs. Lim, 45 Phil. 416.
More in point, we find that by the principle of
estoppel, Manila Remnant is deemed to have allowed its 630
93
630 SUPREME COURT REPORTS the Ventanillas, Manila Remnant could and should
ANNOTATED have devised a system whereby it could monitor and
Manila Remnant Co., Inc. vs. Court of require a regular accounting from A.U. Valencia and
Appeals Co., its agent. Not having done so, Manila Remnant has
to A.U. Valencia and Co., Inc. It is hereby expressly made itself liable to those who have relied on its agent
understood that unauthorized payments made to real estate and the representation that such agent was clothed
brokers or agents shall be the sole and exclusive with sufficient powers to act on behalf of the principal.
responsibility and at the risk of the vendee and any and all Even assuming that Manila Remnant was as much a
such payments shall not be recognized by the vendors unless victim as the other innocent lot buyers, it cannot be
the official receipts therefor shall have been duly signed by the gainsaid that it was precisely its negligence and laxity
vendors’ duly authorized agent, A.U. Valencia and Co., in the day to day operations of the real estate business
Inc.” (Italics supplied).
which made it possible for the agent to deceive
Indeed, once Manila Remnant had been furnished with unsuspecting vendees like the Ventanillas.
the usual copies of the contracts to sell, its only In essence, therefore, the basis for Manila Remnant’s
participation then was to accept the collections and pay solidary
the commissions to the agent. The latter had complete _______________
control of the business arrangement. 21
21 Original Record, p. 164, TSN, October 1, 1979, p. 10.
Secondly, it is evident from the records that Manila
Remnant was less than prudent in the conduct of its 631
business as a subdivision owner. For instance, Manila VOL. 191, NOVEMBER 22, 1990 631
Remnant failed to take immediate steps to avert any Manila Remnant Co., Inc. vs. Court of
damage that might be incurred by the lot buyers as a Appeals
result of its unilateral abrogation of the agency liability is estoppel which, in turn, is rooted in the
contract. The publication of the cancelled contracts to principal’s neglectfulness in failing to properly
sell in the Times Journalcame three years after Manila supervise and control the affairs of its agent and to
Remnant had revoked its agreement with A.U. Valencia adopt the needed measures to prevent further
and Co. misrepresentation. As a consequence, Manila Remnant
Moreover, Manila Remnant also failed to check the is considered estopped from pleading the truth that it
records of its agent immediately after the revocation of had no direct hand in the deception employed by its
the agency contract despite the fact that such agent. 22
revocation was due to reported anomalies in Valencia’s A final word. The Court cannot help but be alarmed
collections. Altogether, as pointed out by the counsel for over the reported practice of supposedly reputable real
94
estate brokers of manipulating prices by allowing their 45 of the Rules of Court because the Court is not a trier of
own agents to “buy” lots in their names in the hope of facts.—It must be stressed that issues of facts may not be
reselling the same at a higher price to the prejudice of raised in the Court under Rule 45 of the Rules of Court
bona fide lot buyers, as precisely what the agent had because the Court is not a trier of facts. It is not to re-
examine and assess the evidence on record, whether
intended to happen in the present case. This is a serious
testimonial and documentary. There are, however,
matter that must be looked into by the appropriate
recognized exceptions where the Court may delve into and
government housing authority. resolve factual issues, namely: (1) When the conclusion is a
WHEREFORE, in view of the foregoing, the appealed finding grounded entirely on speculations, surmises, or
decision of the Court of Appeals dated October 13, 1987 conjectures; (2) when the inference made is manifestly
sustaining the decision of the Quezon City trial court mistaken, absurd, or impossible; (3) when there is grave
dated November 17, 1980 is AFFIRMED. This abuse of discretion; (4) when the judgment is based on a
judgment is immediately executory. Costs against misapprehension of facts; (5) when the findings of fact are
petitioner. conflicting; (6) when the Court of Appeals, in making its
SO ORDERED. findings, went beyond the issues of the case and the same is
Gutierrez, Jr. and Bidin, JJ.,concur. contrary to the admissions of both appellant and appellee; (7)
when the findings of the Court of Appeals are contrary to
Feliciano, J., On leave.
those of the trial court; (8) when the findings of fact are
Decision affirmed. 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
G.R. No. 144805. June 8, 2006. *
contradicted by the evidence on record.
EDUARDO V. LITONJUA, JR. and ANTONIO K. Corporation Law; Corporations; Property; Sales; The
general principles of agency govern the relation between the
LITONJUA, petitioners, vs.ETERNIT CORPORATION
corporation and its officers or agents, subject to the articles of
(now ETERTON MULTI-RESOURCES incorporation, by-laws, or relevant provisions of law.—A
CORPORATION), ETEROUTREMER, S.A. and FAR corporation is a juridical person separate and distinct from
EAST BANK & TRUST COMPANY, respondents. its members or stockholders and is not
_______________
Actions; Pleadings and
Practice; Appeals; Certiorari; Exceptions; It must be stressed * FIRST DIVISION.
that issues of facts may not be raised in the Court under Rule
205
95
VOL. 490, JUNE 8, 2006 205 resolution or by its by-laws. An unauthorized act of an officer
Litonjua, Jr. vs. Eternit Corporation of the corporation is not binding on it unless the latter
affected by the personal rights, obligations and ratifies the same expressly or impliedly by its board of
transactions of the latter. It may act only through its board directors. Any sale of real property of a corporation by a
of directors or, when authorized either by its by-laws or by person purporting to be an agent thereof but without written
its board resolution, through its officers or agents in the authority from the corporation is null and void. The
normal course of business. The general principles of agency declarations of the agent alone are generally insufficient to
govern the relation between the corporation and its officers establish the fact or extent of his/her authority.
or agents, subject to the articles of incorporation, by-laws, or Same; Same; Same; Same; Same; Consent of both
relevant provisions of law. principal and agent is necessary to create an agency.—By the
Same; Same; Same; Same; The property of a contract of agency, a person binds himself to render some
corporation, however, is not the property of the stockholders service or to do something in
206
or members, and as such, may not be sold without express
authority from the board of directors.—The property of a 206 SUPREME COURT
corporation, however, is not the property of the stockholders REPORTS ANNOTATED
or members, and as such, may not be sold without express
Litonjua, Jr. vs. Eternit Corporation
authority from the board of directors. Physical acts, like the
representation on behalf of another, with the consent or
offering of the properties of the corporation for sale, or the
authority of the latter. Consent of both principal and agent
acceptance of a counter-offer of prospective buyers of such
is necessary to create an agency. The principal must intend
properties and the execution of the deed of sale covering such
that the agent shall act for him; the agent must intend to
property, can be performed by the corporation only by officers
accept the authority and act on it, and the intention of the
or agents duly authorized for the purpose by corporate by-
parties must find expression either in words or conduct
laws or by specific acts of the board of directors. Absent such
between them.
valid delegation/authorization, the rule is that the
Same; Same; Same; Same; Same; An agency may be
declarations of an individual director relating to the affairs
expressed or implied from the act of the principal, from his
of the corporation, but not in the course of, or connected with,
silence or lack of action, or failure to repudiate the agency.—
the performance of authorized duties of such director, are not
An agency may be expressed or implied from the act of the
binding on the corporation.
principal, from his silence or lack of action, or his failure to
Same; Same; Same; Same; Agency; Any sale of real
repudiate the agency knowing that another person is acting
property of a corporation by a person purporting to be an
on his behalf without authority. Acceptance by the agent
agent thereof but without written authority from the
may be expressed, or implied from his acts which carry out
corporation is null and void.—While a corporation may
the agency, or from his silence or inaction according to the
appoint agents to negotiate for the sale of its real properties,
circumstances. Agency may be oral unless the law requires a
the final say will have to be with the board of directors
specific form. However, to create or convey real rights over
through its officers and agents as authorized by a board
96
immovable property, a special power of attorney is necessary. apparent authority, requires proof of reliance upon the
Thus, when a sale of a piece of land or any portion thereof is representations, and that, in turn, needs proof that the
through an agent, the authority of the latter shall be in representations predated the action taken in reliance.
writing, otherwise, the sale shall be void.
Same; Same; Same; Same; Same; A person dealing with PETITION for review on certiorari of the decision and
a known agent is not authorized, under any circumstances, resolution of the Court of Appeals.
blindly to trust the agents—statements as to the extent of his The facts are stated in the opinion of the Court.
powers—such person must not act negligently but must use Jimenez, Gonzales, Liwanag, Bello, Valdez, Calu
reasonable diligence and prudence to ascertain whether the ya & Fernandez for petitioners.
agent acts within the scope of his authority.—A person Eufemio Law Offices for respondents Eternit
dealing with a known agent is not authorized, under any Corporation and Eteroutremer, S.A.
circumstances, blindly to trust the agents; statements as to Carlito P. Viniegra for FEBTC (now BPI).
the extent of his powers; such person must not act
negligently but must use reasonable diligence and prudence CALLEJO, SR., J.:
to ascertain whether the agent acts within the scope of his
authority. The settled rule is that, persons dealing with an On appeal via a Petition for Review on Certiorari is the
assumed agent are bound at their peril, and if they would Decision of the Court of Appeals (CA) in CA-G.R. CV
1
hold the principal liable, to ascertain not only the fact of

No. 51022, which affirmed the Decision of the Regional
agency but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon them Trial Court (RTC), Pasig City, Branch 165, in Civil Case
to prove it. No. 54887, as well as the Resolution of the CA denying
2
Same; Same; Same; Same; Same; Agency by Estoppel; the motion for reconsideration thereof.
Requisites; For an agency by estoppel to exist, the following The Eternit Corporation (EC) is a corporation duly
must be established.—For an agency by estoppel to exist, the organized and registered under Philippine laws. Since
following must be established: (1) the principal manifested a 1950, it had been engaged in the manufacture of roofing
representation of the agent’s authority or knowingly allowed materials and pipe products. Its manufacturing
the agent to assume such operations were conducted on eight parcels of land with
207
a total area of 47,233 square meters. The properties,
VOL. 490, JUNE 8, 2006 207 located in Mandaluyong City, Metro Manila, were
Litonjua, Jr. vs. Eternit Corporation covered by Transfer Certificates of Title Nos.
_______________
authority; (2) the third person, in good faith, relied upon
such representation; (3) relying upon such representation, 1 Penned by Associate Justice Remedios A. Salazar-Fernando, with
such third person has changed his position to his detriment. Associate Justices Fermin A. Martin, Jr. and Salvador J. Valdez, Jr.
An agency by estoppel, which is similar to the doctrine of (retired), concurring; Rollo, pp. 40-53.
97
2 Rollo, pp. 54-55. and his brother Antonio K. Litonjua. The Litonjua
208 siblings offered to buy the property for P20,000,000.00
208 SUPREME COURT REPORTS cash. Marquez apprised Glanville of the Litonjua
ANNOTATED siblings’ offer and relayed the same to Delsaux in
Litonjua, Jr. vs. Eternit Corporation Belgium, but the latter did not respond. On October 28,
451117, 451118, 451119, 451120, 451121, 451122, 1986, Glanville telexed Delsaux in Belgium, inquiring
451124 and 451125 under the name of Far East Bank on his position/counterproposal to the offer of the
& Trust Company, as trustee. Ninety (90%) percent of Litonjua siblings. It was only on February 12, 1987 that
the shares of stocks of EC were owned by Eteroutremer Delsaux sent a telex to Glanville stating that, based on
S.A. Corporation (ESAC), a corporation organized and the “Belgian/Swiss decision,”
_______________
registered under the laws of Belgium. Jack Glanville, an
3
Australian citizen, was the General Manager and 3 Id., at pp. 11, 61.
President of EC, while Claude Frederick Delsaux was 4 Id., at pp. 394-395.
the Regional Director for Asia of ESAC. Both had their 209
offices in Belgium. VOL. 490, JUNE 8, 2006 209
In 1986, the management of ESAC grew concerned Litonjua, Jr. vs. Eternit Corporation
about the political situation in the Philippines and the final offer was “US$1,000,000.00 and P2,500,000.00
wanted to stop its operations in the country. The to cover all existing obligations prior to final
Committee for Asia of ESAC instructed Michael Adams, liquidation.” 5
a member of EC’s Board of Directors, to dispose of the Marquez furnished Eduardo Litonjua, Jr. with a copy
eight parcels of land. Adams engaged the services of of the telex sent by Delsaux. Litonjua, Jr. accepted the
realtor/broker Lauro G. Marquez so that the properties counterproposal of Delsaux. Marquez conferred with
could be offered for sale to prospective buyers. Glanville Glanville, and in a Letter dated February 26, 1987,
later showed the properties to Marquez. Marquez confirmed that the Litonjua siblings had accepted the
thereafter offered the parcels of land and the counter-proposal of Delsaux. He also stated that the
improvements thereon to Eduardo B. Litonjua, Jr. of Litonjua siblings would confirm full payment within 90
the Litonjua & Company, Inc. In a Letter dated days after execution and preparation of all documents
September 12, 1986, Marquez declared that he was of sale, together with the necessary governmental
authorized to sell the properties for P27,000,000.00 and clearances. 6
that the terms of the sale were subject to negotiation. 4

The Litonjua brothers deposited the amount of
Eduardo Litonjua, Jr. responded to the offer. US$1,000,000.00 with the Security Bank & Trust
Marquez showed the property to Eduardo Litonjua, Jr.,
98
Company, Ermita Branch, and drafted an Escrow Delsaux himself later sent a letter dated May 22,
Agreement to expedite the sale. 7 1987, confirming that the ESAC Regional Office had
Sometime later, Marquez and the Litonjua brothers decided not to proceed with the sale of the subject land,
inquired from Glanville when the sale would be to wit:
implemented. In a telex dated April 22, 1987, Glanville May 22, 1987
informed Delsaux that he had met with the buyer, Mr. L.G. Marquez
which had given him the impression that “he is L.G. Marquez, Inc.
prepared to press for a satisfactory conclusion to the
334 Makati Stock Exchange Bldg.
sale.” He also emphasized to Delsaux that the buyers
8
6767 Ayala Avenue
were concerned because they would incur expenses in Makati, Metro Manila
bank commitment fees as a consequence of prolonged Philippines
period of inaction. 9
Meanwhile, with the assumption of Corazon C. Dear Sir:

Aquino as President of the Republic of the Philippines,
the political situation in the Philippines had improved. Re: Land of Eternit Corporation
Marquez received a telephone call from Glanville, I would like to confirm officially that our Group has
decided not to proceed with the sale of the land which was
advising that the sale would no longer proceed.
proposed to you.
Glanville followed it up with a Letter dated May 7,
The Committee for Asia of our Group met recently
1987, confirming that he had been instructed by his (meeting every six months) and examined the position as far
_______________
as the Philippines are (sic) concerned. Considering [the]
5 Id., at p. 396. new political situation since the departure of MR.
6 Id., at pp. 397-398. MARCOS and a certain stabilization in the
7 Id., at p. 240. Philippines, the Committee has decided not to stop our
8 Id., at p. 241.
operations in Manila. In fact, production has
9 Id.
started again last week, and (sic) to recognize the
210 participation in the Corporation.
210 SUPREME COURT REPORTS We regret that we could not make a deal with you this
ANNOTATED time, but in case the policy would change at a later state, we
would consult you again.
Litonjua, Jr. vs. Eternit Corporation xxx
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
99
Yours sincerely, subject properties nor authorized Marquez to sell the
(Sgd.) same; and the telex dated October 28, 1986 of Jack
C.F. DELSAUX Glanville was his own personal making which did not
bind EC.
cc. To: J. GLANVILLE (Eternit Corp.) 11
On July 3, 1995, the trial court rendered judgment in

_______________ favor of defendants and dismissed the amended
complaint. The fallo of the decision reads:
12
10 Id., at p. 399.
11 Id., at pp. 349-400.
“WHEREFORE, the complaint against Eternit Corporation
now Eterton Multi-Resources Corporation and
211 Eteroutremer, S.A. is dismissed on the ground that there is
VOL. 490, JUNE 8, 2006 211 no valid and binding sale between the plaintiffs and said
Litonjua, Jr. vs. Eternit Corporation defendants.
When apprised of this development, the Litonjuas, The complaint as against Far East Bank and Trust
through counsel, wrote EC, demanding payment for Company is likewise dismissed for lack of cause of action.
The counterclaim of Eternit Corporation now Eterton
damages they had suffered on account of the aborted
Multi-Resources Corporation and Eteroutremer, S.A. is also
sale. EC, however, rejected their demand. dismissed for lack of merit.” 13
The Litonjuas then filed a complaint for specific

performance and damages against EC (now the Eterton _______________
Multi-Resources Corporation) and the Far East Bank & 13 Id., at pp. 174-175.
Trust Company, and ESAC in the RTC of Pasig City. An 12 Id., at pp. 163-175.
amended complaint was filed, in which defendant EC
212
was substituted by Eterton Multi-Resources
Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha
ANNOTATED
T. Tan and Deogracias G. Eufemio were impleaded as
additional defendants on account of their purchase of Litonjua, Jr. vs. Eternit Corporation
ESAC shares of stocks and were the controlling The trial court declared that since the authority of the
stockholders of EC. agents/realtors was not in writing, the sale is void and
In their answer to the complaint, EC and ESAC not merely unenforceable, and as such, could not have
alleged that since Eteroutremer was not doing business been ratified by the principal. In any event, such
in the Philippines, it cannot be subject to the ratification cannot be given any retroactive effect.
jurisdiction of Philippine courts; the Board and Plaintiffs could not assume that defendants had agreed
stockholders of EC never approved any resolution to sell to sell the property without a clear authorization from
100
the corporation concerned, that is, through resolutions 15 Id., at pp. 47-48.
of the Board of Directors and stockholders. The trial 213
court also pointed out that the supposed sale involves VOL. 490, JUNE 8, 2006 213
substantially all the assets of defendant EC which Litonjua, Jr. vs. Eternit Corporation
would result in the eventual total cessation of its the corporation’s assets, it would necessarily need the
operation. 14
authority from the stockholders.
The Litonjuas appealed the decision to the CA, On June 16, 2000, the CA rendered judgment
alleging that “(1) the lower court erred in concluding affirming the decision of the RTC. The Litonjuas filed
16
that the real estate broker in the instant case needed a a motion for reconsideration, which was also denied by
written authority from appellee corporation and/or that the appellate court.
said broker had no such written authority; and (2) the The CA ruled that Marquez, who was a real estate
lower court committed grave error of law in holding that broker, was a special agent within the purview of
appellee corporation is not legally bound for specific Article 1874 of the New Civil Code. Under Section 23 of
performance and/or damages in the absence of an the Corporation Code, he needed a special authority
enabling resolution of the board of directors.” They
15
from EC’s board of directors to bind such corporation to
averred that Marquez acted merely as a broker or go- the sale of its properties. Delsaux, who was merely the
between and not as agent of the corporation; hence, it representative of ESAC (the majority stockholder of
was not necessary for him to be empowered as such by EC) had no authority to bind the latter. The CA pointed
any written authority. They further claimed that an out that Delsaux was not even a member of the board of
agency by estoppel was created when the corporation directors of EC. Moreover, the Litonjuas failed to prove
clothed Marquez with apparent authority to negotiate that an agency by estoppel had been created between
for the sale of the properties. However, since it was a the parties.
bilateral contract to buy and sell, it was equivalent to a In the instant petition for review, petitioners aver
perfected contract of sale, which the corporation was that:
obliged to consummate. I
In reply, EC alleged that Marquez had no written
authority from the Board of Directors to bind it; neither THE COURT OF APPEALS ERRED IN HOLDING THAT
were Glanville and Delsaux authorized by its board of THERE WAS NO PERFECTED CONTRACT OF SALE.
directors to offer the property for sale. Since the sale
involved substantially all of II
_______________
THE APPELLATE COURT COMMITTED GRAVE
14 Id., at pp. 173-174. ERROR OF LAW IN HOLDING THAT MARQUEZ
101
NEEDED A WRITTEN AUTHORITY FROM Petitioners assert that there was no need for a
RESPONDENT ETERNIT BEFORE THE SALE CAN BE written authority from the Board of Directors of EC for
PERFECTED. Marquez to validly act as
broker/middleman/intermediary. As broker, Marquez
III
was not an ordinary agent because his authority was of
THE COURT OF APPEALS ERRED IN NOT HOLDING a special and limited character in most respects. His
THAT GLANVILLE AND DELSAUX HAVE THE only job as a broker was to look for a buyer and to bring
NECESSARY AUTHORITY TO SELL THE SUBJECT together the parties to the transaction. He was not
PROPERTIES, OR AT THE VERY LEAST, WERE authorized to sell the properties or to make a binding
KNOWINGLY PERMITTED BY RESPONDENT ETERNIT contract to respondent EC; hence, petitioners argue,
TO DO ACTS WITHIN THE SCOPE OF AN APPARENT 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
16 Id., at pp. 40-53. both the offer and counter-offer and their acceptance of
214 respondent EC’s counter-offer, resulting in a perfected
214 SUPREME COURT REPORTS contract of sale.
ANNOTATED Petitioners posit that the testimonial and
Litonjua, Jr. vs. Eternit Corporation documentary evidence on record amply shows that
AUTHORITY, AND THUS HELD THEM OUT TO THE Glanville, who was the President and General Manager
PUBLIC AS POSSESSING POWER TO SELL THE SAID of respondent EC, and Delsaux, who was the Managing
PROPERTIES. 17 Director for ESAC Asia, had the necessary authority to
sell the subject property or, at least, had been allowed
Petitioners maintain that, based on the facts of the case, by respondent EC to hold themselves out in the public
there was a perfected contract of sale of the parcels of as having the power to sell the subject properties.
land and the improvements thereon for Petitioners identified such evidence, thus:
“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 17 Id., at p. 15.
EC and that before the counter-offer was withdrawn by 215
respondents, the acceptance was made known to them VOL. 490, JUNE 8, 2006 215
through real estate broker Marquez. Litonjua, Jr. vs. Eternit Corporation
102
1. 1.The testimony of Marquez that he was that Delsaux confirmed his authority to sell the
chosen by Glanville as the then President and properties in his letter to Marquez, to wit:
General Manager of Eternit, to sell the Dear Sir,
properties of said corporation to any interested
party, which authority, as hereinabove Re: Land of Eternit Corporation
discussed, need not be in writing. I would like to confirm officially that our Group has
2. 2.The fact that the NEGOTIATIONS for the sale decided not to proceed with the sale of the land which
of the subject properties spanned SEVERAL was proposed to you.
MONTHS, from 1986 to 1987; The Committee for Asia of our Group met recently
3. 3.The COUNTER-OFFER made by Eternit (meeting every six months) and examined the position
through GLANVILLE to sell its properties to as far as the Philippines are (sic) concerned.
the Petitioners; Considering the new political situation since the
4. 4.The GOOD FAITH of Petitioners in believing departure of MR. MARCOS and a certain stabilization
Eternit’s offer to sell the properties as evidenced in
_______________
by the Petitioners’ ACCEPTANCE of the
counter-offer; 18 Id., at pp. 29-30.
5. 5.The fact that Petitioners DEPOSITED the
216
price of [US]$1,000,000.00 with the Security
Bank and that an ESCROW agreement was 216 SUPREME COURT REPORTS
drafted over the subject properties; ANNOTATED
6. 6.Glanville’s telex to Delsaux inquiring Litonjua, Jr. vs. Eternit Corporation
“WHEN WE(Respondents) WILL IMPLEMENT the Philippines, the Committee has decided not to stop
ACTION TO BUY AND SELL”; our operations in Manila[.] [I]n fact production started
7. 7.More importantly, Exhibits “G” and “H” of the again last week, and (sic) to reorganize the
Respondents, which evidenced the fact that participation in the Corporation.
Petitioners’ offer was allegedly REJECTED by We regret that we could not make a deal with
both Glanville and Delsaux. 18 you this time, but in case the policy would change
at a later stage we would consult you again.
Petitioners insist that it is incongruous for Glanville In the meantime, I remain
and Delsaux to make a counter-offer to petitioners’ offer Yours sincerely,
and thereafter reject such offer unless they were
authorized to do so by respondent EC. Petitioners insist C.F. DELSAUX 19
103
Petitioners further emphasize that they acted in good their duties in respondent EC at the time of the
faith when Glanville and Delsaux were knowingly transaction, and the fact that respondent ESAC owns
permitted by respondent EC to sell the properties 90% of the shares of stock of respondent EC, a formal
within the scope of an apparent authority. Petitioners resolution of the Board of Directors would be a mere
insist that respondents held themselves to the public as ceremonial formality. What is important, petitioners
possessing power to sell the subject properties. maintain, is that Marquez was able to communicate the
By way of comment, respondents aver that the issues offer of respondent EC and the petitioners’ acceptance
raised by the petitioners are factual, hence, are thereof. There was no time that they acted without the
proscribed by Rule 45 of the Rules of Court. On the knowledge of respondents. In fact, respondent EC never
merits of the petition, respondents EC (now EMC) and repudiated the acts of Glanville, Marquez and Delsaux.
ESAC reiterate their submissions in the CA. They The petition has no merit.
maintain that Glanville, Delsaux and Marquez had no Anent the first issue, we agree with the contention of
authority from the stockholders of respondent EC and respondents that the issues raised by petitioner in this
its Board of Directors to offer the properties for sale to case are factual. Whether or not Marquez, Glanville,
the petitioners, or to any other person or entity for that and Delsaux were authorized by respondent EC to act
matter. They assert that the decision and resolution of as its agents relative to the sale of the properties of
the CA are in accord with law and the evidence on respondent EC, and if so, the boundaries of their
record, and should be affirmed in toto. authority as agents, is a question of fact. In the absence
Petitioners aver in their subsequent pleadings that of express written terms creating the relationship of an
respondent EC, through Glanville and Delsaux, agency, the existence of an agency is a fact
conformed to the written authority of Marquez to sell question. Whether an agency by estoppel was created
20
the properties. The authority of Glanville and Delsaux or whether a person acted within the bounds of his
to bind respondent EC is evidenced by the fact that apparent authority, and whether the principal is
Glanville and Delsaux negotiated for the sale of 90% of estopped to deny the apparent authority of its agent are,
stocks of respondent EC to Ruperto Tan on June 1, likewise, questions of fact to be resolved on the basis of
1997. Given the significance of their positions and the evidence on record. The findings of the trial court
21
_______________ on such issues, as affirmed by the CA, are conclusive on

the Court, absent evidence that the trial and appellate
19 Id., at pp. 30-31.
courts ignored, misconstrued, or misapplied facts and
217 circumstances of substance which, if considered, would
VOL. 490, JUNE 8, 2006 217 warrant a modification or reversal of the outcome of the
Litonjua, Jr. vs. Eternit Corporation case.22
104
_______________ Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.” 23
20 Weathersby v. Gore, 556 F.2d 1247 (1977).

21 Cavic v. Grand Bahama Development Co., Ltd., 701 F.2d 879
We have reviewed the records thoroughly and find that
(1983).
22 Culaba v. Court of Appeals, G.R. No. 125862, April 15, 2004, 427
the petitioners failed to establish that the instant case
SCRA 721, 729; Litonjua v. Fernandez, G.R. No. 148116, April 14, falls under any of the foregoing exceptions. Indeed, the
2004, 427 SCRA 478, 489. assailed decision of the Court of Appeals is supported
218
by the evidence on record and the law.
218 SUPREME COURT REPORTS It was the duty of the petitioners to prove that
ANNOTATED 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
It must be stressed that issues of facts may not be raised
buyers and to accept any counter-offer. Petitioners
in the Court under Rule 45 of the Rules of Court because
likewise failed to prove that their counter-offer had
the Court is not a trier of facts. It is not to re-examine
been accepted by respondent EC, through Glanville and
and assess the evidence on record, whether testimonial
Delsaux. It must be stressed that when specific
and documentary. There are, however, recognized
performance is sought of a contract made with an agent,
exceptions where the Court may delve into and resolve
the
factual issues, namely: _______________
“(1) When the conclusion is a finding grounded entirely on
speculations, surmises, or conjectures; (2) when the inference 23 Nokom v. National Labor Relations Commission, 390 Phil. 1228,
made is manifestly mistaken, absurd, or impossible; (3) when 1242-1243; 336 SCRA 97, 110 (2000) (citations omitted).
there is grave abuse of discretion; (4) when the judgment is 219
based on a misapprehension of facts; (5) when the findings of
VOL. 490, JUNE 8, 2006 219
fact are conflicting; (6) when the Court of Appeals, in making
its findings, went beyond the issues of the case and the same Litonjua, Jr. vs. Eternit Corporation
is contrary to the admissions of both appellant and appellee; agency must be established by clear, certain and
(7) when the findings of the Court of Appeals are contrary to specific proof. 24
those of the trial court; (8) when the findings of fact are Section 23 of Batas Pambansa Bilang68, otherwise
conclusions without citation of specific evidence on which known as the Corporation Code of the Philippines,
they are based; (9) when the Court of Appeals manifestly provides:
overlooked certain relevant facts not disputed by the parties, SEC. 23. The Board of Directors or Trustees.—Unless
which, if properly considered, would justify a different otherwise provided in this Code, the corporate powers of all
conclusion; and (10) when the findings of fact of the Court of corporations formed under this Code shall be exercised, all
105
business conducted and all property of such corporations San Juan Structural and Steel Fabricators, Inc. v. Court of
26
controlled and held by the board of directors or trustees to be Appeals, 357 Phil. 631, 644; 296 SCRA 631, 645 (1998).
elected from among the holders of stocks, or where there is 220
no stock, from among the members of the corporation, who 220 SUPREME COURT REPORTS
shall hold office for one (1) year and until their successors are ANNOTATED
elected and qualified.
Indeed, a corporation is a juridical person separate and sonal property, including securities and bonds of other
distinct from its members or stockholders and is not corporations, as the transaction of a lawful business of the
affected by the personal rights, obligations and corporation may reasonably and necessarily require, subject
transactions of the latter. It may act only through its
25 to the limitations prescribed by the law and the
board of directors or, when authorized either by its by- Constitution.”
laws or by its board resolution, through its officers or The property of a corporation, however, is not the
agents in the normal course of business. The general property of the stockholders or members, and as such,
principles of agency govern the relation between the may not be sold without express authority from the
corporation and its officers or agents, subject to the board of directors. Physical acts, like the offering of the
27
articles of incorporation, by-laws, or relevant provisions properties of the corporation for sale, or the acceptance
of law. 26
of a counter-offer of prospective buyers of such
Under Section 36 of the Corporation Code, a properties and the execution of the deed of sale covering
corporation may sell or convey its real properties, such property, can be performed by the corporation only
subject to the limitations prescribed by law and the by officers or agents duly authorized for the purpose by
Constitution, as follows: corporate by-laws or by specific acts of the board of
SEC. 36. Corporate powers and capacity.—Every corporation directors. Absent such valid delegation/authorization,
28
incorporated under this Code has the power and capacity:

the rule is that the declarations of an individual director
xxxx
relating to the affairs of the corporation, but not in the
7. To purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such real course of, or connected with, the performance of
and per- authorized duties of such director, are not binding on
the corporation. 29
_______________
While a corporation may appoint agents to negotiate
24Blair v. Sheridan, 10 S.E. 414 (1889). for the sale of its real properties, the final say will have
25Philippine National Bank v. Ritratto Group, Inc., 414 Phil. 494, to be with the board of directors through its officers and
503; 362 SCRA 216, 223 (2001). agents as authorized by a board resolution or by its by-
laws. An unauthorized act of an officer of the
30
106
corporation is not binding on it unless the latter ratifies person is acting on his behalf without authority.
the same expressly or impliedly by its board of directors. Acceptance by the agent may be expressed, or implied
Any sale of real property of a corporation by a person from his acts which carry out the agency, or from his
purporting to be an agent thereof but without written silence or inaction according to the
authority from the corporation is null and void. The circumstances. Agency may be oral unless the law
34
_______________ requires a specific form. However, to create or convey

35
real rights over immovable property, a special power of

27 Traders Royal Bank v. Court of Appeals, G.R. No. 78412,
September 26, 1989, 177 SCRA 788, 792. attorney is necessary. Thus, when a sale of a piece of
36
28 BPI Leasing Corporation v. Court of Appeals, G.R. No. 127624, land or any portion thereof is through an agent, the
November 18, 2003, 416 SCRA 4, 11. authority of the latter shall be in writing, otherwise, the
29 AF Realty & Development, Inc. v. Dieselman Freight Services,
sale shall be void. 37
Co., 424 Phil. 446, 454; 373 SCRA 385, 391 (2002).
30 De Liano v. Court of Appeals, 421 Phil. 1033, 1052; 370 SCRA In this case, the petitioners as plaintiffs below, failed
349, 372 (2001). to adduce in evidence any resolution of the Board of
221
Directors of respondent EC empowering Marquez,
VOL. 490, JUNE 8, 2006 221 Glanville or Delsaux as its agents, to sell, let alone offer
Litonjua, Jr. vs. Eternit Corporation for sale, for and in its behalf, the eight parcels of land
owned by respondent EC including
declarations of the agent alone are generally _______________
insufficient to establish the fact or extent of his/her
authority. 31 31 Litonjua v. Fernandez, supra note 22, at p. 493.
By the contract of agency, a person binds himself to 32 Article 1868, NEW CIVIL CODE.
33 Ellison v. Hunsinger, 75 S.E. 2d. 884 (1953); Dominion Insurance
render some service or to do something in Corporation v. Court of Appeals, 426 Phil. 620, 626; 376 SCRA 239, 243
representation on behalf of another, with the consent or (2002).
authority of the latter. Consent of both principal and
32 34 CIVIL CODE, Art. 1870.
35 CIVIL CODE, Art. 1869, paragraph 2.

agent is necessary to create an agency. The principal 36 CIVIL CODE, Art. 1878(12).
must intend that the agent shall act for him; the agent 37 CIVIL CODE, Art. 1874.
must intend to accept the authority and act on it, and

222
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 ANNOTATED
of the principal, from his silence or lack of action, or his Litonjua, Jr. vs. Eternit Corporation
failure to repudiate the agency knowing that another the improvements thereon. The bare fact that Delsaux
may have been authorized to sell to Ruperto Tan the
107
shares of stock of respondent ESAC, on June 1, 1997, petitioners accepted the counter-offer of respondent
cannot be used as basis for petitioners’ claim that he ESAC, respondent EC was not
had likewise been authorized by respondent EC to sell _______________
the parcels of land. 38 Exhibits “H” and “H-1,” Rollo, p. 166.
Moreover, the evidence of petitioners shows that 39 Exhibits “G” and “G-1,” Id.
Adams and Glanville acted on the authority of Delsaux, 40 Exhibits “C” and “C-1,” Id., at p. 165.
who, in turn, acted on the authority of respondent 41 Rollo, p. 396.
42 Exhibits “C” and “C-1,” Rollo, p. 165.

ESAC, through its Committee for Asia, the Board of
38
Directors of respondent ESAC, and the Belgian/Swiss

39 223
component of the management of respondent ESAC. As 40 VOL. 490, JUNE 8, 2006 223
such, Adams and Glanville engaged the services of Litonjua, Jr. vs. Eternit Corporation
Marquez to offer to sell the properties to prospective a party to the transaction between them; hence, EC was
buyers. Thus, on September 12, 1986, Marquez wrote not bound by such acceptance.
the petitioner that he was authorized to offer for sale While Glanville was the President and General
the property for P27,000,000.00 and the other terms of Manager of respondent EC, and Adams and Delsaux
the sale subject to negotiations. When petitioners were members of its Board of Directors, the three acted
offered to purchase the property for P20,000,000.00, for and in behalf of respondent ESAC, and not as duly
through Marquez, the latter relayed petitioners’ offer to authorized agents of respondent EC; a board resolution
Glanville; Glanville had to send a telex to Delsaux to evincing the grant of such authority is needed to bind
inquire the position of respondent ESAC to petitioners’ EC to any agreement regarding the sale of the subject
offer. However, as admitted by petitioners in their properties. Such board resolution is not a mere
Memorandum, Delsaux was unable to reply formality but is a condition sine qua non to bind
immediately to the telex of Glanville because Delsaux respondent EC. Admittedly, respondent ESAC owned
had to wait for confirmation from respondent 90% of the shares of stocks of respondent EC; however,
ESAC. When Delsaux finally responded to Glanville on
41
the mere fact that a corporation owns a majority of the
February 12, 1987, he made it clear that, based on the shares of stocks of another, or even all of such shares of
“Belgian/Swiss decision” the final offer of respondent stocks, taken alone, will not justify their being treated
ESAC was US$1,000,000.00 plus P2,500,000.00 to cover as one corporation. 43
all existing obligations prior to final liquidation. The

42
It bears stressing that in an agent-principal
offer of Delsaux emanated only from the “Belgian/Swiss relationship, the personality of the principal is extended
decision,” and not the entire management or Board of through the facility of the agent. In so doing, the agent,
Directors of respondent ESAC. While it is true that by legal fiction, becomes the principal, authorized to
108
perform all acts which the latter would have him do. It appears that Marquez acted not only as real estate
Such a relationship can only be effected with the broker for the petitioners but also as their agent. As
consent of the principal, which must not, in any way, be gleaned from the letter of Marquez to Glanville, on
compelled by law or by any court. 44 February 26, 1987, he confirmed, for and in behalf of the
The petitioners cannot feign ignorance of the absence petitioners, that the latter had accepted such offer to
of any regular and valid authority of respondent EC sell the land and the improvements thereon. However,
empowering Adams, Glanville or Delsaux to offer the we agree with the ruling of the appellate court that
properties for sale and to sell the said properties to the Marquez had no authority to bind respondent EC to sell
petitioners. A person dealing with a known agent is not the subject properties. A real estate broker is one who
authorized, under any circumstances, blindly to trust negotiates the sale of real properties. His business,
the agents; statements as to the extent of his powers; generally speaking, is only to find a purchaser who is
such person must not act negligently but must use willing to buy the land upon terms fixed by the owner.
reasonable diligence and prudence to ascertain 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
43 Philippine National Bank v. Ritratto Group, Inc., supra note 25,
at p. 503; p. 223. Equally barren of merit is petitioners’ contention
44 Orient Air Services and Hotel Representatives v. Court of that respondent EC is estopped to deny the existence of
Appeals, 274 Phil. 927, 939; 197 SCRA 645, 656 (1991). a principalagency relationship between it and Glanville
224 or Delsaux. For an agency by estoppel to exist, the
224 SUPREME COURT REPORTS following must be established: (1) the principal
ANNOTATED manifested a representation of the agent’s authority or
Litonjua, Jr. vs. Eternit Corporation knowingly allowed the agent to assume such authority;
whether the agent acts within the scope of his (2) the third person, in good faith, relied upon such
authority. The settled rule is that, persons dealing
45
representation; (3) relying upon such representation,
_______________
with an assumed agent are bound at their peril, and if
they would hold the principal liable, to ascertain not 45 Hill v. Delta Loan and Finance Company, 277 S.W. 2d 63, 65.
only the fact of agency but also the nature and extent of 46 Litonjua v. Fernandez, supra note 22, at p. 494; Culaba v. Court
authority, and in case either is controverted, the burden of Appeals, supra note 22, at p. 730; BA Finance Corporation v. Court
of Appeals, G.R. No. 94566, July 3, 1992, 211 SCRA 112, 116.
of proof is upon them to prove it. In this case, the
46
47 Donnan v. Adams, 71 S.W. 580.
petitioners failed to discharge their burden; hence,

225
petitioners are not entitled to damages from respondent
EC.
VOL. 490, JUNE 8, 2006 225
109
Litonjua, Jr. vs. Eternit Corporation Article 1912 – 1918
such third person has changed his position to his
detriment. An agency by estoppel, which is similar to
48
the doctrine of apparent authority, requires proof of G.R. No. 113074. January 22, 1997. *
reliance upon the representations, and that, in turn, ALFRED HAHN, petitioner, vs. COURT OF APPEALS
needs proof that the representations predated the and BAYERISCHE MOTOREN WERKE
action taken in reliance. Such proof is lacking in this
49 AKTIENGESELLSCHAFT (BMW), respondents.
case. In their communications to the petitioners,
Agency; Words and Phrases; “Agent” and “Broker,”
Glanville and Delsaux positively and unequivocally
Distinguished.—An agent receives a commission upon the
declared that they were acting for and in behalf of successful conclusion of a sale. On the other hand, a broker
respondent ESAC. earns his pay merely by bringing the buyer and the seller
Neither may respondent EC be deemed to have together, even if no sale is eventually made.
ratified the transactions between the petitioners and Same; The fact that a person invested his own money to
respondent ESAC, through Glanville, Delsaux and put service centers and showrooms does not necessarily prove
Marquez. The transactions and the various that he is not an agent of a car manufacturer.—As to the
communications inter se were never submitted to the service centers and showrooms which he said he had put up
Board of Directors of respondent EC for ratification. at his own expense, Hahn said that he had to follow BMW
IN LIGHT OF ALL THE FOREGOING, the petition specifications as exclusive dealer of BMW in the Philippines.
According to Hahn, BMW periodically inspected the service
is DENIED for lack of merit. Costs against the
centers to see to it that BMW standards were maintained.
petitioners.
Indeed, it would seem from BMW’s letter to Hahn that
SO ORDERED.
Panganiban (C.J., Chairperson), Austria- _______________
Martinez and Chico-Nazario, JJ., concur. * SECOND DIVISION.
Ynares-Santiago, J., On Leave.
538
Petition denied. 538 SUPREME COURT REPORTS
ANNOTATED
Hahn vs. Court of Appeals
it was for Hahn’s alleged failure to maintain BMW
standards that BMW was terminating Hahn’s dealership.
The fact that Hahn invested his own money to put up these
service centers and showrooms does not necessarily prove
110
that he is not an agent of BMW. For as already noted, there corporation in accordance with Rule 14, §14, it is sufficient
are facts in the record which suggest that BMW exercised that it be alleged in the complaint that the foreign corporation
control over Hahn’s activities as a dealer and made regular is doing business in the Philippines.—Anyway, private
inspections of Hahn’s premises to enforce compliance with respondent need not apprehend that by responding to the
BMW standards and specifications. summons it would be waiving its objection to the
Evidence; A mere allegation in a motion to dismiss
539
which has been denied by the other party should not be cited
by the court as if it were a fact.—The Court of Appeals also
found that petitioner Alfred Hahn dealt in other products, VOL. 266, JANUARY 22, 1997 539
and not exclusively in BMW products, and, on this basis, Hahn vs. Court of Appeals
ruled that Hahn was not an agent of BMW. This finding is trial court’s jurisdiction. It is now settled that, for
based entirely on allegations of BMW in its motion to dismiss purposes of having summons served on a foreign corporation
filed in the trial court and in its petition for certiorari before in accordance with Rule 14, §14, it is sufficient that it be
the Court of Appeals. But this allegation was denied by Hahn alleged in the complaint that the foreign corporation is doing
and therefore the Court of Appeals should not have cited it business in the Philippines. The court need not go beyond the
as if it were the fact. allegations of the complaint in order to determine whether it
Foreign Corporations; Motions to Dismiss; Rule 16, §3 of has jurisdiction. A determination that the foreign
the Rules of Court authorizes courts to defer the resolution of corporation is doing business is only tentative and is made
a motion to dismiss until after the trial if the ground on which only for the purpose of enabling the local court to acquire
the motion is based does not appear to be indubitable.—It is jurisdiction over the foreign corporation through service of
not true then that the question whether BMW is doing summons pursuant to Rule 14, §14. Such determination does
business could have been resolved simply by considering the not foreclose a contrary finding should evidence later show
parties’ pleadings. There are genuine issues of facts which that it is not transacting business in the country.
can only be determined on the basis of evidence duly
presented. BMW cannot short circuit the process on the plea PETITION for review on certiorari of a decision of the
that to compel it to go to trial would be to deny its right not Court of Appeals.
to submit to the jurisdiction of the trial court which precisely
it denies. Rule 16, §3 authorizes courts to defer the resolution The facts are stated in the opinion of the Court.
of a motion to dismiss until after the trial if the ground on Siguion Reyna, Montecillo & Ongsiako for
which the motion is based does not appear to be indubitable. petitioner.
Here the record of the case bristles with factual issues and it Castillo, Laman, Tan & Pantaleonfor private
is not at all clear whether some allegations correspond to the respondent.
proof.
Same; Actions; Pleadings and Practice; It is now settled MENDOZA, J.:
that, for purposes of having summons served on a foreign
111
Philippines, the same being evidenced by certificate of
This is a petition for review of the decision of the 1 registration issued by the Director of Patents on 12
Court of Appeals dismissing a complaint for specific December 1963 and is referred to as Trademark No. 10625;
performance which petitioner had filed against private WHEREAS, the ASSIGNOR has agreed to transfer and
consequently record said transfer of the said BMW
respondent on the ground that the Regional Trial Court
trademark and device in favor of the ASSIGNEE herein with
of Quezon City did not acquire jurisdiction over private
the Philippines Patent Office;
respondent, a nonresident foreign corporation, and of NOW THEREFORE, in view of the foregoing and in
the appellate court’s order denying petitioner’s motion consideration of the stipulations hereunder stated, the
for reconsideration. ASSIGNOR hereby affirms the said assignment and transfer
The following are the facts: in favor of the ASSIGNEE under the following terms and
Petitioner Alfred Hahn is a Filipino citizen doing conditions:
business under the name and style “Hahn-Manila.” On
the other hand, private respondent Bayerische Motoren 1. 1.The ASSIGNEE shall take appropriate steps
Werke Aktiengesellschaft (BMW) is a nonresident against any user other than ASSIGNOR or infringer
foreign corporation existing of the BMW trademark in the Philippines; for such
_______________ purpose, the ASSIGNOR shall inform the
ASSIGNEE immediately of any such use or
1Per Justice Cancio C. Garcia and concurred in by Justices Ramon infringement of the said trademark which comes to
U. Mabutas and Antonio M. Martinez, chairman. his knowledge and upon such information the
540 ASSIGNOR shall automatically act as Attorney-In-
540 SUPREME COURT REPORTS Fact of the ASSIGNEE for such case, with full
power, authority and responsibility to prosecute
ANNOTATED
unilaterally or in concert with ASSIGNEE, any such
Hahn vs. Court of Appeals infringer of the subject mark and for purposes hereof
under the laws of the former Federal Republic of the ASSIGNOR is hereby named and constituted as
Germany, with principal office at Munich, Germany. ASSIGNEE’s Attorney-In-Fact, but any such suit
On March 7, 1967, petitioner executed in favor of without ASSIGNEE’s consent exclusively be the
private respondent a “Deed of Assignment with Special responsibility and for the account of the ASSIGNOR.
Power of Attorney,” which reads in full as follows: 2. 2.That the ASSIGNOR and the ASSIGNEE shall
WHEREAS, the ASSIGNOR is the present owner and continue business relations as has been usual in the
holder of the BMW trademark and device in the Philippines past without a formal contract, and for that purpose,
which ASSIGNOR uses and has been using on the products the dealership of ASSIGNOR shall cover the
manufactured by ASSIGNEE, and for which ASSIGNOR is ASSIGNEE’s complete production program with the
the authorized exclusive Dealer of the ASSIGNEE in the only limitation that, for the present, in view of
112
ASSIGNEE’s limited production, the latter shall not assignment of its trademark and device subsisted, he
be able to supply automobiles to ASSIGNOR. remained BMW’s exclusive dealer in the Philippines
because the assignment was made in consideration of
541
the exclusive dealership. In the same letter petitioner
VOL. 266, JANUARY 22, 1997 541 explained that the decline in sales was due to lower
Hahn vs. Court of Appeals prices offered for BMW cars in the United States and
the fact that few customers returned for repairs and
Per the agreement, the parties “continue[d] business servicing because of the durability of BMW parts and
relations as has been usual in the past without a formal the efficiency of petitioner’s service.
contract.” But on February 16, 1993, in a meeting with Because of Hahn’s insistence on the former business
a BMW representative and the president of Columbia relation, BMW withdrew on March 26, 1993 its offer of
Motors Corporation (CMC), Jose Alvarez, petitioner a “standard importer contract” and terminated the
was informed that BMW was arranging to grant the exclusive dealer relationship effective June 30,
exclusive dealership of BMW cars and products to CMC, 1993. At a conference of BMW
4
which had expressed interest in acquiring the same. On _______________

February 24, 1993, petitioner received confirmation of
the information from BMW which, in a letter, expressed
2 Rollo, pp. 75-78.
3 Rollo, pp. 79-82.
dissatisfaction with various aspects of petitioner’s 4 Rollo, pp. 83-84.
business, mentioning among other things, decline in

542
sales, deteriorating services, and inadequate showroom
and warehouse facilities, and petitioner’s alleged failure
to comply with the standards for an exclusive BMW ANNOTATED
dealer. Nonetheless, BMW expressed willingness to
2
Hahn vs. Court of Appeals
continue business relations with the petitioner on the Regional Importers held on April 26, 1993 in Singapore,
basis of a “standard BMW importer” contract, Hahn was surprised to find Alvarez among those
otherwise, it said, if this was not acceptable to invited from the Asian region. On April 29, 1993, BMW
petitioner, BMW would have no alternative but to proposed that Hahn and CMC jointly import and
terminate petitioner’s exclusive dealership effective distribute BMW cars and parts.
June 30, 1993. Hahn found the proposal unacceptable. On May 14,
Petitioner protested, claiming that the termination 1993, he filed a complaint for specific performance and
of his exclusive dealership would be a breach of the damages against BMW to compel it to continue the
Deed of Assignment. Hahn insisted that as long as the
3 exclusive dealership. Later he filed an amended
113
complaint to include an application for temporary 7. 10.In a letter dated February 24, 1993, defendant
restraining order and for writs of preliminary, BMW advised Plaintiff that it was willing to
mandatory and prohibitory injunction to enjoin BMW maintain with Plaintiff a relationship but only “on
from terminating his exclusive dealership. Hahn’s the basis of a standard BMW importer
amended complaint alleged in pertinent parts:
543
VOL. 266, JANUARY 22, 1997 543
1. 2.Defendant [BMW] is a foreign corporation doing
business in the Philippines with principal offices at Hahn vs. Court of Appeals
Munich, Germany. It may be served with summons contract as adjusted to reflect the particular situation in the
and other court processes through the Secretary of Philippines” subject to certain conditions, otherwise,
the Department of Trade and Industry of the defendant BMW would terminate Plaintiff’s exclusive
Philippines . . . . dealership and any relationship for cause effective June 30,
2. . . . . 1993 . . . .
3. 5.On March 7, 1967, Plaintiff executed in favor of
defendant BMW a Deed of Assignment with Special 1. . . . .
Power of Attorney covering the trademark and in 2. 15.The actuations of defendant BMW are in breach of
consideration thereof, under its first whereas clause, the assignment agreement between itself and
Plaintiff was duly acknowledged as the “exclusive plaintiff since the consideration for the assignment
Dealer of the Assignee in the Philippines” . . . . of the BMW trademark is the continuance of the
4. . . . . exclusive dealership agreement. It thus, follows that
5. 8.From the time the trademark “BMW & DEVICE” the exclusive dealership should continue for so long
was first used by the Plaintiff in the Philippines up as defendant BMW enjoys the use and ownership of
to the present, Plaintiff, through its firm name the trademark assigned to it by Plaintiff.
“HAHN MANILA” and without any monetary
contribution from defendant BMW, established
BMW’s goodwill and market presence in the The case was docketed as Civil Case No. Q-93-15933
Philippines. Pursuant thereto, Plaintiff has invested and raffled to Branch 104 of the Quezon City Regional
a lot of money and resources in order to single- Trial Court, which on June 14, 1993 issued a temporary
handedly compete against other motorcycle and car restraining order. Summons and copies of the complaint
companies . . . . Moreover, Plaintiff has built
and amended complaint were thereafter served on the
buildings and other infrastructures such as service
private respondent through the Department of Trade
centers and showrooms to maintain and promote the
car and products of defendant BMW. and Industry, pursuant to Rule 14, §14 of the Rules of
6. . . . . Court. The order, summons and copies of the complaint
and amended complaint were later sent by the DTI to
114
BMW via registered mail on June 15, 1993 and received
5 through him as its agent, as shown by the fact that
by the latter on June 24, 1993. BMW invoices and order forms were used to document
On June 17, 1993, without proof of service on BMW, his transactions; that he gave warranties as exclusive
the hearing on the application for the writ of BMW dealer; that BMW officials periodically inspected
preliminary injunction proceeded ex parte, with standards of service rendered by him; and that he was
petitioner Hahn testifying. On June 30, 1993, the trial described in service booklets and international
court issued an order granting the writ of preliminary publications of BMW as a “BMW Importer” or “BMW
injunction upon the filing of a bond of P100,000.00. On Trading Company” in the Philippines.
July 13, 1993, following the posting of the required The trial court deferred resolution of the motion to
6
bond, a writ of preliminary injunction was issued. dismiss until after trial on the merits for the reason that
On July 1, 1993, BMW moved to dismiss the case, the grounds advanced by BMW in its motion did not
contending that the trial court did not acquire seem to be indubitable.
jurisdiction over it through the service of summons on Without seeking reconsideration of the
the Department of Trade and Industry, because it aforementioned order, BMW filed a petition for
(BMW) was a foreign corporation and it was not doing certiorari with the Court of Appeals alleging that:
business in the Philippines. It contended that the
execution of the Deed of Assignment was an isolated 1. I.THE RESPONDENT JUDGE ACTED WITH
_______________ UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING
5 Rollo, p. 593. TOWARD THE ISSUANCE OF THE WRIT OF
544 PRELIMINARY INJUNCTION, AND IN
544 SUPREME COURT REPORTS PRESCRIBING THE TERMS FOR THE
ISSUANCE THEREOF.
ANNOTATED
2. II.THE RESPONDENT JUDGE PATENTLY ERRED
Hahn vs. Court of Appeals IN DEFERRING RESOLUTION OF THE MOTION
transaction; that Hahn was not its agent because the TO DISMISS ON THE GROUND OF LACK OF
latter undertook to assemble and sell BMW cars and JURISDICTION, AND THEREBY FAILING TO
products without the participation of BMW and sold IMMEDIATELY DISMISS THE CASE A QUO.
other products; and that Hahn was an indentor or
middleman transacting business in his own name and BMW asked for the immediate issuance of a temporary
for his own account. restraining order and, after hearing, for a writ of
Petitioner Alfred Hahn opposed the motion. He preliminary injunction, to enjoin the trial court from
argued that BMW was doing business in the Philippines
115
proceeding further in Civil Case No. Q-93-15933.
Private respondent pointed out Then, after stating that any ruling which the trial
_______________ court might make on the motion to dismiss would
anyway be elevated to it on appeal, the Court of Appeals
6 Per Judge Maximiano Asuncion.
itself resolved the motion. It ruled that BMW was not
545 doing business in the country and, therefore,
VOL. 266, JANUARY 22, 1997 545 jurisdiction over it could not be acquired through
Hahn vs. Court of Appeals service of summons on the DTI pursuant to Rule 14,
that, unless the trial court’s order was set aside, it §14. The court upheld private respondent’s contention
would be forced to submit to the jurisdiction of the court that Hahn acted in his own name and for his own
by filing its answer or to accept judgment in default, account and independently of BMW, based on Alfred
when the very question was whether the court had Hahn’s allegations that he had invested his own money
jurisdiction over it. and resources in establishing BMW’s goodwill in the
The Court of Appeals enjoined the trial court from Philippines and on BMW’s claim that Hahn sold
hearing petitioner’s complaint. On December 20, 1993, products other than those of BMW. It held that
it rendered judgment finding the trial court guilty of petitioner was a mere indentor or broker and not an
grave abuse of discretion in deferring resolution of the agent through whom private respondent BMW
motion to dismiss. It stated: transacted
Going by the pleadings already filed with the respondent 546
court before it came out with its questioned order of July 26, 546 SUPREME COURT REPORTS
1993, we rule and so hold that petitioner’s (BMW) motion to ANNOTATED
dismiss could be resolved then and there, and that the Hahn vs. Court of Appeals
respondent judge’s deferment of his action thereon until after
business in the Philippines. Consequently, the Court of
trial on the merit constitutes, to our mind, grave abuse of
discretion. Appeals dismissed petitioner’s complaint against BMW.
... Hence, this appeal. Petitioner contends that the
. . . [T]here is not much appreciable disagreement as Court of Appeals erred (1) in finding that the trial court
regards the factual matters relating to the motion to dismiss. gravely abused its discretion in deferring action on the
What truly divide (sic) the parties and to which they greatly motion to dismiss and (2) in finding that private
differ is the legal conclusions they respectively draw from respondent BMW is not doing business in the
such facts, (sic) with Hahn maintaining that on the basis Philippines and, for this reason, dismissing petitioner’s
thereof, BMW is doing business in the Philippines while the case.
latter asserts that it is not.
116
Petitioner’s appeal is well taken. Rule 14, §14 7 The Foreign Investments Act of 1991 superseded Arts. 44-56 of the
Omnibus Investments Code.

provides:
§14. Service upon private foreign corporations.—If the 547
defendant is a foreign corporation, or a nonresident joint VOL. 266, JANUARY 22, 1997 547
stock company or association, doing business in the Hahn vs. Court of Appeals
Philippines, service may be made on its resident agent exercise of rights as such investor; nor having a nominee
designated in accordance with law for that purpose, or, if director or officer to represent its interests in such
there be no such agent, on the government official designated corporation; nor appointing a representative or distributor
by law to that effect, or on any of its officer or agents within domiciled in the Philippines which transacts business in its
the Philippines. (Emphasis added) own name and for its own account (Emphasis supplied)
What acts are considered “doing business in the Thus, the phrase includes “appointing
Philippines” are enumerated in §3(d) of the Foreign representatives or distributors in the Philippines” but
Investments Act of 1991 (R.A. No. 7042) as follows: 7
not when the representative or distributor “transacts
d) the phrase “doing business” shall include soliciting orders, business in its name and for its own account.” In
service contracts, opening offices, whether called “liaison”
addition, §1(f)(1) of the Rules and Regulations
offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any
implementing (IRR) the Omnibus Investment Code of
calendar year stay in the country for a period or periods 1987 (E.O. No. 226) provided:
totalling one hundred eighty (180) days or more; (f) “Doing business” shall be any act or combination of
participating in the management, supervision or control of acts, enumerated in Article 44 of the Code. In particular,
any domestic business, firm, entity or corporation in the “doing business” includes:
(1) . . . . A foreign firm which does business through middlemen
Philippines; and any other act or acts that imply a continuity
acting in their own names, such as indentors, commercial brokers
of commercial dealings or arrangements, and contemplate to or commission merchants, shall not be deemed doing business in
that extent the performance of acts or works, or the exercise of the Philippines. But such indentors, commercial brokers or
some of the functions normally incident to, and in progressive commission merchants shall be the ones deemed to be doing
prosecution of, commercial gain or of the purpose and object business in the Philippines.
of the business organization: Provided, however, That the
phrase “doing business” shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic The question is whether petitioner Alfred Hahn is
corporations duly registered to do business, and/or the the agent or distributor in the Philippines of private
_______________ respondent BMW. If he is, BMW may be considered
doing business in the Philippines and the trial court
117
acquired jurisdiction over it (BMW) by virtue of the Plaintiff has built buildings and other infrastructures such
service of summons on the Department of Trade and as service centers and showrooms to maintain and promote
Industry. Otherwise, if Hahn is not the agent of BMW the car and products of defendant BMW.
but an independent dealer, albeit of BMW cars and
products, BMW, a foreign corporation, is not considered As the above quoted allegations of the amended
doing business in the Philippines within the meaning of complaint show, however, there is nothing to support
the Foreign Investments Act of 1991 and the IRR, and the appellate court’s finding that Hahn solicited orders
the trial court did not acquire jurisdiction over it alone and for his own account and without “interference
(BMW). from, let alone direction of, BMW.” (p. 13) To the
The Court of Appeals held that petitioner Alfred contrary, Hahn claimed he took orders for BMW cars
Hahn acted in his own name and for his own account and transmitted them to BMW. Upon receipt of the
and not as agent or distributor in the Philippines of orders, BMW fixed the downpayment and pricing
BMW on the ground that “he alone had contacts with charges, notified Hahn of the scheduled production
individuals or entities interested in acquiring BMW month for the orders, and reconfirmed the orders by
vehicles. Independence charac- signing and returning to Hahn the acceptance sheets.
548
Payment was made by the buyer directly to BMW. Title
to cars purchased passed directly to the buyer and Hahn
ANNOTATED
never paid for the purchase price of BMW cars sold in
Hahn vs. Court of Appeals the Philippines. Hahn was credited with a commission
equal to 14% of the purchase price upon the invoicing of
terizes Hahn’s undertakings, for which reason he is to a vehicle order by BMW. Upon confirmation in writing
be considered, under governing statutes, as doing that the vehicles had been registered in the Philippines
business.” (p. 13) In support of this conclusion, the and serviced by him, Hahn received an additional 3% of
appellate court cited the following allegations in Hahn’s the full purchase price. Hahn performed after-sale
amended complaint: services, including warranty services, for which he
8. From the time the trademark “BMW & DEVICE” was received reimbursement from BMW. All orders were on
first used by the Plaintiff in the Philippines up to the
invoices and forms of BMW. 8
present, Plaintiff, through its firm name “HAHN MANILA” _______________

and without any monetary contributions from defendant
BMW, established BMW’s goodwill and market presence in 8 Rollo, pp. 96, 140-141.
the Philippines. Pursuant thereto, Plaintiff invested a lot of
money and resources in order to single-handedly compete 549
against other motorcycle and car companies . . . . Moreover, VOL. 266, JANUARY 22, 1997 549
118
Hahn vs. Court of Appeals As to the service centers and showrooms which he
said he had put up at his own expense, Hahn said that
These allegations were substantially admitted by he had to follow BMW specifications as exclusive dealer
BMW which, in its petition for certiorari before the of BMW in the Philippines. According to Hahn, BMW
Court of Appeals, stated: 9 periodically inspected the service centers to see to it
that BMW standards were maintained. Indeed, it would
1. 9.4.As soon as the vehicles are fully manufactured seem from BMW’s letter to Hahn that it was for Hahn’s
and full payment of the purchase prices are made, alleged failure to maintain BMW standards that BMW
the vehicles are shipped to the Philippines. (The was terminating Hahn’s dealership.
payments may be made by the purchasers or third- The fact that Hahn invested his own money to put up
persons or even by Hahn). The bills of lading are these service centers and showrooms does not
made up in the name of the purchasers, but Hahn-
necessarily prove that he is not an agent of BMW. For
Manila is therein indicated as the person to be
notified.
as already noted, there are facts in the record which
2. 9.5.It is Hahn who picks up the vehicles from the suggest that BMW exercised
_______________
Philippine ports, for purposes of conducting pre-
delivery inspections. Thereafter, he delivers the 9 Id., p. 141.
vehicles to the purchasers.
3. 9.6.As soon as BMW invoices the vehicle ordered, 550
Hahn is credited with a commission of fourteen 550 SUPREME COURT REPORTS
percent (14%) of the full purchase price thereof, and ANNOTATED
as soon as he confirms in writing that the vehicles Hahn vs. Court of Appeals
have been registered in the Philippines and have control over Hahn’s activities as a dealer and made
been serviced by him, he will receive an additional
regular inspections of Hahn’s premises to enforce
three percent (3%) of the full purchase prices as
compliance with BMW standards and
commission.
specifications. For example, in its letter to Hahn dated
10
February 23, 1996, BMW stated:

In the last years we have pointed out to you in several
Contrary to the appellate court’s conclusion, this
discussions and letters that we have to tackle in the
arrangement shows an agency. An agent receives a Philippine market more professionally and that we are
commission upon the successful conclusion of a sale. On through your present activities not adequately prepared to
the other hand, a broker earns his pay merely by cope with the forthcoming challenges.
11
bringing the buyer and the seller together, even if no

sale is eventually made.
119
In effect, BMW was holding Hahn accountable to it Hahn vs. Court of Appeals
under the 1967 Agreement. allegations of BMW in its motion to dismiss filed in the
This case fits into the mould of Communications trial court and in its petition for certiorari before the
Materials, Inc. v. Court of Appeals, in which the foreign
12
Court of Appeals. But this allegation was denied by
14
corporation entered into a “Representative Agreement” Hahn and therefore the Court of Appeals should not
15
and a “Licensing Agreement” with a domestic have cited it as if it were the fact.
corporation, by virtue of which the latter was appointed Indeed this is not the only factual issue raised, which
“exclusive representative” in the Philippines for a should have indicated to the Court of Appeals the
stipulated commission. Pursuant to these contracts, the necessity of affirming the trial court’s order deferring
domestic corporation sold products exported by the resolution of BMW’s motion to dismiss. Petitioner
foreign corporation and put up a service center for the alleged that whether or not he is considered an agent of
products sold locally. This Court held that these acts BMW, the fact is that BMW did business in the
constituted doing business in the Philippines. The Philippines because it sold cars directly to Philippine
arrangement showed that the foreign corporation’s buyers. This was denied by BMW, which claimed that
16
purpose was to penetrate the Philippine market and Hahn was not its agent and that, while it was true that
establish its presence in the Philippines. it had sold cars to Philippine buyers, this was done
In addition, BMW held out private respondent Hahn without solicitation on its part. 17
as its exclusive distributor in the Philippines, even as it It is not true then that the question whether BMW is
announced in the Asian region that Hahn was the doing business could have been resolved simply by
“official BMW agent” in the Philippines. 13
considering the parties’ pleadings. There are genuine
The Court of Appeals also found that petitioner issues of facts which can only be determined on the
Alfred Hahn dealt in other products, and not exclusively basis of evidence duly presented. BMW cannot short
in BMW products, and, on this basis, ruled that Hahn circuit the process on the plea that to compel it to go to
was not an agent of BMW. (p. 14) This finding is based trial would be to deny its right not to submit to the
entirely on jurisdiction of the trial court which precisely it denies.
_______________ Rule 16, §3 authorizes courts to defer the resolution of
10 Wang Laboratories, Inc. v. Mendoza, 156 SCRA 44 (1987).
a motion to dismiss until after the trial if the ground on
11 Rollo, p. 75. which the motion is based does not appear to be
12 G.R. No. 102223, Aug. 22, 1996.
indubitable. Here the record of the case bristles with
13 Rollo, p. 213.
factual issues and it is not at all clear whether some
551 allegations correspond to the proof.
VOL. 266, JANUARY 22, 1997 551
120
Anyway, private respondent need not apprehend disposed of, and that TEAM Pacific is not its agent, then it
that by responding to the summons it would be waiving cannot really be said to be doing business in the Philippines.
its objection to the trial court’s jurisdiction. It is now It is a defense, however, that requires the contravention of
settled that, for purposes of having summons served on the allegations of the complaint, as well as a full ventilation,
in effect, of the main merits of the case, which should not
a foreign corporation in accordance with Rule 14, §14, it
thus be within the province of a mere motion to dismiss. So,
is sufficient that it be
also, the issue posed by the petitioner as to whether a foreign
_______________
corporation which has done business in the contrary, but
14 Rollo, pp. 91, 163. which has ceased to do business at the time of the filing of a
15 Rollo, p. 124. complaint, can still be made to answer for a cause of action
16 Rollo, pp. 245, 292.
which accrued while it was doing business, is another matter
17 Rollo, pp. 177, 284, 600.
that would yet have to await the reception and admission of
552 evidence. Since these points have seasonably been raised by
552 SUPREME COURT REPORTS the petitioner, there should be no real cause for what may
understandably be its apprehension, i.e., that by its
ANNOTATED
participation during the trial on the merits, it may, absent
Hahn vs. Court of Appeals an invocation of separate or independent reliefs of its own,
alleged in the complaint that the foreign corporation is be considered to have voluntarily submitted itself to the
doingbusiness in the Philippines. The court need not go court’s jurisdiction. 19
beyond theallegations of the complaint in order to

determine whether ithas jurisdiction. A determination
18
that the foreign corporationis doing business is only Far from committing an abuse of discretion, the trial
tentative and is made only for thepurpose of enabling court properly deferred resolution of the motion to
the local court to acquire jurisdiction overthe foreign dismiss and thus
_______________
corporation through service of summons pursuantto
Rule 14, §14. Such determination does not foreclose 18 Litton Mills, Inc. v. Court of Appeals, G.R. No. 94980, May 15,
acontrary finding should evidence later show that it is 1996; Signetics Corp. v. Court of Appeals, 225 SCRA 737 (1993).
19 Signetics Corp. v. Court of Appeals, 225 SCRA at 746.
nottransacting business in the country. As this Court
has explained: 553
This is not to say, however, that the petitioner’s right to VOL. 266, JANUARY 22, 1997 553
question the jurisdiction of the court over its person is now Hahn vs. Court of Appeals
to be deemed a foreclosed matter. If it is true, as Signetics avoided prematurely deciding a question which
claims, that its only involvement in the Philippines was
requires a factual basis, with the same result if it had
through a passive investment in Sigfil, which it even later
121
denied the motion and conditionally assumed 1. 2.ID.; ID.; ID.—Irrespective of such liability on the
jurisdiction. It is the Court of Appeals which, by ruling part of the principal, the agent may bind himself
that BMW is not doing business on the basis merely of personally to the payment of the debt incurred for
uncertain allegations in the pleadings, disposed of the the benefit and in behalf of his principal. (Art. 1725
of the Civil Code.) In such a case the liability
whole case with finality and thereby deprived petitioner
expressly incurred by the agent does not preclude
of his right to be heard on his cause of action. Nor was
the personal liability of the principal but constitutes
there justification for nullifying the writ of preliminary a further security in favor of the creditor.
injunction issued by the trial court. Although the
injunction was issued ex parte, the fact is that BMW 1. 3.ID.; ID.; ID.; MORTGAGE; ACTION.—Where a
was subsequently heard on its defense by filing a debt is secured by a mortgage upon property
motion to dismiss. belonging to the principal, duly recorded in the
WHEREFORE, the decision of the Court of Appeals Registry of property, the creditor may bring his
is REVERSED and the case is REMANDED to the trial action directly against the mortgaged property,
court for further proceedings. notwithstanding the liability personally incurred by
SO ORDERED. the agent and the fact the agent delivered to the
reditor certain shares of stock as security for the
liability incurred by himself. A mortgage directly
subjects the encumbered property, whoever its
possessor may be, to the fulfillment of the obligation
for the security of which it was created. (Art. 1876 of
the Civil Code and art. 105 of the Mortgage Law.)
APPEAL from a judgment of the Court of First Instance

of Manila.
[No. 2344. February 10, 1906.] The facts are stated in the opinion of the court
GONZALO TUASON, plaintiff and Hartigan, Marple, Rohde & Gutierrez,for appellant.
appellee, vs. DOLORES OROZCO, defendant and Ledesma, Sumulong & Quintos, for appellee.
appellant.
MAPA, J.:
1. 1.LOAN; CREDITORS; AGENCY.—Under the
provisions of article 1727 of the Civil Code the On November 19, 1888, Juan de Vargas y Amaya, the
principal is directly liable to the creditor for the defendant's husband, executed a power of attorney to
payment of a debt incurred by his agent acting
within the scope of his authority.
122
Enrique Grupe, authorizing him, among other things, satisfaction, which sum he promises to pay
to within one year from the date hereof.
597 2. "2.Grupe also declares that of the 3, 500 pesos, he
VOL. 5, FEBRUARY 10, 1906 597 has delivered to Dolores Orozco the sum of 2,200
Tuason vs. Orozco pesos, having retained the remaining 1,300
dispose of all his property, and particularly of a certain pesos for use in his business; that
house and lot known as No. 24 Calle Nueva, Malate, in notwithstanding this distribution of the amount
the city of Manila, for the price at which it was actually borrowed, he assumes liability for the whole
sold. He was also authorized to mortgage the house for sum of 3, 500 pesos, which he promises to repay
the purpose of securing the payment of any amount in current gold or silver coin, without discount,
advanced to his wife, Dolores Orozco de Rivero, who, in this city on the date of the maturity of the
inasmuch as the property had been acquired with funds loan, he otherwise to be liable for all expenses
belonging to the conjugal partnership, was a necessary incurred and damages suffered by his creditor
party to its sale or incumbrance. by reason of his failure to comply with any or all
On the 21st of January, 1890, Enrique Grupe and of the conditions stipulated herein, and to pay
Dolores Orozco de Rivero obtained a loan from the further interest at the rate of 1 per cent per
plaintiff secured by a mortgage on the property referred month from the date of default until the debt is
to in the power of attorney. In the caption of the fully paid.
instrument evidencing the debt it is stated that Grupe
and Dolores Orozco appeared as the parties of the first 598
part and Gonzalo Tuason, the plaintiff, as the party of 598 PHILIPPINE REPORTS
the second part; that Grupe acted for himself and also ANNOTATED
in behalf of Juan Vargas by virtue of the power granted Tuason vs. Orozco
him by the latter, and that Dolores Orozco appeared
merely for the purpose of complying with the 1. "3.Grupe pledges as special security for the
requirement contained in the power of attorney. In the payment of the debt 13 shares of stock in the
body of the instrument the following appears: 'Compañía de los Tranvías de Filipinas,' which
shares he has delivered to his creditor duly
1. "1.Enrique Grupe acknowledges to have this day indorsed so that the latter in case of his
received from Gonzalo Tuason as a loan, after insolvency may dispose of the same without any
deducting therefrom the interest agreed upon, further formalities.
the sum of 3, 500 pesos in cash, to his entire
123
2. "4.To secure the payment of the 2,200 pesos the agreement relating to her are true. She executed
delivered to Dolores Orozco as aforesaid he another act which corroborates the delivery to her of the
specially mortgages the house and lot No. 24, money in question—that is, her personal intervention
Calle Nueva, Malate, in the city of Manila (the in the execution of the mortgage and her statement in
same house referred to in the power of attorney the deed that the mortgage had been created with her
executed by Vargas to Grupe). knowledge and
3. "5.Dolores Orozco states that, in accordance with 599
the requirement contained in the power of VOL. 5, FEBRUARY 10, 1906 599
attorney executed by Vargas to Grupe, she Tuason vs. Orozco
appears for the purpose of confirming the consent. The lien was created precisely upon the
mortgage created upon the property in question. assumption that she had received that amount and for
4. "6.Gonzalo Tuason does hereby accept all rights the purpose of securing its payment.
and actions accruing to him under this contract" In addition to this the defendant wrote a letter on
October 23,1903, to the attorneys for the plaintiff
This instrument was duly recorded in the Registry of promising to pay the debt on or before the 5th day of
Property, and it appears therefrom that Enrique Grupe, November following. The defendant admits the
as attorney in fact for Vargas, received from the authenticity of this letter, which is a further evidence of
plaintiff a loan of 2,200 pesos and delivered the same to the fact that she had received the amount in question.
the defendant; that to secure its payment he mortgaged Thirteen years had elapsed since she signed the
the property of his principal with defendant's consent mortgage deed. During all this time she never denied
as required in the power of attorney. He also received having received the money. On the contrary, she
1,300 pesos. This amount he borrowed for his own use. promised to settle within a short time. The only
The recovery of this sum not being involved in this explanation that we can find for this is that she actually
action, it will not be necessary to refer to it in this received the money as set forth in the instrument.
decision. The complaint refers only to the 2,200 pesos The fact that the defendant received the money from
delivered to the defendant under the terms of the her husband's agent and not from the creditor does not
agreement. affect the validity of the mortgage in view of the
The defendant denies having received this sum, but conditions contained in the power of attorney under
her denial can not overcome the proof to the contrary which the mortgage was created. Nowhere does it
contained in the agreement She was one of the parties appear in this power that the money was to be delivered
to that instrument and signed it. This necessarily to her by the creditor himself and not through the agent
implies an admission on her part that the statements in or any other person. The important thing was that she
124
should have received the money. This we think is fully in favor of the creditor and does not affect or preclude
established by the record. the liability of the principal. In the present case the
This being an action for the recovery of the debt latter's liability was further guaranteed by a mortgage
referred to, the court below properly admitted the upon his property. The law does not provide that the
instrument executed January 21, 1890, evidencing the agent can not bind himself personally to the fulfillment
debt. of an obligation incurred by him in the name and on
The appellant claims that the instrument is evidence behalf of his principal. On the contrary, it provides that
of a debt personally incurred by Enrique Grupe for his such act on the part of an agent would be valid. (Art.
own benefit, and not incurred for the benefit of his 1725 of the Civil Code.)
principal, Vargas, as alleged in the complaint. As a The above mortgage being valid and having been
matter of fact, Grupe, by the terms of the agreement, duly recorded in the Register of Property, directly
bound himself personally to pay the debt. The subjects the property thus encumbered, whoever its
appellant's contention, however, can not be sustained. possessor may be, to the fulfillment of the obligation for
The agreement, so far as that amount is concerned, was the security of which it was created, (Art. 1876 of the
signed by Grupe as attorney in fact for Vargas. Civil Code and art. 105 of the Mortgage Law.) This
Pursuant to instructions contained in the power of presents another phase of the question. Under the view
attorney the money was delivered to Varga's wife, the we have taken of the case it is practically of no
defendant in this case. To secure the payment of the importance whether or not Enrique Grupe bound
debt, Varga's property was mortgaged. His wife took himself personally to pay the debt in question. Be this
part in the execution of the mortgage as required in the as it may and assuming that Vargas, though principal
power of attorney. A debt thus incurred by the agent in the agency, was not the principal debtor, the right in
600 remarising from the mortgage would have justified the
600 PHILIPPINE REPORTS creditor in bringing his action directly against the
ANNOTATED property encumbered had he chosen to foreclose the
Tuason vs. Orozco mortgage rather than to sue Grupe, the alleged
is binding directly upon the principal, provided the principal debtor. This would be true irrespective of the
former acted, as in the present case, within the scope of personal liability incurred by Grupe. The result would
his authority. (Art. 1727 of the Civil Code.) The fact that be practically the same even though it were admitted
the agent has also bound himself to pay the debt does that appellant's contention is correct.
not relieve from liability the principal for whose benefit The appellant also alleges that Enrique Grupe
the debt was incurred. The individual liability of the pledged to the plaintiff thirteen shares of stock in the
agent constitutes in the present case a further security "Compañía de los Tranvías de Filipinas" to secure the
125
payment of the entire debt, and contends that it must estate of the deceased Vargas. She did not deny in her
be shown what has become of these shares, the value of answer that she was such administratrix.
which might be amply safficient to pay the debt, before Vargas having incurred this debt during his
proceeding to foreclose marriage, the same should not be paid out of property
601 belonging to the defendant exclusively but from that
VOL. 5, FEBRUARY 10, 1906 601 pertaining to the conjugal partnership. This fact should
Tuason vs. Orozco be borne in mind in case the proceeds of the mortgaged
the mortgage. This contention can not be sustained in property be not sufficient to pay the debt and interest
the face of the law above quoted to the effect that a thereon. The judgment of the court below should be
mortgage directly subjects the property encumbered, modified in so far as it holds the defendant personally
whoever its possessor may be, to the fulfillment of the liable for the payment of the debt.
obligation for the security of which it was created. The judgment thus modified is affirmed and the
Moreover it was incumbent upon the appellant to show defendant is hereby ordered to pay to the plaintiff the
that the debt had been paid with those shares. Payment sum of 2,200 pesos as principal, together with interest
is not presumed but must be proved. It is a defense thereon from the 21st day of January, 1891, until the
which the defendant may interpose. It was therefore her debt shall have been fully discharged. The appellant
duty to show this fact affirmatively. She failed, shall pay the costs of this appeal.
however, to do so. After the expiration of ten days let judgment be
The appellant's final contention is that in order to entered
render judgment against the mortgaged property it 602
would be necessary that the minor children of Juan de 602 PHILIPPINE REPORTS
Vargas be made parties defendant in this action, they ANNOTATED
having an interest in the property. Under article 154 of United States vs. Macasadia
the Civil Code, which was in force at the time of the in accordance herewith and let the case be remanded to
death of Vargas, the defendant had the parental the court below for execution. So ordered.
authority over her children and consequently the legal
representation of their persons and property. (Arts. 155
and 159 of the Civil Code.) It can not be said, therefore,
that they were not properly represented at the trial.
Furthermore this action was brought against the
defendant in her capacity as administratrix of the
126
[No. 22604. February 3, 1925] This action is brought to recover the sum of P34,260
GUADALUPE GONZALEZ and Luis GOMEZ, alleged to be due the plaintiffs from the defendant upon
plaintiffs and appellants, vs. E. J. HABERER, a written agreement for the sale of a tract of land
defendant and appellee. situated in the Province of Nueva Ecija. The plaintiffs
also ask for damages in the sum of P10,000 for the
1. 1.REAL PROPERTY; CONTRACT TO alleged failure of the defendant to comply with his part
SELL; INABILITY TO PLACE VENDOR IN of the agreement.
POSSESSION GROUND FOR RESCISSION.—A 381
contract f or the sale of land which provides that the VOL. 47, FEBRUARY 3, 1925 381
purchaser "shall have the right to take possession of Gonzalez and Gomez vs. Haberer
the aforesaid land immediately after the execution
The defendant in his answer admits that of the
of this document, together with all the
improvements now existing on the same land, such purchase price stated in the agreement a balance of
as palay plantations and others" renders it P31,000 remains unpaid, but by way of special defense,
incumbent upon the vendor to place the purchaser cross-complaint and counter-claim alleges that at the
in possession and his inability to do so constitutes a time of entering into the contract the plaintiffs through
breach of the contract sufficient to justify its false representations lead him to believe that they were
rescission. in possession of the land and that the title to the greater
portion thereof was not in dispute; that on seeking to
1. 2.ID.; ID.; MlSREPRESENTATIONS BY VENDOR'S obtain possession he found that practically the entire
AGENT.—Where a sale of land is effected on the area of the land was occupied by adverse claimants and
strength of misrepresentations of the agent of the the title thereto disputed; that he consequently has
vendor, the latter cannot accept the benefit of such
been unable to obtain possession of the land; and that
representations and at the same time deny the
responsibility for them.
the plaintiffs have made no efforts to prosecute the
proceedings for the registration of the land. He
APPEAL from a judgment of the Court of First Instance therefore asks that the contract be rescinded; that the
of Manila. Concepcion, J. plaintiffs be ordered to return to him the P30,000
The facts are stated in the opinion of the court. already paid by him to them and to pay P25,000 as
Feria & La O for appellants. damages for breach of the contract.
Paredes, Buencamino & Yulo for appellee. The court below dismissed the plaintiffs' complaint,
declared the contract rescinded and void and gave the
OSTRAND, J.: defendant judgment upon his counterclaim for the sum
of P30,000, with interest from the date upon which the
127
judgment becomes final. The case is now before this 2. "3.That in consideration of the sum of P125 per
court upon appeal by the plaintiffs from that judgment. hectare I do hereby agree and bind myself to sell
The contract in question reads as follows: and transfer by way of real and absolute sale the
land above described to Mr. E. J. Haberer,
"Know all men by these presents: binding myself to execute the deed of sale
immediately after the decree of the court
"That I, Guadalupe Gonzalez y Morales de Gomez, adjudicating said land in my favor is registered
married with Luis Gomez, of age, and resident of the in the registry of property of the Province of
municipality of Bautista, Province of Pangasinan, Nueva Ecija. The conditions of this obligation to
Philippine Islands, do hereby state: sell are as follows:
1. "1.That I am the absolute and exclusive owner of 1. " '1.That Mr. E. J. Haberer has at this moment
a parcel of land situated in the barrio of Partida, paid me the sum of P30,000 on account of the
municipality of Guimba, Nueva Ecija, described price of the aforesaid land.
as follows: 2. " '2.That said Mr. E. J. Haberer agrees and binds
himself to pay within six months from the date
"Bounded on the north by the land of Don Marcelino of the execution of this' document the unpaid
Santos; on the east, by the land of Doña Cristina balance of the purchase price.
Gonzalez; on the south by the Binituan River; and on 3. " '3.That said Mr. E. J. Haberer shall have the
the west, by the land of Doña Ramona Gonzalez; right to take possession of the aforesaid land
containing an area of 488 hectares approximately. immediately after the execution of this
382
document together with all the improvements
382 PHILIPPINE REPORTS
now existing on the same land, such
ANNOTATED
as palayplantations and others.
Gonzalez and Gomez vs. Haberer 4. " '4.That said Mr. E. J. Haberer agrees and binds
himself to pay the expenses to be incurred from
1. "2.That an application was filed for .the this date in the registration of the aforesaid land
registration of the above described land in the up to the filing of the proper decree in the office
registry of property of Nueva Ecija, which of the register of deeds of the Province of Nueva
application is still pending in the Court of First Ecija.
Instance of Nueva Ecija. 5. " '5.That in the event that the court should hold
that I am not the owner of all or any part of the
128
aforesaid land, I agree and bind myself to return the land as above stipulated, she being empowered to
without interest all such amounts of money as I execute the deed of sale and other necessary documents
have received or may receive from Mr. E. J. in order that the full ownership over the aforesaid land
Haberer as the purchase price of said land, but, may be transferred to Mr. E. J. Haberer, as stipulated
in the event that the court should adjudicate a in this document.
part of the aforesaid land to me, then I agree "In testimony whereof, we hereunto set our hands at
and bind myself to sell said portion adjudicated Manila, this 7th day of July, 1920.
to me, return (Sgd.) "GUADALUPE G. DE GOMEZ
"E. J. HABERER
383 "Luis GOMEZ
VOL. 47, FEBRUARY 3, 1925 383 "Signed in the presence of the witnesses:
Gonzalez and Gomez vs. Haberer (Sgd.) "EMIGDIO DOMINGO
"L. G. ALVAREZ
1. ing all the amounts received from Mr. E. J.
Haberer in excess of the price of said portion at "(Acknowledged before notary.)"
the rate of P125 per hectare.
2. " '6.That Mr. E. J. Haberer does hereby waive any It is conceded by the plaintiffs that the defendant never
interest or indemnity upon the amount that I obtained actual or physical possession of the land, but
am to return to him and which I have received it is argued that under the contract quoted the plaintiffs
from Mr. E. J. Haberer as the purchase price of were under no obligation to place him in possession.
the aforesaid land.' This contention cannot be sustained. Cause 3 of
paragraph 3 of the contract gave the defendant the right
"I, E. J. Haberer, married, of age, and resident of the to take pos-
384
municipality of Talavera, Nueva Ecija, do hereby state
that, having known the contents of this document, I
384 PHILIPPINE REPORTS
accept the same with all the stipulations and conditions ANNOTATED
thereof. Gonzalez and Gomez vs. Haberer
"I, Luis Gomez, married, of age, and resident of the session of the land immediately upon the execution of
municipality of Bautista, Province of Pangasinan, do the contract and necessarily created the obligation on
hereby grant my wife, Dña. Guadalupe Gonzalez y the part of the plaintiffs to make good the right thus
Morales de Gomez, the due marital license to execute granted; it was one of the essential conditions of the
this document and make effective the definite sale of agreement and the failure of the plaintiffs to comply
129
with this condition, without fault on the part of the therefore affirmed, with the costs against the
defendant, is in itself sufficient ground for the appellants. So ordered.
rescission, even in the absence of any misrepresentation Johnson, Street, Malcolm, Villamor, Johns, and R
on their part. (Civil Code, art. omualdez, JJ., concur.
1124; Pabalan vs.Velez, 22 Phil., 29.)
Judgment affirmed.
It is therefore unnecessary to discuss the question
whether the defendant was induced to enter into the
agreement through misrepresentations made by the
plaintiff Gomez. We may say, however, that the
evidence leaves no doubt that some misrepresentations G.R. No. 159489. February 4, 2008. *
were made and that but for such misrepresentations the FILIPINAS LIFE ASSURANCE COMPANY (now
defendant would not have been likely to enter into the AYALA LIFE ASSURANCE, INC.),
agreement in the form it appeared. As to the contention petitioner, vs.CLEMENTE N. PEDROSO, TERESITA
that the plaintiff Gonzalez cannot be charged with the O. PEDROSO and JENNIFER N. PALACIO thru her
misrepresentations of Gomez, it is sufficient to say that Attorney-in-Fact PONCIANO C. MARQUEZ,
the latter in negotiating for the sale of the land acted as respondents.
the agent and representative of the other plaintiff, his Civil Law; Agency; The general rule is that the principal
wife; having accepted the benefit of the representations is responsible for the acts of its agent done within the scope of
of her agent she cannot, of course, escape liability for its authority and should bear the damage caused to third
them. (Haskell vs. Starbird, 152 Mass., 117; 23 A. S. E., persons; The acts of an agent beyond the scope of his authority
809.) do not bind the principal, unless the principal ratifies them,
The contention of the appellants that the symbolic expressly or impliedly.—Filipinas Life, as the principal, is
delivery effected by the execution and delivery of the liable for obligations contracted by its agent Valle. By the
contract of agency, a person binds himself to render some
agreement was a sufficient delivery of the possession of
service or to do something in representation or on behalf of
the land, is also without merit. The possession referred another, with the consent or authority of the latter. The
to in the contract is evidently physical; if it were general rule is that the principal is responsible for the acts
otherwise it would not have been necessary to mention of its agent done within the scope of its authority, and should
it in the contract. (See Cruzado vs. Bustos and bear the damage caused to third persons. When the agent
Escaler, 34 Phil., 17.) exceeds his authority, the agent becomes personally liable for
The judgment appealed from is in accordance with the damage. But even when the agent exceeds his authority,
the law, is fully sustained by the evidence, and is the principal is still solidarily liable together with the agent
if the principal allowed the agent to act as though the agent
130
had full powers. In other words, the acts of an agent beyond facit per seipsum facere videtur. “He who does a thing by an
the scope of his authority do not bind the principal, unless agent is considered as doing it himself.”
the principal ratifies them, expressly or impliedly.
Ratification in agency is the adoption or confirmation by one PETITION for review on certiorari of the decision and
person of an act performed on his behalf by another without resolution of the Court of Appeals.
authority.
Same; Same; Innocent third persons should not be
prejudiced if the principal failed to adopt the needed
Benedicto, Verzosa, Gealogo, Burkley &
measures to prevent misrepresentation, much more so if the Associates for petitioner.
principal ratified his agent’s acts beyond the latter’s Engelbert C. Caronan, Jr. for respondents.
authority.—Filipinas Life cannot profess ignorance of Valle’s
acts. Even if Valle’s representations were beyond his QUISUMBING, J.:
authority as a debit/insurance agent, Filipinas Life thru
Alcantara and Apetrior expressly and knowingly ratified This petition for review on certiorari seeks the reversal
Valle’s acts. It cannot even be denied that Filipinas Life of the Decision and Resolution, dated November 29,
1 2
benefited from the investments deposited by Valle in the 2002 and August 5, 2003, respectively, of the Court of
account of Filipinas Life. In our considered Appeals in CAG.R. CV No. 33568. The appellate court
_______________ had affirmed the Decision dated October 10, 1989 of the
3
* SECOND DIVISION.
Regional Trial Court (RTC) of Manila, Branch 3, finding
petitioner as defendant and the co-defendants below
543
jointly and severally liable to the plaintiffs, now herein
VOL. 543, FEBRUARY 4, 543 respondents.
2008 The antecedent facts are as follows:
Filipinas Life Assurance Company vs. Respondent Teresita O. Pedroso is a policyholder of
Pedroso a 20year endowment life insurance issued by petitioner
view, Filipinas Life had clothed Valle with apparent Filipinas Life Assurance Company (Filipinas Life).
authority; hence, it is now estopped to deny said authority. Pedroso claims Renato Valle was her insurance agent
Innocent third persons should not be prejudiced if the since 1972 and Valle
principal failed to adopt the needed measures to prevent _______________
misrepresentation, much more so if the principal ratified his 1 Rollo, pp. 43-55. Penned by Associate Justice Renato C. Dacudao,
agent’s acts beyond the latter’s authority. The act of the with Associate Justices Eugenio S. Labitoria and Danilo B. Pine
agent is considered that of the principal itself. Qui per alium concurring.
2 Id., at p. 56.
131
3 Id., at pp. 57-63. Penned by Judge Clemente M. Soriano. P10,000 was returned to her after she made a written
544 request for its refund. The formal written request, dated
544 SUPREME COURT REPORTS February 3, 1977, was written on an inter-office
ANNOTATED memorandum form of Filipinas Life prepared by
Filipinas Life Assurance Company vs. Alcantara. To collect the amount, Pedroso personally
7
Pedroso went to the Escolta branch where Alcantara gave her

collected her monthly premiums. In the first week of the P10,000 in cash. After a second investment, she
January 1977, Valle told her that the Filipinas Life made 7 to 8 more investments in varying amounts,
Escolta Office was holding a promotional investment totaling P37,000 but at a
_______________
program for policyholders. It was offering 8% prepaid
interest a month for certain amounts deposited on a 4 Records, p. 246.
monthly basis. Enticed, she initially invested and 5 TSN, October 7, 1983, pp. 9-10.
6 Records, p. 248.
issued a post-dated check dated January 7, 1977 for 7 Id., at p. 247.
P10,000. In return, Valle issued Pedroso his personal

4
check for P800 for the 8% prepaid interest and a

5 545
Filipinas Life “Agent’s Receipt” No. 807838. 6
VOL. 543, FEBRUARY 4, 2008 545
Subsequently, she called the Escolta office and Filipinas Life Assurance Company vs.
talked to Francisco Alcantara, the administrative Pedroso
assistant, who referred her to the branch manager, lower rate of 5% prepaid interest a month. Upon
8
Angel Apetrior. Pedroso inquired about the promotional maturity of Pedroso’s subsequent investments, Valle
investment and Apetrior confirmed that there was such would take back from Pedroso the corresponding
a promotion. She was even told she could “push through yellow-colored agent’s receipt he issued to the latter.
with the check” she issued. From the records, the check, Pedroso told respondent Jennifer N. Palacio, also a
with the endorsement of Alcantara at the back, was Filipinas Life insurance policyholder, about the
deposited in the account of Filipinas Life with the investment plan. Palacio made a total investment of
Commercial Bank and Trust Company (CBTC), Escolta P49,550 but at only 5% prepaid interest. However,
9
Branch. when Pedroso tried to withdraw her investment, Valle

Relying on the representations made by the did not want to return some P17,000 worth of it. Palacio
petitioner’s duly authorized representatives Apetrior also tried to withdraw hers, but Filipinas Life, despite
and Alcantara, as well as having known agent Valle for demands, refused to return her money. With the
quite some time, Pedroso waited for the maturity of her assistance of their lawyer, they went to Filipinas Life
initial investment. A month after, her investment of Escolta Office to collect their respective investments,
132
and to inquire why they had not seen Valle for quite Filipinas Life does not dispute that Valle was its
some time. But their attempts were futile. Hence, agent, but claims that it was only a life insurance
respondents filed an action for the recovery of a sum of company and was not engaged in the business of
money. collecting investment money. It contends that the
After trial, the RTC, Branch 3, Manila, held Filipinas investment scheme offered to respondents by Valle,
Life and its co-defendants Valle, Apetrior and Alcantara Apetrior and Alcantara was outside the scope of their
jointly and solidarily liable to the respondents. authority as agents of Filipinas Life such that, it cannot
On appeal, the Court of Appeals affirmed the trial be held liable to the respondents. 11
court’s ruling and subsequently denied the motion for On the other hand, respondents contend that
reconsideration. Filipinas Life authorized Valle to solicit investments
Petitioner now comes before us raising a single issue: from them. In fact, Filipinas Life’s official documents
WHETHER OR NOT THE COURT OF APPEALS and facilities were used in consummating the
COMMITTED A REVERSIBLE ERROR AND GRAVELY transactions. These transactions, according to
ABUSED ITS DISCRETION IN AFFIRMING THE respondents, were confirmed by its officers Apetrior and
DECISION OF THE LOWER COURT HOLDING FLAC Alcantara. Respondents assert they exercised all the
[FILIPINAS LIFE] TO BE JOINTLY AND SEVERALLY
diligence required of them in ascertaining the authority
LIABLE WITH ITS CO-DEFENDANTS ON THE CLAIM
of petitioner’s agents; and it is Filipinas Life that failed
OF RESPONDENTS INSTEAD OF HOLDING ITS AGENT,
RENATO VALLE, SOLELY LIABLE TO THE in its duty to ensure that its agents act within the scope
RESPONDENTS. 10
of their authority.
Considering the issue raised in the light of the
_______________
submissions of the parties, we find that the petition
8 Supra note 5. lacks merit. The Court of Appeals committed no
9 Records, pp. 253-264. reversible error nor abused gravely its discretion in
10 Rollo, p. 108.
rendering the assailed decision and resolution.
546 It appears indisputable that respondents Pedroso
546 SUPREME COURT REPORTS and Palacio had invested P47,000 and P49,550,
ANNOTATED respectively. These were received by Valle and remitted
Filipinas Life Assurance Company vs. to Filipinas Life, using Filipinas Life’s official receipts,
Pedroso whose authenticity were not disputed. Valle’s authority
Simply put, did the Court of Appeals err in holding to solicit and receive investments was also established
petitioner and its co-defendants jointly and severally by the parties. When respondents sought confirmation,
liable to the herein respondents? Alcantara, holding a supervisory position, and Apetrior,
133
the branch manager, confirmed that Valle had the adoption or confirmation by one person of an act
authority. While it is true that a person deal- performed on his behalf by another without authority. 17
_______________ _______________
11 Id., at p. 109. 12 CIVIL CODE, Art. 1868.

13 Lopez, et al. v. Hon. Alvendia, et al., 120 Phil. 1424, 14311432; 12
547 SCRA 634, 641 (1964).
VOL. 543, FEBRUARY 4, 2008 547 14 BA Finance Corporation v. Court of Appeals, G.R. No. 94566, July
Filipinas Life Assurance Company vs. 3, 1992, 211 SCRA 112, 118.
15 CIVIL CODE, Art. 1911.
Pedroso 16 Id., Art. 1910. The principal must comply with all the obligations
ing with an agent is put upon inquiry and must discover which the agent may have contracted within the scope of his authority.
at his own peril the agent’s authority, in this case, As for any obligation wherein the agent has exceeded his power,
the principal is not bound except when he ratifies it expressly or
respondents did exercise due diligence in removing all tacitly.
doubts and in confirming the validity of the 17 Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R. No.
representations made by Valle. 151319, November 22, 2004, 443 SCRA 377, 394.
Filipinas Life, as the principal, is liable for 548
obligations contracted by its agent Valle. By the 548 SUPREME COURT REPORTS
contract of agency, a person binds himself to render ANNOTATED
some service or to do something in representation or on Filipinas Life Assurance Company vs.
behalf of another, with the consent or authority of the
Pedroso
latter. The general rule is that the principal is
12
Filipinas Life cannot profess ignorance of Valle’s acts.

responsible for the acts of its agent done within the
Even if Valle’s representations were beyond his
scope of its authority, and should bear the damage
authority as a debit/insurance agent, Filipinas Life thru
caused to third persons. When the agent exceeds his
13
Alcantara and Apetrior expressly and knowingly

authority, the agent becomes personally liable for the
ratified Valle’s acts. It cannot even be denied that
damage. But even when the agent exceeds his
14
Filipinas Life benefited from the investments deposited

authority, the principal is still solidarily liable together
by Valle in the account of Filipinas Life. In our
with the agent if the principal allowed the agent to act
considered view, Filipinas Life had clothed Valle with
as though the agent had full powers. In other words,
15
apparent authority; hence, it is now estopped to deny

the acts of an agent beyond the scope of his authority do
said authority. Innocent third persons should not be
not bind the principal, unless the principal ratifies
prejudiced if the principal failed to adopt the needed
them, expressly or impliedly. Ratification in agency is
16
measures to prevent misrepresentation, much more so
134
if the principal ratified his agent’s acts beyond the VOL. 63, AUGUST 29, 1936 373
latter’s authority. The act of the agent is considered Wise & Co. vs. Tanglao
that of the principal itself. Qui per alium facit per
seipsum facere videtur. “He who does a thing by an 1. tracted any personal responsibility for the payment of
agent is considered as doing it himself.” 18 said debt.
WHEREFORE, the petition is DENIED for lack of
merit. The Decision and Resolution, dated November 1. 2.ID.; BENEFIT OF EXHAUSTION.—Granting that
29, 2002 and August 5, 2003, respectively, of the Court defendant T may be considered as a surety under the
of Appeals in CAG.R. CV No. 33568 are AFFIRMED. contract, even then the action against him does not
Costs against the petitioner. lie on the ground that all the legal remedies against
the debtor have not previously been exhausted (art.
SO ORDERED.
1830, Civil Code, and decision of the Supreme Court
Carpio, Carpio-Morales, Tingaand Velasco, Jr., of Spain of March 2, 1891).
JJ., concur.
Petition denied, judgment and resolution affirmed. APPEAL from a judgment of the Court of First Instance
of Manila. Sison, J.
The facts are stated in the opinion of the court.
The appellant in his own behalf.
Franco & Reinoso for appellee.
AVANCEÑA, C. J.:
WlSE & Co., INC., plaintiff and appellee, vs. DIONISIO In the Court of First Instance of Manila, Wise & Co.
P. TANGLAO, defendant and appellant. instituted civil case No. 41129 against Cornelio C.
David for the recovery of a certain sum of money. David
1. 1.SURETYSHIP AND GUARANTY; THE was an agent of Wise & Co. and the amount claimed
SURETYSHIP MUST BE EXPRESS.—An
from him was the result of a liquidation of accounts
obligation of suretyship, under the law, must be
showing that he was indebted in said amount. In said
express. It is not inferable from any of the clauses of
the contract that T became D's surety for the case Wise & Co. asked and obtained a preliminary
payment of the latter's indebtedness to the plaintiff. attachment of David's property. To avoid the execution
Therefore, T could not have con of said attachment, David succeeded in having his
Attorney Tanglao execute on January 16, 1932, a power
373
135
of attorney (Exhibit A) in his favor, with the following 1. "1.House of light materials described under tax
clause: declaration No. 9650 of the municipality of Angeles,
"To sign for me as guarantor for himself in his indebtedness Province of Pampanga, assessed at P320.
to Wise & Company of Manila, which indebtedness appears 2. "2.Accesoria apartments with a ground floor of 180 sq.
in civil case No. 41129, of the Court of First Instance of m. with the first story of cement and galvanized of
Manila, and to mortgage my lot (No. 517-F of the subdivision iron roofing located on the lot belonging to Mariano
plan Psd-20, being a portion of lot No. 517 of the cadastral Tablante Geronimo, said accesoria is described
survey of Angeles, G. L. R. O. Cad. Rec. No. 124), to under tax declaration No. 11164 of the municipality
guarantee the said obligations to the Wise & Company, Inc., of Angeles, Pampanga, assessed at P800.
of Manila." 3. "3.Parcel of land described under Transfer Certificate
of Title No. 2307 of the Province of Pampanga
374 recorded in the name of Dionisio Tanglao of which
374 PHILIPPINE REPORTS defendant herein holds a special power of attorney
ANNOTATED to pledge the same in favor of Wise & Co., Inc., as a
Wise & Co. vs. Tanglao guarantee for the payment of the claim against him
On the 18th of said month David subscribed and on the in the above entitled cause. The said parcel of land
23d thereof, filed in court, the following document is bounded as follows: NE. lot No. 517 'Part' de
Narciso Garcia; SE. Calle Rizal; SW. lot No. 517
(Exhibit B) :
'Part' de Bernardino Tiongco; NW. lot No. 508 de
"COMPROMISE
Clemente Dayrit; containing 431 sq. m. and
"Come now the parties, plaintiff by the undersigned described in tax declaration No. 11977 of the
attorneys and defendant in his own behalf and respectfully municipality of Angeles, Pampanga, assessed at
state: P423
1. "I.That defendant confesses judgment for the sum of .

six hundred forty pesos (P640), payable at the rate 375
of eighty pesos (P80) per month, the first payment to VOL. 63, AUGUST 29, 1936 375
be made on February 15, 1932 and successively Wise & Co. vs. Tanglao
thereafter until the full amount is paid; that plaintiff
"That this guaranty is attached to the properties above
accepts this stipulation.
mentioned as first lien and for this reason the parties agree
2. "II.That as security for the payment of the said sum
to register this compromise with the Register of Deeds of
of P640, defendant binds in favor of, and pledges to
Pampanga, said lien to be cancelled only on the payment of
the plaintiff, the following real properties:
the full amount of the judgment in this ,case.
136
"Wherefore, the parties pray that the above compromise At any rate, even granting that defendant Tanglao
be admitted and that an order issue requiring the Register may be considered as a surety under Exhibit B, the
of Deeds of Pampanga to register this compromise previous action does
to the filing of the legal fees." 376
David paid the sum of P343.47 to Wise & Co., on account 376 PHILIPPINE REPORTS
of the P640 which he bound himself to pay under ANNOTATED
Exhibit B, leaving an unpaid balance of P296.53. People vs. Makabangan
Wise & Co. now institutes this case against Tanglao not yet lie against him on the ground that all the legal
for the recovery of said balance of P296.53. remedies against the debtor have not previously been
There is no doubt that under Exhibit A, Tanglao exhausted (art. 1830 of the Civil Code, and decision of
empowered David, in his name, to enter into a contract the Supreme Court of Spain of March 2, 1891). The
of suretyship and a contract of mortgage of the property plaintiff has in its favor a judgment against debtor
described in the document, with Wise & Co. However, David for the payment of the debt. It does not appear
David used said power of attorney only to mortgage the that the execution of this judgment has been asked for
property and did not enter into the contract of and Exhibit B, on the other hand, shows that David has
suretyship. Nothing is stated in Exhibit B to the effect two pieces of property the value of which is in excess of
that Tanglao became David's surety for the payment of the balance of the debt the payment of which is sought
the sum in question. Neither is this inferable from any of Tanglao in his alleged capacity as surety.
of the clauses thereof, and even if this inference might For the foregoing considerations, the appealed
be made, it would be insufficient to create an obligation judgment is reversed and the defendant is absolved
of suretyship which, under the law, must be express and from the complaint, with the costs to the plaintiff. So
cannot be presumed. ordered.
It appears from the foregoing that defendant Villa-Real, Abad
Tanglao could not have contracted any personal Santos, Imperial, Diaz, Recto, and Laurel, JJ., concur.
responsibility for the payment of the sum of P640. The judgment reversed.
only obligation which Exhibit B, in connection with
Exhibit A, has created on the part of Tanglao, is that
resulting from the mortgage of a property belonging to
him to secure the payment of said P640. However, a
foreclosure suit is not instituted in this case against
Tanglao, but a purely personal action for the recovery
of the amount still owed by David.
137
No. L-20697. December 24, 1964. PAREDES, J.:
EUSEBIO M. LOPEZ, EUSEBIO LOPEZ, JR.,
DEOGRACIAS P. LlRIO, SOLEDAD LIRIO-DOLOR Sometime in March, 1957, David and Adelaida
and RENATO C. DOLOR, in his capacity as Judicial Minsberg, private-parties respondents herein, bought a
Administrator of the Intestate Estate of the late parcel of residential land from the petitioners. On
Faustino Dolor, petitioners, vs. HON. CARMELINO G. March 25, 1957, the first payment in the amount of
ALVENDIA as presiding judge of branch XVI, CFI P900.00 was handed and on April 1, 1957, the amount
Manila, DAVID MINSBERG, ADELAIDA S. of P1, 100.00 was paid to complete the down payment.
MINSBERG, and CITY SHERIFF OF MANILA, On the latter date, a written contract was executed,
respondents. wherein it was covenanted that upon completion of the
payment of P7,560.00, the certificate of title on the lot
Certiorari; Mistakes of fact or of law not within the reach will be issued to private-parties respondents. In July,
of certiorari; Appeal the proper remedy.—Mere mistakes of
1958, the Minsbergs received from petitioners a written
fact or errors of judgment and/or of law by a trial court are
not within the reach of a writ of certiorari. If petitioners did
notice, to the effect that if they (private-parties
not agree with the orders complained of, they could have respondents) fail to pay the balance of P5,560.00 in two
appealed them. Certiorari is not a substitute for appeal. weeks’ time, the down payment 01 P2,000.00 will be
Agency; Principal liable for acts of agent within scope of forfeited and they would lose all their rights over the
authority.—The principal is responsible for the acts of the lot. On July 31, 1958, the Minsbergs paid the balance
635 and, in turn, demanded the title. The petitioners,
VOL. 12, DECEMBER 24, 635 however, failed to deliver the title, in spite of the full
1964 payment of the purchase price, but told the respondents
to wait for a few days, inasmuch as the necessary
Lopez vs. Alvendia
papers were in the process of preparation. In 1960, the
agent, done within the scope of his authority, and should
Minsbergs began the construction of their house on the
bear the damages caused to third parties.
lot, and when their estimates failed to complete the
ORIGINAL PETITION in the Supreme Court. house, they again sought the issuance of the title, in
Certiorari, mandamus and prohibition with order to enable them to mortgage the same and obtain
preliminary injunction. funds. Instead of giving the title, petitioners issued a
mere certification, stating that they (Minsbergs) have
The facts are stated in the opinion of the Court. paid in full the purchase price of the lot. The
R.V. Victoriano & W.S. Fajardo for petitioners. certification did not merit the acceptance by the banks
Aguila & Macasaet for respondents. of the application for loan. with the lot as security.
138
636 discussing, since they are not necessary for the
636 SUPREME COURT REPORTS resolution of the present proceedings. After the joining
ANNOTATED of the issues, an agreement was reached by the parties,
Lopez vs. Alvendia thru the intervention of the Court, which was made the
Claiming that they suffered damages due to the failure basis of a decision in the case. The dispositive part of
of the petitioners to issue to them the title of the lot, the the decision, dated August 24, 1962, states:
Minsbergs instituted Civil Case No. 49628 with the CFI “While this case was being tried and after the plaintiffs have
of Manila, presided by respondent, the Hon. Carmelino rested their case, the parties through the intervention of the
Alvendia, with the following petitoria: Court, having arrived at the following agreement:
“WHEREFORE, in view of all the foregoing, it is respectfully “That the defendants shall deliver to the plaintiffs the
prayed that in the case judgment be rendered against torrens title to Lot No. 5, Block No. 7 of the consolidated
defendants and in favor of the plaintiffs: subdivision plan (LRC) Pcs-359, containing 540 square
meters, more or less and described as follows:
1. 1.Ordering the defendants to deliver to plaintiffs the
x x x x
certificate of title on Lot No. 5, Block No. 7, St.
x x
Ignacius Village Subdivision Plan SIVS;
2. 2.Ordering defendants to pay plaintiffs damages in
WHEREFORE, judgment is rendered, sentencing the
the sum of P45,000.00 and attorney’s fee in the sum
defendants jointly and severally to deliver to the plaintiffs a
of P4,500.00;
3. 3.Ordering defendants to pay the costs of suit; 637
4. 4.And granting to plaintiffs such other reliefs and VOL. 12, DECEMBER 24, 1964 637
remedies which may be warranted by the Lopez vs. Alvendia
circumstances.” torrens title issued in the name of Adelaida Saguban-
Minsberg of legal age, Filipino, married to David Minsberg
In the same complaint, it was alleged that the reason and with postal address at Room 408 Maria Dolores
why petitioners herein were not able to deliver the title Building, Manila, covering Lot 5, Block 7 of the Consolidated
upon demand, was the f act that the title of the whole Subdivision plan (LRC) Pcs-359 and to jointly and severally
subdivision was with the GSIS, the land, part of which pay the plaintiffs the sum of P3,500.00 as damages. Both
is the lot in question, having been mortgaged to secure said title and damages should be delivered to the plaintiffs
a loan of P1,600, 000.00, a fact not communicated to the not later than September 21, 1962. Should the defendants fail
Minsbergs. to deliver the title and/or the amount of P3,500.00, the
amount of damages shall be automatically raised
Petitioners herein presented separate answers and
toP10,000.00 and a, writ of execution of this decision with the
various defenses, which We shall refrain from damages raised to P 0,000.00 shall immediately be issued.”
139
Under date of September 28, 1962, the Minsbergs 638
presented a “Motion for Execution,” it appearing that 638 SUPREME COURT REPORTS
although the title was delivered, one of the checks ANNOTATED
issued to cover the P3,500.00 damages was dishonored Lopez vs. Alvendia
by the drawee bank with the notation “no honored check, to show good faith, and prayed that the
arrangement,” when presented on September 26, 1962. motion for execution be denied.
There was failure to live up to the conditions of the On December 4, 1962, the respondent Judge issued
agreement as embodied in the decision and, therefore, a an Order, the pertinent portions of which state:
motion for execution, for P10,000.00 was presented. “In view of the foregoing considerations, the Court holds that
Petitioners herein filed on October 4, 1962, a the defendants failed to comply with the requirements in the
Manifestation and/or Opposition, contending that they decision that they pay the plaintiffs as damages the sum of
have substantially complied with the judgment; that P3,500.00 not later than September 21, 1962. Having failed
in the said requirement, the second portion of the decision
the noncashing of the check by the drawee bank, was
automatically comes into effect, namely, that the amount of
due to a mere “oversight”, on the part of the cashier of
the damages should be raised to P10,000.00.
the bank. A statement dated October 4,1962 showing WHEREFORE, let a writ of execution for the sum of
that there was an oversight, was attached to the P10,000.00 be issued against the defendants in the above-
manifestation and/or opposition, the contents of which entitled case.”
read:
“This is to certify that Republic Bank Check No. 152597, Against the above Order, petitioners presented on
drawn by Mr. Eusebio Lopez, Jr., in favor of Mr. David December 11,1962, an Urgent Motion for
Minsberg on September 21, 1962 in the sum of P3,277.38, is Reconsideration and to Lift the Writ of Execution,
a good and valid check and the dishonor of the said check is stating that at the time of the issuance, delivery and
a pure case of oversight. The herein described check can, presentment of the dishonored check, there was already
therefore, be presented to us for payment anytime and/or an arrangement between the petitioners and the
redeposited by the payee, Mr. David Minsberg. Republic Bank, thru Atty. Eusebio Lopez, Jr.; that the
“This certification is issued upon the request of Mr. Lopez.
dishonor was due to an oversight and/or honest
(Sgd.) SIMPLICIO MANALO
mistake; that upon learning of the dishonor, they
Cashier”
informed private-parties respondents, thru counsel, to
Simultaneously with the f iling of the Manif estation redeposit or present for payment the check with drawee
and/or Opposition, the petitioners herein deposited with bank; and that on October 5, 1962, before the issuance
the trial court the amount of P3,277.38, in cash, the of the execution, they deposited with the Court the full
value of the dis- amount of the dishonored check; that there was a
140
substantial compliance with the decision. In the same been impaired.” (Art. 1249, pars. 1 & 2, Civil Code of the
motion, petitioners prayed that they be allowed to Philippines.)
present evidence. to prove an honest mistake or “The foregoing legal provision, applied to the undisputed
oversight and/or excusable negligence. On December facts in this case, will clearly indicate that it is immaterial
whether or not the defendants had money with the drawee
12, 1962, an Urgent Ex-Parte Motion to
bank sufficient to cover the value of the check they have
Suspend Proceedings on Writ of Execution was filed by
issued for P3,500.00 on September 21, 1962. Hence, the offer
petitioners, claiming that, with the death of Faustino to introduce evidence to substantiate this alleged fact should
Dolor, his ownership over the Dolor’s Pharmacy, which be as it is hereby denied.
was being levied upon, had ceased, and, therefore, could “In view of the foregoing considerations, the Court hereby
not be reached by the Writ of Execution and the Writ denies the motion for reconsideration and to lift the writ of
should be lifted over the properties of said Pharmacy. execution.”
On December 14, 1962, the respondent Judge issued an
Petitioners came to this Court, on a Petition for
Order, denying the motion to suspend proceedings on
Certiorari, Mandamus and/or Prohibition with
the writ of execution. On December 15, 1962, the
Preliminary Injunction. They claim that the respondent
respondent Court issued the following Order:
639 Court in issuing the order of December 4, 1962,
VOL. 12, DECEMBER 24, 1964 639 directing the issuance of a writ of execution; the Order
Lopez vs. Alvendia of December 12, 1962, denying the motion for
“In issuing a check, the defendants have decided to effect a reconsideration and to lift the writ of execution; the
method of satisfying their obligation which is fraught with Order denying the motion to suspend the proceedings
danger, to say the least. This is because plaintiffs could have and in not allowing them to introduce evidence to show
refused to accept the check. The check not being currency is the oversight by the cashier of the drawee bank, in not
not a legal tender and a creditor could not be compelled to honoring the checks issued in payment of the damages,
accept it in payment of his credit. acted with grave abuse of discretion and/or committed
“Finally, the Civil Code of the Philippines, provides: an oppresive exercise of authority, for which they could
not appeal, or have any other plain, speedy and
x x x x x
adequate remedy in the ordinary course of law. They
x
prayed that a Writ of Preliminary Injunction be issued,
“The delivery of the promissory notes payable to order, or directed against the respondent Sheriff of Manila, to
bills of exchange or other mercantile documents shall desist from further proceeding on the Writ of Execution
produce the effect’ of payment only when they have been dated December 8, 1962 and enjoining the respondent
cashed, or when through the fault of the creditor they have Judge to refrain
640
141
640 SUPREME COURT REPORTS check when presented, and contend, by such “mere
ANNOTATED oversight”, that they have substantially complied with
Lopez vs. Alvendia the judgment. We find the contention untenable. From
from issuing an alias Writ of Execution; and for the the rendition of the decision, to the date they were to
annulment of the orders complained of. comply with the same, one (1) month transpired. Within
On January 17, 1963, this Court gave due course to the span of such time, petitioners could have
the petition at bar and issued a preliminary writ, as ascertained that the arrangement they now claim to
prayed for. Thereafter, an Urgent Petition to Lift have made with the Bank, was known to its cashier who
Garnishment was granted by this Court, upon the did not state at all in his certification that there was
posting of an increased bond of P10,000.00. such a previous arrangement. The respondent Court did
The respondents, answering the petition, after the not simply believe that there was an arrangement; and
usual admissions and denials, contended that there was this disbelief is strengthened by the facts and
no grave abuse of discretion practiced by the respondent circumstances of record. Likewise, petitioners asked the
Judge, in issuing the orders complained of, claiming respondent Court to allow them to
641
that the decision was based on a compromise agreement
entered into by the parties, after the respondents had VOL. 12, DECEMBER 24, 1964 641
rested their case. They also point out that they claimed Socorro vs. Ortiz
P49,590.00 as damages and attorney’s fees, and the sum submit evidence to show the supposed “oversight,” but
of P10,000.00 was provided in the decision as damages said court did not deem it necessary to do so. Granting
upon the failure of the petitioners, to comply with the for the purposes of argument, that the said acts were
conditions of the compromise agreement and said erroneous, still, they were merely mistakes of fact or
decision. errors of judgment and/or of law, not within the reach
Under the facts obtaining in the case, We find no of a writ of certiorari, much less a writ of mandamus.
abuse of discretion, much less a grave one, committed Having failed to comply with the decision, petitioners
by respondent judge, in issuing the Orders complained have no cause to lament. If petitioners did not agree
of. The jurisdiction of the trial court to take cognizance with the orders complained of, they could have appealed
of the case is conceded. Petitioners admit their failure them. Certiorari is not a substitute f or appeal. And, the
to live up to the terms of the judgment, which was bank, having accepted the alleged arrangement, had
rendered, pursuant to a compromise agreement and constituted itself as the agent of the petitioners. The
where time was of the essence. They attribute, however, principal is responsible for the acts of the agent, done
their failure, to an alleged “mere oversight” on the part within the scope of his authority, and should bear the
of the cashier of the drawee bank, in not cashing the damages caused upon third parties. If the fault
142
(oversight) lies on the bank, petitioners are free to sue 1. that in violation of instructions and regulations of the
said bank for damages occasioned thereby. bank, the defendants released large crop loans
PREMISES CONSIDERED, the petition should be, aggregating P348,768 to about 103 borrowers who
as it is hereby dismissed, for lack of merits. The Writ of were neither landowners nor tenants but only public
land sales applicants. Held: The defendants are
Preliminary Injunction earlier issued, is dissolved.
civilly liable, under articles 1718, 1719 and 1902 of
Costs against petitioners in both instances.
the Civil Code and under article 259 of the Code of
Commerce.
1. 2.ID.; ID.; ID.; ALLEGED RATIFICATION BY

PHILIPPINE NATIONAL BANK.—Although the
PHILIPPINE NATIONAL BANK, plaintiff and Philippine National Bank filed suits against said
appellee vs. BERNARDO BAGAMASPAD and borrowers, resulting in the payment of part of said
BIENVENIDO M. FERRER, defendants and loans thereby reducing the original claim of the bank
appellants. from P704,903 to P699,803, such filing of suits is not
a ratification of the acts of the defendants, as there
1. 1.PRINCIPAL AND AGENT; CROP was no intention on the part of the bank to ratify
LOANS; UNAUTHORIZED AND CARELESS those unauthorized acts. The plaintiff was merely
GRANTS OF LOANS TO FICTITIOUS OR trying to diminish as much as possible the loss to
INSOLVENT BORROWERS.—The acts of laxity, itself and decrease the defendants' financial
liability.
negligence and carelessness of the defendants are
amply established by the evidence. The evidence
also shows 1. 3.ID.; ID.; ID.; NECESSITY OF GOING FIRST
AGAINST THE BORROWERS.—It is not necessary
________________ for plaintiff bank to go against the individual
borrowers first, exhaust all remedies against them,
* 78 Phil., 661. and then hold the defendants liable only for the
366
balance which cannot be collected. The Bank's cause
of action accrued, and the injury to it was complete,
366 PHILIPPINE REPORTS on the very day that the amounts of the
ANNOTATED unauthorized loans were released by the erring
Philippine Nat. Bank vs. Bagamaspad officials. (Corsicana National Bank vs. Johnson, 64
L. ed., 141.)
and Ferrer
143
APPEAL from judgment of the Court of First Instance it the sum of P699,803.57, representing the uncollected
of Cotabato. Solidum, J. balance of the special crop loans improperly released by
The facts are stated in the opinion of the Court. said defendants, with legal interest thereon from the
Jose G. Flores, for appellants. date of the filing of the complaint, plus costs. The two
Nemesio P. Labunao for appellee. defendants appealed from that decision. The appeal was
first taken to the Court of Appeals but in view of the
MONTEMAYOR, J.: amount involved it was certified to this Tribunal by the
said Court of Appeals.
On May 25, 1948, the plaintiff Philippine National The uncontroverted facts in the present case may be
Bank, a banking corporation organized and operating briefly stated as follows. Because of the Pacific War and
under the laws of the Philippines, with main office in by reason of the destruction and loss of animals of labor,
the City of Manila and agencies in different provinces farm implements, and damage to or abandonment of
like the province of Cotabato, initiated this suit in the farm lands, after liberation there was acute shortage of
Court of First Instance of Cotabato for the purpose of foodstuffs. President Roxas in order to foment and
collecting from the defendants Bernardo Bagamaspad encourage f ood production, instructed the plaintiff
and Bienvenido M. Ferrer who, in the years 1946 and Philippine National Bank to extend special facilities to
1947, were its Agent and Assistant Agent, respectively, farmers in the form of crop loans in order to enable them
in its Cotabato Agency, the sum of P704,903.18, said to to rehabilitate their farms. In pursuance of said
have been disbursed and released by them as special instructions and to cooperate with the Administration,
crop loans, without authority and in a the plaintiff Bank passed the corresponding resolution
367
(Exhibit B) authorizing the granting of ten-month
VOL. 89, JUNE 29, 1951 367
special crop loans to bona fide food producers, land-
Philippine Nat. Bank vs. Bagamaspad and
owners or their tenants, under certain conditions.
Ferrer Delfin Buencamino, one of the Vice-Presidents of the
careless manner to manifestly insolvent, unqualified or Bank and head of the Branches and Agencies
fictitious borrowers, all contrary to the rules and Department of said institution, was entrusted with the
regulations of the plaintiff Bank. In the course of the supervision of the granting of these loans. Juan Tueres,
trial, upon petition of plaintiff's counsel, the amount of one of the Assistant Managers of said Department
the claim was reduced to P699,803.57, due to payments drafted the corresponding rules and regulations
made by some of the borrowers. On March 31, 1949, the regarding the granting of said special crop loans. After
trial court rendered judgment in favor of the plaintiff, approval by Buencamino, these rules and regulations
ordering both defendants to pay jointly and severally to
144
were embodied in a circular letter (Exhibit C), a copy of Cotabato Agency, in granting new crop loans after
which was personally de- November 13, 1946, violated the instructions of the
368 Bank, and that furthermore, in granting said crop
368 PHILIPPINE REPORTS loans, they acted negligently and did not exercise the
ANNOTATED care and precaution required of them in .order to
Philippine Nat. Bank vs. Bagamaspad and prevent the release of crop loans to persons who were
Ferrer neither qualified borrowers nor entitled to the
livered to defendant Ferrer. These rules and assistance being rendered by the Government and the
regulations were later amplified by another circular Bank, all contrary to the rules and regulations issued
letter (Exhibit D). Besides circularizing its branches by the Bank.
and agencies with these rules and regulations, on June Because of the heavy disbursements made by the
14, 1946, the Bank held in Manila a conference of all its Cotabato Agency in the form of crop loans and because
Managers and Agents. Defendant Ferrer, Assistant of exhaustion of its f unds, said agency sent a telegram,
Agent of the Cotabato Agency attended the conference Exhibit 11, dated November 11,1946, requesting
in representation of said Agency. He arrived late but authority from the central office to secure cash from the
Tueres explained to him what had been discussed Zamboanga Agency. Replying to this telegram, Delfin
during the conference, emphasizing to him the necessity Buencamino sent a letter,
of exercising diligence and care in the granting of the 369
crop loans to see to it that they are granted only to bona VOL. 89, JUNE 29, 1961 369
fide planters, land-owners or tenants, as well as Philippine Nat. Bank vs. Bagamaspad and
repeating to him the advice of Vicente Carmona, Ferrer
President of the bank, that the Managers and Agents of Exhibit E, dated November 13, 1946, addressed to the
the Bank should not allow themselves to be fooled. Cotabato Agency stating among other things that the
The Cotabato Agency under the management of the purpose of these funds (to be obtained from the
two def endants began granting these special crop loans Zamboanga Agency) was to meet the releases of the
in July, 1946, and by March of the following year, 1947, second installment crop loans being granted which
said Agency had granted to over 5,000 borrowers, loans according to the telegram aggregated P60,000 daily.
in the total amount of a little over eight and a half The letter reminded the Agency that the central office
million pesos. had not yet received the Agency's monthly reports on
The theory on which the Bank's claim and complaint special crop loans granted, as required by the
are based is that the two defendants Bagamaspad and regulations, and it emphasized the necessity of
Ferrer acting as Agent and Assistant Agent of the performing inspection of the field to verify whether the
145
amount released as first installment was actually used 370 PHILIPPINE REPORTS
f or the purpose f or which it was granted, before ANNOTATED
releasing the second installment. In relation with said Philippine Nat. Bank vs. Bagamaspad and
letter, Exhibit E, defendant Bagamaspad wrote a letter, Ferrer
Exhibit F, dated November 18, 1946, to the central could give us definite course of action towards the
office making reference to said Exhibit E, reiterating clarification of our stand to the public.
the Agency's heavy disbursements on second "We are again sending Asst. Agent B. M. Ferrer to
installments for crop loans and stating that Ferrer had Zamboanga to despatch this letter without delay and wait
been instructed to proceed to Zamboanga to secure the there for whatever instruction that you may give with
needed cash, and that Ferrer was able to secure reference to our desire to secure more cash from our
P300,000 from the Zamboanga Agency. Then making Zamboanga Agency, say P1,000,000 and whether we shall
continue granting special crop loans or not.
reference to and quoting a portion of the letter of
"With reference to the cash that we desire to secure more,
Buencamino, Exhibit E, Bagamaspad in his letter said:
we could tell you with assurance that the same shall arrive
"In connection with. the following portion:
there safely under guard on a chartered plane which will cost
'In this connection, we would like to state that the purpose
not more than P300 only."
of these funds is to meet the release of the second installment
of crop loans being granted by that agency, which, according From this letter of Bagamaspad of which his co-
to your said telegram, will run to P 600,000 daily.' defendant Ferrer must have been aware, because he
of your above mentioned letter, may we know if we could himself prepared it upon order of Bagamaspad (pp. 340-
still entertain new applicants on Special Crop Loans? We are 344, t. s. n.), particularly the portion above-quoted, it
constrained to request f or this matter because there are now
will be seen that without waiting for authority to secure
on file no less than 1,000 new applicants which we could not
entertain because of your above quoted statement. Yesterday
funds f rom the Zamboanga Agency, Ferrer obtained
they held a demonstration and copy of the picture is hereto P300,000 from said Agency, and that Bagamaspad
attached. In addition, there are about 6,000 settlers in again had sent Ferrer to Zamboanga to await
Koronadal Valley who, according to your indorsement of Oct. instruction f rom the central office regarding their
81, 1946 to the Technical Assistant to the President of the desire and intention to secure in additional P1,000,000
Philippines, could be given crop loans. If we could not for the Cotabato Agency. As a matter of fact, however,
therefore disburse from the funds taken from Zamboanga once in Zamboanga, and without waiting for
Agency against first installment of applicants on crop loans, instructions, Ferrer again secured P500,000 f rom the
we shall appreciate if you Zamboanga Agency. It was while Ferrer already
370 carrying the P500,000 was about to board the plane that
was to take him to Cotabato, that he received the
146
answer from the central office, Exhibit G, authorizing answer to Exhibit H, the central office sent a telegram,
him to obtain only P300,000 from the Zamboanga Exhibit If dated November 28, 1946, expressly
Agency, with the statement that as soon as the said instructing the Cotabato Agency to discontinue
amount was exhausted, the Cotabato Agency may again granting new crop loans. The defendants claim that this
request for replenishment. This letter of the Central telegram, Exhibit I, was received by them by mail on
Office again emphasized the necessity of strict December 7, 1946.
compliance with the rules and regulations regarding In their brief the appellants contend that the trial
the required field inspection before releasing the second court erred in finding and holding that in extending new
installment. The said letter, Exhibit G, ended with the special crop loans after November 26,1946, amounting
following: to P726,680, they as Agent and Assistant Agent,
"Concerning the new special crop loan applications respectively, of the Cotabato Agency, did so at their own
numbering about 1,000, we would like to be informed risk and in violation of the instructions received from
whether the farms of the said applicants have already been the Manila office; also that the court erred in holding
actually planted, considering that at this advanced that they (appellants) acted with extreme laxity,
period planting season in low-land palay region is now
negligence and carelessness in granting said new
over. As the purpose for which special crop loans are being
special crop loans. On the first assigned error
371 appellants maintain that outside of the telegram,
VOL. 89, JUNE 29, 1951 371 Exhibit I, which they claim to have received only on
Philippine Nat. Bank vs. Bagamaspad and December 7, 1946, there was no instruction by the
Ferrer central office stopping the granting of new special crop
granted by the Bank is to provide the farmers with funds to loans.
meet the expenses of their farms and if said farms have It may be that there was no such express instruction
already been planted, we believe that the farmers may not couched in so many words directly ordering the
need said credit facilities unless it has been found out by defendants to stop granting new special crop loans, but
actual investigation and verification that said loans are that said idea of the central office could be gathered
needed by them.
from its letter, Exhibit E, and that it was understood
"Please, therefore, let us hear from you regarding this
matter." (Italics ours)
and clearly, by the def endants, is evident. If def
endants did not so understand it, namely, that they
In answer to this letter, Exhibit G, defendants sent a were no longer authorized to grant new special crop
telegram, Exhibit H, dated November 25, 1946, to the loans, how else may we interpret
central office in Manila, stating that for Cotabato, the 372
planting season for second crops ended December. In
147
372 PHILIPPINE REPORTS that they should no longer grant said new loans and
ANNOTATED before appellants received instructions as to what they
Philippine Nat. Bank vs. Bagamaspad and should do in that regard, but they also violated the
Ferrer express instructions of the Bank to the effect that funds
the contents of the letter of Bagamaspad, Exhibit F, received from the Zamboanga Agency should be utilized
particularly that portion wherein after quoting a only to pay second installments on special crop loans.
portion of the central office letter Exhibit E, he asks if Of course, defendants contend that the total of P800,000
they (defendants) could still entertain new applications secured from the Zamboanga Agency were all used in
for special crop loans? At least, they then doubted their paying second installments, but the contrary is amply
authority to grant new special crop loans and until that established by Exhibit T, a statement prepared by
doubt was cleared up and determined by new Felicisimo Lopez, Chief Examiner of the Bank
373
instructions f rom their superiors, it was their bounden
VOL. 89, JUNE 29, 1951 373
duty to stop granting new loans. Appellant Ferrer
himself, in response to questions asked by the trial Philippine Nat Bank vs. Bagamaspad and
court during the hearing, said that in case of doubt as Ferrer
to whether or not to disburse f unds of the bank, he showing that out of the P500,000 secured from the
should consult and await instructions. Appellants Zamboanga Agency on or about November 18,1946, the
asked f or instructions as to whether or not they should amount of P232,931.58 was paid on account of new
grant new special crop loans. This request for instruc- special crop loans or first installments. The plaintiff-
tions is contained clearly in Bagamaspad's letter, appellee Bank in its brief explains in details this use of
Exhibit F, where in one paragraph he asks: "May we part of the Zamboanga f unds in paying first
know if we could still entertain new applications on installments on new crop loans.
special crop loans?" And, in another paragraph he says: As to the alleged error committed by the trial court
"We are again sending Asst. Agent B. M. Ferrer to in finding and holding that the appellants were
Zamboanga * * * and wait there for further extremely lax, negligent and careless in granting new
instructions that you may give * * * and whether we special crop loans, we quote with approval a portion of
shall continue granting special crops loans or not/' The the well considered decision of the trial Judge, Hon.
trouble is that without waiting for said requested Arsenio Solidum, on this point:
instructions, appellants proceeded to grant new special "From the evidence of record, one cannot help but be amazed
crop loans from November 26, 1946 to January 4, 1947. at the extreme laxity, negligence and carelessness on the
part of the defendants in the granting of the special crop
Appellants not only granted new special crop loans
loans. It seems that all precautions to protect the interest of
after they were given to understand by the central office
148
the Philippine National Bank as the principal of the The lower court as may be seen, severely criticised and
defendants were thrown overboard. From all appearances, condemned the acts of laxity, negligence and
the door of the Cotabato Agency was lef t wide open by the carelessness of the appellants. But the severity of this
defendants as an invitation for all persons to come in and criticism and condemnation would appear to be amply
secure from them special crop loans regardless of whether or
warranted by the evidence. Out of the numerous acts of
not under the rules prescribed therefor they were rightfully
laxity, negligence and carelessness established by the
entitled thereto. * * *" (p. 165, Record on Appeal)
record, a few cases may be cited. Exhibits C and D
* * * * * * * which contain instructions and rules and regulations
governing the granting of special crop loans, provide
"What really happened was that in those days of crop loan that before a crop loan is granted the Agent or Sub-
boom, the borrowers made a holiday of the funds of the Agent of the Bank must be satisfied that the applicant
Cotabato Agency of the Philippine National Bank with the is either a landowner well known to be possessing the
indulgence and tolerance of the defendants as the managing particular property on which the crop is to be produced,
officials of the Agency. And the saddest part of it all was that
or if the applicant be a tenant he must be recommended
the money did not go to the farmers who needed it the most
by the landowner concerned or in the absence of said
but to unscrupulous persons, who, taking undue advantage
of the laxity and looseness of the defendants in doling out landowner must be properly identified that he is
these loans, secured special crop loan funds without the least the bona fide tenant actually tilling the land from
idea of investing them in food production campaign for which which the crop to be mortgaged would be harvested.
they were primarily intended. Part of the booty went to the The evidence shows that in violation of these
pockets of those who acted as intermediaries in the instructions and regulations, the defendants released
procurement of the loans under the very noses of the large loans aggregating P348,768.22 to about 103
defendants fully knowing that such practice was prohibited borrowers who were neither landowners or tenants but
by the rules and regulations of the Philippine National Bank only public land sales applicants, that is to say, persons
governing the operation of provincial agencies (Exhibits 'W', who have merely filed applications to buy public lands.
'T', 'T-1', to 'T-11', 'U', 'U-1' to 'U-2') * * *" (pp. 176-177, Record
It is a well known fact that when a person desires to
on Appeal)
apply f or the purchase of public lands usually
374 containing trees, underbrush, cogon or other wild
374 PHILIPPINE REPORTS vegetation, and never previously cultivated, he merely
ANNOTATED goes over the land, stakes it out and then files his
Philippine Nat. Bank vs. Bagamaspad and application with the Public Land Office. Subsequently
Ferrer and in due time the Bureau of Lands examines the
application, tries to determine the location of the land,
149
its identity, proceeds to classify it to see if it is open to must have known that the borrowers were neither
sale and if so, perhaps makes a rough survey of it to landowners nor tenants. Furthermore, it should be
establish its exact location and fix boundaries with remembered that these special crop loans according to
respect to the entire area of the public domain. The regulations were payable in ten (10) months, and were
application naturally carries no implication of to be secured by chattel mortgages on the crops to be
occupancy, possession, much less cultivation and produced. A virgin land, especially if covered with trees
dominion. And yet, in spite of all this, the appellants or underbrush, needs to be cleared and placed in
had been granting loans to these public lands sale condition for cultivation before crops may be produced.
applicants who were neither landowners or tenants. That work of clearing would take some time. A public
375 land sale applicant, even assuming that he immediately
VOL. 89, JUNE 29, 1951 375 began to clear the land applied for even before favorable
Philippine Nat. Bank vs. Bagamaspad and action on his application is taken, is hardly in a position
Ferrer to meet the requirements of the regulations governing
The record further shows that Mr. Villamarzo, District the granting of special crop loans, namely, to mortgage
Land Officer for Cotabato with whom these sale the crop he is going to produce, and pay the loan within
applications had been filed, came to know that the ten months.
certificates that he had been issuing to the applicants, Appellants in their over-enthusiasm and seemingly
which were nothing but acknowledgments of the filing inordinate desire to grant as many loans as possible and
of the applications, had been used by said applicants to in amounts disproportionate to the needs of the
secure special crop loans, and so he went to see the borrowers, admitted and passed upon more loan
appellants as early as the middle of August of 1946 and applications than they could properly handle. From
advised them that those certificates were issued merely July, 1946 to March, 1947
to show that the applications had been filed with him 376
but that it did not mean that said applications had 376 PHILIPPINE REPORTS
already been investigated, much less that the lands ANNOTATED
covered by them had been surveyed. Then about the end Philippine Nat. Bank vs. Bagamaspad and
of the same month Villamarzo accompanied by Ferrer
Almonte, a Division Land Inspector of the Bureau of the total amount of about eight and a half (8½) million
Lands, again went to the defendants and repeated the pesos was released in the form of special crop loans to
advice and warning. Despite all these, as already about 5,105 borrowers and this, in a relatively sparsely
stated, appellants granted new special crop loans to 103 populated province like Cotabato. As a consequence of
of these public land sales applicants, knowing as they this big volume of business the bookkeeper of the
150
Agency could not keep up with the posting of the daily total loans approved. Instances have been shown that the
transactions in his books and ledgers and he was Agency itself collected the attorney's fees and delivered them
several months behind. There were so many to the parties concerned. In other cases, the intermediaries
applications acted upon and accepted that they could themselves were the ones
not all be carefully examined and many of them do not 377
even bear the initials or signatures of the appellants as VOL. 89, JUNE 29, 1951 377
required by regulations. Some of the chattel mortgages Philippine Nat. Bank vs. Bagamaspad and
given to secure the payments of the loans, contrary to Ferrer
regulations, do not show the number of cavans of palay who received the proceeds of the loans and distributed them
to be produced on the land and to be mortgaged in favor to the borrowers. It has also been found that loan papers
of the Bank. including the preparation of promissory notes, debit tickets,
Contrary to the Bank's rules and regulations etc., were prepared by said intermediaries and submitted to
regarding the granting of special crop loans, the the Agency already executed. * * *."
defendants allowed intermediaries to intervene in the There is evidence to the effect that sometimes the fees
granting of special crop loans. Many lawyers, business of these intermediaries were collected by the Agency
agents and other persons intervened in the granting of itself and were later turned over to appellant Ferrer,
the loans. We may have an idea of the part played by perhaps to be later given by him to said intermediaries.
these intermediaries by referring to a portion of the One of the provisions of the rules and regulations
report, Exhibit V, prepared by Mr. Lagdameo, one of the concerning the granting of loans is to the effect that
Assistant Managers of the Agencies and Branches loans to be released by a Provincial Agency like that of
Department of the plaintiff Bank, sent to Cotabato to the appellants' should be approved by a Loan Board to
investigate the crop loan anomalies in the Cotabato be composed of the Agent, like defendant Bagamaspad;
Agency, which portion we quote below: the Assistant Agent, like Ferrer or the Inspector if there
"On top of this, were the heavy expenses incurred by the
is no Assistant Agent; and the Municipal Treasurer
borrowers to secure crop loans. The rush was so
unprecedented that applicants had to stay for weeks in
where the borrower resides. The evidence, however,
hotels in Cotabato to lobby for the approval of their shows that many of the special crop loans released by
applications. They even went to the extent of engaging the appellants have not been approved by this Board
intermediaries who in the words of some borrowers were the and others have not even been approved by anyone of
best ones to fix things with the agency for the approval and them.
immediate release of the loan. These intermediaries are It will be remembered that in the letter of Vice
government employees and business agents and particularly President Buencamino, Exhibit G, dated November 19,
practicing attorneys who charged fees up to 5 per cent of the 1946, speaking of the new special crop loan applications
151
numbering about 1,000 mentioned by appellant incorrect information was given deliberately or thru
Bagamaspad in his letter, Exhibit F, the plaintiff Bank negligence and carelessness, we deem it unnecessary to
wanted to know whether on that date, November 19th, determine.
the farmers in Cotabato had already planted their To give a further idea of the confusion, lack of care
farms in which case there was no need f or their and method with which the Cotabato Agency was
obtaining crop loans to meet the expenses of planting. managed by the appellants, the record 'shows that in
Answering this query, the Cotabato Agency under the January, 1947, Mr. Simeon Intal, Traveling Auditor of
appellants, sent a telegram (Exhibit H) dated the Philippine National Bank, was sent to Cotabato
November 25, 1946, to the plaintiff Bank saying that with instructions to make an audit of the accounts of
the planting season for Cotabato for second crops ends the Cotabato Agency and to see for himself the reported
in December. This was evidently intended to justify the irregularities being committed in said Agency with
granting of special crop loans even at the end of the respect to the granting of special crop loans. According
year. The evidence however, belies the correctness of to Mr. Intal he f ound the Cotabato Agency like a
this statement and inf ormation. Mr. Aniceto Padilla, market place f ull of people. He saw crop loan papers
Assistant Provincial Agricultural Supervisor, a like promissory notes, loan applications and chattel
graduate of the College of Agriculture of the University mortgages scattered all over the office of the Agency,
of the Philippines, told the court some on the desks of employees, on open shelves or on
378 top of filing cabinets, and others on the floor. He found
378 PHILIPPINE REPORTS that transactions which had taken place five months
ANNOTATED before were not yet posted in the books of the Agency.
Philippine Nat. Bank vs. Bagamaspad and In February, 1947, Mr. Amado Lagdameo, then one of
Ferrer the Assistant Managers of the Branches and Agencies
that his office, which is the Provincial Agricultural Department of the Bank, was also sent to Cotabato and
Station in Cotabato, has determined the proper period f there he f ound the same conditions found and reported
or planting crops raised in that province, and that for by Intal. In order to make thorough investigation of the
upland palay, the planting season is during the months anomalies reportedly obtaining in the Cotabato Agency,
of March, April up to May; that for lowland palay is Felicisimo Lopez, a certified public accountant and
June and July; and that second crops may be planted in Chief Examiner of the plaintiff Bank, was sent to
September even as late as October. From this, one may Cotabato in June, 1947. He checked up the findings of
conclude that it is not true as the appellants informed Intal about the deplorable condition of the books and
the Bank that the planting season for palay (second records of the Agency and he agreed with said findings.
crop) in Cotabato ends in December. Whether this 379
152
VOL. 89, JUNE 29, 1951 379 superiors, that these anomalies resulting in financial
Philippine Nat. Bank vs. Bagamaspad and losses to the Bank were made possible.
Ferrer The trial court based the civil liability of the
Lopez and Intal assisted by Benjamin de Guzman, appellants herein on the provisions of Arts. 1718 and
Branch Auditor of the Bank at the Davao Branch, Mr. 1719 of the Civil Code, defining and enumerating the
Macuja (who later succeeded Benjamin de Guzman), duties and obligations of an agent and his liability f or
Mr. Juan B. Sanchez, now Branch Auditor in Legaspi, failure to comply with such duties, and Art. 259 of the
Mr. Antonio Cruz of the Head Office, Mr. Danao from Code of Commerce which provides that an agent must
Oriental Misamis, Mr. Fernandez f rom Zamboanga and observe the provisions of law and regulations with
Mr. Romena of the Davao Branch, went to work on the respect to business transactions entrusted to him
books and records of the Cotabato Agency and it took otherwise he shall be responsible for the consequences
them almost four months to straighten out the special resulting from their breach or omissions; and
380
crop loan accounts and bring the books up-to-date, after
which, they found that as of June 10, 1947, the Cotabato 380 PHILIPPINE REPORTS
Agency had released special crop loans in the aggregate ANNOTATED
sum of P8,688,864. Philippine Nat. Bank vs. Bagamaspad and
To us who have always had the impression and the Ferrer
idea that the business of a Bank is conducted in an also Art. 1902 of the Civil Code which provides for the
orderly, methodical and businesslike manner, that its liability of one for his tortious act, that is to say, any act
papers, especially those relating to loans with their or omission which causes damage to another by his fault
corresponding securities, are properly filed, well-kept or negligence. Appellants white agreeing with the
and in a safe place, its books kept up-to-date, and that meaning and scope of the legal provisions cited,
its funds are not given out in loans without caref ul and nevertheless insist that those provisions are not
scrupulous scrutiny of the responsibility and solvency of applicable to them inasmuch as they are not guilty of
the borrowers and the sufficiency of the security given any violation of instructions or regulations of the
by them, the conditions obtaining in the Cotabato plaintiff Bank; and that neither are they. guilty of
Agency due to the apparent indifference, carelessness negligence of carelessness as found by the trial court. A
or negligence of the appellants, is indeed shocking. And careful study and consideration of the record, however,
it is because of these shortcomings of the appellants, convinces us and we agree with the trial court that the
their disregard of the elementary rules and practice of defendants-appellants have not only violated
banking and their violation of instructions of their instructions of the plaintiff Bank, including things
which said Bank wanted done or not done, all of which
153
were fully understood by them, but they (appellants) intention on the part of the plaintiff Bank to ratify the
also violated standing regulations regarding the acts of appellants. Neither did the plaintiff receive any
granting of loans; and, what is more, thru their substantial benefit by its act of filing these suits if we
carelessness, laxity and negligence, they allowed loans consider the fact that the collections so far made, form
to be granted to persons who were not entitled to receive a small or insignificant portion of the entire principal
loans. and interest And, we f ail to see any iniquity in this act
It is the contention of the appellants that the act of of the plaintiff in suing some of the borrowers to collect
plaintiff Bank in filing suits against the borrowers to what it could at the same time holding the appellants
whom appellants were said to have granted loans liable for the balance, because the plaintiff Bank is not
without authority, which suits resulted in the payment trying to enrich itself at the expense of the defendants
of part of said loans resulting in the reduction of the but is merely trying to diminish as much as possible the
original claim of the plaintiff Bank from P704,903.18 to loss to itself and automatically decrease the financial
P699,803.57, should be interpreted and considered as a liability of appellants. Considering the large amount for
ratification of the acts of the appellants. What is more, which appellants are found liable, it is a matter of
it is contended that it would be iniquitous f or the serious doubt if they are in a position to pay it.
plaintiff to go against the defendants for whatever Moreover, whatever amount is collected by the plaintiff
amounts may have been loaned by the latter and at the Bank from borrowers, serves to diminish the financial
same time go against the individual borrowers for liability of the appellants, in the same way that the
collection of the respective sums borrowed by them. original claim of P704,903.18, at the very instance of
That would be enriching the plaintiff at the expense of plaintiff was reduced to P699,803.57. In other words,
the defendants." We cannot subscribe to this theory. As the act of the plaintiff Bank in this matter, far from
pointed out by Counsel for appellee, ordinarily, a being iniquitous, is really beneficial to the appellants.
principal who collects either judicially or extrajudicially Appellants further contend that the present action is
a loan made by an agent without authority, thereby rather premature for the reason that there is no
ratifies the said act of the agent In the present case, showing that the borrowers to whom they allegedly
however. gave loans without authority, are manifestly insolvent
381 or unqualified, and that the loans granted to them are
VOL. 89, JUNE 29, 1951 381 uncollectible and have been written off the books of the
Philippine Nat. Bank vs. Bagamaspad and Bank as "bad debts". We find this contention untenable.
Ferrer It is not necessary for the plaintiff Bank to first go
in filing suits against some of the borrowers to collect at against the individual borrowers, exhaust all remedies
least part of the unauthorized loans, there was no against them and then hold the defendants liable only
154
for the balance which cannot be collected. The case course, whatever of value the Bank recovered from the
of Corsicana National Bank vs. Johnson, 64 L. ed. 141, borrowers on account of the loan would go in diminution of
cited by the trial court and by the plaintiff Bank is in the damages; but the responsible officials would have no
point. The issue in that case whether or not a bank right to require the Bank to pursue its remedies against the
borrowers or await the liquidation of their estates. The
could proceed against one of its
382
liability imposed by the statute upon the director is a direct
382 PHILIPPINE REPORTS liability, not contingent or collateral."
ANNOTATED In view of all the f oregoing, and finding no reversible
People vs. Lee Kiat error in the decision appealed from, the same is hereby
officials for losses which it had sustained in affirmed with costs against the appellants. So ordered.
consequence of the unauthorized loans released by said Parás, C.
official, or whether it should first pursue its remedies J., Feria, Pablo, Bengzon, Tuason, Jugo and Bautista
against the borrowers or await the liquidation of their Angelo, JJ.,concur.
estates. The Supreme Court of the United States in said
Judgment affirmed.
case held that the cause of action of the Bank accrued
and the injury to it was complete on the very day that
the amounts of the unauthorized loans were released by
the erring official. We quote a part of that decision:
"Assuming the Fleming and Templeton notes were found to
represent an excessive loan, knowingly participated in or [No. 41377. July 26, 1935]
assented to by defendant as a director of the Bank, in our
ANGELA BLONDEAU and FERNANDO DE LA
opinion the cause of action against him accrued on or about
June 10, 1907, when the Bank, through his act, parted with
CANTERA Y UzQUIANO, plaintiffs and
the money loaned, receiving in return only negotiable paper appellants, vs. AGUSTIN NANO and JOSE VALLEJO,
that it could not lawfully accept because the transaction was defendants and appellees.
prohibited by section 5200, Rev. Stat. (Comp. Stat. section
9761, 6 Fed. Stat. Anno. 2d ed., p. 761). The damage as well 1. 1.LAND REGISTRATION; TORRENS
as the injury was complete at that time, and the Bank was SYSTEM; FORGERY.—The Torrens Act permits a
not obliged to await the maturity of the notes, because forged transfer, when duly entered in the registry, to
immediately it became the duty of the officers or directors become the root of a valid title in a bona
who knowingly participated in making the excessive loan to fidepurchaser, The act erects a safeguard against a
undo the wrong done by taking the notes off the hands of the forged transfer being registered, by the requirement
Bank and restoring to it the money that had been loaned. Of that no transfer shall be registered unless the
155
owner's certificate was produced along with the No appearance for the other appellee.
instrument of transfer. An executed transfer of
registered lands placed by the registered owner MALCOLM, J.:
thereof in the hands of another operates as a
representation to a third party that the holder of the This action was brought in the Court of First Instance
transfer is authorized to deal with the lands. of Manila to f oreclose a mortgage alleged to have been
made by the defendants Agustin Nano and Jose Vallejo
1. 2.ID.; ID.; ID.; MAXIM.—As between two innocent to the plaintiff Angela Blondeau, bearing date
persons, one of whom must suffer the consequence of November 5, 1931, to secure the payment of the sum of
a breach of trust, the one who made it possible by his
P12,000, and covering property situated on Calle
act of confidence must bear the loss.
Georgia, Manila. Nano, purporting to represent both
1. 3.ID.; ID.; ID.; ID.; SIGNATURE OF MORTGAGOR defendants, after filing an answer, was found in
FORGED.—When a mortgagee relies upon a contempt of court. The other defendant Vallejo
Torrens title and loans money in all good faith on the thereupon presented an amended answer in which it
basis of the title standing in the name of the was alleged that his signature to the mortgage was a
mortgagor, only thereafter to discover one defendant forgery. Following the trial, judgment was rendered
to be an alleged forger and the other defendant to against Nano but not against Vallejo. From this
have by his negligence or acquiescence made it judgment the plaintiffs have taken an appeal.
possible for the fraud to transpire, as between two With all due deference to the findings of the trial
innocent persons, the mortgagee and one of the judge, now an honored member of this court, we are
mortgagors, the latter who made the fraud possible inclined to the view, first, that the accesorias bearing
by his act of confidence must bear the loss.
Nos. 905A to 905F, Calle Georgia, Manila, were as
626
indicated in the mortgage, the property of the defendant
626 PHILIPPINE REPORTS Agustin Nano, and second, that the purported signature
ANNOTATED of the defendant Vallejo to the mortgage was not a
forgery. In support of the first of our statements,
Blondeau and De la Cantera vs. Nano and
attention need only be invited to a series of documents,
Vallejo
including the transfer certificate of title, showing that
Vallejo was considered the owner of the land only. As to
of Manila. Diaz, J.
the second statement, it needs be recalled that the
mortgage was executed in the home of the plaintiffs,
John R. McFie, jr., for appellants.
and that of those present, the principal plaintiff Angela
Evangelista & Santos for appellee Vallejo.
156
Blondeau and her husband Fernando de la Cantera, conditions, the question is, which side pro duced the
together with the instrumental witness Pedro Jimenez weightier testimony, and as hereinbefore indicated, we
Zoboli, iden- are of the opinion that the balance inclined in favor of
627 the plaintiffs.
VOL. 61, JULY 26, 1935 627 But there is a narrower ground on which the
Blondeau and De la Cantera vs. Nano and defenses of the defendant-appellee must be overruled.
Vallejo Agustin Nano had possession of Jose Vallejo's title
tified Vallejo as the person who signed the document. papers. Without those title papers handed over to Nano
As against their testimony stands the alibi of Vallejo, with the acquiescence of Vallejo, a fraud could not have
partially corroborated by the testimony of the notary been perpetrated. When Fernando de la Cantera, a
public Gregorio Bilog. It is expecting a great deal to member of the Philippine bar and the husband of
have us believe that not only the mortgage but the Angela Blondeau, the principal plaintiff, searched the
power of attorney of Vallejo in favor of Nano and a series registration records, he found them in due form,
of documents were the product of the evil machinations including the power of attorney of Vallejo in favor of
of Nano, and that although Nano and Vallejo, members Nano. If this had not been so and if thereafter
of the same family, lived together, Vallejo was entirely 628
unacquainted with the activities of Nano in dealing 628 PHILIPPINE REPORTS
with their joint property. It is significant that the ANNOTATED
proper cedulas of Vallejo were presented for the Blondeau and De la Cantera vs. Nano and
accomplishment of the documents, and that if there was Vallejo
fraud, not one but a number of notaries public were the proper notation of the encumbrance could not have
deceived thereby. been made, Angela Blondeau would not have lent
We repeat that upon its face, the mortgage appears P12,000 to the defendant Vallejo.
to be regular and to have been duly executed and The Torrens system is intended for the registration
accepted by Vallejo on November 5, 1931. The evidence of title, rather than the muniments of title. It represents
then resolves itself into a question of the execution of a departure from the orthodox principles of property
the mortgage by Vallejo on the one hand, and the denial law. Under the common law, if the pretended signature
of its execution on the other hand. That there was a of the mortgagor is a forgery, the instrument is invalid
conflict between experts as to the handwriting, one for every purpose and will pass no title or rights to
being of the opinion that the signatures of Vallejo were anyone, unless the spurious document is ratified and
genuine, and the other being of the opinion that they accepted by the mortgagor. The Torrens Act on the
were not genuine, is not unexpected. Under such contrary permits a forged transfer, when duly entered
157
in the registry, to become the root of a valid title in land, forged a notarial instrument wherein he made it
a bona fidepurchaser. The act erects a safeguard appear that she had sold the said land to him for the
against a forged transfer being registered, by the price of P8,000.
requirement that no transfer shall be registered unless "Vedasto Velazquez then went to the register of
the owner's certificate was produced along with the deeds and applied for the registration of the land in his
instrument of transfer. An executed transfer of own name, presenting Gregoria Hernandez' certificate
registered lands placed by the registered owner thereof of title No. 121 for cancellation, and the deed of
in the hands of another operates as a representation to conveyance which was purported to have been made by
a third party that the holder of the transfer is Gregoria Hernandez in his favor in order that he might
authorized to deal with the lands. (53 C. J., 1141, 1142; be registered as the true owner of the land. All this was
Act No. 496, as amended, secs. 47, 51, 55.) done; Gregoria Hernandez' title was cancelled and
With respect to the conclusiveness of the Torrens certificate of title No. 43 was issued to Vedasto
title and the binding force and effect of annotations Velazquez.
thereon even when through a forged deed the land
passes into the possession of an innocent purchaser for * * * * * * *
value, the basic rule is found in the opinion delivered by
Mr. Chief Justice Arellano in De la "On May 31, 1907, Vedasto Velazquez sold the land
Cruz vs.Fabie ([1916], 35 Phil., 144). The history of the finally and absolutely to Ramon Fabie, who presented
case was as follows: to the register of deeds the notarial instrument
"Vedasto Velazquez was the attorney in fact of executed for the purpose and was thereupon furnished
Gregoria Hernandez. Gregoria Hernandez registered with the certificate of title No. 766." On these facts, it
her title of ownership to the land in question in the was held that Fabie was an innocent holder of a title for
property registry and was issued certificate of title No. value and that, under section 55 of the Land
121. Vedasto Velazquez, being the attorney in fact of Registration Law, he was the absolute owner of the
Gregoria Hernandez, had in. his possession all the land.
muniments of title of the land, including the certificate The decision above cited has repeatedly been
of title No. 121, and, abusing her confidence in him, a reexamined by this court, one of the most recent
few days after the registration of the instances being found in the case of El Hogar
629 Filipino vs.Olviga ([1934], 60 Phil., 17). While counsel
VOL. 61, JULY 26, 1935 629 for the appellee is undoubtedly correct in his contention
Blondeau and De la Cantera vs. Nano and that neither the case of Fabie nor the case of Olviga nor
Vallejo any other case relied upon by the appellants is on all
158
fours with the present facts, the principle on which even if the old certificate had not been produced. But
these cases rest should here be carried forward and that, if correct, is no answer. Presumably the registrar
given application. will do his duty, and if he does he will require the old
The recent decision of the United States Supreme certificate to be handed in. It does not justify the
Court in the case of Eliason vs. Wilborn ([1930], 281 U. omission of a precaution that probably would be
S., 457), is of enlightening interest. Plaintiffs in this sufficient, to point out that a dishonest official could get
case, purchasers of land previously brought under the around it. There is not the slightest reason to suppose
Illinois Torrens Act, delivered the certificate of title to a that Napletone would have got a certificate on which
party under an agreement to sell, who forged a deed to the Wilborns could rely, without the delivery of the old
himself, had a certificate issued in his name, and then one by the appellants. As between two innocent
conveyed to persons, one of whom must suffer the consequence of a
630 breach of trust, the one who made it possible by his act
630 PHILIPPINE REPORTS of confidence must bear the loss."
ANNOTATED Vargas & Mañalac in their treatise on the Philippine
Blondeau and De la Cantera vs. Nano and Land Registration Law quote with approval the
Vallejo comment of Mr. Powell in his book on Land
defendants who were good faith purchasers for value. Registration, section 213. The question which the
Plaintiffs informed the registrar of the forgery after the author propounded was: Why does the law say that the
defendants had bought, and demanded the cancellation person who had no title at all and only a forged deed as
of the deeds and certificates, and the reissue of a a color of title should become the true owner of the land
certificate to themselves. The registrar refused, and a by merely continuing to occupy and enjoy the land
petition was brought to compel such action. The Circuit which in fact does not belong to him,
Court for Cook County, Illinois, the Supreme Court of 631
Illinois, and the United States Supreme Court, united VOL. 61, JULY 26, 1935 631
in dismissing the petition. Mr. Justice Holmes, Blondeau and De la Cantera vs. Nano and
delivering the opinion of the latter court, said: Vallejo
"* * * The statute requires the production of but which belongs to the victim of the forgery? His
the outstanding certificate, as a condition to the issue of answer was:
a new one. The appellants saw fit to entrust it to "* * * that public policy, expediency, and the
Napletone and they took the risk. They say that need of a statute of repose as to the possession of land,
according to the construction of the act adopted the demand such a rule. Likewise, public policy,
registrar's certificate would have had the same effect expediency, and the need of repose and certainty as to
159
land titles demand that the bona fide purchaser of a upon a Torrens title, and loaning money in all good faith
certificate of title to registered land, who, though he on the
buys on a forged transfer, succeeds in having the land 632
registered in his name, should nevertheless hold an 632 PHILIPPINE REPORTS
unimpeachable title. There is more natural justice in ANNOTATED
recognizing his title as being valid than there is in Basa vs. Mercado
recognizing as valid the title of one who has succeeded basis of the title standing in the name of the mortgagors
in ripening a f orged color of title by prescription. only thereafter to discover one defendant to be an
"In the first place, a forger cannot effectuate his alleged forger and the other defendant, if not a party to
forgery in the case of registered land by executing a the conspiracy, at least having by his negligence or
transfer which can be registered, unless the owner has acquiescence made it possible for the fraud to transpire.
allowed him, in some way, to get possession of the Giving to the facts the most favorable interpretation for
owner's certificate. The Act has erected In favor of the Vallejo, yet, as announced by the United States
owner, as a safeguard, against a forged transfer being Supreme Court, the maxim is, as between two innocent
perpetrated against him, the requirement that no persons, in this case Angela Blondeau and Jose Vallejo,
voluntary transfer shall be registered unless the one of whom must suffer the consequence of a breach of
owner's certificate is produced along with the trust, the one who made it possible by his act of
instrument of transfer. Therefore, if the owner has confidence must bear the loss, in this case Jose Vallejo.
voluntarily or carelessly allowed the forger to come into Accordingly, the four errors assigned will be sustained,
possession of his owner's certificate he is to be judged the judgment reversed, and in the court of origin a new
according to the maxim, that when one of two innocent one entered sustaining plaintiff's mortgage and
persons must suffer by the wrongful act of a third granting her the relief prayed for in her complaints. So
person the loss fall on him who put it into the power of ordered, without special pronouncement as to the costs
that third person to perpetrate the wrong. in either instance.
Furthermore, even if the forger stole the owner's Villa-Real, Imperial, Butte, and Goddard,
certificate, the owner is up against no greater hardship JJ., concur.
than is experienced by one whose money or negotiable
Judgment reversed.
paper payable to bearer is stolen and transferred by the
thief to an innocent purchaser."
Other incidental facts might be mentioned and other
incidental legal propositions might be discussed, but in
its final analysis this is a case of a mortgagee relying
160
G.R. No. 160346. August 25, 2009.* Same; Same; Same; Absence of a written authority to sell
PURITA PAHUD, SOLEDAD PAHUD, and IAN LEE a piece of land is, ipso jure, void, precisely to protect the
CASTILLA (represented by Mother and Attorney-in- interest of an unsuspecting owner from being prejudiced by
Fact VIRGINIA CASTILLA), petitioners, vs. COURT the unwarranted act of another.—We have repeatedly held
that the absence of a written authority to sell a piece of land
OF APPEALS, SPOUSES ISAGANI BELARMINO and
is, ipso jure, void, precisely to protect the interest of an
LETICIA OCAMPO, EUFEMIA SAN AGUSTIN-
unsuspecting owner from being prejudiced by the
MAGSINO, ZENAIDA SAN AGUSTIN-McCRAE, unwarranted act of another.
MILAGROS SAN AGUSTIN-FORTMAN, MINERVA Same; Sales; A purchaser of a real property is not
SAN AGUSTIN-ATKINSON, FERDINAND SAN required to make any further inquiry beyond what the
AGUSTIN, RAUL SAN AGUSTIN, ISABELITA SAN certificate of title indicates on its face. But the rule excludes
AGUSTIN-LUSTENBERGER and VIRGILIO SAN those who purchase with knowledge of the defect in the title of
AGUSTIN, respondents. the vendor or of facts sufficient to induce a reasonable and
prudent person to inquire into the status of the property.—
Civil Law; Agency; Special Power of Attorney; A special The Belarminos, for their part, cannot argue that they
power of attorney is necessary for an agent to enter into a purchased the property from Virgilio in good faith. As a
contract by which the ownership of an immovable property is general rule, a purchaser of a real property is not required to
transmitted or acquired, either gratuitously or for a valuable make any further inquiry beyond what the certificate of title
consideration.—Under Article indicates on its face. But the rule excludes those who
_______________
purchase with knowledge of the defect in the title of the
* Additional member as per August 3, 2009 raffle. vendor or of facts sufficient to induce a reasonable and
* THIRD DIVISION. prudent person to inquire into the status of the property.
Such purchaser cannot close his eyes to facts which should
14
put a reasonable man on guard, and later claim that he acted
14 SUPREME COURT in good faith on the belief that there was no defect in the title
REPORTS ANNOTATED of the vendor. His mere refusal to believe that such defect
exists, or his obvious neglect by closing his eyes to the
Pahud vs. Court of Appeals
possibility of the existence of a defect in the vendor’s title,
1878, a special power of attorney is necessary for an will not make him an innocent purchaser for value, if
agent to enter into a contract by which the ownership of an afterwards it turns out that the title was, in fact, defective.
immovable property is transmitted or acquired, either In such a case, he is deemed to have bought the property at
gratuitously or for a valuable consideration. Such stringent his own risk, and any injury or prejudice occasioned by such
statutory requirement has been explained in Cosmic Lumber transaction must be borne by him.
Corporation v. Court of Appeals, 265 SCRA 168 (1996). CARPIO-MORALES, J., Concurring and Dissenting
Opinion:
161
Civil Law; Estoppel; Article 1432 of the Civil Code such cannot be ratified by estoppel. Estoppel cannot give
expressly states that the principles of estoppel are adopted validity to an act that is prohibited by law or one that is
“insofar as they are against public policy. Neither can the defense of illegality be
15 waived. An action or defense for the declaration of the
inexistence of a contract does not prescribe. Amid the
VOL. 597, AUGUST 25, 2009 15
confusion from the double dealing made by their sibling
Pahud vs. Court of Appeals Eufemia, the three sisters expectedly kept mum about it.
not in conflict with the provisions of this Code,” among Succinctly, their “continued silence” cannot be taken against
other laws.—Article 1432 of the Civil Code expressly states them. Bargaining away a provision of law should not be
that the principles of estoppel are adopted “insofar as they countenanced.
are not in conflict with the provisions of this Code,” among
other laws. Indeed, estoppel, being a principle in equity, PETITION for review on certiorari of the decision and
cannot be applied in the presence of a law clearly applicable resolution of the Court of Appeals.
to the case. The Court is first and foremost a court of law. The facts are stated in the opinion of the Court.
While equity might tilt on the side of one party, the same Hilarion L. Aquino for petitioners.16
cannot be enforced so as to overrule positive provisions of law
in favor of the other. 16 SUPREME COURT REPORTS
Same; Same; The evident purpose of the legal ANNOTATED
requirement of written authority is not only to safeguard the Pahud vs. Court of Appeals
interest of an unsuspecting owner from being prejudiced by Saguisag & Associates for respondents Spouses
the unauthorized act of another, but also to caution the buyer
Isagani Belarmino and Leticia Ocampo.
to assure himself of the specific authorization of the putative
Demeterio L. Hilbero for respondents Eufemia San
agent.—The evident purpose of the legal requirement of such
written authority is not only to safeguard the interest of an Agustin-Magsino, et al.
unsuspecting owner from being prejudiced by the Carmelino F. Pansacola for respondent Virgilio San
unauthorized act of another, but also to caution the buyer to Agustin.
assure himself of the specific authorization of the putative
NACHURA, J.:
agent. In other words, the drafters of the law already saw the
risky predicament of selling lands through agents which, in For our resolution is a petition for review
the absence of a specific law, would otherwise ultimately on certiorari assailing the April 23, 2003 Decision1 and
depend on equity to resolve disputes such as the present October 8, 2003 Resolution2 of the Court of Appeals (CA)
case. in CA-G.R. CV No. 59426. The appellate court, in the
Same; Same; Estoppel cannot give validity to an act that said decision and resolution, reversed and set aside the
is prohibited by law or one that is against public policy.—The January 14, 1998 Decision3 of the Regional Trial Court
previous sale being violative of an express mandate of law, (RTC), which ruled in favor of petitioners.
162
The dispute stemmed from the following facts. written authority.8 The deed of sale was also not
During their lifetime, spouses Pedro San Agustin notarized.9
and Agatona Genil were able to acquire a 246-square On July 21, 1992, the Pahuds paid P35,792.31 to the
meter parcel of land situated in Barangay Anos, Los Los Baños Rural Bank where the subject property was
Baños, Laguna and covered by Original Certificate of mortgaged.10 The bank issued a release of mortgage and
Title (OCT) No. O-(1655) 0-15.4 Agatona Genil died on turned over the owner’s copy of the OCT to the
September 13, 1990 while Pedro San Agustin died on Pahuds.11 Over the following months, the Pahuds made
September 14, 1991. Both died intestate, survived by more payments to Eufemia and her siblings totaling to
their eight (8) children: respondents Eufemia, Raul, P350,000.00.12 They agreed to use the remaining
Ferdinand, Zenaida, Milagros, Minerva, Isabelita and P87,500.0013 to defray the payment for taxes and the
Virgilio. expenses in transferring the title of the property.14When
Sometime in 1992, Eufemia, Ferdinand and Raul Eufemia and her co-heirs drafted an extra-judicial
executed a Deed of Absolute Sale of Undivided settlement of estate to facilitate the transfer of the title
Shares5conveying in to the Pahuds, Virgilio refused to sign it.15
_______________ On July 8, 1993, Virgilio’s co-heirs filed a
complaint16 for judicial partition of the subject property
1 Penned by Associate Justice Juan Q. Enriquez, Jr., with
Associate Justices Mercedes Gozo-Dadole and Hakim S. Abdulwahid, before the RTC of Calamba, Laguna. On November 28,
concurring; Rollo, pp. 35-45. 1994, in the course of the proceedings for judicial
2 Id., at pp. 47-48. partition, a Compromise Agreement17
3 Rollo, pp. 121-146. _______________
4 Id., at pp. 85-86.
5 Id., at pp. 49-50. 6 Id., at pp. 37-38.
17 7 Id., at p. 61.
8 Id., at p. 37.
VOL. 597, AUGUST 25, 2009 17 9 Id., at pp. 50, 140.
Pahud vs. Court of Appeals 10 Id., at p. 13.
favor of petitioners (the Pahuds, for brevity) their 11 Id., at p. 38.
12 Id., at pp. 89-96.
respective shares from the lot they inherited from their 13 Id., at p. 97.
deceased parents for P525,000.00.6 Eufemia also signed 14 Id., at pp. 13, 140.
the deed on behalf of her four (4) other co-heirs, namely: 15 Id., at p. 38.
Isabelita on the basis of a special power of attorney 16 Id., at pp. 51-54. The complaint was docketed as Civil Case No.
2011-93-C.
executed on September 28, 1991,7 and also for Milagros, 17 Id., at pp. 69-71.
Minerva, and Zenaida but without their apparent
18
163
18 SUPREME COURT REPORTS complete the payment of the purchase price of P437,500.00
ANNOTATED by paying the balance of P87,500.00 to defendant Fe (sic) San
Pahud vs. Court of Appeals Agustin Magsino. Upon receipt of the balance, the plaintiff
shall formalize the sale of the 7/8 portion in favor of the
was signed with seven (7) of the co-heirs agreeing to sell Intervenor[s]-Third Party plaintiffs;
their undivided shares to Virgilio for P700,000.00. The 2. declaring the document entitled “Salaysay sa
compromise agreement was, however, not approved by Pagsang-ayon sa Bilihan” (Exh. “2-a”) signed by plaintiff
the trial court because Atty. Dimetrio Hilbero, lawyer Eufemia San
for Eufemia and her six (6) co-heirs, refused to sign the _______________
agreement because he knew of the previous sale made
18 Id., at pp. 136, 139.
to the Pahuds.18 19 Id., at p. 106.
On December 1, 1994, Eufemia acknowledged having 20 Id., at pp. 135-136.
received P700,000.00 from Virgilio.19 Virgilio then sold 21 Id., at pp. 72-84.
the entire property to spouses Isagani Belarmino and 19

Leticia Ocampo (Belarminos) sometime in 1994. The
Belarminos immediately constructed a building on the
VOL. 597, AUGUST 25, 2009 19
subject property. Pahud vs. Court of Appeals
Alarmed and bewildered by the ongoing construction Agustin attached to the unapproved Compromise Agreement
(Exh. “2”) as not a valid sale in favor of defendant Virgilio
on the lot they purchased, the Pahuds immediately
San Agustin;
confronted Eufemia who confirmed to them that Virgilio
3. declaring the sale (Exh. “4”) made by defendant
had sold the property to the Belarminos.20 Aggrieved, Virgilio San Agustin of the property covered by OCT No. O
the Pahuds filed a complaint in intervention21in the (1655)-O-15 registered in the names of Spouses Pedro San
pending case for judicial partition. Agustin and Agatona Genil in favor of Third-party defendant
After trial, the RTC upheld the validity of the sale to Spouses Isagani and Leticia Belarmino as not a valid sale
petitioners. The dispositive portion of the decision and as inexistent;
reads: 4. declaring the defendant Virgilio San Agustin and the
“WHEREFORE, the foregoing considered, the Court Third-Party defendants spouses Isagani and Leticia
orders: Belarmino as in bad faith in buying the portion of the
1. the sale of the 7/8 portion of the property covered by property already sold by the plaintiffs in favor of the
OCT No. O (1655) O-15 by the plaintiffs as heirs of deceased Intervenors-Third Party Plaintiffs and the Third-Party
Sps. Pedro San Agustin and Agatona Genil in favor of the Defendant Sps. Isagani and Leticia Belarmino in
Intervenors-Third Party plaintiffs as valid and enforceable, constructing the two-[storey] building in (sic) the property
but obligating the Intervenors-Third Party plaintiffs to subject of this case; and
164
5. declaring the parties as not entitled to any damages, was filed on April 12, 1995 until actual payment of the
with the parties shouldering their respective responsibilities same;
regarding the payment of attorney[‘]s fees to their respective (3) Declaring the sale of appellant Virgilio San
lawyers. Agustin to appellants spouses, Isagani and Leticia
No pronouncement as to costs. Belarmino[,] as valid and binding;
SO ORDERED.”22 (4) Declaring appellants-spouses as buyers in
good faith and for value and are the owners of the
Not satisfied, respondents appealed the decision to subject property.
the CA arguing, in the main, that the sale made by No pronouncement as to costs.
Eufemia for and on behalf of her other co-heirs to the SO ORDERED.”23
Pahuds should have been declared void and inexistent
for want of a written authority from her co-heirs. The Petitioners now come to this Court raising the
CA yielded and set aside the findings of the trial court. following arguments:
In disposing the issue, the CA ruled: “I. The Court of Appeals committed grave and
“WHEREFORE, in view of the foregoing, the Decision reversible error when it did not apply the second
dated January 14, 1998, rendered by the Regional Trial paragraph of Article 1317 of the New Civil Code
Court of Calamba, Laguna, Branch 92 in Civil Case No. insofar as ratification is concerned to the sale of
2011-93-C for Judicial Partition is hereby REVERSED and the 4/8 portion of the subject property executed by
SET ASIDE, and a new one entered, as follows: respondents San Agustin in favor of petitioners;
(1) The case for partition among the plaintiffs- II. The Court of Appeals committed grave and
appellees and appellant Virgilio is now considered reversible error in holding that respondents
closed and terminated; spouses Belarminos are in good faith when they
_______________
bought the subject property from respondent
22 Id., at pp. 145-146. Virgilio San Agustin despite the findings of fact by
20
the court a quo that they were in bad faith which
clearly contravenes the presence of long line of
20 SUPREME COURT REPORTS case laws upholding the task of giving utmost
ANNOTATED weight and value to the factual findings of the trial
Pahud vs. Court of Appeals court during appeals; [and]
(2) Ordering plaintiffs-appellees to return to III. The Court of Appeals committed grave and
intervenors-appellees the total amount they received reversible error in holding that respondents
from the latter, plus an interest of 12% per spouses Belarminos have superior rights over the
annum from the time the complaint [in] intervention
165
property in question than petitioners despite the into any contract by which the ownership of an immovable is
fact that the latter were prior in pos- 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
23 Id., at pp. 44-45. to sell must be one that expressly mentions a sale or
21 that includes a
_______________
VOL. 597, AUGUST 25, 2009 21
24 Id., at p. 19.
Pahud vs. Court of Appeals 25 Article 1878(5) provides:
session thereby misapplying the provisions of Article Art. 1878. Special powers of attorney are necessary in the
following cases:
1544 of the New Civil Code.”24 xxxx
(5) To enter into any contract by which the ownership of an
The focal issue to be resolved is the status of the sale immovable is transmitted or acquired either gratuitously or for a
of the subject property by Eufemia and her co-heirs to valuable consideration.
the Pahuds. We find the transaction to be valid and 26 332 Phil. 948; 265 SCRA 168 (1996).
enforceable. 22
Article 1874 of the Civil Code plainly provides:
“Art. 1874. When a sale of a piece of land or any interest 22 SUPREME COURT REPORTS
therein is through an agent, the authority of the latter shall ANNOTATED
be in writing; otherwise, the sale shall be void.” Pahud vs. Court of Appeals
sale as a necessary ingredient of the act
Also, under Article 1878,25 a special power of attorney mentioned. For the principal to confer the right upon an
is necessary for an agent to enter into a contract by agent to sell real estate, a power of attorney must so express
which the ownership of an immovable property is the powers of the agent in clear and unmistakable language.
transmitted or acquired, either gratuitously or for a When there is any reasonable doubt that the language so
valuable consideration. Such stringent statutory used conveys such power, no such construction shall be given
requirement has been explained in Cosmic Lumber the document.”27
Corporation v. Court of Appeals:26
“[T]he authority of an agent to execute a contract [of] sale of
In several cases, we have repeatedly held that the
real estate must be conferred in writing and must give absence of a written authority to sell a piece of land
him specific authority, either to conduct the general is, ipso jure, void,28 precisely to protect the interest of an
business of the principal or to execute a binding contract unsuspecting owner from being prejudiced by the
containing terms and conditions which are in the contract he unwarranted act of another.
did execute. A special power of attorney is necessary to enter
166
Based on the foregoing, it is not difficult to conclude, ratification,31 we nevertheless uphold its validity on the
in principle, that the sale made by Eufemia, Isabelita basis of the common law principle of estoppel.
and her two brothers to the Pahuds sometime in 1992 Article 1431 of the Civil Code provides:
should be valid only with respect to the 4/8 portion of “Art. 1431. Through estoppel an admission or
the subject property. The sale with respect to the 3/8 representation is rendered conclusive upon the person
portion, representing the shares of Zenaida, Milagros, making it, and cannot be denied or disproved as against the
and Minerva, is void because Eufemia could not dispose person relying thereon.”
of the interest of her co-heirs in the said lot absent any True, at the time of the sale to the Pahuds, Eufemia
written authority from the latter, as explicitly required was not armed with the requisite special power of
by law. This was, in fact, the ruling of the CA. attorney to dispose of the 3/8 portion of the property.
Still, in their petition, the Pahuds argue that the sale Initially, in their answer to the complaint in
with respect to the 3/8 portion of the land should have intervention,32 Eufemia and her other co-heirs denied
been deemed ratified when the three co-heirs, namely: having sold their shares to the Pahuds. During the pre-
Milagros, Minerva, and Zenaida, executed their trial conference, however, they admitted that they had
respective special power of attorneys29 authorizing indeed sold 7/8 of the property to the Pahuds sometime
Eufemia to represent them in the sale of their shares in in 1992.33 Thus, the previous denial was superseded, if
the subject property.30 not accordingly amended, by their subsequent
_______________
admission.34
_______________
27 Id., at pp. 957-958. (Emphasis supplied, citations omitted.)
28 Estate of Lino Olaguer, etc. v. Hon. CA and Emiliano M.
Special Power of Attorney of Milagros San Agustin-Fortman was
Ongjoco, G.R. No. 173312, August 26, 2008, 563 SCRA 373; Dizon v.
executed in December 1992, Id., at p. 62 (Annex “F”); Special Power of
Court of Appeals, G.R. Nos. 122544 and 124741, January 28, 2003, 396
Attorney of Minerva San Agustin-Atkinson was executed, undated,
SCRA 151, 155; AF Realty & Development, Inc. v. Dieselman Freight
but was witnessed by G.R. Stephenson, Commissioner for Oaths, on
Services, Co., 424 Phil. 446, 455; 373 SCRA 385, 392 (2002); San Juan
February 12, 1993, Id., at p. 63 (Annex “G”); and Special Power of
Structural and Steel Fabricators, Inc. v. Court of Appeals, G.R. No.
Attorney of Zenaida San Agustin-McCrae was executed on May 10,
129459, September 29, 1998, 296 SCRA 631, 648.
1993, Id., at p. 64 (Annex “H”).
29 Special Power of Attorney of Isabelita San Agustin-Lusten-
berger was executed on September 28, 1991, Rollo, p. 61 (Annex “E”);
30 Rollo, p. 20.
23 31 CIVIL CODE, Art. 1409 provides in part:
VOL. 597, AUGUST 25, 2009 23 Art. 1409. The following contracts are inexistent and void
from the beginning:
Pahud vs. Court of Appeals xxxx
While the sale with respect to the 3/8 portion is void (7) Those expressly prohibited or declared void by law.
by express provision of law and not susceptible to
167
These contracts cannot be ratified. Neither can the right to SEC. 5. Amendment to conform to or authorize
set up the defense of illegality be waived. presentation of evidence.—When issues not raised by the
32 I Records, p. 26; Exh. “I-A,” entitled Answer to Counterclaim pleadings are tried with the express or implied consent of the
dated December 14, 1993. parties, they shall be treated in all respects as if they had been
33 II Records, pp. 262-264. raised in the pleadings. Such amendment of the pleadings as
34 RULES OF COURT, Rule 10, Sec. 5 provides in full: may be necessary to cause them to conform to the evidence and
to raise these issues may be made upon motion of any party at
24 any time, even after judgment; but failure to amend does not
24 SUPREME COURT REPORTS affect the result of the trial of these issues. If evidence is
ANNOTATED objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the pleadings
Pahud vs. Court of Appeals to be amended and shall do so with liberality if the presentation
Moreover, in their Comment,35 the said co-heirs again of the merits of the action and the ends of substantial justice
admitted the sale made to petitioners.36 will be subserved thereby. The court may grant a continuance
to enable the amendment to be made.
Interestingly, in no instance did the three (3) heirs 35 Rollo, pp. 200-204.
concerned assail the validity of the transaction made by 36 Id., at p. 200.
Eufemia to the Pahuds on the basis of want of written
25
authority to sell. They could have easily filed a case for
VOL. 597, AUGUST 25, 2009 25
annulment of the sale of their respective shares against
Eufemia and the Pahuds. Instead, they opted to remain Pahud vs. Court of Appeals
silent and left the task of raising the validity of the sale ized; (2) if it is within the implied authority of the agent
as an issue to their co-heir, Virgilio, who is not privy to to make for the principal; or (3) if it is apparently
the said transaction. They cannot be allowed to rely on authorized, regardless of whether the agent was
Eufemia, their attorney-in-fact, to impugn the validity authorized by him or not to make the representation.37
of the first transaction because to allow them to do so By their continued silence, Zenaida, Milagros and
would be tantamount to giving premium to their sister’s Minerva have caused the Pahuds to believe that they
dishonest and fraudulent deed. Undeniably, therefore, have indeed clothed Eufemia with the authority to
the silence and passivity of the three co-heirs on the transact on their behalf. Clearly, the three co-heirs are
issue bar them from making a contrary claim. now estopped from impugning the validity of the sale
It is a basic rule in the law of agency that a principal from assailing the authority of Eufemia to enter into
is subject to liability for loss caused to another by the such transaction.
latter’s reliance upon a deceitful representation by an Accordingly, the subsequent sale made by the seven
agent in the course of his employment (1) if the co-heirs to Virgilio was void because they no longer had
representation is author- any interest over the subject property which they could
_______________ alienate at the time of the second transaction.38 Nemo
168
dat quod non habet. Virgilio, however, could still in the title of the vendor. His mere refusal to believe
alienate his 1/8 undivided share to the Belarminos. that such defect exists, or his obvious neglect by closing
The Belarminos, for their part, cannot argue that his eyes to the possibility of the existence of a defect in
they purchased the property from Virgilio in good faith. the vendor’s title, will not make him an innocent
As a general rule, a purchaser of a real property is not purchaser for value, if afterwards it turns out that the
required to make any further inquiry beyond what the title was, in fact, defective. In such a case, he is deemed
certificate of title indicates on its face.39 But the rule to have bought the property at his own risk, and any
excludes those who purchase injury or prejudice occasioned by such transaction must
_______________ be borne by him.41
In the case at bar, the Belarminos were fully aware
37 See De Leon, Comments and Cases on Partnership, Agency and
Trusts, 2005 edition, p. 538, citing Mechem, Cases on the Law of that the property was registered not in the name of the
Agency, p. 230. immediate transferor, Virgilio, but remained in the
38 CIVIL CODE, Art. 1409 provides in part: name of Pedro San Agustin and Agatona Genil.42 This
Art. 1409. The following contracts are inexistent and void
fact alone is sufficient impetus to make further inquiry
from the beginning:
xxxx and, thus, negate their claim that they are purchasers
(3) Those whose cause or object did not exist at the time of for value in good faith.43 They knew that the property
the transaction; was still subject of partition proceedings before the trial
xxxx
These contracts cannot be ratified. Neither can the right to
court, and that the compromise agreement signed by
set up the defense of illegality be waived. the heirs was not approved by the RTC following the
39 Lu v. Intermediate Appellate Court, G.R. No. 70149, January 30, opposition of the counsel for Eufemia and her six other
1989, 169 SCRA 595, 604; Lopez v. Court of Appeals, G.R. No. 49739, co-heirs.44 The Belarminos, being transferees pendente
January 20, 1989, 169 SCRA 271, 275-276.
lite, are deemed buyers in mala fide, and they stand
26 exactly in the shoes of the transferor and are bound by
26 SUPREME COURT REPORTS any judgment or
ANNOTATED _______________
40 Abad v. Guimba, G.R. No. 157002, July 29, 2005, 465 SCRA 356,
with knowledge of the defect in the title of the vendor or 367.
of facts sufficient to induce a reasonable and prudent 41 Bailon-Casilao v. Court of Appeals, G.R. No. L-78178, April 15,
person to inquire into the status of the property.40Such 1988, 160 SCRA 738, 750.
42 I Records, pp. 5-6.
purchaser cannot close his eyes to facts which should 43 Guaranteed Homes, Inc. v. Heirs of Maria P. Valdez, et al., G.R.
put a reasonable man on guard, and later claim that he No. 171531, January 30, 2009, 577 SCRA 441.
acted in good faith on the belief that there was no defect 44 I Records, at pp. 60-61.
169
27 46 Rollo, p. 16.
VOL. 597, AUGUST 25, 2009 27 ** In lieu of Associate Justice Consuelo-Ynares Santiago per
Special Order No. 678 dated August 3, 2009.
Pahud vs. Court of Appeals *** Additional member in lieu of Associate Justice Consuelo
decree which may be rendered for or against the Ynares-Santiago per Special Order No. 679 dated August 3, 2009.
transferor.45 Furthermore, had they verified the status 28
of the property by asking the neighboring residents, 28 SUPREME COURT REPORTS
they would have been able to talk to the Pahuds who ANNOTATED
occupy an adjoining business establishment46 and would
have known that a portion of the property had already
CONCURRING AND DISSENTING OPINION
been sold. All these existing and readily verifiable facts
CARPIO -MORALES, J.:
are sufficient to suggest that the Belarminos knew that
The ponencia reinstates the trial court’s Decision of
they were buying the property at their own risk.
January 14, 1998 with the modification that “the sale
WHEREFORE, premises considered, the April 23,
made by respondent Virgilio San Agustin to respondent
2003 Decision of the Court of Appeals as well as its
spouses Isagani Belarmino and Leticia Ocampo is valid
October 8, 2003 Resolution in CA-G.R. CV No. 59426,
only with respect to the 1/8 portion of the subject
are REVERSED and SET ASIDE. Accordingly, the
property.”1
January 14, 1998 Decision of Branch 92 of the Regional
I submit that the validity of the sale to spouses
Trial Court of Calamba, Laguna is REINSTATED with
Belarmino extends to 4/8 or one-half of the property,
the MODIFICATION that the sale made by respondent
inclusive of the combined 3/8 share of respondents-
Virgilio San Agustin to respondent spouses Isagani
sisters Zenaida, Milagros and Minerva, all bearing the
Belarmino and Leticia Ocampo is valid only with
maiden surname of San Agustin, thus leaving only one-
respect to the 1/8 portion of the subject property. The
half of the property to petitioners Purita Pahud, et al.
trial court is ordered to proceed with the partition of the
who earlier purchased from Eufemia San Agustin
property with dispatch.
(Eufemia) the property including the 3/8 portion over
SO ORDERED.
which no written authority from the three sisters was
Chico-Nazario,** (Actg. Chairperson), Velasco,
secured. The ponente, Justice Nachura, in fact, agrees
Jr. and Peralta, JJ., concur.
to this proposition “in principle.”2
Carpio-Morales,*** J., Please see Concurring and
The ponencia even rejects petitioners’ contention
Dissenting Opinion.
_______________ that the special power of attorney subsequently
executed by Zenaida, Milagros and Minerva in favor of
45 Voluntad v. Dizon, G.R. No. 132294, August 26, 1999, 313 SCRA Eufemia effectively ratified their earlier purchase of the
209.
170
property insofar as the 3/8 portion is concerned, for the “While the sale with respect to the 3/8 portion is void by
established reason that void contracts or the illegal express provision of law and not susceptible to ratification,
terms thereof3 are not susceptible to ratification. The we nevertheless uphold its validity on the basis of the
subsequent execution by the three sisters of the common law principle of estoppel.
Article 1431 of the Civil Code provides:
respective special powers of attorney only means that
Art. 1431. Through estoppel an admission or
they considered the previous sale null and recognized
representation is rendered conclusive upon the person
the salability of their 3/8 portion, thus paving the way making it, and cannot be denied or disproved as
for its transfer to Virgilio San Agustin and its eventual against the person relying thereon.
sale to the spouses Belarmino. True, at the time of the sale to the Pahuds, Eufemia was
_______________ not armed with the requisite special power of attorney to
dispose of the 3/8 portion of the property. Initially, in their
1 Ponencia, p. 12 (underscoring supplied).
2 Ponencia, p. 7. answer to the complaint in intervention, Eufemia and her
3 Civil Code, Art. 1420 in relation to Art. 493. other co-heirs denied having sold their shares to the
Pahuds. During the pre-trial conference, however, they
29 admitted that they had indeed sold 7/8 of the property to the
VOL. 597, AUGUST 25, 2009 29 Pahuds sometime in 1992. Thus, the previous denial was
Pahud vs. Court of Appeals superseded, if not accordingly amended, by their subsequent
Indeed, as the ponencia elucidates, Articles 1874 and admission. Moreover, in their Comment, the said co-heirs
1878 of the Civil Code clearly provide that a special again admitted the sale made to petitioners.
power of attorney is necessary for an agent to “enter Interestingly, in no instance did the three (3) heirs
into any contract by which the ownership of an concerned assail the validity of the transaction made by
Eufemia to the Pahuds on the basis of want of written
immovable is transmitted or acquired either
authority to sell. They could have easily filed a case for
gratuitously or for a valuable consideration” and that annulment of the sale of their respective shares against
specifically in cases of sale of a piece of land or any Eufemia and the Pahuds. Instead, they opted to remain
interest therein through an agent, “the authority of the 30
latter shall be in writing; otherwise the sale shall
be void.” 30 SUPREME COURT REPORTS
The ponencia takes one step further, however, in ANNOTATED
upholding the validity of the sale of the 3/8 portion Pahud vs. Court of Appeals
belonging to the 3 sisters to petitioner notwithstanding silent and left the task of raising the validity of the sale as
the want of a written authority to sell, by applying the an issue to their co-heir, Virgilio, who is not privy to the said
transaction. They cannot be allowed to rely on Eufemia, their
principle of estoppel. It ratiocinates:
attorney-in-fact, to impugn the validity of the first
171
transaction because to allow them to do so would be 4 Ponencia, pp. 8-10.
tantamount to giving premium to their sister’s dishonest and 5 Valdevieso v. Damalerio, 492 Phil. 51, 59; 451 SCRA 664, 672
(2005).
fraudulent deed. Undeniably, therefore, the silence and
passivity of the three co-heirs on the issue bar them from 31
making a contrary claim. VOL. 597, AUGUST 25, 2009 31
It is a basic rule in the law of agency that a principal is Pahud vs. Court of Appeals
subject to liability for loss caused to another by the
forced so as to overrule positive provisions of law in
latter’s reliance upon a deceitful representation by an
agent in the course of his employment (1) if the favor of the other.6
representation is authorized; (2) if it is within the implied Moreover, the evident purpose of the legal
authority of the agent to make for the principal; or (3) if it is requirement of such written authority is not only to
apparently authorized, regardless of whether the agent was safeguard the interest of an unsuspecting owner from
authorized by him or not to make the representation. being prejudiced by the unauthorized act of another, but
By their continued silence, Zenaida, Milagros and also to caution the buyer to assure himself of the specific
Minerva have caused the Pahuds to believe that they have authorization of the putative agent. In other words, the
indeed clothed Eufemia with the authority to transact on drafters of the law already saw the risky predicament
their behalf. Clearly, the three co-heirs are now estopped of selling lands through agents which, in the absence of
from impugning the validity of the sale from assailing the
a specific law, would otherwise ultimately depend on
authority of Eufemia to enter such transaction.”4(Emphasis
equity to resolve disputes such as the present case. The
and underscoring supplied)
law undoubtedly seeks to prevent the following
It is from this aspect of the ponenciathat I confusion:
respectfully dissent. “Case law tells us that the elements of estoppel are: “first,
Equity cannot supplant or contravene the law.5 the actor who usually must have knowledge, notice or
Article 1432 of the Civil Code expressly states that suspicion of the true facts, communicates something to
the principles of estoppel are adopted “insofar as they another in a misleading way, either by words, conduct or
silence; second, the other in fact relies, and relies reasonably
are not in conflict with the provisions of this Code,”
or justifiably, upon that communication; third, the other
among other laws.
would be harmed materially if the actor is later permitted to
Indeed, estoppel, being a principle in equity, cannot assert any claim inconsistent with his earlier conduct;
be applied in the presence of a law clearly applicable to and fourth, the actor knows, expects or foresees that the
the case. The Court is first and foremost a court of law. other would act upon the information given or that a
While equity might tilt on the side of one party, the reasonable person in the actor’s position would expect or
same cannot be en- foresee such action.”7
_______________
172
The depicted scenario is precisely the sale as to consider petitioners to have accordingly relied
misunderstanding between parties to such type of sale on such admission or representation before buying the
which the lawmakers sought to avoid in prescribing the property from Eufemia. The application of the principle
conditions for the validity of such sale of land. The of estoppel is proper and timely in heading off shrewd
present case is a classic example of a tedious litigation efforts at renouncing one’s previous acts to the
which had ensued as a result of such misunderstanding. prejudice of another who had dealt honestly and in good
This is what the law endeavors to avert.8 It is faith.9 It is thus erroneous to conclude that Zenaida,
_______________ Milagros and Minerva have caused petitioners to
believe that they have clothed Eufemia with the
6 Vide id. A waiver will be inoperative and void if it infringes on
the rights of others (Ouano v. Court of Appeals, infra at 704). authority to transact on their behalf.
7 Phil. Bank of Communications v. Court of Appeals, 352 Phil. 1, 9; Could the three sisters ratify the previous sale
289 SCRA 178, 185-186 (1998). through their subsequentacts or omissions? I opine they
8 Cf. Powton Conglomerate, Inc. v. Agcolicol, 448 Phil. 643, 653;
cannot. The ponencia concedes that “the sale with
400 SCRA 523 (2003) for analogy respecting the vital preconditions to
the validity of a contract for additional works under Article 1724 of the respect to the 3/8 portion is void by express provision of
Civil Code. law and not susceptible to ratification.”
32
The previous sale being violative of an express
32 SUPREME COURT REPORTS mandate of law, such cannot be ratified by estoppel.
ANNOTATED Estoppel cannot give validity to an act that is prohibited
by law or one that is against public policy. Neither can
the defense of illegality be waived.10 An action or
not for the Court to suspend the application of the law
defense for the declaration of the in-
and revert to equitable grounds in resolving the present _______________
dispute.
Assuming arguendo that estoppel can contradict 9 Vide Pureza v. Court of Appeals, 352 Phil. 717, 722; 290 SCRA
positive law, I submit that Article 1431 of the Civil Code 110, 114-115 (1998).
10 Vide Ouano v. Court of Appeals, 446 Phil. 690, 708; 398 SCRA
does not apply since it speaks of one’s prioradmission 525, 539 (2003).
or representation, without which the other person could
33
not have relied on it before acting accordingly.
The ponencia cites acts or omissions on the part of VOL. 597, AUGUST 25, 2009 33
the three sisters which came after the fact such as Pahud vs. Court of Appeals
their “admission” and “continued silence” which, existence of a contract does not prescribe.11 Amid the
however, could not retroact to the time of the previous confusion from the double dealing made by their sibling
Eufemia, the three sisters expectedly kept mum about
173
it. Succinctly, their “continued silence” cannot be taken Ocampo is valid with respect to the 4/8 portion of the
against them. Bargaining away a provision of law subject property.
should not be countenanced.
Neither can their “admission” to a question of
law bind them. The ponenciahighlights the admission
made by Eufemia and her co-heirs during the pre-trial
conference before the trial court and in their Comment
on the present petition that they had earlier sold 7/8 of G.R. No. 108957. June 14, 1993. *
the property to petitioners. These statements could not PRUDENTIAL BANK, petitioner, vs.THE COURT OF
mean, however, as an admission in petitioners’ favor APPEALS, AURORA CRUZ, respondents.
that Zenaida, Milagros and Minerva validly sold their Commercial Law; Banks or Banking Institutions; A
respective shares to petitioners. They could only admit banking corporation is liable to innocent third persons where
to the statement of fact12that the sale took place, but not the representation is made in the course of its business by an
to the conclusion of law that the sale was valid, agent acting within the general scope of his authority even
precisely because the validity of the sales transaction though the agent is secretly abusing his authority and
is at issue as it was contested by the parties. attempting to perpetrate a fraud upon his principal or some
Further, the textbook citation of the rule involving a other person for his own ultimate benefit.—Conformably, we
have declared in countless decisions that the principal is
principal’s responsibility for an agent’s
liable for obligations contracted by the agent. The agent’s
misrepresentation within the scope of an agent’s apparent representation yields to the principal’s true
authority as annotated by the cited author under representation and the contract is consid-
Article 1900 of the Civil Code is inapplicable. The ________________
qualifying phrase “in the course of his
FIRST DIVISION.
employment” presupposes that an agency relationship
*
is existing. The quoted rule clearly recites that a 351

principal is held liable if the “deceitful representation”
VOL. 223, JUNE 14, 1993 351
(not the agency relationship) is authorized either
expressly, impliedly, or apparently. In this case, there Prudential Bank vs. Court of Appeals
was no agency relationship to speak of. ered as entered into between the principal and the third
person. A bank is liable for wrongful acts of its officers done
I, therefore, vote to reinstate the trial court’s
in the interests of the bank or in the course of dealings of the
January 14, 1998 Decision with modification that the officers in their representative capacity but not for acts
sale made by respondent Virgilio San Agustin to outside the scope of their authority. (9 c.q.s. p. 417) A bank
respondent spouses Isagani Belarmino and Leticia holding out its officers and agent as worthy of confidence will
174
not be permitted to profit by the frauds they may thus be Monique Q. Ignacio for petitioner.
enabled to perpetrate in the apparent scope of their Eduardo C. Tutaan for private respondent.
employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may CRUZ, J.:
accrue to the bank therefrom (10 Am Jur 2d, p. 114).
Accordingly, a banking corporation is liable to innocent third We deal here with another controversy involving the
persons where the representation is made in the course of its integrity of a bank.
business by an agent acting within the general scope of his The complaint in this case arose when private
authority even though, in the particular case, the agent is
respondent
secretly abusing his authority and attempting to perpetrate 352
a fraud upon his principal or some other person, for his own 352 SUPREME COURT REPORTS
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752,
204 NW 818, 40 ALR 1021.)
ANNOTATED
Prudential Bank vs. Court of Appeals
Same; Same; Civil Law; Damages; Petitioner is liable Aurora F. Cruz, with her sister as co-depositor,
**
for moral and exemplary damages when it acted in bad faith invested P200,000.00 in Central Bank bills with the
in denying Cruz the obligation she was claiming against it.—
Prudential Bank at its branch in Quezon Avenue,
We agree with the lower courts that the petitioner acted in
bad faith in denying Cruz the obligation she was claiming
Quezon City, on June 23, 1986. The placement was for
against it. It was obvious that an irregularity had been 63 days at 13.75% annual interest. For this purpose, the
committed by the bank’s personnel, but instead of repairing amount of P196,122.88 was withdrawn from the
the injury to Cruz by immediately restoring her money to depositors’ Savings Account No. 2546 and applied to the
her, it sought to gloss over the anomaly in its own operations. investment. The difference of P3,877.07 represented the
Cruz naturally suffered anxious moments and mental pre-paid interest.
anguish over the loss of the investment. The amount of The transaction was evidenced by a Confirmation of
P200,000.00 is not small even by present standards. By Sale delivered to Cruz two days later, together with a
1
unjustly withholding it from her on the unproved defense Debit Memo in the amount withdrawn and applied to
2
that she had already withdrawn it, the bank violated the the confirmed sale. These documents were issued by
trust she had reposed in it and thus subjected itself to further
Susan Quimbo, the employee of the bank to whom Cruz
liability for moral and exemplary damages.
was referred and who was apparently in charge of such
PETITION for review of the decision of the Court of transactions. 3
Appeals. Upon maturity of the placement on August 25, 1986,

Cruz returned to the bank to “roll-over” or renew her
The facts are stated in the opinion of the Court. investment. Quimbo, who again attended to her,
175
prepared a Credit Memo crediting the amount of
4 information, Cruz became hysterical and burst into
P200,000.00 in Cruz’s savings account passbook. She tears. The branch manager, Roman Santos, assured her
also prepared a Debit Memo for the amount of that he would look into the matter. 9
P196,122.88 to cover the re-investment of P200,000.00 Every day thereafter, Cruz went to the bank to
minus the prepaid interest of P3,877.02. 5 inquire about her request to withdraw her investment.
This time, Cruz was asked to sign a Withdrawal She received no definite answer, not even to the letter
Slip for P196,122.98, representing the amount to be re-
6 she wrote the bank which was received by Santos
invested after deduction of the prepaid interest. Quimbo himself. Finally, Cruz sent the bank a demand letter
10
explained this was a new requirement of the bank. dated November 12, 1986 for the amount of P200,000.00
Several days later, Cruz received another Confirmation plus interest. In a reply dated November 20, 1986, the
11
of Sale and a copy of the Debit Memo.

7 8 bank’s Vice President Lauro J. Jocson said that there
On October 27, 1986, Cruz returned to the bank and appeared to be an anomaly and requested Cruz to defer
sought to withdraw her P200,000.00. After verification court action as they hoped to settle the matter
of her records, however, she was informed that the amicably. Increasingly worried, Cruz sent another
12
investment appeared to have been already withdrawn letter reiterating her demand. This time the reply of
13
by her on August 25, 1986. There the bank was unequivocal and negative. She was told
_______________ that her request had to be denied because she had
already withdrawn the amount she was claiming. 14
**The petitioner is not related to the ponente.
1 Decision of RTC Judge Rodolfo A. Ortiz, p. 3.
Cruz’s reaction was to file a complaint for breach of
2 Decision of RTC Judge Rodolfo A. Ortiz, p. 3. contract against Prudential Bank in the Regional Trial
3 Rollo, p. 28.
Court of Quezon City. She demanded the return of her
4 Decision of RTC Judge Rodolfo A. Ortiz, p. 4.
5 Rollo, p. 29.
money with interest, plus damages and attorney’s fees.
6 Rollo, p. 29. In its answer, the bank denied liability, insisting that
7 Rollo, p. 29. Cruz had withdrawn her investment. The bank also
8 Rollo, p. 29.
instituted a third-party complaint against Quimbo, who
353 did not file an answer and was declared in default. The
15
VOL. 223, JUNE 14, 1993 353 bank, however, did not present any evidence against
Prudential Bank vs. Court of Appeals her.
was no copy on file of the Confirmation of Sale and the After trial, Judge Rodolfo A. Ortiz rendered
Debit Memo allegedly issued to her by Quimbo. Quimbo judgment in favor of the plaintiffs and disposed as
herself was not available for questioning as she had not follows:
been reporting for the past week. Shocked by this
176
ACCORDINGLY, judgment is hereby rendered ordering the The petition shall fail. The petitioner is quibbling. It
defendant/third-party plaintiff to pay to the plaintiffs the appears to be merely temporizing to delay enforcement
following of the liability clearly established against it.
________________
The basic issues are factual. The private respondent
9 Rollo, p. 30. claims she has not yet collected her investment of
10 Rollo, p. 30. P200,000.00 and has submitted in proof of their
11 Rollo, p. 30.
12 Rollo, p. 31.
contention the Confirmation of Sale and the Debit
13 Rollo, p. 31. Memo issued to her by Quimbo on the official forms of
14 Rollo, p. 31.
the bank. The petitioner denies her claim and points to
15 Rollo, p. 36.
the Withdrawal Slip, which it says Cruz has not denied
354 having signed. It also contends that the Confirmation of
354 SUPREME COURT REPORTS Sale and the Debit Memo are fake and should not have
ANNOTATED been given credence by the lower courts.
Prudential Bank vs. Court of Appeals The findings of the trial court on these issues have
amounts: been affirmed by the respondent court and we see no
reason to disturb them. The petitioner has not shown
1. 1.P200,000.00, plus interest thereon at the rate of that they have been reached arbitrarily or in disregard
13.75% per annum from October 27, 1986, until fully of the evidence of record. On the contrary, we find
paid; substantial basis for the conclusion that the private
2. 2.P30,000.00, as moral damages; respondents signed the Withdrawal Slip only as part of
3. 3.P20,000.00, as exemplary damages; and the bank’s new procedure of re-investment. She did not
4. 4.P25,000.00, as reasonable attorney’s fees.
actually receive the amount indicated therein, which
she was made to understand was being re-invested in
The counterclaim and the third-party complaint of the
defendant/ third-party plaintiff are dismissed. her name. The bank itself so
_______________
With costs against the defendant/third-party plaintiff.
Rollo, pp. 39-46.
The decision was affirmed in toto on appeal to the
16
respondent court. 355

The judgment of the Court of Appeals is now faulted
16 VOL. 223, JUNE 14, 1993 355
in this petition, mainly on the ground that the bank Prudential Bank vs. Court of Appeals
should not have been found liable for a quasi-delict assured her in the Confirmation of Sale and the Debit
when it was sued for breach of contract. Memo later issued to her by Quimbo.
177
Especially persuasive are the following observations had the right to presume it. The documents had been
of the trial court:17 issued in the office of the bank itself and by its own
What is more, it could not be that plaintiff Aurora F. Cruz employees with whom she had previously dealt. Such
withdrew only the amount of P196,122.98 from their savings dealings had not been questioned before, much less
account, if her only intention was to make such a invalidated. There was absolutely no reason why she
withdrawal. For, if, indeed, it was the desire of the plaintiffs should not have accepted their authority to act on
to withdraw their money from the defendant/third-party
behalf of their employer.
plaintiff, they could have withdrawn an amount in round _______________
figures. Certainly, it is unbelievable that their withdrawal
was in the irregular amount of P196,122.98 if they really 17 Decision of RTC Judge Rodolfo A. Ortiz, pp. 7-8.
received it. On the contrary, this amount, which is the price
356
of the Central Bank bills rolled over, indicates that, as
claimed by plaintiff Aurora F. Cruz, she did not receive this 356 SUPREME COURT REPORTS
money, but it was left by her with the defendant/ third-party ANNOTATED
plaintiff in order to buy Central Bank bills placement for Prudential Bank vs. Court of Appeals
another sixty-three (63) days, for which she signed a It is also worthy of note—and wonder—that although
withdrawal slip at the instance of third-party defendant the bank impleaded Quimbo in a third-party complaint,
Susan Quimbo who told her that it was a new bank it did not pursue its suit even when she failed to answer
requirement for the roll-over of a matured placement which
and was declared in default. The bank did not introduce
she trustingly believed.
evidence against her although it could have done so
Indeed, the bank has not explained the remarkable under the rules. No less remarkably, it did not call on
coincidence that the amount indicated in the her to testify on its behalf, considering that under the
withdrawal slip is exactlythe same amount Cruz was re- circumstances claimed by it, she would have been the
investing after deducting therefrom the pre-paid best witness to show that Cruz had actually withdrawn
interest. her P200,000.00 placement. Instead, the bank chose to
The bank has also not succeeded in impugning the rely on its other employees whose testimony was less
authenticity of the Confirmation of Sale and the Debit direct and categorical than the testimony Quimbo could
Memo which were made on its official forms. These are have given.
admittedly not available to the general public or even We do not find that the Court of Appeals held the
its depositors and are handled only by its personnel. bank liable on a quasi-delict. The argument of the
Even assuming that they were not signed by its petitioner on this issue is pallid, to say the least,
authorized officials, as it claims, there was no obligation consisting as it does only of the observation that the
on the part of Cruz to verify their authority because she article cited by the respondent court on the agent’s
178
liability falls under the heading in the Civil Code on amount to her pursuant to the Confirmation of Sale
quasidelicts. On the other hand, the respondent court constituted its breach of their contract, for which it
clearly declared that: should be held liable.
The defendant/third-party plaintiff being liable for the The liability of the principal for the acts of the agent
return of the P200,000.00 placement of the plaintiffs, the is not even debatable. Law and jurisprudence are
extent of the liability of the defendant/third-party plaintiff clearly and absolutely against the petitioner.
for damages resultant thereof, which is contractual, is for all Such liability dates back to the Roman Law
damages which may be reasonably attributed to the non-
maxim, Qui per alium facit per seipsum facere
performance of the obligation, x x x.
videtur. “He who does a thing by an agent is considered
xxx
Because of the bad faith of the defendant/third-party as doing it himself.” This rule is affirmed by the Civil
plaintiff in its breach of its contract with the plaintiffs, the Code thus:
latter are, therefore, entitled to an award of moral damages “Art. 1910. The principal must comply with all the
x x x (Emphasis supplied) obligations which the agent may have contracted within the
scope of his authority.
There is no question that the petitioner was made liable Art. 1911. Even when the agent has exceeded his
for its failure or refusal to deliver to Cruz the amount authority, the principal is solidarity liable with the agent if
she had deposited with it and which she had a right to the former allowed the latter to act as though he had full
withdraw upon its maturity. That investment was powers.
acknowledged by its own employees, who had the Conformably, we have declared in countless decisions
apparent authority to do so and so could legally bind it that the principal is liable for obligations contracted by
by its acts vis-a-vis Cruz. Whatever might have the agent. The agent’s apparent representation yields
happened to the investment—whether it was lost or to the principal’s true representation and the contract
stolen by whoever—was not the concern of the is considered as entered into between the principal and
depositor. It was the concern of the bank. the third person. 18
As far as Cruz was concerned, she had the right to A bank is liable for wrongful acts of its officers done in the
withdraw her P200,000.00 placement when it matured interests of the bank or in the course of dealings of the
pursuant to the terms of her investment as officers in their representative capacity but not for acts
acknowledged and reflected in the Confirmation of Sale. outside the scope of their authority. (9 c.q.s. p. 417) A bank
The failure of the bank to deliver the holding out its officers and agent as worthy of confidence will
357 not be permitted to profit by the frauds they may thus be
VOL. 223, JUNE 14, 1993 357 enabled to perpetrate in the apparent scope of their
Prudential Bank vs. Court of Appeals employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may
179
accrue to the bank therefrom (10 Am Jur 2d, p. 114). seems to have studiously ignored by its insistence that
Accordingly, a banking corporation is liable to innocent third the missing money had been actually withdrawn by
persons where the representation is made in the course of its Cruz. By such insistence, the bank is absolving not only
business by an agent acting within the general scope of his itself but also, in effect and by extension, the
authority even though, in the particular case, the agent is
disappeared Quimbo who apparently has much to
secretly abusing his authority and attempting to perpetrate
explain.
a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, We agree with the lower courts that the petitioner
204 NW 818, 40 ALR 1021.) acted in bad faith in denying Cruz the obligation she
was claiming against it. It was obvious that an
_______________
irregularity had been committed by the bank’s
18 National Food Authority vs. Intermediate Appellate Court, 184
personnel, but instead of repairing the injury to Cruz by
SCRA 166. immediately restoring her money to her, it sought to
gloss over the anomaly in its own operations.
358
358 SUPREME COURT REPORTS Cruz naturally suffered anxious moments and
ANNOTATED mental anguish over the loss of the investment. The
amount of P200,000.00 is not small even by present
Prudential Bank vs. Court of Appeals
standards. By unjustly withholding it from her on the
Application of these principles is especially necessary
unproved defense that she had already withdrawn it,
because banks have a fiduciary relationship with the
the bank violated the trust she had reposed in it and
public and their stability depends on the confidence of
thus subjected itself to further liability for moral and
the people in their honesty and efficiency. Such faith exemplary damages.
will be eroded where banks do not exercise strict care in
If a person dealing with a bank does not read the fine
the selection and supervision of its employees, resulting
print in the contract, it is because he trusts the bank
in prejudice to their depositors.
and relies on its integrity. The ordinary customer
It would appear from the facts established in the case applying for a loan or even making a deposit (and so
before us that the petitioner was less than eager to himself extending the loan to the bank) does not bother
present Quimbo at the trial or even to establish her
with the red tape requirements and the finicky
liability although it made the initial effort—which it did
conditions in the documents he signs. His feeling is that
not pursue—to hold her answerable in the third-party
he does not have to be wary of the bank because it will
complaint. What ever happened to her does not appear deal with him fairly and there is no reason to suspect
in the record. Her absence from the proceedings feeds its motives. This is an attitude the bank must justify.
the suspicion of her possible misdeed, which the bank
180
While this is not to say that bank regulations are 1. 1.PRINCIPAL AND AGENT; POWER OF
meaningless AGENT; PAYMENTS OF AT-TORNEYS' FEES.—
359 An agent or attorney-in-fact empowered to pay the
VOL. 223, JUNE 14, 1993 359 debts of the principal, and to employ attorneys to
Domagas vs. Malana defend the latter's interests, is impliedly empowered
to pay the attorneys' fees for services rendered in the
or have no binding effect, they should, however, not be
interests of said principal, and may satisfy them by
used for covering up the fault of bank employees when an assignment of a judgment rendered in favor of
they blunder or, worse, intentionally cheat him. The said principal.
misdeeds of such employees must be readily
acknowledged and rectified without delay. The bank 1. 2.ID.; APPOINTMENT OF Two AGENTS.—When a
must always act in good faith. The ordinary customer person appoints two agents independently, the
does not feel the need for a lawyer by his side every time consent of one will not be required to validate the
he deals with a bank because he is certain that it is not acts of the other, unless that appears positively to
a predator or a potential adversary. The bank should have been the principal's intention.
show that there is really no reason for any apprehension
because it truly deserves his faith in it. 1. 3.JUDGMENT; ASSIGNMENT OF AMOUNT FOR
WHEREFORE, the petition is DENIED and the PROFESSIONAL SERVICES.—The assignment of
the amount of a judgment made by a person to his
appealed decision is AFFIRMED, with costs against the
attorney, who has not taken any part in the case
petitioner. It is so ordered. wherein said judgment was rendered, made in
Griño-Aquino, Bellosillo and Quiason, payment of professional services in other cases, does
JJ., concur. not contravene the prohibition of article 1459, case
5, of the Civil Code.
Petition denied. Appealed judgment affirmed.
of Iloilo. Rovira, J.
Treñas & Laserna, for defendant-appellant.
THE MUNICIPAL COUNCIL OF ILOILO, plaintiff and Provincial Fiscal Blanco of Iloilo for plaintiff-
appellee, vs. JOSE EVANGELISTA ET AL., defendants appellee.
and appellees. TAN ONG SZE VDA. DE TAN Toco, Felipe Ysmael for appellee Mauricio Cruz & Co.
appellant. No appearance for other appellees.
291
181
VOL. 55, NOVEMBER 17, 1930 291 2. "2.The lower court erred in sustaining the
Municipal Council of Iloilo vs. Evangelista, validity of the deed of assignment of the credit,
Exhibit 2-Cruz, instead of finding that said
VILLA-REAL, J.: assignment made by Tan Buntiong to Attorney
Antero Soriano was null and void.
This is an appeal taken by the defendant Tan Ong Sze 3. "3.The lower court erred in upholding the
Vda. de Tan Toco from the judgment of the Court of assignment of that credit by Antero Soriano to
First Instance of Iloilo, providing as follows: Mauricio Cruz & Co., Inc., instead of declaring
"Wherefore, judgment is hereby rendered, declaring valid it null and void.
and binding the deed of assignment of the credit executed by
Tan Toco's widow, through her attorney-in-fact Tan 292
Buntiong, in favor of the late Antero Soriano; likewise the 292 PHILIPPINE REPORTS
assignment executed by the latter during his lifetime in favor ANNOTATED
of the defendant Mauricio Cruz & Co., Inc., and the plaintiff
is hereby ordered to pay the said Mauricio Cruz & Co., Inc., Municipal Council of Iloilo vs. Evangelista
the balance of f=30,966.40; the plaintiff is also ordered to
deposit said sum in a local bank within the period of ninety 1. "4.The court below erred in holding that the
days from the time this judgment shall become final, at the balance of the credit against the municipality of
disposal of the aforesaid Mauricio Cruz & Co., Inc., and in Iloilo should be adjudicated to the appellant
case that the plaintiff shall not make such deposit in the herein, Tan Toco's widow.
manner indicated, said amount shall bear the legal interest 2. "5.The lower court erred in denying the motion
of six per cent per annum from the date when the plaintiff for a new trial filed by the defendant-appellant."
shall fail to make the deposit within the period herein set
forth, until fully paid.
The facts of the case are as follows:
"Without special pronouncement of costs."
On March 20, 1924, the Court of First Instance of
In support of its appeal, the appellant assigns the Iloilo rendered judgment in civil case No. 3514 thereof,
following alleged errors as committed by the trial court wherein the appellant herein, Tan Ong Sze Vda. de Tan
in its decision, to wit: Toco was the plaintiff, and the municipality of Iloilo the
defendant, and the former sought to recover of the latter
1. "1.The lower court erred in rejecting as evidence the value of a strip of land belonging to said plaintiff
Exhibit 4-A, Tan Toco, and Exhibit 4-B, Tan taken by the defendant to widen a public street; the
Toco. judgment entitled the plaintiff to recover P42,966.40,
representing the value of said strip of land, from the
182
defendant (Exhibit A). On appeal to this court (G. R. No. Jose Ma. Arroyo, and directed the municipality of Iloilo
22617) the judgment was affirmed on November 28,
1 to file an action of interpleading against the adverse
1924 (Exhibit B). claimants, the Philippine National Bank, Antero
After the case was remanded to the court of origin, Soriano, Mauricio Cruz & Co., Jose Evangelista, and
and the judgment rendered therein had become final Jose Arroyo, as was done, the case being filed in the
and executory, Attorney Jose Evangelista, in his own Court of First Instance of Iloilo as civil case No. 7702.
behalf and as counsel for the administratrix of Jose Ma. After due hearing, the court rendered the decision
Arroyo's intestate estate, filed a claim in the same case quoted from at the beginning.
for professional services rendered by him, which the On March 29, 1928, the municipal treasurer of Iloilo,
court, acting with the consent of the appellant widow, with the approval of the auditor, of the provincial
fixed at 15 per cent of the amount of the judgment treasurer of Iloilo, and of the Executive Bureau, paid
(Exhibit 22—Soriano). the late Antero Soriano the amount of P6,000 in part
At the hearing on said claim, the claimants payment of the judgment mentioned above, assigned to
appeared, as did also the Philippine National Bank, him by Tan Boon Tiong, acting as attorney-in-fact of the
which prayed that the amount of the judgment be appellant herein, Tan Ong Sze Vda. de Tan Toco:
turned over to it because the land taken over had been On December 18, 1928, the municipal treasurer of
mortgaged to it. Antero Soriano also appeared claiming Iloilo deposited with the clerk of the Court of First
the amount of the judgment as it had been assigned to Instance of Iloilo the amount of P6,000 on account of the
him, and by him, in turn, assigned to Mauricio Cruz & judgment rendered in said civil case No. 3514. In
Co., Inc. pursuance of the resolution of the court below -ordering
After hearing all the adverse claims on the amount that the attorney's lien in the amount of 15 per cent of
of the judgment, the court ordered that the attorney's the judgment be recorded in favor of Attorney Jose
lien in the amount of 15 per cent of the judgment, be Evangelista, in his own behalf and as counsel for the
recorded late Jose Ma. Arroyo, the said clerk of court delivered
_____________ on the same date to said Attorney Jose Evangelista the
said amount of P6,000. At the hearing of the instant
1 Viuda de Tan Toco vs. Municipal Council of Iloilo, not reported.
case, the co-defendants of Attorney Jose Evangelista
293 agreed not to discuss the payment made to the latter by
VOL. 55, NOVEMBER 17, 1930 293 the clerk of the Court of First Instance of Iloilo of the
Municipal Council of lloilo vs. Evangelista, amount of P6,000 mentioned above in consideration of
in favor of Attorney Jose Evangelista, in his own behalf said lawyer's waiver of the remainder of the 15 per cent
and as counsel for the administratrix of the deceased of said judgment amounting to P444.69.
183
With these two payments of P6,000 each making a said deed of assignment, but in order to facilitate the
total of P12,000, the judgment for P42,966.44 against collection of the amount of said judgment in favor of the
the municipality of Iloilo was reduced to P30,966.40, appellant, for the reason that, being Chinese, she had
which was adjudicated by said court to Mauricio Cruz encountered many difficulties in trying to collect.
& Co. In support of her contention on this point, the
294 appellant alleges that the payments admitted by the
294 PHILIPPINE REPORTS court in its judgment, as made by Tan Toco's widow to
ANNOTATED Attorney Antero Soriano for professional services
Municipal Council of Iloilo vs. Evangelista, rendered to her and to her co-heirs, amounting to
This appeal, then, is confined to the claim of Mauricio P2,900,. must be added to the P700 evidenced by
Cruz & Co. as alleged assignee of the rights of the late Exhibits 4-A, Tan Toco, and 4-B, Tan Toco, respectively,
Attorney Antero Soriano by virtue of the said judgment which exhibits the court below rejected as evidence, on
in payment of professional services rendered by him to the ground that they were considered as payments
the said widow and her co-heirs. made for professional services rendered, not by Antero
The only question to be decided in this appeal is the Soriano personally, but by the firm of Soriano &Arroyo.
legality of the assignment made by Tan Boon Tiong, as 295
attorney-in-fact of the appellant Tan Ong Sze Viuda de VOL. 55, NOVEMBER 17, 1930 295
Tan Toco, to Attorney Antero Soriano, of all the credits, Municipal Council of Iloilo vs. Evangelista
rights and interests belonging to said appellant Tan A glance at these receipts shows that those amounts
Ong Sze Viuda de Tan Toco by virtue of the judgment were received by Attorney Antero Soriano for the firm
rendered in civil case No. 3514 of the Court of First of Soriano & Arroyo, which is borne out by the stamp on
Instance of Iloilo, entitled Viuda de Tan Toco vs. The said receipts reading, "Bufete Soriano & Arroyo," and
Municipal Council of Iloilo, adjudicating to said widow the manner in which said attorney receipted for them,
the amount of P42,966.40, plus the costs of court, "Soriano & Arroyo, by A. Soriano."
against said municipal council of Iloilo, in consideration Therefore, the appellant's contention that the
of professional services rendered by said attorney to amounts of P200 and P500 evidenced by said receipts
said widow of Tan Toco and her co-heirs, by virtue of the should be considered as payments made to Attorney
deed Exhibit 2. Antero Soriano for professional services rendered by
The appellant contends, in the first place, that said him personally to the interests of the widow of Tan
assignment was not made in consideration of Toco, is untenable.
professional services by Attorney Antero Soriano, for Besides, if at the time of the assignment to the late
they had already been satisfied before the execution of Antero Soriano, his professional services to the
184
appellant widow of Tan Toco had already been paid for, "5. Justices, judges, members of the department of public
no reason can be given why it was necessary to wire him prosecution, clerks of superior and inferior courts, and other
money in payment of professional services on March 14, officers of such courts, the property and rights in litigation
1928 (Exhibit 5-G Tan Toco) and December 15, of the before the court within whose jurisdiction or territory they
perform their respective duties. This prohibition shall
same year (Exhibit 5-H Tan Toco) after the deed of
include the acquisition of such property by assignment.
assignment, (Exhibit 2-Cruz) dated September 27,
"Actions between equal concerning the hereditary
1927, had been executed. In view of the fact that the property, assignments in payment of debts, or to secure the
amounts involved in the cases prosecuted by Attorney property of such persons, shall be excluded from this rule.
Antero Soriano as counsel for Tan Toco's widow, some "The prohibition contained in this paragraph shall
of whi6h cases have been appealed to this court, run include lawyers and solicitors with respect to any property or
into the hundreds of thousands of pesos, and rights involved in any litigation in which they may take part
considering that said attorney had won several of those by virtue of their profession and office."
cases for his clients, the sum of P10,000 to date paid to
It does not appear that Attorney Antero Soriano was
him for professional services is wholly inadequate, and
counsel for the herein appellant in civil case No. 3514 of
shows, even if indirectly, that the assignment of the
the Court of First Instance of Iloilo, which she instituted
appellant's rights and interests made to the late Antero
against the municipality of Iloilo, Iloilo, for the recovery
Soriano and determined in the judgment
of the value of a strip of land expropriated by said
aforementioned, was made in consideration of the
municipality for the widening of a certain public street.
professional services rendered by the latter to the
The only lawyers who appear to have represented her
aforesaid widow and her co-heirs. , ,. the deed deed of
in that case were Arroyo and Evangelista,, who filed a
The defendant-appellant also contends that the deed
claim for their professional fees. When the appellant's
of assignment Exhibit 2-Cruz was drawn up in
credits right, and interests in that case were assigned
contravention of the prohibition contained in article
by her attorney-in-fact Tan Boon Tiong, to Attorney
1459, case 5, of the Civil Code, which reads as follows:
296
Antero Soriano in payment of professional services
296 PHILIPPINE REPORTS rendered by the latter to theappellant and her co-heirs
ANNOTATED in connection with other cases, that particular case had
been decided, and the only thing left to do was to collect
Municipal Council of Iloilo vs, Evangelista,
the judgment. There was no relation of attorney and
"ART. 1459. The following persons cannot take by purchase,
even at a public or judicial auction, either in person or
client, then, between Antero Soriano and the appellant,
through the mediation of another: in the case where that judgment was rendered; and
* * * * * * * therefore the assignment of her credit, right and
297
185
VOL, 55, NOVEMBER 17, 1930 297 principal's intention that they should act jointly in
Municipal Council of Iloilo vs. Evangelista order to make their acts valid. Furthermore, the
interests to said lawyer did not violate the prohibition appellant was aware of that assignment and she not
cited above. only did not repudiate it, but she continued employing
As to whether Tan Boon Tiong, as attorney-in-fact of Attorney Antero Soriano to represent her in court.
the appellant; was empowered by his principal to make For the foregoing considerations, the court is of
an assignment of credits, rights, and interests, in opinion and so holds: (1) That an agent or attorney-in-
payment of debts for professional services rendered by fact empowered to pay the debts of the principal, and to
lawyers, in paragraph VI of the power of attorney, employ
Exhibit 5-Cruz, Tan Boon Tiong is authorized to employ 298
and contract for the services of lawyers upon such 298 PHILIPPINE REPORTS
conditions as he may deem convenient, to take charge ANNOTATED
of any actions necessary or expedient for the interests People vs. Hitosis
of his principal, and to def end suits brought against lawyers to defend the latter's interests, is impliedly
her. This power necessarily implies the authority to pay empowered to pay the lawyer's fees for services
for the professional services thus engaged. In the rendered in the interests of said principal, and may
present case, the assignment made by Tan Boon Tiong, satisfy them by an assignment of a judgment rendered
as attorney-in-fact for the appellant, in favor of in favor of said principal; (2) that when a person
Attorney Antero Soriano for professional services appoints two attorneys-in-fact independently, the
rendered in other cases in tHe interests of the appellant consent of the one will not be required to validate the
and her co-heirs, was that credit which she had against acts of the other unless that appears positively to have
the municipality of Iloilo, and such assignment was been the principal's intention; and (3) that the
equivalent to the payment of the amount of said credit assignment of the amount of a judgment made by a
to Antero Soriano for professional services. person to his attorney, who has not taken any part in
With regard to the failure of the other attorney-in- the case wherein said judgment was rendered, made in
fact of the appellant, Tan Montano, authorized by payment of professional services in other cases, does not
Exhibit 1—Tan Toco, to consent to the deed of contravene the prohibition of article 1459, case 5, of the
assignment, the latter being also authorized to pay, in Civil Code.
the name and behalf of the principal, all her debts and By virtue whereof, and finding no error in the
the liens and encumbrances on her property, the very judgment appealed from, the same is affirmed in its
fact that different letters of attorney were given to each entirety, with costs against the. appellant. So ordered.
of these two representatives shows that it was not the
186
Avanceña, C. business on behalf of the bank, and the latter had
J., Johnson, Street, Malcolm, Villamor, Ostrand, John acknowledged her authority. A bank is liable to innocent
s, and Romualdez, JJ., concur. third persons where representation is made in the course of
its normal business by an agent like Manager Tena, even
Judgment affirmed. though such agent is abusing her authority. Clearly, persons
dealing with her could not be blamed for believing that she
was authorized to transact business for and on behalf of the
bank.
Same; Same; Same; Bank is estopped from questioning
the authority of the bank manager to enter into the contract
of sale.—In this light, the bank is estopped from questioning
the authority of the bank manager to enter into the contract
G.R. No. 137686. February 8, 2000. *
of sale. If a corporation knowingly permits one of its officers
RURAL BANK OF MILAOR (CAMARINES SUR), or any other agent to act within the scope of an apparent
petitioner, vs.FRANCISCA OCFEMIA, ROWENA authority, it holds the agent out to the public as possessing
BARROGO, MARIFE O. NINO, FELICISIMO the power to do those acts; thus, the corporation will, as
OCFEMIA, RENATO OCFEMIA, JR., and WINSTON against anyone who has in good faith dealt with it through
OCFEMIA, respondents. such agent, be estopped from denying the agent’s authority.
Remedial Law; Courts; Jurisdiction; Well-settled rule is
_____________
that jurisdiction is determined by the allegations of the
complaint; The Regional Trial Court has jurisdiction over the *THIRD DIVISION.
Petition for Mandamus pursuant to Section 21 of Batas 100
Pambansa 129.—The well-settled rule is that jurisdiction is 100 SUPREME COURT REPORTS
determined by the allegations of the complaint. In the ANNOTATED
present case, the Petition for Mandamus filed by respondents
Rural Bank of Milaor (Camarines Sur) vs.
before the trial court prayed that petitioner-bank be
compelled to issue a board resolution confirming the Deed of Ocfemia
Sale covering five parcels of unregistered land, which the
bank manager had executed in their favor. The RTC has VITUG, J., Concurring Opinion:
jurisdiction over such action pursuant to Section 21 of BP
129. Civil Law; Agency; Estoppel; A corporation may be held
Civil Law; Agency; Estoppel; A bank is liable to innocent in estoppel from denying as against innocent third persons
third persons where representation is made in the course of the authority of its officers or agents who have been clothed
its normal business by an agent even though such agent is by it with ostensible or apparent authority.—A corporate
abusing her authority.—Tena had previously transacted officer entrusted with general management and control of
187
the business has the implied authority to act or contract for Rural Bank of Milaor (Camarines Sur) vs.
the corporation which may be necessary or appropriate to Ocfemia
conduct the ordinary business. If the act of corporate officers The Case
comes within corporate powers but it is done without any
Before this Court is a Petition for Review on Certiorari
express or implied authority therefor from the by-laws, board
resolutions or corporate practices, such an act does not bind
challenging the December 18, 1998 Decision of the
the corporation. The Board, however, acting within its Court of Appeals (CA) in CA-GR SP No. 46246, which
1
competence, may ratify the unauthorized act of the corporate affirmed the May 20, 1997 Decision of the Regional
2
officer. So, too, a corporation may be held in estoppel from Trial Court (RTC) of Naga City (Branch 28). The CA
denying as against innocent third persons the authority of disposed as follows:
its officers or agents who have been clothed by it with “Wherefore, premises considered, the Judgment appealed
ostensible or apparent authority. from is hereby AFFIRMED. Costs against the respondent-
appellant.”
3
PETITION for review on certiorari of a decision of the The dispositive portion of the judgment affirmed by the
Court of Appeals. CA ruled in this wise:
“WHEREFORE, in view of all the foregoing findings, decision
The facts are stated in the opinion of the Court. is hereby rendered whereby the [petitioner] Rural Bank of
David C. Naval for petitioner. Milaor (Camarines Sur), Inc. through its Board of Directors
Eustaquio S. Beltran for respondents. is hereby ordered to immediately issue a Board Resolution
confirming the Deed of Sale it executed in favor of Renato
PANGANIBAN, J.: Ocfemia marked Exhibits C, C-1 and C-2); to pay
[respondents] the sum of FIVE HUNDRED (P500.00)
When a bank, by its acts and failure to act, has clearly PESOS as actual damages; TEN THOUSAND (P10,000.00)
clothed its manager with apparent authority to sell an PESOS as attorney’s fees; THIRTY THOUSAND
acquired asset in the normal course of business, it is (P30,000.00) PESOS as moral damages; THIRTY
legally obliged to confirm the transaction by issuing a THOUSAND (P30,000.00) PESOS as exemplary damages;
and to pay the costs.”
board resolution to enable the buyers to register the
4
Also assailed is the February 26, 1999 CA

property in their names. It has a duty to perform
Resolution which denied petitioner’s Motion for
5
necessary and lawful acts to enable the other parties to

Reconsideration.
enjoy all benefits of the contract which it had
The Facts
authorized.
101 The trial court’s summary of the undisputed facts was
VOL. 325, FEBRUARY 8, 2000 101 reproduced in the CA Decision as follows:
188
_____________ case, show[s] that she is the daughter of Francisca Ocfemia,
a co[respondent] in this case, and the late Renato Ocfemia
1 Special Thirteenth Division composed of J.Renato C. who died on July 23, 1994. The parents of her father, Renato
Dacudao, ponente; and JJ. Salvador J. Valdez, Jr. (chairman) and
Roberto A. Barrios (member), both concurring.
Ocfemia, were Juanita Arellano Ocfemia and Felicisimo
2 Penned by Judge Antonio N. Gerona. Ocfemia. Her other co[respondents] Rowena O. Barrogo,
3 CA Decision, p. 9; rollo, p. 25. Felicisimo Ocfemia, Renato Ocfemia, Jr. and Winston
4 RTC Decision, p. 6; rollo, p. 49. Ocfemia are her brothers and sisters.
5 Rollo, pp. 36-37.
“Marife O. Niño knows the five (5) parcels of land
102 described in paragraph 6 of the petition which are located in
102 SUPREME COURT REPORTS Bombon, Camarines Sur and that they are the ones
ANNOTATED possessing them which [were] originally owned by her
Rural Bank of Milaor (Camarines Sur) vs. grandparents, Juanita Arellano Ocfemia and Felicisimo
Ocfemia Ocfemia. During the lifetime of her grandparents,
“This is an action for mandamus with damages. On April 10, [respondents] mortgaged the said five (5) parcels of land and
1996, [herein petitioner] was declared in default on motion two (2) others to the [petitioner] Rural Bank of Milaor as
of the [respondents] for failure to file an answer within the shown by the Deed of Real Estate Mortgage (Exhs. A and A-
reglementary period after it was duly served with summons. 1) and the Promissory Note (Exh. B).
On April 26, 1996, [herein petitioner] filed a motion to set “The spouses Felicisimo Ocfemia and Juanita Arellano
aside the order of default with objection thereto filed by Ocfemia were not able to redeem the mortgaged properties
[herein respondents]. consisting of seven (7) parcels of land and so the mortgage
“On June 17, 1996, an order was issued denying was foreclosed and thereafter ownership thereof was
[petitioner’s] motion to set aside the order of default. On July transferred to the [petitioner] bank. Out of the seven (7)
10, 1996, the defendant filed a motion for reconsideration of parcels that were foreclosed, five (5) of them are in the
the order of June 17, 1996 with objection thereto by possession of the [respondents] because these five
103
[respondents]. On July 12, 1996, an order was issued denying
[petitioner’s] motion for reconsideration. On July 31, 1996, VOL. 325, FEBRUARY 8, 2000 103
[respondents] filed a motion to set case for hearing. A copy Rural Bank of Milaor (Camarines Sur) vs.
thereof was duly furnished the [petitioner] but the latter did Ocfemia
not file any opposition and so [respondents] were allowed to (5) parcels of land described in paragraph 6 of the petition
present their evidence ex-parte. A certiorari case was filed by were sold by the [petitioner] bank to the parents of Marife O.
the [petitioner] with the Court of Appeals docketed as CA GR Niño as evidenced by a Deed of Sale executed in January
No. 41497-SP but the petition was denied in a decision 1988 (Exhs. C, C-1 and C-2).
rendered on March 31, 1997 and the same is now final. “The aforementioned five (5) parcels of land subject of the
The evidence presented by the [respondents] through the deed of sale (Exh. C), have not been, however transferred in
testimony of Marife O. Niño, one of the [respondents] in this the name of the parents of Marife O. Niño after they were
189
sold to her parents by the [petitioner] bank because bank inquiring why no action was taken by the board of the
according to the Assessor’s Office the five (5) parcels of land, request for the issuance of the resolution considering that the
subject of the sale, cannot be transferred in the name of the bank was already fully paid [for] the consideration of the sale
buyers as there is a need to have the document of sale since January 1988 as shown by the deed of sale itself (Exhs.
registered with the Register of Deeds of Camarines Sur. D and D-1).
“In view of the foregoing, Marife O. Niño went to the 104
Register of Deeds of Camarines Sur with the Deed of Sale 104 SUPREME COURT REPORTS
(Exh. C) in order to have the same registered. The Register ANNOTATED
of Deeds, however, informed her that the document of sale Rural Bank of Milaor (Camarines Sur) vs.
cannot be registered without a board resolution of the Ocfemia
[petitioner] Bank. Marife Niño then went to the bank,
“On January 15, 1996 the [petitioner] bank answered
showed to it the Deed of Sale (Exh. C), the tax declaration
[respondents’] lawyer’s letter (Exhs. D and D-1) informing
and receipt of tax payments and requested the [petitioner]
the latter that the request for board resolution ha[d] already
for a board resolution so that the property can be transferred
been referred to the board of directors of the [petitioner] bank
to the name of Renato Ocfemia the husband of petitioner
with another request that the latter should be furnished with
Francisca Ocfemia and the father of the other [respondents]
a certified machine copy of the receipt of payment covering
having died already.
the sale between the [respondents] and the [petitioner] (Exh.
The [petitioner] bank refused her request for a board
E). This request of the [petitioner] bank was already
resolution and made many alibi[s]. She was told that the
complied [with] by Marife O. Niño even before she brought
[petitioner] bank ha[d] a new manager and it had no record
the matter to her lawyer.
of the sale. She was asked and she complied with the request
“On January 23, 1996 [respondents’] lawyer wrote back
of the [petitioner] for a copy of the deed of sale and receipt of
the branch manager of the [petitioner] bank informing the
payment. The president of the [petitioner] bank told her to
latter that they were already furnished the receipts the bank
get an authority from her parents and other [respondents]
was asking [for] and that the [respondents] want[ed] already
and receipts evidencing payment of the consideration
to know the stand of the bank whether the board [would]
appearing in the deed of sale. She complied with said
issue the required board resolution as the deed of sale itself
requirements and after she gave all these documents, Marife
already show[ed] that the [respondents were] clearly entitled
O. Niño was again told to wait for two (2) weeks because the
to the land subject of the sale (Exh. F). The manager of the
[petitioner] bank would still study the matter.
[petitioner] bank received the letter which was served
“After two (2) weeks, Marife O. Niño returned to the
personally to him and the latter told Marife O. Niño that
[petitioner] bank and she was told that the resolution of the
since he was the one himself who received the letter he would
board would not be released because the [petitioner] bank
not sign anymore a copy showing him as having already
ha[d] no records from the old manager. Because of this,
received said letter (Exh. F).
Marife O. Niño brought the matter to her lawyer and the
latter wrote a letter on December 22, 1995 to the [petitioner]
190
“After several days from receipt of the letter (Exh. F) Ruling of the Court of Appeals
when Marife O. Niño went to the [petitioner] again and The CA held that herein respondents were “able to
reiterated her request, the manager of the (petitioner] bank prove their present cause of action” against petitioner.
told her that they could not issue the required board It ruled that the RTC had jurisdiction over the case,
resolution as the [petitioner] bank ha[d] no records of the
because (1) the Petition involved a matter incapable of
sale. Because of this Marife O. Niño already went to their
pecuniary estimation; (2) mandamus fell within the
lawyer and ha[d] this petition filed.
“The [respondents] are interested in having the property jurisdiction of RTC; and (3) assuming that the action
described in paragraph 6 of the petition transferred to their was for specific performance as argued by the
names because their mother and co-petitioner, Francisca petitioner, it was still cognizable by the said court.
Ocfemia, is very sickly and they want to mortgage the Issues
property for the medical expenses of Francisca Ocfemia. The In its Memorandum, the bank posed the following
9
illness of Francisca Ocfemia beg[a]n after her husband died questions:

and her suffering from arthritis and pulmonary disease
already became serious before December 1995. 1. “l.Question of Jurisdiction of the Regional Trial
“Marife O. Niño declared that her mother is now in Court.—Has a Regional Trial Court original
serious condition and they could not have her hospitalized jurisdiction over an action in
for treatment as they do not have any money and this is
causing the family sleepless nights and mental anguish, _____________
thinking that their mother may die
105 6 RTC Decision, pp. 1-3; rollo, pp. 44-46.
VOL. 325, FEBRUARY 8, 2000 105 7 The case was deemed submitted for resolution on October 27,
1999, upon receipt by this Court of the respective Memoranda of the
Rural Bank of Milaor (Camarines Sur) vs. petitioner and the respondents. The Memorandum of Petitioner was
Ocfemia signed by Atty. David C. Naval, while that of respondents was signed
because they could not submit her for medication as they do by Atty. Eustaquio S. Beltran.
8 Rollo, p. 117.
not have money.” 6
9 Rollo, pp. 153-160.
The trial court granted the Petition. As noted earlier, 106

the CA affirmed the RTC Decision. 106 SUPREME COURT REPORTS
Hence, this recourse. In a Resolution dated June 23,
7
ANNOTATED
1999, this Court issued a Temporary Restraining Order Rural Bank of Milaor (Camarines Sur) vs.
directing the trial court “to refrain and desist from
Ocfemia
executing [pending appeal] the decision dated May 20,
1997 in Civil Case No. RTC-96-3513, effective
immediately until further orders from this Court.” 8
191
1. volving title to real property with a total assessed _____________
value of less than P20,000.00? 10Ibid., p. 154.
2. “2.Question of Law.—May the board of directors of a 11Santiago v. Guingona, 298 SCRA 756, 776, November 18,
rural banking corporation be compelled to confirm a 1998; Bernate v. CA, 263 SCRA 323, October 18, 1996; Sandel v. CA, 262
deed of absolute sale of real property owned by the SCRA 101, September 19, 1996.
corporation which deed of sale was executed by the 107
bank manager without prior authority of the board VOL. 325, FEBRUARY 8, 2000 107
of directors of the rural banking corporation?”
10
Ocfemia
This Court’s Ruling
The present Petition has no merit. 1. (1)In the issuance of writs
First Issue: Jurisdiction of the Regional Trial Court of certiorari,prohibition, mandamus, quo warranto,
Petitioner submits that the RTC had no jurisdiction habeas corpus and injunction which may be enforced
over the case. Disputing the ruling of the appellate in any part of their respective regions; and
court that the present action was incapable of pecuniary 2. (2)In actions affecting ambassadors and other public
estimation, petitioner argues that the matter in fact ministers and consuls.”
involved title to real property worth less than P20,000.
Thus, under RA 7691, the case should have been filed A perusal of the Petition shows that the respondents did
before a metropolitan trial court, a municipal trial court not raise any question involving the title to the
or a municipal circuit trial court. property, but merely asked that petitioner’s board of
We disagree. The well-settled rule is that jurisdiction directors be directed to issue the subject resolution.
is determined by the allegations of the complaint. In 11
Moreover, the bank did not controvert the allegations in
the present case, the Petition for Mandamus filed by the said Petition. To repeat, the issue therein was not
respondents before the trial court prayed that the title to the property; it was respondents’ right to
petitioner-bank be compelled to issue a board resolution compel the bank to issue a board resolution confi rming
confirming the Deed of Sale covering five parcels of the Deed of Sale.
unregistered land, which the bank manager had Second Issue: Authority of the Bank Manager
executed in their favor. The RTC has jurisdiction over Respondents initiated the present proceedings, so that
such action pursuant to Section 21 of BP 129, which they could transfer to their names the subject five
provides: parcels of land; and subsequently, to mortgage said lots
“SEC. 21. Original jurisdiction in other cases.—Regional and to use the loan proceeds for the medical expenses of
Trial Courts shall exercise original jurisdiction: their ailing mother. For the property to be transferred
in their names, however, the register of deeds required
192
the submission of a board resolution from the bank genuineness and due execution of the instrument shall be
confirming both the Deed of Sale and the authority of deemed admitted unless the adverse party, under oath,
the bank manager, Fe S. Tena, to enter into such specifically denies them, and sets forth what he claims to be
transaction. Petitioner refused. After being given the the facts; but this provision does not apply when the adverse
party does not appear to be a party to the instrument or when
runaround by the bank, respondents sued in
compliance with an order for an inspection of the original
exasperation.
instrument is refused.” 12
Allegations in the Petition for Mandamus Deemed

In failing to file its answer specifically denying under
Admitted
oath the Deed of Sale, the bank admitted the due
Respondents based their action before the trial court on execution of the said contract. Such admission means
the Deed of Sale, the substance of which was alleged in that it acknowledged that Tena was authorized to sign
and a copy thereof was attached to the Petition for the Deed of Sale on its behalf. Thus, defenses that are,
13
Mandamus. The Deed named Fe S. Tena as the inconsistent with the due execution and the
representative of the bank. Petitioner, however, failed genuineness of the written instrument are cut off by an
to specifically deny under oath the allegations in that admission implied from a failure to make a verified
contract. In fact, it filed no answer at all, specific denial.
108
108 SUPREME COURT REPORTS Other Acts of the Bank
In any event, the bank acknowledged, by its own acts or
ANNOTATED
failure to act, the authority of Fe S. Tena to enter into
binding contracts. After the execution of the Deed of
Ocfemia
Sale, respondents occupied the properties in dispute
for which reason it was declared in default. Pertinent and paid the real estate
provisions of the Rules of Court read:
“SEC. 7. Action or defense based on document.—Whenever _____________
an action or defense is based upon a written instrument or
document, the substance of such instrument or document Rule 8 of the Rules of Court.
12
shall be set forth in the pleading, and the original or a copy Imperial Textile Mills, Inc. v. C.A., 183 SCRA 1, March 22, 1990.
13
109
thereof shall be attached to the pleading as an exhibit, which
shall be deemed to be a part of the pleading, or said copy may VOL. 325, FEBRUARY 8, 2000 109
with like effect be set forth in the pleading. Rural Bank of Milaor (Camarines Sur) vs.
“SEC. 8. How to contest genuineness of such documents.— Ocfemia
When an action or defense is founded upon a written taxes due thereon. If the bank management believed
instrument, copied in or attached to the corresponding that it had title to the property, it should have taken
pleading as provided in the preceding section, the
193
some measures to prevent the infringement or invasion failed to file an answer to the Petition below within the
of its title thereto and possession thereof. reglementary period, let alone present evidence
Likewise, Tena had previously transacted business controverting such author-
on behalf of the bank, and the latter had acknowledged
______________
her authority. A bank is liable to innocent third persons
where representation is made in the course of its First Philippine International Bank v. CA, infra, note 17.
14
normal business by an agent like Manager Tena, even 20 SCRA 987, 1005, August 14, 1967, per Sanchez, J.
15
though such agent is abusing her authority. Clearly,

14 110
persons dealing with her could not be blamed for 110 SUPREME COURT REPORTS
believing that she was authorized to transact business ANNOTATED
for and on behalf of the bank. Thus, this Court has ruled Rural Bank of Milaor (Camarines Sur) vs.
in Board of Liquidators v. Kalaw: “Settled
15 Ocfemia
jurisprudence has it that where similar acts have been ity. Indeed, when one of herein respondents, Marife O.
approved by the directors as a matter of general Niño, went to the bank to ask for the board resolution,
practice, custom, and policy, the general manager may she was merely told to bring the receipts. The bank
bind the company without formal authorization of the failed to categorically declare that Tena had no
board of directors. In varying language, existence of authority. This Court stresses the following:
such authority is established, by proof of the course of “x x x Corporate transactions would speedily come to a
business, the usages and practices of the company and standstill were every person dealing with a corporation held
by the knowledge which the board of directors has, or duty-bound to disbelieve every act of its responsible officers,
must be presumed to have, of acts and doings of its no matter how regular they should appear on their face. This
subordinates in and about the affairs of the corporation. Court has observed in Ramirez vs. Orientalist Co., 38 Phil.
634, 654-655, that—
So also,
‘In passing upon the liability of a corporation in cases of this kind
“ ‘x x x authority to act for and bind a corporation may be it is always well to keep in mind the situation as it presents itself
presumed from acts of recognition in other instances where to the third party with whom the contract is made. Naturally he
the power was in fact exercised’ can have little or no information as to what occurs in corporate
“ ‘x x x Thus, when, in the usual course of business of a meetings; and he must necessarily rely upon the external
corporation, an officer has been allowed in his official manifestation of corporate consent. The integrity of commercial
capacity to manage its affairs, his authority to represent the transactions can only be maintained by holding the corporation
corporation may be implied from the manner in which he has strictly to the liability fixed upon it by its agents in accordance with
been permitted by the directors to manage its business’ ” law; and we would be sorry to announce a doctrine which would
permit the property of man in the city of Paris to be whisked out of
Notwithstanding the putative authority of the manager
his hands and carried into a remote quarter of the earth without
to bind the bank in the Deed of Sale, petitioner has
194
recourse against the corporation whose name and authority had property, it behooves the bank to confirm the Deed of
been used in the manner disclosed in this case. As already Sale so that the buyers may enjoy its full use.
observed, it is familiar doctrine that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the
The board resolution is, in fact, mere paper work.
scope of an apparent authority, and thus holds him out to the Nonetheless, it is paper work necessary in the orderly
public as possessing power to do those acts, the corporation will, as operations of the register of deeds and the full
against any one who has in good faith dealt with the corporation enjoyment of respondents’ rights. Petitioner-bank
through such agent, be estopped from denying his authority; and persistently and unjustifiably refused to perform its
where it is said ‘if the corporation permits this means the same as
if the thing is permitted by the directing power of the corporation.’
legal duty. Worse, it was less than candid in dealing
”
16 with respondents regarding this matter. In this light,
In this light, the bank is estopped from questioning the the Court finds it proper to assess the bank treble costs,
authority of the bank manager to enter into the contract in addition to the award of damages.
of WHEREFORE, the Petition is hereby DENIED and
the assailed Decision and Resolution AFFIRMED. The
______________ Temporary Restraining Order issued by this Court is
16 Francisco v. GSIS, 7 SCRA 577, 583-584, March 30, 1963, per
hereby LIFTED. Treble costs against petitioner.
Reyes, J.B.L., J. SO ORDERED.
111 Melo (Chairman), Purisima and Gonzaga-
VOL. 325, FEBRUARY 8, 2000 111 Reyes, JJ., concur.
Rural Bank of Milaor (Camarines Sur) vs. Vitug, J., Please see Concurring Opinion.
Ocfemia
__________________
sale. If a corporation knowingly permits one of its
officers or any other agent to act within the scope of an 17 First International Bank v. CA, 252 SCRA 259, January 24,
apparent authority, it holds the agent out to the public 1996; People’s Aircargo and Warehousing Co., Inc. v. CA, 297 SCRA
170, 184-185, October 7, 1998.
as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good
faith dealt with it through such agent, be estopped from
denying the agent’s authority. 17
Unquestionably, petitioner has authorized Tena to

enter into the Deed of Sale. Accordingly, it has a clear
legal duty to issue the board resolution sought by
respondents. Having authorized her to sell the
195
whether he communicates such knowledge or not.
No. L-18287. March 30, 1963. (Ballentine, Law on Corporations, section 112.)
TRINIDAD J. FRANCISCO, plaintiff- Same; Same; Same; Silence of corporation as ratification
appellee, vs. GOVERNMENT SERVICE of agreement.—The silence of the corporation, taken together
with the unconditional acceptance of three subsequent
INSURANCE SYSTEM, defendant-appellant.
remittances from plaintiff, constitutes a binding ratification
of the original agreement between them (Civil Code, Article
1393).578
No. L-18155. March 30, 1963. 578 SUPREME COURT
TRINIDAD J. FRANCISCO, plaintiff- REPORTS ANNOTATED
appellant, vs. GOVERNMENT SERVICE
Francisco vs. Government Service
INSURANCE SYSTEM, defendant-appellee.
Insurance System
Corporations; Binding effect of acts of corporate Same; Same; Same; Maxim that the one who made it
officers.—A corporation cannot evade the binding effect possible for a wrong to be done should suffer.—The equitable
produced by a telegram sent by its board secretary, and the maxim that between two innocent parties the one who made
addressee of such telegram cannot be blamed for relying it possible for the wrong to be done should be the one to bear
upon it, because if every person dealing with a corporation the resulting loss, applies when — as in the instant case —
were held duty-bound to disbelieve every act of its a corporation allows one of its officers, now alleged to be
responsible officers no matter how regular it should appear without the proper authority, to send a telegram binding the
on its face, corporate transactions would speedily come to a corporation.
standstill. Damages; Breach of contract; Moral damages not
Same; Same; When corporation estopped to deny warranted if breach is not malicious or fraudulent.—Award
apparent authority of its officers.—If a private corporation of moral damages under Article 2220 of the Civil Code is not
intentionally or negligently clothes its officers or agents with warranted if the breach of contract is not malicious or
apparent power to perform acts for it, the corporation will be fraudulent (Ventanilla vs. Centeno, L-14333, 28 Jan. 1961;
estopped to deny that such apparent authority is real, as to Fores vs. Miranda, L-12163, 4 March 1959).
innocent third persons dealing in good faith with such Same; Same; When exemplary damages allowed.—
officers or agents. (2 Fletcher’s Encyclopedia, Priv. Corp. 255, Exemplary damages are only allowed in addition to moral,
Perm. Ed.) temperate, liquidated, or compensatory damages (Art. 2234,
Same; Same; Same; When notice of lands by a corporate Civil Code; Velayo vs. Shell Co. of P.I., L-7817, Res. July 30,
officer is notice to corporation.—Knowledge of facts acquired 1957; Singson, et al. vs. Aragon and Lorza, L-5164, Jan. 27,
or possessed by an officer or agent of a corporation in the 1953, 49 0.G. No. 2, 515).
course of his employment, and in relation to matters within Attorney’s fees; Award essentially discretionary with
the scope of his authority, is notice to the corporation, trial court.—The award of attorney’s fees is essentially
196
discretionary with the trial court, and no abuse of discretion abide by the terms of the contract created by plaintiff’s offer
is committed when the court refuses to make an award and it’s unconditional acceptance, with costs against the
because of the absence of gross and evident bad faith in defendant.”
defendant’s refusal to satisfy plaintiff’s claim, or of any of the
other grounds enumerated in Article 2208 of the Civil Code. The plaintiff, Trinidad J. Francisco, likewise
appealed separately (L-18155), because the trial court
APPEAL from a decision of the Court of First Instance did not award the P535,000.00 damages and attorney’s
of Rizal. Mojica, J. fees she claimed. Both appeals are, therefore, jointly
The facts are stated in the opinion of the Court. treated in this decision.
Vicente J. Francisco for plaintiff-appellee. The following facts are admitted by the parties: On
The Government Corporate Counselfor defendant- 10 October 1956, the plaintiff, Trinidad J. Francisco, in
appellant. consideration of a loan in the amount of P400,000.00,
REYES, J.B.L., J.: out of which the sum of P336,100.00 was released to
Appeal by the Government Service Insurance her, mortgaged in favor of the defendant, Government
System from the decision of the Court of First Instance Service Insurance System (hereinafter referred to as
of Rizal (Hon. Angel H. Mojica, presiding), in its Civil the System) a parcel of land containing an area of
Case No. 2088-P, entitled “Trinidad J. Francisco, 18,232 square meters, with twenty-one (21) bungalows,
plaintiff, vs. Government Service Insurance System, known as Vic-Mari Compound, located at Baesa,
defendant”, the dispositive part of which reads as Quezon City, payable within ten (10) years in monthly
follows: installments of P3,902.41, and with interest of 7% per
“WHEREFORE, judgment is hereby rendered: (a) annum compounded monthly.
Declaring null and void the consolidation in the name of the On 6 January 1959, the System extrajudicially
defendant, Government Service Insurance System, of the foreclosed the mortgage on the ground that up to that
title of the VIC-MARI Compound; said title shall be restored date the plaintiff-mortgagor was in arrears on her
to the plaintiff; and all payments made by the plaintiff, after monthly installments in the amount of P52,000.00.
her offer had Payments made by the plaintiff at the time of
579 foreclosure amounted to P130,000.00. The System itself
VOL. 7, MARCH 30, 1963 579 was the buyer of the property in the foreclosure sale.
Francisco vs. Government Service On 20 February 1959, the plaintiff’s father, Atty.
Insurance System Vicente J. Francisco, sent a letter to the general
been accepted by the defendant, must be credited as manager of the defendant corporation, Mr. Rodolfo P.
amortizations on her loan; and (b) Ordering the defendant to Andal, the material portion of which recited as follows:
197
“Yesterday, I was finally able to collect what the account shall have been kept up to date. However, once the
Government owed me and I now propose to pay said amount arrears shall have been paid, whatever amount of the
of P30,000 to the GSIS if it would agree that after such monthly installments collected in excess of the amortization
payment the foreclosure of my daughter’s mortgage would be due on the loan will be turned over to Miss Francisco.
set aside. I am aware that the amount of P30,000 which I I make the foregoing proposal to show Francisco’s sincere
offer to pay will not cover the total arrearage of P52,000 but desire to work out any fair arrangement for the settlement
as regards the balance, I propose this arrangement: for the of her obligation. I trust that the GSIS, under the
GSIS to take over the administration of the mortgaged broadminded policies of your administration, would give it
property and to collect the monthly installments, amounting serious consideration.
to about P5,000, due on the unpaid purchase price of more Sincerely,
than 31 lots and houses therein and the monthly s/ Vicente J. Francisco
installments collected shall be applied to the t/ VICENTE J.
580 FRANCISCO
580 SUPREME COURT REPORTS On the same date, 20 February 1959, Atty. Francisco
ANNOTATED received the following telegram:
Francisco vs. Government Service “VICENTE FRANCISCO
Insurance System SAMANILLO BLDG. ESCOLTA.
payment of Miss Francisco’s arrearage until the same is fully GSIS BOARD APPROVED YOUR REQUEST RE
covered. It is requested, however, that from the amount of REDEMPTION OF FORECLOSED PROPERTY OF YOUR
the monthly installments collected, the sum of P350.00 be DAUGHTER
deducted for necessary expenses, such as to pay the security ANDA
guard, the street-caretaker, the Meralco Bill for the street L”
lights and sundry items.
It will be noted that the collectible income each month
On 28 February 1959, Atty. Francisco remitted to the
from the mortgaged property, which as I said consists of
installments amounting to about P5,000, is more than
System, through Andal, a check for P30,000.00, with an
enough to cover the monthly amortization on Miss accompanying letter, which reads:
Francisco’s loan. Indeed, had she not encountered “I am sending you herewith BPI Check No. B-299484 for
difficulties, due to unforeseen circumstances, in collecting Thirty Thousand Pesos (P30,000.00) in accordance with my
the said installments, she could have paid the amortizations letter of February 20th and your reply thereto of the same
as they fell due and there would have been really no need for date, which reads:581
the GSIS to resort to foreclosure. VOL. 7, MARCH 30, 1963 581
The proposed administration by the GSIS of the
mortgaged property will continue even after Miss Francisco’s
198
Francisco vs. Government Service In reply, Atty. Francisco sent a letter, dated 11
Insurance System March 1960, protesting against the System’s request for
“GSIS BOARD APPROVED YOUR REQUEST RE proposal of payment and inviting its attention to the
REDEMPTION OF FORECLOSED PROPERTY OF YOUR concluded contract generated by his offer of 20 February
DAUGHTER’ 1959, and its acceptance by telegram of the same date,
xxx x xxx x xxx x the compliance of the terms of the offer already
x x x x” commenced by the plaintiff, and the misapplication by
The defendant received the amount of P30,000.00, and the System of the remittances she had made, and
issued therefor its official receipt No. 1209874, dated 4 requesting the proper corrections.
March 1959. It did not, however, take over the By letter, dated 31 May 1960, the defendant
administration of the compound. In the meantime, the countered the preceding protest that, by all means, the
plaintiff received the monthly payments of some of the plaintiff should pay attorney’s fees of P35,644.14,
occupants thereat; then on 4 March 1960, she remitted, publication expenses, filing fee of P301.00, and
through her father, the amount of P44,121.29, surcharge of P23.64 for
582
representing the total monthly installments that she
received from the occupants for the period from March
to December 1959 and January to February 1960,
ANNOTATED
minus expenses and real estate taxes. The defendant Francisco vs. Government Service
also received this amount, and issued the corresponding Insurance System
official receipt. the foreclosure work done; that the telegram should be
Remittances, all accompanied by letters, disregarded in view of its failure to express the contents
corresponding to the months of March, April, May, and of the board resolution due to the error of its minor
June, 1960 and totalling P24,604.81 were also sent by employees in couching the correct wording of the
the plaintiff to the defendant from time to time, all of telegram. A copy of the excerpts of the resolution of the
which were received and duly receipted for. Board of Directors (No. 380, February 20, 1959) was
Then the System sent three (3) letters, one dated 29 attached to the letter, showing the approval of
January 1960, which was signed by its assistant Francisco’s offer—
general manager, and the other two letters, dated 19 “x x x subject to the condition that Mr. Vicente J. Francisco
and 26 February 1960, respectively, which were signed shall pay all expenses incurred by the GSIS in the foreclosure
of the mortgage.”
by Andal, asking the plaintiff for a proposal for the
payment of her indebtedness, since according to the Inasmuch as, according to the defendant, the
System the one-year period for redemption had expired. remittances previously made by Atty. Francisco were
199
allegedly not sufficient to pay off her daughter’s arrears, Francisco vs. Government Service
including attorney’s fees incurred by the defendant in Insurance System
foreclosing the mortgage, and the one-year period for telegraphically that her proposal had been accepted.
redemption has expired, said defendant, on 5 July 1960, There was nothing in the telegram that hinted at any
consolidated the title to the compound in its name, and anomaly, or gave ground to suspect its veracity, and the
gave notice thereof to the plaintiff on 26 July 1960 and plaintiff, therefore, can not be blamed for relying upon
to each occupant of the compound. it. There is no denying that the telegram was within
Hence, the plaintiff instituted the present suit, for Andal’s apparent authority, but the defense is that he
specific performance and damages. The defendant did not sign it, but that it was sent by the Board
answered, pleading that the binding acceptance of Secretary in his name and without his knowledge.
Francisco’s offer was the resolution of the Board, and Assuming this to be true, how was appellee to know it?
that Andal’s telegram, being erroneous, should be Corporate transactions would speedily come to a
disregarded. After trial, the court below found that the standstill were every person dealing with a corporation
offer of Atty. Francisco, dated 20 February 1959, made held duty-bound to disbelieve every act of its
on behalf of his daughter, had been unqualifiedly responsible officers, no matter how regular they should
accepted, and was binding, and rendered judgment as appear on their face. This Court has observed
noted at the start of this opinion. in Ramirez vs. Orientalist Co., 38 Phil. 634, 654-655,
The defendant-appellant corporation assigns six (6) that—
errors allegedly committed by the lower court, all of “In passing upon the liability of a corporation in cases of
which, however, are resolvable on the single issue as to this kind it is always well to keep in mind the situation as it
whether or not the telegram generated a contract that presents itself to the third party with whom the contract is
is valid and binding upon the parties. made. Naturally he can have little or no information as to
We find no reason for altering the conclusion reached what occurs in corporate meetings; and he must necessarily
by the court below that the offer of compromise made by rely upon the external manifestations of corporate consent.
The integrity of commercial transactions can only be
plaintiff in the letter, Exhibit “A”, had been validly
maintained by holding the corporation strictly to the liability
accepted, and was binding on the defendant. The terms fixed upon it by its agents in accordance with law; and we
of the offer were clear, and over the signature of would be sorry to announce a doctrine which would permit
defendant’s general manager, Rodolfo Andal, plaintiff the property of a man in the city of Paris to be whisked out
was informed of his hands and carried into a remote quarter of the earth
583 without recourse against the corporation whose name and
VOL. 7, MARCH 30, 1963 583 authority had been used in the manner disclosed in this case.
As already observed, it is familiar doctrine that if a
200
corporation knowingly permits one of its officers, or any “If a private corporation intentionally or negligently clothes
other agent, to do acts within the scope of an apparent its officers or agents with apparent power to perform acts for
authority, and thus holds him out to the public as possessing it, the corporation will be estopped to deny that such
power to do those acts, the corporation will, as against any apparent authority is real, as to innocent third persons
one who has in good faith dealt with the corporation through dealing in good faith with such officers or agents.” (2
such agent, be estopped from denying his authority; and Fletcher’s Encyclopedia, Priv. Corp. 255, Perm. Ed.)
where it is said ‘if the corporation permits’ this means the
same as ‘if the thing is permitted by the directing power of Hence, even if it were the board secretary who sent
the corporation.’” the telegram, the corporation could not evade the
binding effect produced by the telegram.
It has also been decided that — The defendant-appellant does not disown the
“A very large part of the business of the country is carried telegram, and even asserts that it came from its offices,
on by corporations. It certainly is not the practice of persons
as may be gleaned from the letter, dated 31 May 1960,
dealing with officers or agents who assume to act for such
to Atty. Francisco, and signed “R. P. Andal, general
entities to insist on being shown the resolution of the board
of directors authorizing the particular officer or agent to manager by Leovigildo Monasterial, legal counsel”,
transact the particular business which he assumes to wherein these phrases occur: “the telegram sent x x x by
conduct. A person who knows that the officer or agent of the this office” and “the telegram wesent your” (emphasis
corporation supplied), but it alleges mistake in couching the correct
584 wording. This alleged mistake cannot be taken
584 SUPREME COURT REPORTS seriously, because while the telegram is dated 20
February 1959, the defendant informed Atty. Francisco
ANNOTATED
of the alleged mistake only on 31 May 1960, and all the
Francisco vs. Government Service
while it accepted the various other remittances,
Insurance System starting on 28 February 1959, sent by the plaintiff to it
habitually transacts certain kinds of business for such
in compliance with her performance of her part of the
corporation under circumstances which necessarily show
knowledge on the part of those charged with the conduct of
new contract.
the corporate business assumes, as he has the right to The inequity of permitting the System to deny its
assume, that such agent or officer is acting within the scope acceptance become more patent when account is taken
of his authority. (Curtis Land & Loan Co. vs. Interior Land of the fact that in remitting the payment of P30,000
Co., 137 Wis. 341, 118 N.W. 853, 129 Am. St. Rep. 1068; as advanced by her father, plaintiff’s letter to Mr. Andal
cited in 2 Fletcher’s Encyclopedia, Priv. Corp. 263, perm. Ed.) quoted verbatim the telegram of acceptance. This was
in itself notice to the corporation of the terms of the
Indeed, it is well-settled that—
allegedly unauthorized telegram, for as Ballentine says:
201
“Knowledge of facts acquired or possessed by an officer or possible for the wrong to be done should be the one to
agent of a corporation in the course of his employment, and bear the resulting loss.
in The defendant’s assertion that the telegram came
585
from it but that it was incorrectly worded renders
VOL. 7, MARCH 30, 1963 585 unnecessary to resolve the other point on controversy as
Francisco vs. Government Service to whether the said telegram constitutes an actionable
Insurance System document.
relation to matters within the scope of his authority, is notice Since the terms offered by the plaintiff in the letter
to the corporation, whether he communicates such of 20 February 1959 (Exhibit “A”) provided for
knowledge or not.” (Ballentine, Law on Corporations, section the setting aside of the foreclosure effected by the
112.) defendant System, the acceptance of the offer left the
account of plaintiff in the same condition as if no
since a corporation cannot see, or know, anything except
foreclosure had taken place. It follows, as the lower
through its officers.
court has correctly held, that the right of the System to
Yet, notwithstanding this notice, the defendant
collect attorneys’ fees equivalent to 10% of the due
System pocketed the amount, and kept silent about the
(P35,694.14) and the expenses and charges of P3,300.00
telegram not being in accordance with the true facts, as
may no longer be enforced, since by the express terms
it now alleges. This silence, taken together with the
of the mortgage contract, these sums were collectible
unconditional acceptance of three other subsequent
only “in the event of foreclosure.”
remittances from plaintiff, constitutes in itself a
The court a quo also called attention to the
binding ratification of the original agreement (Civil
unconscionability of defendant’s charging the attorney’s
Code, Art. 1393).
fees, totalling
“ART. 1393. Ratification may be effected expressly or
586
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 ANNOTATED
a right to invoke it should execute an act which necessarily Francisco vs. Government Service
implies an intention to waive his right.” Insurance System
over P35,000.00; and this point appears well-taken,
Nowhere else do the circumstances call more
considering that the foreclosure was merely extra-
insistently for the application of the equitable maxim
judicial, and the attorneys’ work was limited to
that between two innocent parties, the one who made it
requiring the sheriff to effectuate the foreclosure.
However, in view of the parties’ agreement to set the
202
same aside, with the consequential elimination of such breach of contract like that of defendant, not being
incidental charges, the matter of unreasonableness of malicious or fraudulent, does not warrant the award of
the counsel fees need not be labored further. moral damages under Article 2220 of the Civil Code
Turning now to the plaintiff’s separate appeal (Case (Ventanilla vs. Centeno, L-14333, 28 Jan. 1961; Fores
G.R. No. L-18155): Her prayer for an award of actual or vs. Miranda, L-12163, 4 March 1959).587
compensatory damages for P83,333.33 is predicated on VOL. 7, MARCH 30, 1963 587
her alleged unrealized profits due to her inability to sell Francisco vs. Government Service
the compound for the price of P750,000.00 offered by Insurance System
one Vicente Alunan, which sale was allegedly blocked There is no basis for awarding exemplary damages
because the System consolidated the title to the either, because this species of damages is only allowed
property in its name. Plaintiff reckons the amount of in addition to moral, temperate, liquidated, or
P83,333.33 by placing the actual value of the property compensatory damages, none of which have been
at P666,666.67, a figure arrived at by assuming that the allowed in this case, for reasons herein before discussed
System’s loan of P400,000.00 constitutes 60% of the (Art. 2234, Civil Code; Velayo vs. Shell Co. of P.I., L-
actual value of the security. The court a quo correctly 7817, Res. July 30, 1957; Singson, et al. vs. Aragon and
refused to award such actual or compensatory damages Lorza, L-5164, Jan. 27, 1953, 49 O.G. No. 2, 515).
because it could not determine with reasonable As to attorneys’ fees, we agree with the trial court’s
certainty the difference between the offered price and stand that in view of the absence of gross and evident
the actual value of the property, for lack of competent bad faith in defendant’s refusal to satisfy the plaintiff’s
evidence. Without proof we cannot assume, or take claim, and there being none of the other grounds
judicial notice, as suggested by the plaintiff, that the enumerated in Article 2208 of the Civil Code, such
practice of lending institutions in the country is to give absence precludes a recovery. The award of attorneys’
out as loan 60% of the actual value of the collateral. Nor fees is essentially discretionary in the trial court, and
should we lose sight of the fact that the price offered by no abuse of discretion has been shown.
Alunan was payable in installments covering five years, FOR THE FOREGOING REASONS, the appealed
so that it may not actually represent true market decision is hereby affirmed, with costs against the
values. defendant Government Service Insurance System, in
Nor was there error in the appealed decision in G.R. No.L-18287.
denying moral damages, not only on account of the Bengzon, C.J., Padilla, Bautista Angelo, Labrador,
plaintiff’s failure to take the witness stand and testify Concepcion, Barrera, Paredes, Dizon,
to her social humiliation, wounded feelings, anxiety, Regala and Makalintal, JJ., concur. Decision affirmed.
etc., as the decision holds, but primarily because a
203
No. L-19375. May 21, 1969. selling rubber shoes and allied products in the city of
DY PEH, AND/OR VICTORY RUBBER Cebu, under the registered firm name Victory Rubber
MANUFACTURING, petitioner, vs.COLLECTOR OF Manufacturing.
INTERNAL REVENUE, respondent. Sometime in the year 1955 the Bureau of Internal
Revenue unearthed anomalies committed in the office
Court of Tax Appeals; Review of findings of fact binding
on the Supreme Court.—The Supreme Court does not review
of the Treasurer of the city of Cebu in connection with
findings of fact of the Court of Tax Appeals; only errors of law the payment of taxes by some taxpayers, amongst them
are reviewable by it. petitioner herein. As a result the respondent assessed
Civil law; Contracts; Agency; Agent's acts bind his against, and demanded from petitioner the payment of
principal; Remedy of principal.—Where a contract of agency the following sums: P4,725, including P100 as penalty,
exists the agent's acts bind his principal, without prejudice P29,980, including P50 as penalty, and P17,425
to the latter seeking recourse against the agent in an including P50 as penalty, on January 27, 1956,
appropriate civil or criminal action. November 12, 1955 and November 12,
217
PETITION for review of a decision and a resolution of VOL. 28, MAY 21, 1969 217
the Court of Tax Appeals. Dy Peh vs. Collector of Internal Revenue
1955, respectively. This assessment was based upon
short payments in connection with taxes due from
Rene A. Diokno for petitioner.
petitioner during the periods covered by the
Solicitor General Arturo A. Alafriz, Assistant
assessment. The investigation of the anomalies
Solicitor General Felicisimo R. Rosete and Special
disclosed that the amounts of the taxes allegedly paid
Attorney Alejandro B. Afurong for respondent.
by him, as appearing in the original of every official
DlZON, J.: receipt he had in his possession, were bigger than the
amounts appearing in the corresponding duplicate,
Petition filed by Dy Peh for the review of the decision triplicate and quadruplicate copies thereof kept in the
and resolution of the Court of Tax Appeals dated April office of the City Treasurer of Cebu. Such discrepancies
29 and December 23, 1961, respectively, in C.T.A. Case are hereunder tabulated as follows:
No. 538, ordering him to pay deficiency percentage Official Appearing in Appearing in the
taxes in the total amount of P51,939,27. the Duplicate
The following facts are not disputed: Receipt Original Triplicate and/or
Petitioner, during all the time material to this case, Number Date Amount Quadruplicate
was engaged in the business of manufacturing and Re 1st cause of action Date Amount Difference
204
699004 4- P 4- P227.47 P3,000.00 8423087 7- 2,850.63 7- 50.63 2,800.00
20- 3,227.47 20- 20- 20-
54 54 53 53
704201 7- 3,681.41 7- 681.41 3,000.00 8470851 10- 2,901.87 10- 101.87 2,800.00
20- 20- 20- 20-
54 54 53 53
709008 10- 1,892.78 10- 192.78 1,700.00 693613 1- 2,996.26 1- 96.26 2,900.00
20- 20- 20- 20-
54 54 54 54
A- 1- 2,575.46 1- 175.46 2,400.00 Re 3rd cause of action
210319 20- 20- A- 1- P3,815.18 1- P115.18 P3,700.00
55 55 1709018 17- 17-
A- 4- 3,968.68 4- 168.69 3,800.00 52 52
218105 20- 20- Petitioner's contention below and here is this: since the
55 55 checks issued by him covered in full the amount due for
Re 2nd cause of action each quarter, and were accepted and deposited by the
1923194 4- P4,380.37 4- P380.37 P4,000.00 City Treasurer of Cebu; since the originals of the official
21- 21- receipts issued by the latter show that the full amount
52 52 of the taxes due from him had been paid, he must be
1972817 7- 4,140.29 7- 140.29 4,000.00 deemed to have paid such taxes in full, and any
21- 21- anomaly in the application of the amounts paid by him
52 52 consisting in the diversion of part thereof to pay the
6399188 10- 2,113.07 10- 113.07 2,000.00 taxes of other taxpayers—whether attributable solely to
20- 20- employees in the office of said Treasurer or to other
52 52 parties—should not be held against him.
218
7769180 1- 1,457.42 4- 7- 6.00 1,451.42 218 SUPREME COURT REPORTS
17- 53 ANNOTATED
53 Dy Peh vs. Collector of Internal Revenue
7778387 4- 4,057.56 4- 57.56 4,000.00
Respondent's contention, on the other hand, is that the
18- 18- amounts actually paid by petitioner were those
53 52
205
appearing on the duplicates, triplicates and taxpayers who employed him as. business agent. It has not
quadruplicates of the official receipts mentioned been shown that Tan Chuan Liong prepared any official
heretofore; that the originals thereof were falsified or receipt covering payment of taxpayers other than those who
altered to make them show payment in full of the taxes employed him business agent."
due from petitioner. After ruling against petitioner on this question, the
In connection with the issues thus joined petitioner Court of Tax Appeals said further:
tried to prove that the payments in question were made "Even assuming that Tan Chuan Liong was not employed by
by him personally, while, on the other hand, respondent petitioner as business agent, petitioner is not entirely
claimed that said payments were made not by blameless. The records show that the payments were made
petitioner personally but by Tan Chuan Liong, his 219
authorized agent in the matter of payment of his taxes; VOL. 28, MAY 21, 1969 219
that Bartolome Baguio, Chief of the Internal Revenue Dy Peh vs. Collector of Internal Revenue
Division of the City Treasurer's Office of Cebu, had
by checks. The numbers of the official receipts covering the
allowed the wrongful practice of permitting Tan Chuan payments are indicated on the back of the checks. After the
Liong to prepare the official receipts in connection with checks had been deposited and the amounts credited in favor
tax payments made by him in behalf of his merchant of the Government, the cancelled checks were returned to
clients; that it was Tan Chuan Liong who applied a petitioner. Petitioner is, therefore, charged with knowledge
portion of the amounts given to him by petitioner to pay of the fact that the amount covered by each check was
tax obligations of other taxpayers, also his clients, and applied in payment not only of his tax but also of taxes of
that therefore petitioner's recourse is against him. other taxpayers, the numbers of the official receipts covering
Whether it was petitioner, in person, who made the which are indicated on the back of the check. The fact that
payment of his taxes herein involved, or it was his he accepted the cancelled checks without protest is evidence
of his acquiescence to the manner in which the amount
aforesaid agent, is manifestly a question of fact
covered by each check was applied by the collecting officer.
squarely resolved by the Court of Tax Appeals as
He cannot now be heard to complain."
follows:
"Petitioner sought to prove that he never employed Tan We can hardly add any other consideration to
Chuan Liong as a business agent in the payment of the tax strengthen the lower court's ruling.
in question. The preponderance of the evidence shows Another question of fact vital to this case is whether
otherwise. If, as alleged, petitioner paid the tax personally, or not the official receipts in petitioner's possession
why were the official receipts prepared by Tan Chuan Liong were falsified, and if so by whom.
and not by Bartolome Baguio or any authorized employee in
In this connection, We believe it established as a fact
the office of the City Treasurer of Cebu? It appears that Tan
Chuan Liong prepared the official receipts of payments of that petitioner had employed Tan Chuan Liong as a
206
business agent in the matter of payment of his taxes. Commissioner of Customs, Sept. 30, 1957 and 54 O.G.
The testimonies of Bartolome Baguio, Isidro Badana No. 2, p. 361, Eugenio Perez vs. Court of Tax Appeals,
and Lauro Abalos on this matter (T.s.n. pp. 200-201, .G.R. L-10507, May 30, 1958; G.R. No. L-13387, Sy
472-473, 483484, 501-503, 508-510, 525, 535-539) were Chiuco vs. Collector, March 23, 1960; G.R. No. L-
corroborated by the statement and report of NBI 11622, Collector vs. Fisher and G.R. No. L-1168, Fisher
handwriting expert Felipe Logan. That Tan Chuan vs. Collector, January 28, 1961).
Liong, as such petitioner's agent, actually paid to the The foregoing disposes of the first two assignments
government less than the amounts of the taxes due from of error submitted in petitioner's brief. In the third, it is
petitioner is also fully proven by their testimonies and his contention that the Court a quo erred in holding
the duplicate, triplicate and quadruplicate copies of the that he is estopped from questioning the misapplication
official receipts which appear upon their face to be of his payments.
genuine or authentic. The same thing cannot be claimed This is only a corollary of the questions raised in the
for the official receipts in question, because the lower previous assignments of error. Inasmuch as We have
court found that, as in the case of Tiu Bon Sin vs. held in resolving the latter that, in point of fact, Tan
Collector etc., C.T.A. No. 286, and Yap Pe Giok vs. Chuan Liong was petitioner's agent, the conclusion
Arañas, C.T.A. No. 533, appellant employed the same must necessarily be that the agent's acts bind his
business agent who misappropriated a portion of the principal; without prejudice, of course, to the latter
amounts entrusted to him and paid less than what was seeking recourse against him in an appropriate civil or
due from his principals. In plain words, the lower court criminal action.
expressed the view that the official receipts in The fourth and last assignment of error has been
petitioner's hands did not reflect the truth. impliedly resolved adversely to petitioner in our
The trial court's ruling upon these questions must be rulings, upon the first three.
sustained pursuant to our consistent ruling to the effect PREMISES CONSIDERED, the decision appealed
220 from is hereby affirmed, with costs.
220 SUPREME COURT REPORTS Reyes, J.B.L., Acting
ANNOTATED C.J., Makalintal, Zaldivar, Sanchez, Fernandoand Ca
Campillo vs. Philippine National Bank pistrano, JJ., concur.
that in reviews of the nature of the present, only errors Teehankee and Barredo, JJ., did not take part.
of law are reviewable by this Court (G.R. L- Concepcion, C.J., and Castro, J.,are on official
12174, Maria B. Castro vs. Collector, April 26, leave.
1962; G.R. L-9738, Blas Gutierrez, et al. vs. Court of
Decision affirmed.
Tax Appeals; G.R. L-8556, Benito Sanchez vs.
207
presenting other witnesses would have disrupted the
presentation of defendant’s case, for parties may be allowed
No.L-28773. June 30, 1975. *
to maintain their own way of presenting their evidence only
FRANCISCO ORTIGAS, JR., plaintiff-appellant- where this can be done without injury to the expeditious
appellee, vs. LUFTHANSA GERMAN AIRLINES, disposition of the case and the best interests of the
defendant-appellant-appellee. administration of justice.
Same; Same; Oral testimony may be taken into account
Appeals; Supreme Court can review matters not only where it is complete.—Oral testimony may be taken into
assigned as error in the appeal.—This Court is clothed with account only when it is complete, that is, if the witness has
ample authority to review matters, even if they are not been wholly cross-examined by the adverse party or the right
assigned as errors in the appeal, if it finds that their to cross-examine is lost wholly or in part thru the fault of
consideration is necessary in arriving at a just decision of the such adverse party. But when cross-
case. Also, an unassigned error closely related to an error _________________
properly assigned or upon which the determination of the
questioned raised by the error properly assigned is * SECOND DIVISION.
dependent, will be considered by the appellate court 611
notwithstanding the failure to assign it as an error.
Civil procedure; Evidence; Court may delete or strike off VOL. 64, JUNE 30, 1975 611
testimony of witness who failed to appear during the hearing Ortigas, Jr. vs. Lufthansa German
for his cross-examination where the case has been pending for Airlines
years and witness’s failure to attend the hearing has not been examination is not and cannot be done or completed due
explained.—We reiterate, the case has been pending for more
to causes attributable to the party offering the witness, the
than three years, with so many postponements, and the least uncompleted testimony is thereby rendered incompetent.
that defendant should have done to merit favorable action on Same; Same; Right to cross-examination in civil cases is
the part of the trial judge was to be ready with an an indispensable part of due process of law.—The right of a
explanation of its inability to proceed with the trial, giving party to cross-examine the witnesses of his adversary is
the detailed and good reasons therefore. x x x Moreover, the
invaluable as it is inviolable in civil cases, no less than the
Rome based witnesses were not the only possible witnesses
right of the accused in criminal cases. The express
of the defendant. To begin with, Mr. C.H. Dehio, the IATA
recognition of such right of the accused in the Constitution
Agency Manager, Far East and Australia, Lufthansa does not render the right thereto of parties in civil cases less
German Air Lines, who, according to the record, had already
constitutionally based, for it is an indispensable part of the
attended previous hearings as a prospective witness could
due process guaranteed by the fundamental law.
have been made to go to court. There is nothing in the record
Civil law; Agency; Damages; Air carriers which are
to show that he was also rendered incapable of doing so. members of the IATA are constituted as agents of each other
Then, there could still be local witnesses. It is no excuse that in the issuing of tickets and, therefore, bound by the mistakes
208
committed by a member thereof which, in behalf of petitioner 612 SUPREME COURT
airline confirmed, Ortigas’ reservation for a first-class REPORTS ANNOTATED
accommodation.—Disputing the foregoing conclusions, Ortigas, Jr. vs. Lufthansa German
Lufthansa claims firstly that the Alitalia employee who
validated and confirmed Ortigas’ reservation must have
Airlines
made a mistake because actually, he was informed by the appears to be of graver nature, since the preference
Lufthansa Rome office that Ortigas could only be waitlisted. given to the Belgian passenger over plaintiff was done
Assuming, however, there was an error, it has been willfully and in wanton disregard of plaintiff’s rights and his
indisputably proven that under the so-called pool dignity as a human being and as a Filipino, who may not be
arrangement among different airline companies pursuant to discriminated against with impunity, x x x As found by the
the International Air Transport Association (IATA) court below, what worsened the situation of Ortigas was that
agreement of which Alitalia and Lufthansa are signatories, Lufthansa succeeded in keeping him as its passenger by
both companies are constituted thereby as agents of each assuring him that he would be given first class
other in the issuing of tickets and other matters pertaining accommodation at Cairo, the next station, the proper
to their relations with those who would need their services, arrangements therefor having been made already, when in
and since there can be no question that on its face, the truth such was not the case. xxx Although molested and
annotations made by Alitalia on the ticket here in dispute embarrassed to the point that he had to take nitroglycerine
cannot have any other meaning than that the reservation of pills to ward off a possible heart attack, Ortigas hardly had
Ortigas for the Rome-Hongkong flight was validated and any choice, since his luggage was already in the plane. To his
confirmed, Lufthansa’s disclaimer is unavailing. Besides, it disappointment, when the plane reached Cairo, he was told
appears that when Ortigas checked in at the airport, the by the Lufthansa office there that no word at all had been
Lufthansa lady employee thereat told him, after making the received from Rome and they had no space for him in first
proper verification, that the reservation was correct. class. Worse, similar false representations were made to him
Same; Common carriers; Damages; Inattention and at Dharham and Calcutta. It was only at Bangkok where for
lack of care by a common carrier resulting in its failure to the first time, Ortigas was at last informed that he could
accommodate a passenger in the class contracted for amounts have a first class seat in that leg of the flight, from Bangkok
to bad faith or fraud.—It is Our considered view that when to Hongkong. This Ortigas reject, if only to make patent his
it comes to contracts of common carriage, inattention and displeasure and indignation at being so inconsiderately
lack of care on the part of the carrier resulting in the failure treated in the earlier part of his journey. x x x In the light of
of the passenger to be accommodated in the class contracted all the foregoing, there can be no doubt as to the right of
for amounts to bad faith or fraud which entitles the Ortigas to damages, both moral and exemplary. Precedents
passenger to the award of moral damages in accordance with We have consistently adhered to so dictate.
Article 2220 of the Civil Code. But in the instant case, the Same; Same; Same; Where award of higher damages
breach justified.—Besides, there is again the disparity between the
612 Lopez case and this one that here the offense, which, as in
209
Cuenca, is aggravated by the Lufthansa employee at Rome Manila, Branch X, “condemning the defendant to pay
having falsely noted on the ticket that Ortigas was travelling plaintiff the amount of P100,000 as moral damages,
in economy from Rome to Hongkong, was repeated four times P30,000 as exemplary or corrective damages, with
in the same tripe, namely, in Rome, Cairo, Dharham and interest on both sums at the legal rate from the
Calcutta. More importantly, unlike in the case of Lopez,
commencement of this suit until fully paid, P20,000 as
Ortigas was suffering from a weak heart and was under
attorney’s fees and the costs” for the former’s failure to
doctor’s advice to travel only in first class, hence, his being
compelled to stay in economy or tourist class during the “comply with its obligation to give first class
major part of his trip, must have given him added accommodation to (the latter) a (Filipino) passenger
apprehensive feelings about his safety, and, moreover, it is holding a first class ticket,” aggravated by the giving of
to be noted that in the Lopez case, which was decided in the space instead to a Belgian and the improper conduct
1966, aside from taking into account the personal of its agents in dealing with him during the occasion of
circumstances of the plaintiff, the Court considered “the such discriminatory violation of its contract of carriage.
present rate of exchange and the terms at which the amount Defendant buttresses its appeal on the following:
of damages awarded would approximately be in U.S. “ASSIGNMENTS OF ERRORS
dollars,” hence, We may not justifiably do differently here.
I
DIRECT APPEALS from both parties of a decision of
the Court of First Instance of Manila. Moya, J. THE LOWER COURT ACTED WITH GRAVE ABUSE OF
DISCRETION IN DENYING THE DEFENDANTS
The facts are stated in the opinion of the Court. URGENTMOTION FOR POSTPONEMENT DATED
613 SEPTEMBER 24, 1966.
VOL. 64, JUNE 30, 1975 613
Ortigas, Jr. vs. Lufthansa German Airlines II
Baizas, Alberto & Associates for appellant Lufthansa THE LOWER COURT CONSEQUENTLY ERRED IN
German Airlines. ORDERING THE STRIKING FROM THE RECORDS THE
Pelaez, Jalandoni & Jamir for appellant TESTIMONY OF WITNESS IVO LAZZARI AND IN
Francisco Ortigas, Jr. DEEMING THE CASE SUBMITTED FOR DECISION ON
THE EVIDENCE OF THE PLAINTIFF ALONE.
BARREDO, J.:
III
Direct appeals of both parties plaintiff, Francisco
Ortigas, and defendant Lufthansa German Airlines, THE LOWER COURT ERRED IN CONDEMNING
from the decision of the Court of First Instance of DEFENDANT TO PAY THE PLAINTIFF THE AMOUNT
210
OF P100,000.00 AS MORAL DAMAGES, P30,000.00 AS Plaintiff’s complaint was filed with the court below
EXEMPLARY on December 24, 1963 and after issues were joined, a
614 pre-trial was held, the parties submitted a partial
614 SUPREME COURT REPORTS stipulation of facts and thereafter went to trial, the last
ANNOTATED day of which was on September 28, 1966. As to what
Ortigas, Jr. vs. Lufthansa German Airlines happened in between, a detailed account is made in the
OR CORRECTIVE DAMAGES, WITH INTEREST ON brief of Ortigas as plaintiff-appellee as follows:
BOTH SUMS AT THE LEGAL RATE FROM THE “ x x x Thereafter the case was set for hearing twenty four
COMMENCEMENT OF THIS SUIT UNTIL FULLY PAID, (24) times, or on April 27, 1964, July 9, 1964, August 20,
P20,000.00 AS ATTORNEY’S FEES, AND COSTS.” (Pp. 12- 1964, October 1, 1964, November 11, 1964, December 22,
13, p. 118, Record.) 1964, February 3, 1965, March 18,1965, May 5, 1965, June
11, 1965, July 22, 1965, August 26, 1965 and September 8,
On the other hand, plaintiff’s sole ground for his appeal 1965, September 22, 1965, November 3, 1965, November 24,
is that “the trial court erred in ordering Lufthansa to 1965, December 17, 1965, December 29, 1965, January 14,
pay Ortigas only P100,000 as moral damages, P20,000 1966, February 2, 1966, April 19, 1966, April 20, 1966, July
as exemplary or corrective damages, and P20,000 as 5, 6 and 7, 1966, August 25, 1966 and September 28, 1966.
attorney’s fees.” (Plaintiff-Appellant’s Brief, p. a.) Thus, One (1) hearing or that of August 25, 1966, was cancelled
because the trial judge, Hon. Jose L. Moya, was then sick.
apart from the contention of defendant that it has been
Other postponements were as follows:
denied its full day in court, the only issue raised by both
appellants relate to the amount of the damages 615
awarded by the trial court, plaintiff claiming it is less VOL. 64, JUNE 30, 1975 615
than he is entitled to and the defendant insisting on the Ortigas, Jr. vs. Lufthansa German Airlines
opposite. Postponements at instance of
Lufthansa maintains it has not had its full day in plaintiff
court because the trial court abruptly ended the trial by
Three (3) settings were cancelled upon motion of plaintiff on
denying its last motion for postponement
grounds that defendant’s counsel (Atty. Crispin Baizas)
notwithstanding it was well founded and forthwith
himself must have found sufficient, for he gave his
ordering the striking out of the testimony of its absent conformity thereto. These were the hearings set for:
witness whose cross-examination had not been finished July 9, 1964—postponed upon plaintiff’s motion, dated
and then declaring the case submitted for decision. In June 27, 1964, or 12 days before the hearing, on the ground
this connection, the record reveals the following facts: that he had to attend an important business matter in
Mindanao, which was so urgent that ‘for plaintiff to even
211
make a flying trip to Manila for the scheduled hearing might motion to postpone the December 22, 1964 hearing, plaintiff
jeopardize and render to naught a project to which plaintiff insisted on the insertion of the phrase ‘be postponed for the
has already expended considerable time, money and effort’ last time’ (RA—p. 34). These took place after the pre-trial but
(RA—pp. 28-29. Note: All reference herein will be to before plaintiff had started presenting his evidence.
plaintiff’s Record on Appeal).
616
August 26, 1965—postpone upon plaintiff’s motion, dated
August 23, 1965, for the reason that he was in London for
business reasons and could not return to the Philippines on ANNOTATED
time for the hearing. This motion is not reproduced in any Ortigas, Jr. vs. Lufthansa German Airlines
Record on Appeal but is admitted. Postponements at instance of
July 5-7, 1966—18 days before the dates set for the defendant
hearing, counsel for plaintiff filed a motion, dated June 17,
1966, for postponement on the ground that Atty. Rodegelio Of the remaining 16 settings, at least TEN (10) were
M. Jalandoni, who had been personally handling this case postponed or could not proceed except for a few minutes
was then in Washington, D.C. on business and would not be because either Atty. Crispin Baizas, counsel for defendant,
back until the middle part of August, 1966. Considering that was not available or needed time to prepare or had to attend
the trial of the case was far advanced, it would be difficult for a meeting somewhere else, or, as in the case of September
another lawyer to substitute for Atty. Jalandoni. Defendant’s 28, 1966, defendant’s witnesses wanted to avoid the
counsel agreed to the motion (RA—pp. 50-51). inconvenience of coming to the Philippines. The situation
became such that on two (2) occasions the court a
Postponements at instance of quo warned the defendant and/or its counsel that it was
both parties postponing the trial ‘for the last time’ and ‘definitely for the
last time.’ Thus:
Four (4) settings, or those of August 20, 1964, October 1, February 3, 1965—On this date, although plaintiff was
1964, November 11, 1964 and December 22, 1964, were ready to present his evidence and the Court to hear the
cancelled upon the joint motion of the parties on the ground parties, Atty. Baizas asked for postponement for the reason
that negotiations for the possible settlement of this case were that he had to be somewhere else. The undersigned
pending (RA—pp. 31-34). graciously obliged by not objecting, albeit the
While both attorneys for plaintiff and defendant signed motion was made without warning and in open court.
the joint motions for postponement, the initiative to have the March 18, 1965—Once again the hearing scheduled for this
hearings cancelled actually came from defendant’s counsel date was postponed on motion of Atty. Baizas in open court.
who claimed that he needed time to consult with his client. The undersigned did not object because, as far as he can now
Plaintiff welcomed the possibility of compromise and acceded recall, the excuse given was that opposite counsel had
to join the requests for postponement but became impatient another appointment.
at and suspicious of the attempt to delay so that in the
212
June 11, 1965—The Court was free the whole morning of 617
this day and plaintiff actually took the witness stand. After VOL. 617
plaintiff was through with his direct testimony, Atty. Zaida 64,
R. Alberto, who appeared for the defendant, asked that the JUNE
cross-examination be postponed for the next hearing, on the 30,
ground that Atty. Baizas knew more of the defense. The
1975
following appears of record:
Ortigas, Jr. vs. Lufthansa German Airlines
‘ATTY. ALBERTO: COURT:
If Your Honor please, may I request to On motion of the defendant’s
allow the cross examination at the next counsel, the continuation of the
hearing. trial is postponed to July 22,
COURT: 1965, at 8:30 a.m. The
You can handle the cross examination partieswere notified in open court
now. of this new assignment.’ (t.s.n.
ATTY. ALBERTO: pp.43-44, June 11, 1965)
The defense are more in the knowledge Notwithstanding there was an hour left, which was precious
of Atty. Baizas considering the crowded calendar of the Court, and Judge
COURT: Moya wanted to hear the cross-examination because
If you postpone the cross examination we plaintiff’s testimony was fresh, the Court pleased counsel for
the defendant and postponed the hearing to July 22, 1965.
will forget the testimony and will be
September 22, 1965—At this hearing the undersigned
spending much time referring to his requested that Dr. Isidro Pertiera be permitted to take the
testimony, so you better cross-examine witness stand. He is a heart specialist and it was difficult to
him while his testimonyis still fresh. bring him to court because of his many patients. His direct
ATTY. ALBERTO: testimony did not take long, after which Atty. Baizas asked
May I ask for a reconsideration, Your for postponement, for the reason that he did not expect Dr.
Honor, anyway it is past 11:00 o’clock I Pertiera to testify and, since the subject of the testimony was
do not think there will be enough time important and technical, he needed time to be able to cross-
examine. The undersigned, understanding the predicament
COURT:
of Atty. Baizas, did not offer any objection.
We still have one hour. November 3, 1965—This scheduled hearing was
ATTY. ALBERTO: postponed upon motion dated October 7, 1965, of Atty.
I ask for a reconsideration, Your Honor.
213
Baizas on the ground that he was leaving on a business trip December 17, 1965—Although at the hearing of
abroad. The undersigned again did not object. November 24, 1965 trial was postponed for the last time to
November 24, 1965—It will be recalled that the hearing December 17, 1965, the Court’s warning did not seem to
of September 22, 1965, supra, was postponed to enable Atty. register because on December 7, 1965 defendant’s counsel
Baizas to prepare for his cross-examination of Dr. Pertiera. filed another motion for postponement alleging that he had
On this date, November 24, 1965, Atty. Baizas cross- received a telegram to the effect that the meeting of the Legal
examined briefly the doctor, but announced: Committee of IATA that he was attending, originally
‘ATTY. BAIZAS: scheduled for December 10-15, had been deferred and would
May I announce, your Honor, that after I cross-examine the begin on December 13 and as it was for 5 days, it would not
Doctor I will ask for a postponement of my cross examination of be possible for him to return for the December 17 hearing;
Atty. Ortigas because I will have to attend a meeting of the PAL hence, he requested that said hearing be reset for December
Board of Directors this morning. My cross examination will not be
27 and 29. In his undated motion filed on December 7, 1965
very long.’ (t.s.n., pp. 3-4, November 24, 1965)
counsel averred that:
The PAL Board of Directors’ meeting was certainly not There is no intention whatever to delay the case but because of the
more important than the occupation of the Court, and it was circumstances above-stated, undersigned counsel is constrained to
still early, but counsel was insistent. The Court was ask, for the last time, for the cancellation of the hearing on
December 17 and for its resetting on such dates as may be
beginning to be perturbed by the dilatory motions; yet it
convenient to this Honorable Court, preferably December 27 and
granted counsel’s requested postponement but ‘for the last 29.’ (RA—p. 41)
time.’ Thus: The undersigned opposed said motion and alleged:
‘ATTY. BAIZAS: ‘That this case has been pending since December 24, 1963, or
That is all. May I make that request, Your Honor, that it is almost two years now, and trial thereof has been repeatedly
simply that I have to be present at the meeting. I wish to finish my suspended and/or postponed;
cross examination on Atty. Ortigas but it is merely that the That at the hearing of November 24, 1965, this Honorable
meeting is held for today at 10:00 o’clock and I would like to ask Court precisely postponed continuation of the trial thereof for the
618 last time to December 17, a date which was fixed by agreement of
the parties;
That when counsel for defendant left, as alleged, on December
ANNOTATED 6, 1965 he did so with full knowledge of the intransferable
Ortigas, Jr. vs. Lufthansa German Airlines character of the trial set for December 17;
for a postponement to continue the cross examination. That defendant can well be represented by Atty. Baizas’
COURT: associate, Atty. Alberto, who, as a matter of fact, handled this case
when trial started on June 11, 1965 and has been actively
I will grant this for the last time. On motion of Atty. Baizas, collaborating with Atty. Baizas since then;
the continuation of the hearing is postponed for the last time That when plaintiff testified on direct examination on June 11,
to December 17, 1965, at 8:30 a.m., by agreement between 1965 said Atty. Alberto appeared for defendant and that plaintiff
him and Atty. Jalandoni.’ (t.s.n., p. 17, November 24, 1965) is now merely due for further cross-examination.‘ (RA—p. 43)
214
In spite of said opposition, the Trial Court once more granted accommodatingly transferred the hearing to the following
defendant’s request but was more categorical this time with day, April 20, 1966, although it had other cases scheduled for
its that date and the case at bar was not among them, just so
Lazzari’s trip would not be useless. The undersigned likewise
619
did not oppose the transfer of hearing.” (Pp. 2-13—Brief, p.
VOL. 64, JUNE 30, 1975 619 132—Record.)
admonition against further postponements and used the Defendant does not seriously deny these facts.
word ‘definitely’ in its order which read: Seemingly, the controversy between the parties
revolves around defendant’s motion for postponement of
‘ORDER
the hearing set for September 28, 1966 which was
For the reasons stated in the defendant’s motion for denied by the trial court. It is this denial that is the
postponement and in view of the fact that it seeks a subject of the first above-quoted alleged errors assigned
deferment of the hearing for only a few days, the by Lufthansa in its brief as defendant-appellant.
continuation of the trial is postponed definitely for the last At the time this incident of postponement arose,
time to December 29, 1965, at 8:30 a.m. plaintiff had already closed his evidence, and so it was
‘SO ORDERED. the turn of the defendant to prove its defenses. The
‘Manila, Philippines, December 11, 1965. starting date for this was April 19, 1966, but, upon
JOSE L. MOYA motion of defendant’s counsel, it was deferred to the
Judge’ next day, April 20, 1966, on which date defendant’s first
(RA—p. 46) witness, Ivo Lazzari, took the witness stand. His
testimony, however, was not finished in the morning
March 10, 1966—The hearing on this date lasted for only and
a few minutes, with the undersigned offering the 620
documentary evidence for the plaintiff. Thereupon, 620 SUPREME COURT REPORTS
defendant’s counsel again asked for postponement so he ANNOTATED
could go over said evidence. Since he had no witnesses to Ortigas, Jr. vs. Lufthansa German Airlines
present, the Court once more postponed the trial to April 19, afternoon of that day nor during the whole day of April
1966 without any objection on the part of the undersigned.
22, 1966. Atty. Rodegelio M. Jalandoni was still cross-
April 19, 1966—The hearing for this day was cancelled
examining him when the hearing was continued “to the
upon motion of defendant’s counsel (RA—p. 49) on his
representation that defendant’s witness Ivo Lazzari had first available date in the calendar”. Eventually, the
arrived from Italy at midnight of April 18, 1966 and was not next continuation of the trial was set at first for July 5,
in a condition to take the witness stand. The Court again 6 and 7, 1966, but upon motion of plaintiff’s counsel, it
215
was reset for August 25, 1966, on which date, in spite of November 3, 8, 9 or 11, 1966. x x x.” (Page 53, Record on
the presence of Lazzari who came from Rome purposely Appeal, p. 29, Rec.)
for the trial together with another expected witness, On September 27,1966, plaintiff’s counsel filed the
Severino Caselli, and still another witness, C.H. Dehio, following opposition to the above motion:
who came from Hongkong, no trial could be held “COMES NOW plaintiff, through undersigned counsel and,
because of the absence of the judge. Hence, another in opposition to defendant’s urgent motion for postponement,
date, September 28, 1966 was fixed with notice to the dated September 24, 1966, to this Honorable Court
parties received by them respectively the month respectfully states:
previous. That this case has been pending since December, 1963;
On September 24, 1966, defendant’s counsel filed a That defendant’s aforesaid motion does not give any valid
motion for postponement thus: reason for postponing the hearing, since it does not state why
“COMES NOW the defendant by undersigned counsel and to defendant’s
this Honorable Court respectfully states: 621
VOL. 64, JUNE 30, 1975 621
1
The above-entitled case is set for hearing on September witnesses cannot come to Manila on the scheduled dates of
28, 1966 at 8:30 o’clock in the morning. continuation of trial;
That the convenience and motive of defendant and its
2 witnesses in not exerting every effort to testify are not the
concern of the plaintiff, and more so of this Honorable Court,
The witnesses who are scheduled to testify for the and that the speedy and proper administration of justice
defendant at said hearing are to come from Rome, Italy; dictates that the hearing proceed irrespective of defendant’s
obvious disregard of the need thereof;
3 That defendant’s attitude is aggravated by the fact that,
being an airline company, it has all facilities to have its
Word has been received from the defendant that said employees available as witnesses at any time it desires.
witnesses will not be able to come for the hearing WHEREFORE, it is respectfully prayed that defendant’s
aforementioned. aforesaid motion for postponement be denied. x x x.” (Pp. 55-
WHEREFORE, it is respectfully prayed that the hearing 56, id.)
of this case scheduled for September 28 be postponed to some
other date most convenient to this Honorable Court, In view of this opposition, on the same day, His Honor
preferably on any of the following dates: October 21, 17; issued an order of denial:
216
“No reason whatsoever having been alleged or shown why 622 SUPREME COURT REPORTS
the defendant’s witnesses will not be able to come from Rome ANNOTATED
to Manila on the day of the hearing, and this case having Ortigas, Jr. vs. Lufthansa German Airlines
been pending since December, 1963, the motion for
postponement is denied.” (Pp. 56-57, id.) the witness, Ivo Lazzari, upon the ground that counsel
had not yet finished his cross-examination of him and
On the day set for the hearing, September 28, 1966, his absence was unexplained. No objection appears to
Atty. Zaida Ruby S. Alberto appeared for defendant and have been made to such motion, albeit counsel for
verbally moved for reconsideration of the foregoing defendant tried to point out that Atty. Jalandoni had
order of denial. She argued that: already finished his cross-examination of the witness.
“Actually, it is not intended to delay the termination of this After verifying from the records that such was not the
case. As a matter of fact, on August 15, 1966, the date set for case, His Honor issued the following order:
the hearing of this case, we were ready with the presentation “The witness Ivo Lazzari not having appeared at the hearing
of our evidence as our two witnesses from Rome were here. set for today, for which reason his cross-examination cannot
But unfortunately, Your Honor was indisposed, so the be continued, on motion of the plaintiff’s counsel, his
hearing was postponed to this date. I really do not know why testimony is striken from the record, and this case is deemed
our witnesses failed to come. However, I intend to make an submitted for decision on the evidence already presented.”
inquiry about the matter so that I could file the (Pp. 57-58, Rec. on Ap., id.)
corresponding explanation for their failure to appear in
Court today. May I, therefore, reiterate my motion for Thus the trial ended and parties were allowed to submit
reconsideration, with the reservation that I be allowed to file their respective memoranda.
my explanation for the failure of these two witnesses coming On October 19, 1966, however, defendant’s counsel
from Rome to appear for today’s hearing.” (Page 2, t.s.n., filed the following motion for reconsideration:
Sept. 28/66.) “MOTION FOR RECONSIDERATION
But as counsel could not give the exact reason why
COMES NOW defendant by undersigned counsel this
defendant’s witness scheduled to testify were absent, Honorable Court moving for a reconsideration of the orders
the trial court denied the motion; ruling that “no ground dated September 27 and September 28, 1966, respectively,
has been alleged in support thereof”.(p. 6, t.s.n., respectfully states:
September 28, 1966.)
This order was immediately followed by a motion of I
plaintiff’s counsel for the striking out of the entire
testimony of On September 26, 1966 a motion for postponement of the
622 hearing on September 28, 1966 was filed by undersigned
counsel for the reason that word had just been received from
217
the defendant that the witnesses who were scheduled to 4
testify at the said hearing and who were to come from Rome,
Italy, would not be able to come to the Philippines for said It is alleged by opposing counsel that the witnesses did
hearing. This motion was denied in the order of September not come for the hearing of September 28, 1966 because it
27, 1966; was inconvenient for them and for defendant. This
accusation is absolutely without basis and malicious;
2
5
No reason could be stated in the aforesaid motion for
postponement because at the time it was prepared, counsel If inconvenience were the only reason for the witnesses’
for defendant did not really know the specific reasons for the failure to come, then they would not also have come
inability of said witnesses to come. A simple telex message previously because it was just as inconvenient for them then.
had been sent by the Far East Manager of the defendant It will be recalled that Ivo Lazzari had been here in April
company to defendant’s representatives in Manila advising 1966 when he was presented on direct examination and
the latter that the witnesses in question could not come. partly on cross-examination. On August 25, 1966, the case
Copy of said telex message is attached to and made part of was also scheduled for hearing. All of defendant’s witnesses
this motion for reconsideration as Annex “1”; came here from Rome, Italy for said hearing. Even Mr. C. H.
Dehio was also here to testify. Unfortunately, the Presiding
623
(Judge) of this Honorable Court was indisposed on that
VOL. 64, JUNE 30, 1975 623 particular morning and so the hearing on said date was
Ortigas, Jr. vs. Lufthansa German Airlines cancelled. We mention this only to show that the failure of
3 the witnesses to come for the hearing on September 28 was
not caused by mere inconvenience;
For this reason on September 28, 1966, when the case was
called, counsel for the defendant reiterated the motion for 6
postponement and requested this Honorable Court for time
to submit an explanation on the failure of defendant’s Defendant had and had no intention to delay the
witnesses to come as a letter elaborating on the matter would proceedings whatsoever. The witnesses in question could not
surely follow the telex message. This request was however come because of certain circumstances that rendered their
denied by the Honorable Court and upon motion of plaintiff’s coming over virtually impossible. Both witnesses, Ivo
counsel, another order was issued striking out from the Lazzari and Saverino Casilli are employees of defendant
record the testimony of defendant’s only witness so far, Ivo company at the Rome office. The air traffic in Rome has been
Lazzari, whose cross-examination was to be continued that particularly heavy this season. Some of the personnel of the
date, (or the latter’s failure to appear at the hearing, and Lufthansa Rome office were on leave and these two
deeming the case submitted for decision; employees had to assume some of the duties of those
218
employees who were on leave, aside from performing their There is no question that the granting or denial of a
own regular duties. If motion for postponement rests upon the sound discretion of
the court. We submit however that under the circumstances,
624
the ends of justice would have been better served by granting
624 SUPREME COURT REPORTS the motion on question. The reason for defendant’s motion
ANNOTATED for postponement is valid and meritorious, and the grant of
Ortigas, Jr. vs. Lufthansa German Airlmes a postponement based on such ground would not have
they were to leave their posts to come for the hearing on adversely affected the substantial rights of plaintiff’s.
September 28, there would be grave disruption to the public ‘Continuances and postponements of trial are part and parcel of
service and for this reason they were not able to come. These our judicial system of justice, and where no substantial rights are
facts are contained in a letter dated September 29, 1966 affected and the intention to delay is not manifest, it is sound
written to undersigned counsel by C. H. Dehio, IATA Agency judicial discretion to allow them. (Rexwell vs. Canlas, No. L-16746,
Dec. 30, 1961)
Manager, Far East and Australasia, Lufthansa German Air
‘There is even authority for the view that the right to a speedy
Lines, copy of which is attached to and made part of this trial is not violated by granting a continuance on the ground of
motion for reconsideration as Annex ‘2’. The envelope in absence of material witnesses. (People vs. Romero, G.R. No. L-
which said letter contained is likewise attached to and made 4517-20, May 25, 1953)
part of this motion as Annex ‘2-A’; ‘The lower court erred in denying a motion for postponement
filed by defense to await arrival of a material witness.” (People vs.
7 Narsolis, et al. G.R. No. L-2764, March 24, 1950)
Witness Ivo Lazzari had finished his testimony on direct 625

examination and on September 28, 1966, opposing counsel VOL. 64, JUNE 30, 1975 625
was to continue cross-examination of said witness. The other Ortigas, Jr. vs. Lufthansa German-Airlines
witness Saverino Casilli was to be presented after Ivo ‘A miscarriage of justice may result from the accidental or
Lazzari would have finished testifying. Both witnesses are excusable absence of a material witness, where presence can be
material for the defense and no other person could testify on secured by the grant of a reasonable continuance/ (Luna vs.
the facts that are the subject of their testimony. The inability Arcenas, 34 Phil. 80, 98-99)
of said witnesses to come for the hearing on September 28
was not due to any fault or neglect on the part of defendant 8
who in fact had exerted every effort to have them come, but
because of the supervening circumstances above-described, Defendant has a valid and meritorious defense, and if given
their coming over could not have been possible without opportunity to present its side of the case, it would certainly
seriously disrupting public service; diminish, if not altogether disprove plaintiff’s claim.
‘xxx court litigations are primarily for the search of truth. x x x A
8 trial by which both parties are given the chance to adduce truth is
the best way to find out such truth. A denial of this chance would
219
be too technical. The dispensation of justice and the vindication of toward bringing about a presentation of evidence on both
grievances should not be barred by technicalities.’ (Ronquillo vs. sides. x x x ’ (Gerona vs. Calada, CA-G.R. No. 23955-R March
Marasigan, L-11621, May 21, 1962; Santiago vs. Joaquin, L-15237, 30, 1963, Tormes vs. Balzado, CA-G.R. No. 32019-R, April
May 31, 1963, italics ours.) ‘Judicial experience dictates that it is 17, 1964.)
better that cases are
tried on the merits even with a little delay than that substantial WHEREFORE, it is respectfully prayed that the orders of the
rights of a party litigant be sacrificed on the altar of technicality.’ Honorable Court dated September 27, and September 28,
(Uy vs. Demetillo, CA-G.R. No. 32665-R, Jan. 14, 1964.) 1966, respectively, be reconsidered and set aside; that the
testimony of defendant’s witness Ivo Lazzari be allowed to
9
remain on record and that a date be set for the continuation
of defendant’s evidence.
An affidavit of merit by Clarita C. de la Riva, Manager,
Manila, Philippines, October 19, 1966.
Rocha & Cua., Inc., General Sales Agents, Lufthansa
CRISPIN D. BAIZAS & ASSOCIATES
German Airlines is likewise attached to and made an
integral part of this motion for reconsideration as Annex “3”;
By: s/t/ Crispin D. Baizas
Counsel for the defendant
10
Suite 305 Shurdut Building
The order dated September 27, denying defendant’s Intramuros, Manila
motion for postponement and the order of September 28,
VERIFICATION
1966 striking off from the records the testimony on direct
examination of the witness Ivo Lazzari and holding the case
I, CRISPIN D. BAIZAS, after having been sworn
submitted for decision on the evidence presented would
according to law, depose and say:
unduly prejudice defendant’s stand, and would amount to a
I am the counsel for the defendant in the above-entitled
denial of due process to defendant.
case;
‘The paramount interests of justice demand such reasonable
allowances as would prevent, without doing an injustice to the
I have prepared the foregoing motion for reconsideration
opposing party, the loss by a litigant of his chance to duly present and all the allegations contained therein are true and correct
his side of the case before the court. With a view of avoiding a of my own knowledge and to the best of my information and
possible miscarriage of justice, the exercise of the court’s discretion belief.
ought to lean, in a reasonable degree s/t/ CRISPIN D. BAIZAS
SUBSCRIBED AND SWORN TO BEFORE ME this 19th
626
day of October, 1966 in the City of Manila, affiant exhibiting
626 SUPREME COURT REPORTS to me his Res. Cert. No. A-5892423 issued on January 28,
ANNOTATED 1966 at Makati, Rizal.
220
s/ (Illigible) public service and for this reason they were not able to come. x x
NOTARY PUBLIC x.’ (p. 3, Defendant’s Motion for Reconsideration.)
Until December 31,1967
3. Note that the above alleged facts are contained in a
mere letter that was written by a certain Mr. C.H. Dehio, an
Doc. No. 1377
employee of defendant in Hongkong, to its counsel on
Page No. 77
September 29, 1966, or one day after the hearing of
Book No. III
September 28, when presumably defendant’s aforesaid
Series of 1966.”
employee had already been informed that this Honorable
(Pages 58-67, Record on Appeal, id.) Court had denied the postponement and considered this case
as submitted for decision. Defendant is an airline company
to which, plaintiff’s counsel filed the following and has all the telex facilities to communicate in a matter of
opposition: minutes with its various agencies. The ground for failure to
627 appear, to wit, supposed pressure of work of said employees,
VOL. 64, JUNE 30, 1975 627 is as easy to conceive and gratuitously state as to flick one’s
Ortigas, Jr. vs. Lufthansa German Airlines fingers. We wish to call attention to the significant fact that
the statement of Mr. Dehio in his letter is not under oath.
“COMES NOW plaintiff, through undersigned counsel, and,
Incorporating said statement in the body of the motion for
in opposition to defendant’s motion for reconsideration,
reconsideration that is sworn to by counsel merely ‘to the
dated October 19, 1966, to this Honorable Court respectfully
best of his information and belief, or in an affidavit of Mrs.
states that:
Clarita C. de la Riva (Annex 3) who was only referring to
1. This is in effect the second motion for reconsideration
hearsay information derived from Mr. Dehio’s aforesaid
that defendant has filed against the order of September 27,
letter, is insufficient verification of the motion for
1966 denying its motion for postponement of the hearing of
reconsideration under Section 6, Rule 7 of the Rules of Court.
September 28. The first motion for reconsideration was made
Even Mr. Dehio had he executed the affidavit himself, would
in open court by Atty. Zaida S. Alberto and denied on the
have been disqualified to swear to the facts because he is
same date.
stationed in Hongkong. So that, when defendant’s counsel
2. Defendant now claims that it did not intend to delay
and Mrs. de la Riva verified the motion on information and
the trial of this case and seeks to justify the failure of its
belief derived from Mr. Dehio’s letter, their statements were
witnesses, Ivo Lazzari and Saverino Casilli, to appear on
hearsay thrice removed.
September 28 on the ground that:
‘xxx The air traffic in Rome has been particularly heavy this 4. But assuming said facts to be true, did this justify the
season. Some of the personnel of the Lufthansa Rome office were failure of defendant’s witnesses to appear at the scheduled
on leave and these two employees had to assume some of the duties hearing or
of these employees who were on leave, aside from performing their
628
own regular duties. If they were to leave their posts to come for the
hearing on September 28, there would be grave disruption to the
221
628 SUPREME COURT REPORTS dispensed from their work temporarily to defend the
ANNOTATED company against the just grievance asserted by an injured
Ortigas, Jr. vs. Lufthansa German Airlines passenger before a court of justice. At the most, defendant
was after the promotion of its own interest in holding the two
constitute a valid excuse for defendant’s inability to present
employees to their jobs, and is not avoiding ‘grave disruption
evidence? We respectfully submit that they do not. The
to the public service’ as counsel exaggerates Mr. Dehio’s
September 28 hearing was set as early as August 25, 1966,
expression ‘seriously disrupt our service to the travelling
or more than one (1) month previous, to suit the schedules
public’—two distinct ideas, the latter signifying self-interest
not only of this Honorable Court but of the parties as well.
as distinguished from public necessity. This Honorable Court
Surely, it was incumbent on defendant, if it has deference to
can take judicial notice that there are many other airlines
this Honorable Court and our administration of justice, to
operating in the same areas as does Lufthansa and
see to it that its witnesses, particularly Ivo Lazzari who was
competing with it.
on the witness stand and due for cross-examination, would
be available, rather than granting leave to its other 5. As we explained at the September 28 hearing, the truth of
employees and burdening the two needed witnesses with the matter is that, contrary to the unverified representations
additional work. Defendant is not a neophyte in the airline of defendant, the reason for the non-attendance of
business. Assuming arguendo that it is true that the volume defendant’s witnesses was to avoid the inconvenience of
of air traffic in Europe was high in ‘September and early coming to the Philippines to testify. In other words, after Ivo
October’, it should have foreseen the situation and taken Lazzari and Saverino Casilli were unable to testify last
appropriate measures to assure compliance with its August 25, 1966, defendant thought of avoiding having said
obligation to this Honorable Court. The witnesses are witnesses come again to Manila. We say this because
defendant’s employees and subject to its exclusive control. sometime on September 20, 1966, Atty. Leonardo P.
Instead, defendant allegedly rendered itself short handed by Valmonte (an assistant attorney of plaintiff who is helping in
granting leave to its other employees, and now comes to court this case) had a telephone
with a lame excuse requesting that it be extricated from a
629
predicament that it has deliberatedly brought upon itself.
For, the excuse that with the workload for Mr. Lazzari and VOL. 64, JUNE 30, 1975 629
Mr. Casilli becoming heavier than usual ‘it would seriously Ortigas, Jr. vs. Lufthansa German Airlines
disrupt our service to the travelling public if, during this conversation with defendant’s counsel, Atty. Zaida S. Alberto
time, they were to leave their jobs for several days’ (Please in connection with the former’s request for a copy of a certain
see Mr. Dehio’s letter, Annex ‘2’), is lame, by any standard. exhibit, and in the course of their conversation Atty. Alberto
The local newspapers are constantly carrying news articles informed Atty. Valmonte that the trial scheduled for
of how large and expanded is the Lufthansa as an airline September 28, 1966 would not proceed because they were
outfit. Surely, of its hundred (if not thousands) of available intending ‘to secure the permission of the court to take the
employees, two like Lazzari and Casilli could have been testimonies of their witnesses by wav of deposition’. In short,
222
even before the receipt of the alleged telex (Annex “1” of lack of resourcefulness and diligence, if not total indifference’
Motion) by defendant’s counsel on September 22, 1966, said on the part of defendant to protect in court its interests and
counsel announcing that the trial could not proceed because to prevent needless delays in the discharge of judicial
they were going to resort to depositions of their witnesses in business.
Rome, rather than have said witnesses come to Manila. The
decision to take depositions having been made on or before ‘Postponement not based on valid reasons.—Where a party
September 20, it was an easy matter to have Lufthansa’s seeks postponement of the hearing of this case for reasons
Hongkong office send the telex of September 22 stating that caused by his own inofficiousness, lack of resourcefulness
they would be unable to provide witnesses on September 28. and diligence if not total indifference to his own interests or
No reason was given why witnesses could not be provided 6 to the interests of those he represents, thereby resulting in
or 7 days thence. If in truth there was unexpected increase his failure to present his own
in air traffic, surely 6 or 7 days were more than sufficient to 630
make the necessary arrangements so that the work of 630 SUPREME COURT REPORTS
Lazzari and Casilli could be taken over temporarily just so ANNOTATED
these witnesses could appear before this Honorable Court at
the appointed date. Attached hereto as Annex “A” is the
affidavit of Atty. Leonardo P. Valmonte on his aforesaid evidence, the court would not extend to him its mantle of
conversation with Atty. Alberto. protection. If it was he who created the situation that
brought about the resulting adverse consequences, he cannot
6. At the hearing on September 28, when we made
reference to the above-referred to conversation between plead for his day in court nor claim that he was so denied of
Attys. Valmonte and Alberto, the latter did not deny that she it.’ (De Leon vs. People’s Homesite and Housing
had in truth spoken to Atty. Valmonte in the tenor above Corporation, CA-G.R. No. 31169-R, Aug. 31, 1963.)
related. As a matter of fact, she admitted that defendant was 8. In the case of Hap Hong Hardware Co. vs. Philippine
Company, G.R. No. L-16773(May 23, 1961), the Supreme
intending to take the depositions of its witnesses in Rome.
7. When this Honorable Court denied the motion for Court, in sustaining the trial court’s denial of a motion for
postponement on September 28, 1966, it did so in the postponement and on the ground that the defendant’s
exercise of its sound judicial discretion, for no valid reason witnesses, officers of the company, had not come because it
was given why the witnesses could not appear, whereas this was the beginning of the milling season in the municipality
of San Jose, Mindoro Occidental and their presence in the
case had been pending for about three (3) years and had been
postponed several times with repeated warnings on Central was very necessary, held that the trial court was
defendant that said postponements were for the last time. perfectly justified in denying said motion for postponement
And now, in its motion for reconsideration, defendant has because the reason adduced was ‘not unavoidable and one
failed to effectively allege the ground for the failure of said that could not have been foreseen.’ Said the Supreme Court:
‘The reason adduced in support of the motion for postponement is
witnesses to come, and even if said ground be admitted as
not unavoidable and one that Could not have been foreseen.
true for argument’s sake, it merely showed ‘inofficiousness, Defendant ought to have known long before the date of trial that
223
the milling season would start when the trial of the case would be from that of Lufthansa whose non-presentation of its
held. The motion should have been presented long in advance of employees-witnesses was motivated by the desire to avoid
the hearing, so that the court could have taken steps to postpone inconvenience to them, hence its frustrated plan to have
the trial without inconvenience to the adverse party. As it is, their depositions taken in Rome.
however, the motion was presented on the day of the trial. Knowing
as it should have known that postponements lie in the court’s 10. Complaints regarding delays in the disposition of court
discretion and there being no apparent reason why the defendant cases are prevalent and have recently found expression not
could not have presented the motion earlier, thus avoiding only in executive pronouncements but in judicial
inconvenience to the adverse party, the appellant cannot claim that
admonitions. The unclogging of court dockets remains a
the trial court erred in denying postponement. Under all the
circumstances we hold that the court was perfectly justified in
pressing problem to the despair of litigants. As the Court of
denying the motion for postponement.’ Appeals put it:
‘The records reveals that the trial of the case was postponed five
In the case at bar, the same unjustified excuse is times at the instance of appellants themselves, and for this reason
adduced—that the witnesses, who are employees (not even the trial was delayed for more than one year and three months. In
officers) of defendant, had work to do, albeit date of trial was granting these several postponements, the trial judge was over
set one month previous. liberal already, and to have allowed another postponement would
have been to jeopardize plaintiff’s interest. Obviously courts cannot
9. The cases cited by defendant are not in point, the facts
unduly protect the interests of one party to the detriment of the
involved therein being very different from those attending other. Already, there are complaints regarding delays in the
the case at bar. For example, in the cited case of Lino Luna disposition of court cases. The unclogging of our court dockets still
vs. Arcenas, 34 Phil. 93, the trial judge declined to grant a remains a pressing problem in the despair of many a litigant.
continuance of a few hours to give counsel an opportunity to However to eliminate, at least minimize, these delays is as much
secure the presence of the defendant. The Supreme Court our concern and any act of trial courts conducive towards this
held that considering that it did not appear that defendant purposeful end will be encouraged by appellate court’s’. (Rosario
was indulging in dilatory tactics, the denial of the motion for vs. De Leon, CA-G.R. No. 6495-R, April 25, 1941; 40 O.G. 752.)
short postponement was improper. Again, in the case
11. Prejudice will be occasioned plaintiff if defendant’s
of People vs. Romero, G.R. No. L-4517, May 25, 1953, the
belated motion for reconsideration is granted.
prosecution witnesses, although subpoenaed, failed to
Notwithstanding defendant’s counsel’s receipt of Mr. Dehio’s
appear; whereupon the fiscal asked that they be ordered letter, dated September 25, 1966, a few days after said date,
arrested and that in the meantime the trial be
defendant delayed the filing of its motion for reconsideration
631 until after about three (3) weeks later. In the meantime, it
VOL. 64, JUNE 30, 1975 631 knew as of September 28 that this Honorable Court had
Ortigas, Jr. vs. Lufthansa German Airlines striken out the testimony of Ivo Lazzari, considered the case
submitted for decision on the evidence on record, and given
postponed. The Supreme Court likewise held that the denial
plaintiff’s counsel 7 days to present his memorandum.
of the postponement was improper. These fact situations,
Plaintiff and his counsel exerted all efforts and worked
however, as can immediately be seen are completely different
224
overtime just so to be able to submit his memorandum within business and therefore must be strictly complied with.’ (Alvero vs.
the short period allowed. Said memorandum was finished on De la Rosa, 76 Phil. 428, cited in Francisco on Civil Procedure, Vol.
time, and has been served on defendant’s counsel and 1, p. 89) ‘Rules of Courts, promulgated by authority of law, have
submitted to Court. In other words, defendant purposely the force and effect of law; and rules of court prescribing the time
within which certain acts must be done, or certain proceedings
waited until the submission of plaintiff’s memorandum
taken are considered absolutely indispensable to the prevention of
before presenting its motion for reconsideration based on needless delays and to the orderly and speedy discharge of judicial
alleged information received three (3) weeks previous. To business.’ Conlu vs. Court of Appeals, et al., G.R. No. L-14027,
grant defendant’s instant motion for reconsideration would January 29, 1960, citing Shioji vs. Harvey, 43 Phil. 333; Alvero vs.
place plaintiff at a great disadvantage, because defendant is De la Rosa, et al., 42 Off. Gaz., p. 316, (Supra.)
now fully aware of every facet of plaintiff’s cause and can
simply tailor its defenses and evidence in refutation thereof. WHEREFORE, it is respectfully prayed that defendant’s
motion for reconsideration, dated October 19, 1966, be
632 denied. Manila, October 31, 1966.” (Pages 74-88, Record on
632 SUPREME COURT REPORTS Appeal, id.)
ANNOTATED
By way of reply to the above opposition, defendant’s
counsel alleged:
12. Defendant claims that plaintiff is taking undue
“Defendant could have from the beginning taken depositions
advantage of a technicality and it should not be deprived of
in Rome, but so as to avoid any inconvenience to plaintiff and
its day in court on this ground. Suffice it to state that it is
that the court may see and hear the witnesses testify to
never technical to invoke one’s rights, and that while the
better determine the credibility of their testimony defendant
Rules of Court should be liberally construed, their strict
had been bringing the witnesses here. As a matter of fact,
observance has been considered indispensable to the
defendant even without leave of court may take the
prevention of needless delays and the orderly and speedy
depositions of its witnesses by merely giving the Court notice
discharge of judicial business. Thus:
of its intention to do so.
‘Although the Rules of Court should be liberally construed,
‘After answer has been filed no leave of court is required as a
however their strict observance which have been considered
prerequisite to taking depositions x x x (Marzo vs. Moore
indispensable to the prevention of needless delays and to the
orderly and speedy discharge of judicial business, is as imperative
633
necessity. Thus, the rules prescribing the time within which
certain act must be done, or certain proceedings taken, are VOL. 64, JUNE 30, 1975 633
considered absolutely indispensable to the prevention of needless
delays and to the orderly and speedy discharge of judicial business,
is as imperative necessity. Thus, the rules prescribing the time McCormick Line, Inc. 8 Feb. Rules of Service, p. 560; cited in Moran
within which certain act must be done, or certain proceedings Comments on Rules of Court Vol. II, p. 18)
taken, are considered absolutely indispensable to the prevention of ‘After issue is joined, depositions may be taken without leave of
needless delays and to the orderly and speedy discharge of judicial court. (Lyons vs. Bronx Towing Line, Inc., 1 Fed. Service p. 341)
225
‘After answer is served, depositions may be taken as of course of the case.” (Saura Import & Export Co., Inc. vs.
and application should not be made to the court for leave. (Schultz Philippine International Surety Co., Inc., L-15184, May
vs. State Mutual Life Assurance Company, 1 Fed. Rules of Service,
p. 340, US Dist. Ct. Dist. of Oregon, Oct. 14, 1938)
31, 1963, 8 SCRA 143.) And considering the inter-
relation between the omitted assignment of error and
The statements made by Atty. Valmonte are false and those actually assigned and discussed by defendant’s
malicious. An affidavit executed by Atty. Zaida Ruby Alberto counsel, We can apply here the ruling in Hernandez vs.
is attached to and made part of this Reply as Annex ‘1’.” Andal, 78 Phil. 196, to the effect that “an unassigned
(Pages 92-93, Record on Appeal, id.)
error closely related to an error properly assigned or
On October 24, 1966, the trial court resolved the upon which the determination of the
incident in a brief order holding that “(f)or the reasons 634
stated in the plaintiff’s opposition to the motion for 634 SUPREME COURT REPORTS
reconsideration, it is denied.” ANNOTATED
In its appeal, defendant reiterates insistently its Ortigas, Jr. vs. Lufthansa German Airlines
position that the denial of its motion for postponement question raised by the error properly assigned is
as well as the order striking out the testimony of Ivo dependent, will be considered by the appellate court
Lazzari were issued in grave abuse of discretion and notwithstanding the failure to assign it as an error.” (at
should be set aside. Before going any further, however, pp. 209-210.)
it may be mentioned that since defendant has not Now, with respect to defendant’s first assignment of
assigned as error, although it discusses in its brief, the error, We feel that the rather extended recital We have
denial of its last motion for reconsideration, plaintiff made above of the incidents and proceedings related to
contends that such failure constitutes a bar to any the trial court’s order denying defendant’s motion for
further consideration of the merits of the arguments of postponement of the hearing set for September 28, 1966
defendant relative to the main denial-of-postponement is self-revealing. It argues against the charge that His
and striking-out orders. To be sure, there is technical Honor’s order of denial was improper and unjustified.
plausibility in such pose of plaintiff, but considering the The case had been pending for about three years and
importance of the other matters involved in this case, it had actually suffered during that period even more than
would serve the interests of justice more if We passed the usually permissible number of continuances, quite
on the merits of the substantial issues in this often to suit the convenience of defendant’s counsel.
controversy. After all, “this Court is clothed with ample Notice of the September 28, 1966 schedule had been
authority to review matters, even if they are not served on counsel the month previous. It must be
assigned as errors in the appeal, if it finds that their assumed that due preparations and arrangements were
consideration is necessary in arriving at a just decision to be made since the receipt of that notice to insure the
226
presence in Manila for the expected witnesses on the enough time to investigate and find out the reason for
date set. Under the circumstances, the excuse given by such unavailability. And as no justifiable reason could
defendant that the witnesses could not leave their be advanced in support of the verbal motion for
respective stations and places of work to attend the trial reconsideration. We cannot say that His Honor acted
is plainly unacceptable. There was enough time and improperly when he denied the same.
opportunity for defendant to have made the We reiterate, the case had been pending for more
corresponding adjustments in the assignments of its than three years, with so many postponements, and the
personnel so as to enable its witnesses to be in court. least that defendant should have done to merit
The trouble is that defendant relied on the assumption favorable action on the part of the trial judge was to be
that the court could be made to wait until the volume ready with an explanation of its inability to proceed
and other conditions of its business would permit it to with the trial, giving the detailed and good reasons
comply with the schedule of the court. For an airline therefor. As it is, there was actually no basis at all for
company engaged in international transportation and the exercise of discretion on the part of the trial judge
presumably having all the facilities to have any of its in a manner favorable to it. Trials may be postponed
employees available practically anywhere in the world because of the absence of evidence only when such
at a moment’s notice, if it only took due care to do this, absence is justified. Mere absence is not a justification
defendant’s attitude cannot be countenanced. in itself. Section 4 of Rule 22 is sufficiently clear on this
What is more, the motion of September 24, 1966 gave point. It provides that “A motion to postpone a trial on
no reason at all why defendant’s witnesses supposed to the ground of absence of evidence can be granted only
come from Rome would be unable to be at the trial. Even upon affidavit showing the materiality of evidence
as late as the day of the hearing, September 28, 1966, expected to be obtained, and that due diligence has been
the court could not be told the reason for such inability. used to procure it.” This means that it must be shown
All that counsel could say was that she “intend(ed) to to the court that due diligence had been exercised in
inquire and file the explanation” later. This was not as either securing the presence of the evidence (witnesses)
it should have been, for the telex advising the Manila or preventing the absence thereof.
office that the witnesses would not be available was There is, of course, defendant’s motion for
received on September 22nd yet, and certainly there reconsideration of October 19, 1966 praying for the
was setting aside of the court’s order of denial as well as the
635 other order striking out the testimony of witness
VOL. 64, JUNE 30, 1975 635 Lazzari. But, as already noted, the only excuse given in
Ortigas, Jr. vs. Lufthansa German Airlines said motion is that:
227
“x x x The witnesses in question could not come because of according to the record, had already attended previous
certain circumstances that rendered their coming over hearings as a prospective witness could have been made
virtually impossible. Both witnesses, Ivo Lazzari and to go to court. There is nothing in the record to show
Saverino Casilli are employees of defendant company at the that he was also rendered incapable of doing so. Then,
Rome office. The air traffic in Rome has been particularly
there could still be local witnesses, it is no excuse that
heavy this season. Some of the personnel of the Lufthansa
presenting other witnesses would have disrupted the
Rome office were on leave and these two employees had to
assume some of the duties of those employees who were on presentation of defendant’s case, for parties may be
leave, aside from performing their own regular duties. If they allowed to maintain their own way of presenting their
were to leave their posts to come for the hearing on evidence only where this can be done without injury to
September 28, there would be grave disruption to the public the expeditious disposition of the case and the best
service and for this reason they were not able to come. x x x interests of the administration of justice.
” (Page 47, Rec. on Ap., p. 32, Record.) Coming now to the second assigned error regarding
the striking out of the unfinished testimony of Lazarri,
Indeed, even if such reason were given earlier on
the Court is also of the opinion and so holds that the
September 24, 1966 the court would have been as well
trial court’s action cannot be categorized as arbitrary or
justified in denying the requested postponement. We
oppressive or as amounting to a grave abuse of
cannot see any reason why, despite its having
discretion. To be sure, this second order was but a
knowledge of the date of the hearing about a
636 logical consequence of the previous order denying
636 SUPREME COURT REPORTS defendant’s motion for postponement. With such denial,
ANNOTATED the next thing in order was to declare the presentation
Ortigas, Jr. vs. Lufthansa German Airlines of evidence of the defendant terminated. Accordingly, it
was necessary to determine what evidence could be
month before, defendant did not see to it that its
considered to be for the defendant. And so when counsel
expected witnesses were not assigned to do duty on the
for plaintiff asked the court to strike out the testimony
day they were supposed to appear in court. We cannot
so far given by Lazarri, there was practically no
believe Lufthansa could be so undermanned that such
alternative for the court but to grant the same. Indeed,
a simple adjustment of its personnel had to be
defendant’s counsel could not and did not offer any
“impossible.”
objection thereto.
Moreover, the Rome based witnesses were not the
Oral testimony may be taken into account only when
only possible witnesses of defendant. To begin with, Mr.
it is complete, that is, if the witness has been wholly
C.H. Dehio, the IATA Agency Manager, Far East and
cross-examined by the adverse party or the right to
Australasia, Lufthansa German Air Lines, who,
cross-examine is lost wholly or in part thru the fault of
228
such adverse party. But when cross-examination is not considered as complete and may not, therefore, be
and cannot be done or completed due to causes allowed to form part of the evidence to be considered by
attributable to the party offering the witness, the the court in deciding the case.
uncompleted testimony is thereby rendered In the case at bar, however, We have opted not to rely
incompetent. exclusively on the foregoing considerations. In order to
637 satisfy Ourselves as to whether or not defendant stands
VOL. 64, JUNE 30, 1975 637 to be irreparably prejudiced by the impugned action of
Ortigas, Jr. vs. Lufthansa German Airlines the trial court relative to the testimony of Lazzari, We
The right of a party to cross-examine the witnesses of have just the same gone over the transcript thereof.
his adversary is invaluable as it is inviolable in civil After considering the same, however, We are of the
cases, no less than the right of the accused in criminal impression that even his direct testimony, without
cases. The express recognition of such right of the taking into account anymore his answers to the cross-
accused in the Constitution does not render the right examination questions of counsel for plaintiff, cannot be
thereto of parties in civil cases less constitutionally of much weight in establishing the defenses in
based, for it is an indispensable part of the due process defendant’s answer. But it would seem more
guaranteed by the fundamental law. Subject to appropriate to elaborate on this point when We come to
appropriate supervision by the judge in order to avoid the discussion of the mutual accusation of the parties
unnecessary delays on account of its being unduly that the trial court erred in the portion of its discretion
protracted and to needed injunctions protective of the awarding damages to plaintiff.
right of the witness against self-incrimination and The last issue submitted for Our resolution relates to
oppressive and unwarranted harrassment and the award of damages made by the trial court in favor
embarrassment, a party is absolutely entitled to a full of Ortigas against Lufthansa in the amounts
cross-examination as prescribed in Section 8 of Rule 132 aforestated, as to which, as already noted at the outset,
thus: “Upon the termination of the direct examination, both parties have appealed taking opposite positions. In
the witness may be cross-examined by the adverse this respect, the appealed decision made the following
party as to any matters stated in the direct findings and discussion of the material facts:
examination, or connected therewith, with sufficient 638
fullness and freedom to test his accuracy and 638 SUPREME COURT REPORTS
truthfulness and freedom from interest or bias, or the ANNOTATED
reverse, and to elicit all important facts bearing upon Ortigas, Jr. vs. Lufthansa German Airlines
the issue.” Until such cross-examination has been “In October, 1963, the Sharp Travel Service, the travel
finished, the testimony of the witness cannot be department of C. F. Sharp, Inc., the majority interest in
229
which is held by Rocha y Cia., Inc., General Agents of the class seat. The man thereafter asked for Ortigas’ passport
defendant, Lufthansa German Airlines, issued to the and other travel papers and attached a validating sticker
plaintiff First Class Pan American Ticket No. 026492147076 (Exhibit ‘D-1’) on flight coupon No. 4 (Exhibit ‘B’) which
to 81 which would take him from Manila, the place of corresponded to the Rome-Hongkong leg of his TWA Ticket
departure, to Hongkong, various cities in the United States, No. 115-460-451-878. The sticker recites:
Europe, Asia, the Far East, and then back to Manila, the
place of destination. Ortigas’ ticket for all these different legs Flight Res.
of his journey was first class. Carrier No. Date Time Status
He left Manila October 12, 1963, as scheduled. In New LH 646 18 12:35 O.K.
York, he decided to leave out some cities, included in his Nov. P.M
original itinerary, to be in Hongkong on the 19th day of Wishing to be doubly sure, Ortigas again requested the
November, 1963, for several appointments he had there. He Alitalia employee to call back the Lufthansa office to recheck
went to the Trans World Airlines and had his Pan American whether his ticket was really confirmed and validated. The
ticket changed with First Class TWA Ticket No. 115-460- man did so, after
451-878 to 881. His TWA ticket was also first class for the
639
entire trip from New York to several European cities,
including Rome, and thence to the Far East, with Manila also VOL. 64, JUNE 30, 1975 639
as the place of destination. Ortigas, Jr. vs. Lufthansa German Airlines
Ortigas arrived in due course in Rome. To be sure he could which he told Ortigas that his ticket had been checked,
fly first class to Hongkong on November 18, 1963, for his validated, and confirmed as shown by the word ‘O.K.’ on the
appointments there the next day, Ortigas repaired to the sticker. The same employee later wrote on the cover of the
office of the Alitalia on Saturday, November 16, 1963, to book plaintiff’s ticket 10.15 Terminal-36, via Gioliti’ (Exhibits ‘C’
passage. The man at the counter of the Alitalia office told and ‘C-1’) and told him to be in the air terminal on Monday,
him it had no flight on Monday but the Lufthansa had. The November 18, at 10:00 A.M.
man thereupon called up the office of the Lufthansa and,
The following Monday, Ortigas checked out of his hotel and
after talking to an employee thereof, told Ortigas that the
Lufthansa had no first class, but only economy, seats took a taxi to the terminal, arriving there about 9:30 A.M.
available on its Monday flight. He unloaded his baggage and proceeded to the counter in
charge of the Lufthansa passengers. The lady at the counter
Ortigas answered that he was not willing to take an
economy seat and requested the employee to call up other told him the Lufthansa had no space for him that day.
airlines. Then the phone rang. The employee ‘answered and Ortigas requested her to check with her main office, which
afterwards informed Ortigas that the Lufthansa had a first she did by calling it up. After calling, she apologized and said
class seat available for its Monday flight. Ortigas the plaintiff’s ticket was in order and would be confirmed and
immediately asked him to get the seat and to see to it that validated. On her request, Ortigas had his luggage weighed
his ticket be confirmed and validated for the flight and a first and was given the free luggage allowance of a first class
230
passenger. He was furthermore asked to pay 800 liras for bus to Hongkong that day but he once more turned down the plea
fare and 700 liras as embarkation tax. Then Ortigas, along and insisted that Ortigas travel economy, with the promise
with other passengers, one of whom was Amado Castro of the that he
Development Bank of the Philippines, boarded a bus for the
640
airport.
At the airport, the plaintiff handed over his ticket to the
man behind the Lufthansa counter, who told him everything ANNOTATED
was all right. At that juncture, the plaintiff heard his name Ortigas, Jr. vs. Lufthansa German Airlines
called. He inquired if he was being called from an employee will be transferred to first class in Cairo and onward to
of the Lufthansa and, on receiving an affirmative answer, Hongkong.
said he was Ortigas. The employee asked for his passport and
other papers and, after examining his passport, where his After promising to, the man went inside a room and, after a
Filipino nationality appears, said he could not board the while, came out and assured the plaintiff he would travel
plane that day because his seat would be given to a Belgian. first class from Cairo to Hongkong because he sent a
communication that it should be done. He then jotted down
Ortigas asked the man why he was doing that to him when
his ticket was confirmed and validated first class. The some letters on Ortigas’ ticket. The plaintiff replied he was
Lufthansa employee replied he was sorry but Ortigas could not satisfied with the arrangement but was constrained to
not leave. agree to it because he had to be in Hongkong the next day,
his luggage was in all probability already inside the plane,
Fearing he would have a recurrence of his heart ailment,
Ortigas took a nitroglycerin pill which his doctor advised him he was not certain he could still secure a hotel reservation,
to take on occasions of stress. The plaintiff then told the the manager of the hotel where he stayed having told him it
Lufthansa man to bring the Belgian over so that his papers would be hard for him to get another reservation once he
may be examined to determine whether he had a preferred checks out, and he was assured he would be given first class
passage from Cairo onward.
right to Ortigas’ seat but the Lufthansa employee turned
down the request, raised his voice, and said if the plaintiff Upon arrival in Cairo, the plaintiff requested the
desired, he could take an economy seat and he would be Lufthansa agent to transfer him to first class but the agent
allowed a refund. Ortigas retorted he was not interested in a said he could not and that he did not receive any
refund and what he wanted was to travel first class in communication from Rome to that effect. Ortigas also
requested the man to find out if there were other airlines
accordance with his ticket.
This argument occurred in the presence of the other having planes leaving that day but his request was likewise
passengers, one of whom was Amado Castro, and the denied. The man, however, promised that at Dharham,
plaintiff felt embarrassed and humiliated because the Ortigas will be transferred to first class. Ortigas had no
Lufthansa employee was shouting at him and treating him alternative but to continue traveling as before but he did so
the way he did. Ortigas made another request, namely, that again under protest.
the employee call other airlines to inquire if they had flights
231
At Dharham, the plaintiff once more requested a transfer European-Far East-and Australia sectors. Par. 11, Order of
to first class but was also told by the Lufthansa agent that April 29, 1964. Under the pool agreement (Exhibit “DD”)
he had not received any communication about the change they undertake to adhere to the appropriate IATA
and the request could not be granted. The plaintiff had to regulations and to take measures to provide district sales
travel perforce economy from Dharham. In Calcutta, Ortigas offices with every possibility for close cooperation in the
once again requested a transfer or that he be assisted in promotion of the pool services covered by the agreement,
booking passage on other planes but was also refused. It was including “reservation and booking”. They furthermore, in
only in Bangkok when the chief steward asked him if he effect confirm in the agreement that tickets of one, other
wanted to move over to first class but having been already than free and reduced tickets, may be validated by the other.
embarrassed and humiliated and the trip to Hongkong being
only three hours, he said he would not as a sign of protest. Finally, Manuel Otayza, general manager of Filital, Inc.,
In Hongkong, Ortigas protested against the treatment which is the general agent of the Alitalia in the Philippines,
given him but was told by the Lufthansa office he had to file testified that space reservation through telephone calls
his protest in Manila, it being the point of destination. He between airlines is permitted by IATA’s, ‘Manual of Traffic
did so by means of a letter, dated November 25, 1963 (Exhibit Conference Resolutions’ and that telephone calls for
“F”), followed by another letter, dated December 20, 1963 reservation by one airline to another is in fact accepted
(Exhibit “C”), and not having received any definite answer, procedure in accordance with the official airline guide of the
he brought this suit. Air Traffic Conference and International Air Transport
Although Ortigas’ ticket for the flight from Rome to Association (Exhibit “W”).
Hongkong was validated and confirmed by the Alitalia, its The placing by the Alitalia of a sticker on the plaintiff’s
act bound and obligated the Lufthansa. The Alitalia and ticket obligated the Lufthansa to give him a first class seat
Lufthansa are members of the International Air Transport on its flight from Rome to Hongkong on November 18, 1963.
Association (IATA). It is admitted that as such member, the The same witness, Manuel Otayza, testified that the placing
Alitalia can issue tickets for other members of the of a validating sticker on a ticket is standard airline
association like the Lufthansa, Pan American World procedure; that a sticker changes are status of a reservation;
Airways, and others. Par. 10, Order of April 29, 1964, and that consequently while Ortigas’ ticket was “open”., that is,
Exhibit “H”‘ certification of the manager of the Alitalia. Aside it had no reservation for a particular flight between Rome
from being members of the IATA, the Alitalia and Lufthansa and Hongkong, the moment a validating sticker was placed
are pool partners and conduct a joint service with thereon, stating the flight number of the airline, the day and
interchangeable flights for the hour of departure, with the letters “O.K”, his ticket was
changed from an “open” to a “confirmed” or “validated” ticket;
641 and that the sticker on Ortigas’ ticket meant that first class
VOL. 64, JUNE 30, 1975 641 space was confirmed for him on Lufthansa flight 646 to
Ortigas, Jr. vs. Lufthansa German Airlines Hongkong on November 18, 1963, at 12:35 P.M.
232
Aside from Otayza’s testimony, it is admitted that in the Ortigas’ ticket was confirmed on the early morning of
stipulation of facts that “the letters ‘O.K.’ (Exhibit D-2) November 16, 1963, more than 48 hours before his departure
appearing on the ‘Res. Status’ box of the sticker (Exhibit D- on the afternoon of November 18. There was, therefore,
1) attached to Flight Coupon No. 4 of TWA Ticket No. 015- ample time to send a telex message from Rome to the
410:451-880 (Exhibit “D”) means space confirmed’, per IATA defendant’s main office in Frankfurt, which is only about 2-
Resolution 275, page 4, Issue 2, a photostatic copy of which 1/2 flying hours away, to reserve a first class seat for the
is attached hereto as Exhibit ‘O’; that validate’ means to plaintiff.
stamp or write on the passenger ticket an indication that the At the terminal on Via Gioliti, he was again told that he
passenger ticket has been officially issued by the carrier; that had a first class seat, his luggage was checked in divesting
“the placing of a sticker on a flight coupon is a revalidation him of control thereof, and transported to the airport some
thereof for the flight mentioned in said sticker and is an 37 kilometers distant. He was in this manner deprived of the
alteration effected on said coupon, in accordance with the opportunity of availing himself of the facilities of other
procedure laid down in IATA Resolution 275d, Page 1, Issue airlines and compelled to take the Lufthansa flight even
1, a photostatic copy of which is attached thereto as Exhibit against his will.
‘S’ “; and that “prior endorsement was not necessary for In the airport, although he was found entitled to fly first
Alitalia to revalidate TWA Ticket No. 115-410-880 Exhibit class, he was told after his Filipino passport was seen, that
“D”) because Alitalia is the carrier originally designated in his seat would be given to a Belgian, without any reason or
the ‘Via carrier’ box of said ticket, in accordance with IATA explanation whatsoever. His simple request that the
Resolution No. 279, photostatic copy of which is attached Belgian’s ticket be produced and examined to see who had a
hereto better right to a first class seat was turned down. So was his
equally simple request that other airlines be called to find
642
out if any of them could accept him as a first class passenger
642 SUPREME COURT REPORTS to Hongkong that day. He was deceived into boarding the
ANNOTATED Lufthansa plane at Rome by falsely assuring him he will be
Ortigas, Jr. vs. Lufthansa German Airlines transferred to first class at Cairo, the next stop in the flight.
as Exhibit T “. The same false and deceptive promise was given him at
Dharham and Calcutta.
There was, therefore, a valid and binding contract between Indubitable proof of the defendant’s bad faith is found in
Lufthansa and the plaintiff to transport him as a first class
the fact that while its employee was assuring the plaintiff he
passenger from Rome to Hongkong on November 18, 1963, would be transferred to first class in Cairo, he was at the
and this agreement the defendant violated by compelling the same time writing on his ticket the following notation:
plaintiff to travel as an economy passenger. It cannot be said ‘TRVLDY/c ROME HEG ROME ST’, which means ‘Travelled
the breach was the result of an honest mistake or excusable economy class Rome to Hongkong St’, thereby barring
negligence. There is evidence the defendant acted with bad Ortigas from asserting any right to demand first class
faith and in willful disregard of the plaintiff’s rights. accommodation. The defendant’s employee, therefore, knew
233
all along the plaintiff would not travel first class, and yet he thereat told him, after making the proper verification,
deliberately made him believe he would be transferred to that the reservation was correct. What is more, in the
first class from Cairo to Hongkong. unconcluded testimony of Ivo Lazzari, the striking out
From the circumstances, it is clear that the defendant not of which is questioned by Lufthansa, he admitted that
only breached its duty to the plaintiff but also did not want
it was a fact that the said reservation of plaintiff for first
to release him as a passenger and wished to hold on to him
class was confirmed, albeit he qualified that this was
even if it would cause him inconvenience and
embarrassment.” (Pages 97-109, Record on Appeal.) done already in the morning of November 18th, the day
of the flight, almost at the last hour. What seems to
643 have happened was that somehow the first class
VOL. 64, JUNE 30, 1975 643 accommodations for that flight were overboard and
Ortigas, Jr. vs. Lufthansa German Airlines Lufthansa tried to solve the problem by downgrading
Disputing the foregoing conclusions, Lufthansa claims Ortigas to the economy class in favor of a Belgian, as
firstly that the Alitalia employee who validated and Ortigas was told by the Lufthansa employee who paged
confirmed Ortigas’ reservation must have made a him over the public address system for the purpose just
mistake because actually, he was informed by the as he was about to go to the departure area, with his
Lufthansa Rome office that Ortigas could only be luggage already checked and his overweight fees duly
waitlisted. Assuming, however, there was such an paid, so much so that they were already loaded in the
error, it has been indisputably proven that under the plane. Verily, such treatment given to plaintiff was
so-called pool arrangement among different airline completely wrong and absolutely unjustifiable. Nobody,
companies pursuant to the International Air Transport much less a common carrier who is under constant
Association (IATA) agreement of which Alitalia and special obligation to give utmost consideration to the
Lufthansa are signatories, both companies are convenience of its customers, may be permitted to
constituted thereby as agents of each other in the relieve itself from any difficulty situation created by its
issuing of tickets and other matters pertaining to their own lack of diligence in the conduct of its affairs in a
relations with those who would need their services, and manner prejudicial to such customers. It is Our
since there can be no question that on its face, the considered view that when it comes to contracts of
annotations made by Alitalia on the ticket here in common carriage, inattention and lack of care on
dispute cannot have any other meaning than that the 644
reservation of Ortigas for the Rome—Hongkong flight 644 SUPREME COURT REPORTS
was validated and confirmed, Lufthansa’s disclaimer is ANNOTATED
unavailing. Besides, it appears that when Ortigas Ortigas, Jr. vs. Lufthansa German Airlines
checked in at the airport, the Lufthansa lady employee
234
the part of the carrier resulting in the failure of the to satisfy him, merely infused bad faith into the breach
passenger to be accommodated in the class contracted of contract already committed of depriving plaintiff of
for amounts to bad faith or fraud which entitles the his reserved accommodation. In other words, from the
passenger to the award of moral damages in accordance legal standpoint, such preference given to a ● European
with Article 2220 of the Civil Code. But in the instant surely aggravated the damage or injury suffered by
case, the breach appears to be of graver nature, since plaintiff, but the very act alone of deliberately
the preference given to the Belgian passenger over downgrading him despite his confirmed reservation for
plaintiff was done willfully and in wanton disregard of first class accommodation is sufficient ground for relief.
plaintiff’s rights and his dignity as a human being and And considering that there are already recorded cases
as a Filipino, who may not be discriminated against in this Court wherein Filipinos have been similarly
with impunity. discriminated against by foreign airline company
Lufthansa contends, however, that there could not employees in the treatment of passengers, this new
have been any possible discrimination by reason of race instance can easily be believed and correspondingly
against Ortigas because from his appearance, said dealt with in fixing and assessing the liability of herein
plaintiff can easily be taken for a European or white defendant.
more than his own witness Amado Castro and besides, 645
there were other orientals in the same flight on that VOL. 64, JUNE 30, 1975 645
occasion. It is argued that any such policy would be self- Ortigas, Jr. vs. Lufthansa German Airlines
defeating, since it would certainly be damaging to its As found by the court below, what worsened the
own business. Again, this ratiocination cannot carry the situation of Ortigas was that Lufthansa succeeded in
day for Lufthansa, for what appears from the evidence keeping him as its passenger by assuring him that he
in this case is not really a case of a general policy of would be given first class accommodation at Cairo, the
discriminating against orientals or non-whites, but a next station, the proper arrangements therefor having
specific act of Lufthansa’s employee at the airport of been made already, when in truth such was not the
giving preference to a Belgian after examining Ortigas’ case. Thus, instead of complying with the request of
passport wherein his Filipino nationality is noted. Ortigas that other airlines be contacted to find out if
Indeed, the fact that despite plaintiff’s protestations they had first class space for him, the Lufthansa
and demand that he be shown how it could happen that employee who had indifferently told him about his
somebody else, particularly that Belgian, should be downgrading paid very little attention if ever to said
given his place when his reservation was validated and request. And to keep him from giving the business to
confirmed and actually, he had already checked in and another company, he was made to believe that he would
his luggage was already in the plane, nothing was done be given first class accommodation at Cairo. Although
235
molested and embarrassed to the point that he had to contrary, as pointed out by the trial court, contrary to
take nitroglycerine pills to ward off a possible heart the verbal assurance given Ortigas, the Lufthansa
attack, Ortigas hardly had any choice, since his luggage employee made annotations on
was already in the plane. To his disappointment, when 646
the plane reached Cairo, he was told by the Lufthansa 646 SUPREME COURT REPORTS
office there that no word at all had been received from ANNOTATED
Rome and they had no space for him in first class. Ortigas, Jr. vs. Lufthansa German Airlines
Worse, similar false representations were made to him his ticket that he was travelling economy class from
at Dharham and Calcutta. It was only at Bangkok Rome to Hongkong. If, as contended by Lufthansa,
where for the first time, Ortigas was at last informed Ortigas was duly advised to make arrangements for
that he could have a first class seat in that leg of the transfer to first class as soon as he arrived at each
flight, from Bangkok to Hongkong. This Ortigas station on the way, why was such notation made that
rejected, if only to make patent his displeasure and he was travelling up to Hongkong in economy class? All
indignation at being so inconsiderately treated in the these only go to show that any evidence of defendant
earlier part of his journey. tending to disprove the testimony of Ortigas would in
Lufthansa insists in its brief that it could have any event have been inconclusive or unreliable.
proven that there was no such “entrapment of a captive Likewise, Lufthansa maintains that it could have
passenger” had it been allowed the postponement it proven that Ortigas did not take offense at being
sought of the September 28, 1966 hearing. It is argued downgraded, as in fact, according to Lufthansa, he was
that there could have been no way by which its Rome in jovial mood throughout the trip enjoying his
office could have assured Ortigas about what he would conversation and exchange of amenities with his
be given in Cairo, the flight being fully booked as it was seatmate, who by strange coincidence happened to be
without any assurance of any first class seat being the Manager of Lufthansa German Airlines for the
vacated by then. We are not impressed. In view of the district of Australia and New Zealand holding said
insistence of plaintiff that he be given the first class position since 1962. Moreover, it is argued, the economy
1
accommodation he had contracted and paid for, the class accommodations are not much different from first
least that the Rome office should have done was to class and Ortigas was not delayed in his trip. We cannot
communicate with Cairo and strongly urge that all see the point. A passenger contracts for first class
possible effort be made to comply with his well accommodations for many reasons peculiar to himself
grounded request. As it happened, however, the Cairo and pays a higher price therefor, and it is certainly not
office informed Ortigas when he arrived there that they for the airplane to say later, after it deprives him of his
had not received any word at all from Rome. On the space in order to favor another passenger, that economy
236
class is anyway just as good as first class. That Ortigas uniformly upheld the right of a passenger to damages
was rightfully indignant is not difficult to imagine. No in all cases wherein, after having contracted and paid
person in his normal senses and possessed of human for first class accommodations duly confirmed and
dignity would have been unperturbed and unruffled by validated, he is transferred over his objection to
the treatment he had received. More, he was under economy class, which he has to take in order to be able
express admonition of his doctor taking care of his to arrive at his destination on his scheduled time.
ailing coronary condition to travel only in first class. In the case of Nicolas L. Cuenca, then Commissioner
Indeed, that he complained and made himself of Public Highways of the Philippines, he boarded a
emphatically clear while still in Rome is sufficiently Northwest plane in Manila with a first class ticket to
substantiated in the record, as it was more or less Tokyo, but upon arrival at Okinawa, an agent of the
admitted by defendant’s witness Lazzari when he company rudely compelled him, over his protest, to
testified that he heard about plaintiff’s complaint that move over to the tourist class, which he had to do, so he
same day, November 18, 1963. could reach the international conference he was
In the light of all the foregoing, there can be no doubt attending on time. Under these facts, the Court held
as to the right of Ortigas to damages, both moral and that the P20,000 awarded by the lower court to Cuenca
exemplary. Precedents We have consistently adhered to “may well be considered as nominal and also as
so dictate. Beginning with Cuenca, wherein the Court
2 exemplary, the Court of Appeals having modified the
rejected the theory trial court’s designation thereof as moral, saying it
________________ should have been nominal.
In Lopez , Honorable Fernando Lopez, then an
3
1 Annexed as Appendix 1 to the Reply Brief of Defendant Appellant
is the affidavit of Max Albert Springweiler, who defendant claims is incumbent senator and former Vice President of the
its newly discovered evidence. Philippines, together with his wife and his daughter
2 Northwest Airlines Inc. vs. Cuenca, 14 SCRA 1063.
and son-in-law, made first class reservations with the
647 Pan American World Airways in its Tokyo-San
VOL. 64, JUNE 30, 1975 647 Francisco flight. The reservation having been
Ortigas, Jr. vs. Lufthansa German Airlines confirmed, first class tickets were subsequently issued
that an air carrier is liable only in the event of death or in their favor. Mistakenly, however, defendant’s agent
injury suffered by a passenger, because, according to cancelled said reservation, but expecting some
the Court, to so hold would be tantamount to declaring cancellations before the flight scheduled about a month
the carrier “exempt from any liability for damages in later, the reservations supervisor decided to withhold
the event of its absolute refusal, in bad faith, to comply the information from them, with the result that upon
with a contract of carriage, which is absurd”, We have arrival in Tokyo, the Lopezes discovered they had no
237
first class accommodations and were thus compelled to the Manager of the defendant airline forced him to
take the tourist class, just so the senator could be on vacate the first class seat because there was a white
time for his pressing engagements in the United States. man who allegedly had a better right thereto, without,
In the light of these facts, the Court held there was a however, showing him the basis for such preference.
breach of the contract of carriage and viewed as the Upon these factual premises, the Court held:
element of bad faith entitling the plaintiffs to moral “It is really correct to say that the Court of Appeals in the
damages for such contractual breach, the quoted portion first transcribed did not use the term ‘bad
________________ faith’. But can it be doubted that the recital of facts therein
points to bad faith? The manager not only prevented
3 Fernando Lopez, et al. vs. Pan American World Airways, 16
Carrascoso from enjoying his right to a first class seat; worse,
SCRA 431. he imposed his arbitrary will; he forcibly ejected him from
648 his seat, made him suffer the humiliation of having to go to
648 SUPREME COURT REPORTS the tourist class compartment—just to give way to another
ANNOTATED passenger whose right thereto has not been established.
Certainly, this is bad faith. Unless, of course, bad faith has
Ortigas, Jr. vs. Lufthansa German Airlines assumed a meaning different from what is understood in law.
failure of the agents of the defendant to inform the For, ‘bad faith* contemplates a ‘state of mind affirmatively
plaintiffs on time that their reservation for first class operating with furtive design or with some motive of self-
had long before been cancelled by mistake. According to interest or ill will or for ulterior purpose.’ (Words & Phrases,
the Court, such omission placed plaintiffs in a Perm. Ed., Vol. 5, p. 13, citing Warfield Natural Gas Co. vs.
predicament that enabled the company to keep the Allen, 59 S.W. (2d) 534, 538.)
plaintiffs as their passengers in the tourist class, And if the foregoing were not yet sufficient, there is the
thereby retaining the business and promoting the express finding of bad faith in the judgment of the Court of
company’s self-interest at the expense of, First Instance thus:
‘The evidence shows that defendant violated its contract of
embarrassment, discomfort and humiliation on the part transportation with plaintiff in bad faith, with the aggravating
of the plaintiffs. circumstances that defendant’s Manager in Bangkok went to the
In Air France vs. Carrascoso, plaintiff Mr. Rafael
4 extent of threatening the plaintiff in the presence of many
Carrascoso, a civil engineer who was going to Lourdes, passengers to have him thrown out of the airplane to give the
France, as a member of a religious group of pilgrims was ______________
issued by the Philippine Air Lines, as agent of the
defendant Air France, a ticket for first class round trip 4 18 SCRA 155.
from Manila to Rome. From Manila, Carrascoso 649

travelled first class, as per said ticket, but at Bangkok, VOL. 64, JUNE 30, 1975 649
238
Ortigas, Jr. vs. Lufthansa German Airlines that manner. He was, furthermore, carrying a special
‘first class’ seat that he was occupying to, again using the passport issued by the Philippine Government to represent
words of the witness Ernesto G. Cuento, a ‘white man’ whom it and business corporations abroad.
he (defendant’s Manager) wished to accommodate, and the His sickness and the need for him to travel in the most
defendant has not proven that this ‘white man’ had any comfortable manner possible were made known to the
‘better right’ to occupy the ‘first class’ seat that the plaintiff defendant’s employee, but he paid no heed to them. Instead,
was occupying, duly paid for, and for which the he engaged Ortigas in a heated discussion, summarily
corresponding ‘first class’ ticket was issued by the defendant brushed off his protests and pleas, humiliated him, and
to him.’ (R.A., p. 74; italics supplied.) (at pp. 166-167.) tricked him into boarding his employer’s plane, endangering
thereby his health and obliging him to take medicine to
These precedents, as may be seen, apply four-square to forestall an attack.
herein plaintiff’s case. Defendant’s liability for willful There is, finally, evidence that he was discriminated
and wanton breach of its contract of carriage with against because of his nationality, for he was told to yield his
plaintiff is, therefore, indubitable. first class seat to a Belgian only after his passport was
Coming now to the amount that should be awarded examined and his Filipino citizenship must have been noted.
by way of damages to the plaintiff, it is also the teaching 650
of the cases aforecited that defendant is liable not only 650 SUPREME COURT REPORTS
for moral but also for exemplary damages. As earlier ANNOTATED
stated, the court below fixed the compensation for moral Ortigas, Jr. vs. Lufthansa German Airlines
damages at P100,000 and the exemplary at P30,000. “Under the circumstances and measured by the criterion
The Court believes that these amounts are not enough. jurisprudence has followed, the compensation the plaintiff
According to the lower court: should be entitled to receive must be fixed at P100,000.00 as
“Although the plaintiff has not held any elective public office, moral damages, P30,000.00 as exemplary damages or
he has however, a distinguished record as a private citizen, corrective damages, and P20,000.00 as attorney’s fees.” (Pp.
a lawyer, businessman, a civic and religious leader, a 111-113, Record on Appeal.)
member of numerous government boards and organizations
as well as of local and international bodies, and is the We have reviewed the evidence and We are convinced
recipient of awards and citations for outstanding services there is more than ample basis for these findings. But
and achievements. under the circumstances revealed in the record, it is
He was, and still is, moreover suffering from a heart Our considered opinion that the award of moral
ailment and has been advised by his physician to travel first damages should be increased to P150,000.
class because it is more relaxing and comfortable. His We cannot go along with defendant’s pose that in
position as chairman of the boards of directors of the Cuenca the amount awarded was only P20,000, for the
corporation he represented also required that he travel in very obvious reason that in that case what was involved
239
was only one leg of the flight contracted for, namely, however, a distinguished record as a private citizen, a
that from Okinawa to Tokyo, whereas in the case not at lawyer, businessman, a civic and religious leader, a
bar, the offense was repeated four times, at Rome, 651
Cairo, Dharham and Calcutta, with apparent cold VOL. 64, JUNE 30, 1975 651
indifference of defendant’s agents to plaintiff’s plight. Ortigas, Jr. vs. Lufthansa German Airlines
Besides, it appears that Cuenca did not appeal from the member of numerous boards and organizations as well
trial court’s decision fixing said amount, hence there as local and international bodies, and is the recipient of
was no occasion for the Supreme Court to award more. awards and citations for outstanding services and
This was also what happened in the Carrascoso case, achievements.” Indeed, under the proven facts in the
where the plaintiff did not complain against the award record, We cannot regard plaintiff to be in any inferior
of only P25,000-moral-and-P10,000-exemplary position vis-a-vis Vice President Lopez in the highest
damages made by the trial court. It was Air France who circles of Philippine society and in the business and
claimed that these were even excessive. Verily, religious world, not to speak of his standing in
however, such discriminatory acts of the defendants in government officialdom.
those cases which were not only violative of their Besides, there is again the disparity between the
contractual obligations but also offensive to human Lopez case and this one that here the offense, which, as
dignity and national or racial pride constitute about the in Cuenca, is aggravated by the Lufthansa employee at
most justifiable ground for the award of moral damages, Rome1 having falsely noted on the ticket that Ortigas
for the resulting injury therefrom cannot but cause was travelling in economy from Rome to
immense mental anguish, besmirched reputation, Hongkong, was repeated four times in the same trip,
5
wounded feelings, moral shock and social humiliation. namely, in Rome, Cairo, Dharham and Calcutta. More
(See Article 2217 of the Civil Code.) We reiterate, they importantly, unlike in the case of Lopez, Ortigas was
are to be considered as infecting with bad faith the suffering from a weak heart and was under doctor’s
breach of contract committed, under Article 2220 of the advice to travel only in first class, hence, his being
same Code. (Lopez vs. Pan Am., supra.) compelled to stay in economy or tourist class during the
Lufthansa suggests that compared to the P100,000 major part of his trip, must have given him added
awarded to Vice President Lopez in the case apprehensive feelings about his safety. And, moreover,
aforementioned, the P100,000 given by the trial court to it is to be noted that in the Lopez case, which was
Ortigas are “grossly excessive”. It does not appear to Us decided in 1966, aside from taking into account the
to be so. As pointed out by His Honor, “although personal circumstances of the plaintiff, the Court
plaintiff has not held any elective public office, he has, considered “the present rate of exchange and the terms
at which the amount of damages awarded would
240
approximately be in U.S. dollars”, hence, We may not in the plane and expressed apprehension for the safety
justifiably do differently here. of the flight unless Zulueta could be found, ordered the
Furthermore, it may not be amiss to mention here unloading of the bags of the Zuluetas, and when three
that in Zulueta vs. Pan American World Airways, of the four of them had already been unloaded, he
Inc., 43 SCRA 397, the Court awarded the plaintiffs: ordered Zulueta to open them, but the latter refused.
Zulueta, the husband, his wife and a minor daughter, a Another exchange of angry words followed, in the course
total of P775,000 as damages, consisting of P500,000 as of which, according to Zulueta’s evidence, the pilot went
moral, P200,000 as exemplary and P75,000 as to the extent of referring to him and his family as “those
attorney’s fees, apart from actual damages. In that case, monkeys” Ultimately, the plane left without Zulueta,
the Zulueta’s were coming home to Manila from albeit his wife and daughter were on board, because the
Honolulu in a Pan-American plane. At Wake, however, captain refused to allow Zulueta to board until after his
where the plane arrived at 4:00 o’clock in the morning, bags were opened and inspected, which Zulueta refused
Zulueta could not be found at flight time because, entirely to do. Although, said decision is not yet final,
without letting anyone know, not even his wife or because of the pendency of a second motion for
daughter, he had relieved himself, according to him, at reconsideration the Court has not yet resolved, the
the beach behind the terminal. When at last, he was Court has already allowed the partial execution of the
found, the Pan-Am employee who first met him while judgment, thus enabling Zuluetas to collect already one-
walking back from the beach remonstrated him thus: half of the amount or over P335,000, which amount,
“What in the hell according to the concurring and dissenting opinion
______________ there of the writer of the instant decision could be the
5 In Cuenca, supra, his ticket was marked, without his knowledge
least that should anyway be allowed. Of course, the
as W/L or wait-listed despite it had been confirmed. (at p. 1066) Court did not itemize the award but granted the same
to the family as a whole, but it is evident that in the
652
final distribution, Zulueta would get for himself from at
652 SUPREME COURT REPORTS least P150,000 to not more than P200,000. 6
ANNOTATED We hold that the foregoing considerations justify the

Ortigas, Jr. vs. Lufthansa German Airlines increase of the award of moral damages from P100,000
do you think you are? Get on that plane.” This angered to P150,000.
Zulueta who engaged the said employee in an exchange Finally, We have the dispute regarding the amount
of angry words. In the meanwhile, the pilot who had of exemplary damages awarded. In this respect, it is
been tipped by a “man from the State Department”, also Our considered opinion that defendant should pay
a passenger in that flight, that there might be a bomb
241
P100,000 instead of the P30,000 awarded by the trial accompanies a clear breach of contractual obligations of
court. The record of this common carriers whose business is affected with public
_______________ interest and must be directed to serve the convenience
6 the concurring and dissenting opinion of this writer was relative
and comfort of the passengers. When any disregard of
to the resolution denying the first motion for reconsideration. It such laws is committed, the Supreme Court, as the
disputes the right of Zulueta to moral damages for breach of contract interpreter of such laws, must exact the commensurate
in bad faith but recognizes his right to moral damages because of the liability which they contemplate.
inconsiderate and insulting manner he was treated by the employees
of Pan-Am—a quasi delict. Said opinion has already been released but
“Exemplary damages are required by public policy,
it has not yet been published in SCRA. for wanton acts must be repressed. They are an antidote
so that the poison of wickedness may not run through
653
the body politic.” (Report of Code Commission, pp. 75-
VOL. 64, JUNE 30, 1975 653
76) by authority of the decided cases
Ortigas, Jr. vs. Lufthansa German Airlines aforediscussed, acts of similar nature as those herein
7
case taken together with what are revealed in the other involved fall within the category of those justifying the
similar cases decided by this Court, those imposition of exemplary damages pursuant to the codal
aforediscussed, convinces Us that defendant, as an concept just stated.
airline, should be made to pay an amount that can “The rationale behind exemplary or corrective
really serve as a deterrent against a seeming pattern of damages is, as the name implies, to provide an example
indifference and unconcern, and what is worse, of or correction for public good. x x x. In view of its nature,
discrimination for racial reasons, discernible in the it should be imposed in such an amount as to
treatment of air passengers. This is not the first case, sufficiently and effectively deter similar breach of
and unless the proper sanctions are applied, it does not contracts by defendant or other airlines.” (Lopez v. Pan-
appear it is going to be the last yet, of instances wherein American World Airways, supra; see also Rotea vs.
Filipino passengers having validated and confirmed Halili, 109 Phil. 495; People vs. Medroso, Jr., G.R. No.
tickets for first class would be shoved to the economy L-37633, Jan. 31, 1975, 62 SCRA 245; Cotabato
class, over their valid objections and without any regard Timberland Co. Inc. vs. Plaridel Lumber Co., Inc., 13
at all to their feelings and convenience, only to favor SCRA 235) Thus, all
other passengers presumed by the airlines to be of ________________
superior race, hence, deserving preference. It is high
time everyone concerned were made to realize that the 7 Cuenca, Carrascoso and Lopez, supra.
laws of the Philippines do not permit any act of 654
discrimination against its citizens, specially when this
242
654 SUPREME COURT REPORTS outright, for in the final analysis, it raises a factual issue. It
ANNOTATED is elementary that in petitions for review under Rule 45, this
Sta. Ana Hardware & Co. vs. “Y” Shipping Court only passes upon questions of law. An exception
thereto occurs where the findings of fact of the Court of
Corporation Appeals are at variance with the trial court, in which case
relevant matters considered, P100,000 of exemplary the Court reviews the evidence in order to arrive at the
damages, which practically amounts only to not more correct findings based on the records.
than $15,000 U.S. under the present rate of exchange, Same; Evidence; Self-serving evidence is evidence made
would serve the ends for which the liability has been by a party out of court at one time, it does not include a party’s
conceived. testimony as a witness in court.—The argument that
WHEREFORE, the judgment appealed from is Villanueva’s testimony is self-serving and therefore
modified by raising the award of moral and exemplary inadmissible on the lame excuse of his employment with
damages to plaintiff Ortigas to P150,000.00 and private respondent utterly misconstrues the nature of “self-
serving evidence” and the specific ground for its exclusion.
P100,000.00, respectively. In all other respects,
As pointed out by this Court in Co v. Court of Appeals, et al.,
including as to the payment of interests on the said
(99 SCRA 321 [1980]):
amounts, the same is affirmed. _______________
Fernando (Chairman), Antonio, Aquino and Co
ncepcion, Jr., JJ., concur. * THIRD DIVISION.
392
Judgment affirmed with modification.
392 SUPREME COURT
REPORTS ANNOTATED
Cuison vs. Court of Appeals
“Self-serving evidence is evidence made by a party out
of court at one time; it does not include a party’s testimony as
G.R. No. 88539. October 26, 1993. *
a witness in court. It is excluded on the same ground as any
KUE CUISON, doing business under the firm name and hearsay evidence, that is the lack of opportunity for cross-
style “KUE CUISON PAPER SUPPLY,” examination by the adverse party, and on the consideration
petitioner, vs. THE COURT OF APPEALS, VALIANT that its admission would open the door to fraud and to
INVESTMENT ASSOCIATES, respondents. fabrication of testimony. On the other hand, a party’s
testimony in court is sworn and affords the other party the
Remedial Law; Appeal; It is elementary that in petitions opportunity for cross-examination” (italics supplied).
for review under Rule 45, the Court only passes upon Same; Same; Same; If a man’s extrajudicial admissions
questions of law.—This petition ought to have been denied are admissible against him, there seems to be no reason why
243
his admissions made in open court, under oath, should not be [1979]). From the facts and the evidence on record, there is
accepted against him.—Furthermore, consistent with and as no doubt that this rule obtains. The petition must therefore
an obvious indication of, the fact that Tiu Huy Tiac was the fail.
manager of the Sto. Cristo branch, three (3) months after Tiu 393
Huy Tiac left petitioner’s employ, petitioner even sent
VOL. 227, OCTOBER 26, 393
communications to its customers notifying them that Tiu
Huy Tiac is no longer connected with petitioner’s business. 1993
Such undertaking spoke unmistakenly of Tiu Huy Tiac’s Cuison vs. Court of Appeals
valuable position as petitioner’s manager than any uttered Same; Same; Even when the agent has exceeded his
disclaimer. More than anything else, this act taken together authority, the principal is solidarily liable with the agent if
with the declaration of petitioner in-open court amount to the former allowed the latter to act as though he had full
admissions under Rule 130 Section 22 of the Rules of Court, powers.—Taken in this light, petitioner is liable for the
to wit: “The act, declaration or omission of a party as to a transaction entered into by Tiu Huy Tiac on his behalf. Thus,
relevant fact may be given in evidence against him.” For even when the agent has exceeded his authority, the
well-settled is the rule that “a man’s acts, conduct and principal is solidarily liable with the agent if the former
declaration, wherever made, if voluntary, are admissible allowed the latter to act as though he had full powers (Article
against him, for the reason that it is fair to presume that they 1911 Civil Code), as in the case at bar.
correspond with the truth, and it is his fault if they do not. If Same; Estoppel; A party cannot be allowed to go back on
a man’s extrajudicial admissions are admissible against him, his own acts and representations to the prejudice of the other
there seems to be no reason why his admissions made in open party who in good faith relied upon them.—Tiu Huy Tiac,
court, under oath, should not be accepted against him.” therefore, by petitioner’s own representations and
Civil Law; Agency; One who clothes another with manifestations, became an agent of petitioner by estoppel.
apparent authority as his agent and holds him out to the Under the doctrine of estoppel, an admission or
public as such cannot be permitted to deny the authority of representation is rendered conclusive upon the person
such person to act as his agent to the prejudice of innocent making it, and cannot be denied or disproved as against the
third parties dealing with such person in good faith and in person relying thereon (Article 1431, Civil Code of the
the honest belief that he is what he appears to be.—As to the Philippines). A party cannot be allowed to go back on his own
merits of the case, it is a well-established rule that one who acts and representations to the prejudice of the other party
clothes another with apparent authority as his agent and who, in good faith, relied upon them.
holds him out to the public as such cannot be permitted to Same; Same; Same; As between two innocent parties, the
deny the authority of such person to act as his agent, to the one who made it possible for the wrong to be done should be
prejudice of innocent third parties dealing with such person the one to bear the resulting loss.—Finally, although it may
in good faith and in the honest belief that he is what he appear that Tiu Huy Tiac defrauded his principal (petitioner)
appears to be (Macke, et al. v. Camps, 7 Phil. 553 [1907]; in not turning over the proceeds of the transaction to the
Philippine National Bank v. Court of Appeals, 94 SCRA 357 latter, such fact cannot in any way relieve nor exonerate
244
petitioner of his liability to private respondent. For it is an under the laws of the Philippines with business address
equitable maxim that as between two innocent parties, the at Kalookan City.
one who made it possible for the wrong to be done should be From December 4, 1979 to February 15, 1980,
the one to bear the resulting loss. private respondent delivered various kinds of paper
products amounting to P297,487.30 to a certain Lilian
PETITION for review of a decision of the Court of
Tan of LT Trading. The deliveries were made by
Appeals.
respondent pursuant to orders allegedly placed by Tiu
The facts are stated in the opinion of the Court. Huy Tiac who was then employed in the Binondo office
Leighton R. Siazon for petitioner. of petitioner. It was likewise pursuant to Tiac’s
Melanio L. Zoreta for private respondent. instructions that the merchandise was delivered to
Lilian Tan. Upon delivery, Lilian Tan paid for the
BIDIN, J.: merchandise by issuing several checks payable to cash
at the specific request of Tiu Huy Tiac. In turn, Tiac
This petition for review assails the decision of the issued nine (9) postdated checks to private respondent
respondent Court of Appeals ordering petitioner to pay as payment for the paper products. Unfortunately, said
private respondent, among others, the sum of checks were later dishonored by the drawee bank.
P297,482.30 with interest. Said decision reversed the Thereafter, private respondent made several
appealed decision of the trial court rendered in favor of demands upon petitioner to pay for the merchandise in
petitioner. question, claiming that Tiu Huy Tiac was duly
394 authorized by petitioner as the manager of his Binondo
394 SUPREME COURT REPORTS office, to enter into the questioned transactions with
ANNOTATED private respondent and Lilian Tan. Petitioner denied
Cuison vs. Court of Appeals any involvement in the transaction entered into by Tiu
The case involves an action for a sum of money filed by Huy Tiac and refused to pay private respondent the
respondent against petitioner anchored on the following amount corresponding to the selling price of the subject
antecedent facts: merchandise.
Petitioner Kue Cuison is a sole proprietorship Left with no recourse, private respondent filed an
engaged in the purchase and sale of newsprint, bond action against petitioner for the collection of
paper and scrap, with places of business at Baesa, P297,487.30 representing the price of the merchandise.
Quezon City, and Sto. Cristo, Binondo, Manila. Private After due hearing, the trial court dismissed the
respondent Valiant Investment Associates, on the other complaint against petitioner for lack of merit. On
hand, is a partnership duly organized and existing appeal, however, the decision of the trial court was
245
modified, but was in effect reversed by the Court of elementary that in petitions for review under Rule 45,
Appeals, the dispositive portion of which reads: this Court only passes upon questions of law. An
“WHEREFORE, the decision appealed from is MODIFIED in exception thereto occurs where the findings of fact of the
that defendant-appellant Kue Cuison is hereby ordered to Court of Appeals are at variance with the trial court, in
pay plaintiff- which case the Court reviews the evidence in order to
395 arrive at the correct findings based on the records.
VOL. 227, OCTOBER 26, 1993 395 As to the merits of the case, it is a well-established
Cuison vs. Court of Appeals rule that one who clothes another with apparent
appellant Valiant Investment Associates the sum of authority as his agent and holds him out to the public
P297,487.30 with 12% interest from the filing of the as such cannot be permitted to deny the authority of
complaint until the amount is fully paid, plus the sum of 7% such person to act as his agent, to the prejudice of
of the total amount due as attorney’s fees, and to pay the innocent third parties dealing with such person in good
costs. In all other respects, the decision appealed from is faith and in the honest belief that he is what he appears
affirmed.” (Rollo, p. 55) to be (Macke, et al. v. Camps, 7 Phil.
In this petition, petitioner contends that: 553 [1907]; Philippine National Bank v. Court of
“THE HONORABLE COURT ERRED IN FINDING TIU Appeals, 94 SCRA 357 [1979]). From the facts and the
HUY TIAC AGENT OF DEFENDANT-APPELLANT evidence on record, there is no doubt that this rule
CONTRARY TO THE UNDISPUTED/ESTABLISHED obtains. The petition must therefore fail.
FACTS AND CIRCUMSTANCES. It is evident from the records that by his own acts
“THE HONORABLE COURT ERRED IN FINDING and admission, petitioner held out Tiu-Huy Tiac to the
DEFENDANT-APPELLANT LIABLE FOR AN public as the manager of his store in Sto. Cristo,
OBLIGATION UNDISPUTABLY BELONGING TO TIU Binondo, Manila. More
HUY TIAC. 396
“THE HONORABLE COURT ERRED IN REVERSING 396 SUPREME COURT REPORTS
THE WELL-FOUNDED DECISION OF THE TRIAL ANNOTATED
COURT.” (Rollo, p. 19)
The issue here is really quite simple, and that is— particularly, petitioner explicitly introduced Tiu Huy
whether or not Tiu Huy Tiac possessed the required Tiac to Bernardino Villanueva, respondent’s manager,
authority from petitioner sufficient to hold the latter as his (petitioner’s) branch manager as testified to by
liable for the disputed transaction. Bernardino Villanueva. Secondly, Lilian Tan, who has
This petition ought to have been denied outright, for been doing business with petitioner for quite a while,
in the final analysis, it raises a factual issue. It is also testified that she knew Tiu Huy Tiac to be the
246
manager of petitioner’s Sto. Cristo, Binondo branch. Petitioner cites Villanueva’s failure, despite his
This general perception of Tiu Huy Tiac as the manager commitment to do so on cross-examination, to produce
of petitioner’s Sto. Cristo store is even made manifest the very first invoice of the transaction between
by the fact that Tiu Huy Tiac is known in the petitioner and private respondent as another ground to
community to be the “kinakapatid” (godbrother) of discredit Villanueva’s testimony. Such failure,
petitioner. In fact, even petitioner admitted his close petitioner argues, proves that Villanueva was not only
relationship with Tiu Huy Tiac when he said in open bluffing when he pretended that he can produce the
court that they are “like brothers” (Rollo, p. 54). There invoice, but that Villanueva was likewise prevaricating
was thus no reason for anybody especially those when he insisted that
transacting business with petitioner to even doubt the 397
authority of Tiu Huy Tiac as his manager in the Sto. VOL. 227, OCTOBER 26, 1993 397
Cristo, Binondo branch. Cuison vs. Court of Appeals
In a futile attempt to discredit Villanueva, petitioner such prior transactions actually took place. Petitioner is
alleges that the former’s testimony is clearly self- mistaken. In fact, it was petitioner’s counsel himself
serving inasmuch as Villanueva worked for private who withdrew the reservation to have Villanueva
respondent as its manager. produce the document in court. As aptly observed by the
We disagree. The argument that Villanueva’s Court of Appeals in its decision:
testimony is self-serving and therefore inadmissible on “x x x However, during the hearing on March 3, 1981,
the lame excuse of his employment with private Villanueva failed to present the document adverted to
respondent utterly misconstrues the nature of “self- because defendant-appellant’s counsel withdrew his
serving evidence” and the specific ground for its reservation to have the former (Villanueva) produce the
document or invoice, thus prompting plaintiff-appellant to
exclusion. As pointed out by this Court in Co v. Court of
rest its case that same day (t.s.n., pp. 39-40, Sess. of March
Appeals, et al., (99 SCRA 321 [1980]): 3, 1981). Now, defendant-appellant assails the credibility of
“Self-serving evidence is evidence made by a party out of
Villanueva for having allegedly failed to produce even one
court at one time; it does not include a party’s testimony as a
single document to show that plaintiff-appellant and
witness in court. It is excluded on the same ground as any
defendant-appellant have had transactions before, when in
hearsay evidence, that is the lack of opportunity for cross-
fact said failure of Villanueva to produce said document is a
examination by the adverse party, and on the consideration
direct off-shoot of the action of defendant-appellant’s counsel
that its admission would open the door to fraud and to
who withdrew his reservation for the production of the
fabrication of testimony. On the other hand, a party’s
document or invoice and which led plaintiff-appellant to rest
testimony in court is sworn and affords the other party the
its case that very day.” (Rollo, p. 52)
opportunity for cross-examination” (italics supplied).
247
In the same manner, petitioner assails the credibility of “A At first it was Mr. Ang, then later Mr.
Lilian Tan by alleging that Tan was part of an intricate Tiu Huy Tiac but I cannot remember
plot to defraud him. However, petitioner failed to the exact year.
substantiate or prove that the subject transaction was “Q So, Mr. Tiu Huy Tiac took over the
designed to defraud him. Ironically, it was even the management.
testimony of petitioner’s daughter and assistant “A Not that was because every afternoon,
manager Imelda Kue Cuison which confirmed the I was there, sir.
credibility of Tan as a witness. On the witness stand, “Q But in the morning, who takes charge?
Imelda testified that she knew for a fact that prior to “A Tiu Huy Tiac takes charge of
the transaction in question, Tan regularly transacted management and if there (sic) orders
business with her father (petitioner herein), thereby for newsprint or bond papers they are
corroborating Tan’s testimony to the same effect. As always ref erred to the compound in
correctly found by the respondent court, there was no
Baesa, sir.” (t.s.n., p. 16, Session of
logical explanation for Tan to impute liability upon
January 20, 1981, CA decision, Rollo,
petitioner. Rather, the testimony of Imelda Kue Cuison
p. 50, italics supplied).
only served to add credence to Tan’s testimony as
Such admission, spontaneous no doubt, and standing
regards the transaction, the liability for which
alone, is sufficient to negate all the denials made by
petitioner wishes to be absolved.
petitioner regarding the capacity of Tiu Huy Tiac to
But of even greater weight than any of these
enter into the transaction in question. Furthermore,
testimonies, is petitioner’s categorical admission on the
consistent with and as an obvious indication of, the fact
witness stand that Tiu Huy Tiac was the manager of his
that Tiu Huy Tiac was the manager of the Sto. Cristo
store in Sto. Cristo, Binondo, to wit:
branch, three (3) months after Tiu Huy Tiac left
“Court:
petitioner’s employ, petitioner even sent
xxx
398
communications to its customers notifying them that
398 SUPREME COURT REPORTS Tiu Huy Tiac is no longer connected with petitioner’s
ANNOTATED business. Such undertaking spoke unmistakenly of Tiu
Huy Tiac’s valuable position as petitioner’s manager
than any uttered disclaimer. More than anything else,
“Q And who was managing the store in
this act taken together with the declaration of
Sto. Cristo? petitioner in open court amount to admissions under
Rule 130, Section 22 of the Rules of Court, to wit: ‘The
248
act, declaration or omission of a party as to a relevant concomitant obligation is valid and binding upon
fact may be given in evidence against him.” For well- petitioner.
settled is the rule that “a man’s acts, conduct and By his representations, petitioner is now estopped
declaration, wherever made, if voluntary, are from disclaiming liability for the transaction entered
admissible against him, for the reason that it is fair to into by Tiu Huy Tiac on his behalf. It matters not
presume that they correspond with the truth, and it is whether the representations are intentional or merely
his fault if they do not. If a man’s extrajudicial negligent so long as innocent third persons relied upon
admissions are admissible against him, there seems to such representations in good faith and for value. As
be no reason why his admissions made in open court, held in the case of Manila Remnant Co., Inc. v. Court of
under oath, should not be accepted against him.” (U.S. Appeals, (191 SCRA 622 [1990]):
vs. Ching Po, 23 Phil. 578, 583 [1912]). “More in point, we find that by the principle of estoppel,
Moreover, petitioner’s unexplained delay in Manila Remnant is deemed to have allowed its agent to act
disowning the transactions entered into by Tiu Huy as though it had plenary powers. Article 1911 of the Civil
Tiac despite several attempts made by respondent to Code provides:
‘Even when the agent has exceeded his authority, the
collect the amount from him, proved all the more that
principal is solidarily liable with the agent if the former
petitioner was aware of the questioned transactions.
allowed the latter to act as though he had full powers.’
Such omission was tantamount to an admission by (Italics supplied).
silence under Rule 130 Section 23 of the Rules of Court, The above-quoted article is new. It is intended to protect
thus: “Any act or declaration made in the presence of the rights of innocent persons. In such a situation, both the
and within the principal and the agent may be considered as joint
399 tortfeasors whose liability is joint and solidary.
VOL. 227, OCTOBER 26, 1993 399 Authority by estoppel has arisen in the instant case
Cuison vs. Court of Appeals because by its negligence, the principal, Manila Remnant,
observation of a party who does or says nothing when has permitted its agent, AU. Valencia and Co., to exercise
the act or declaration is such as naturally to call for powers not granted to it. That the principal might not have
had actual knowledge of the agent’s misdeed is of no
action or comment if not true, may be given in evidence
moment.”
against him.”
All of these point to the fact that at the time of the Tiu Huy Tiac, therefore, by petitioner’s own
transaction, Tiu Huy Tiac was admittedly the manager representations and manifestations, became an agent of
of petitioner’s store in Sto. Cristo, Binondo. petitioner by estoppel. Under the doctrine of estoppel,
Consequently, the transaction in question as well as the an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or
249
disproved as against the person relying thereon (Article WHEREFORE, the instant petition is hereby
1431, Civil Code of the Philippines). A party cannot be DENIED for lack of merit. Costs against petitioner.
allowed to go back on his own acts and representations SO ORDERED.
to the prejudice of the other party who, in good faith,
relied upon them (Philippine National Bank v.
Intermediate Appellate Court, et
400
ANNOTATED No. L-32473. July 31, 1973.
Cuison vs. Court of Appeals IGNACIO VICENTE and MOISES ANGELES,
al., 189 SCRA 680 [1990]). petitioners, vs. HON. AMBROSIO M. GERALDEZ, as
Taken in this light, petitioner is liable for the Judge of the Court of First Instance of Bulacan, Branch
transaction entered into by Tiu Huy Tiac on his behalf. V (Sta. Maria), and HI CEMENT CORPORATION,
Thus, even when the agent has exceeded his authority, respondents.
the principal is solidarity liable with the agent if the No. L-32483. July 31, 1973.
former allowed the latter to act as though he had full JUAN BERNABE, petitioner, vs. HI CEMENT
powers (Article 1911 Civil Code), as in the case at bar. CORPORATION and THE HON. AMBROSIO M.
Finally, although it may appear that Tiu Huy Tiac GERALDEZ, Presiding Judge, Branch V, Court of First
defrauded his principal (petitioner) in not turning over Instance of Bulacan, respondents.
the proceeds of the transaction to the latter, such fact
cannot in any way relieve nor exonerate petitioner of his Civil procedure; Civil
liability to private respondent. For it is an equitable law; Compromise; Attorneys; Attorneys cannot, without
special authority, compromise their client's litigation.—
maxim that as between two innocent parties, the one
Special powers of attorney are necessary, among other cases,
who made it possible for the wrong to be done should be in the following: to compromise and to renounce the right to
the one to bear the resulting loss (Francisco vs. appeal from a judgment. Attorneys have authority to bind
Government Service Insurance System, 7 SCRA their clients in any case by any agreement in relation thereto
577 [1963]). made in writing. and in taking appeals, and in all matters of
Inasmuch as the fundamental issue of the capacity ordinary judicial procedure, but they cannot, without special
or incapacity of the purported agent Tiu Huy Tiac, has authority, compromise their clients' litigation, or receive
already been resolved, the Court deems it unnecessary anything in discharge of their clients' claims but the full
to resolve the other peripheral issues raised by amount in cash. The compromised agreement dated January
petitioner.
250
30, 1969 was signed only by lawyers for petitioners and by Same; Compromise; Mere verbal assertion of counsel he
the lawyers for the private respondent was authorized to compromise not sufficient to bind client.—
211 Petitioners claim that private respondent's attorneys
admitted twice in open court that they were authorized to
VOL. 52, JULY 31, 1973 211
compromise their client's case. On the other hand, said
Vicente vs. Geraldez respondent's counsels denied that they ever represented to
corporation. It is not disputed that the lawyers of the court that they were authorized to enter into a
respondent corporation had not submitted to the Court any compromise. Nowhere does it appear in the stenographic
written authority from heir client to enter into a compromise. notes that respondent's lawyers ever made such
The compromise agreement is not binding upon the representation. In any event, assuming arguendo that they
respondent corporation. did, such a self-serving assertion cannot properly be the basis
Same; Same; Same; Same; Attorney's authority to for the conclusion that the respondent corporation had in fact
compromise client's claim should be duly established by authorized its lawyers to compromise the litigation.
evidence.—This Court has said that the Rules "require, for Same; Same; Corporation law; Mere fact that
attorneys to compromise the litigation of their clients, a administrative manager of a corporation signed compromise
special authority. And while the same does not state that the agreement not conclusive proof was authorized by corporate
special authority be in writing, the same be duly established board of directors to do so.—The infirmity of the argument,
by evidence other than the self-serving assertion of counsel that there was tacit ratification on the part of the corporation
himself that such authority was verbally given him." of the compromise agreement because it nominated Mr.
Same; Corporation law; Compromise; In corporations, Larry Marquez as its
power to settle claims vested in board of directors.—The law 212
specifically requires that "juridical persons may compromise
only in the form and with the requisites which may be 212 SUPREME COURT
necessary to alienate their property." Under the corporation REPORTS ANNOTATED
law the power to compromise or settle claims in favor of or Vicente vs. Geraldez
against the corporation is ordinarily and primarily commissioner (to determine value of land in dispute)
committed to the board of directors. This power may however and Atty. Florentino V. Cardenas, the corporation's
be delegated either expressly or impliedly to other corporate administrative manager, not only did not object but even
officials or agents. Thus, it has been stated, that as a general affixed his signature to the agreement, is in their assumption
rule, an officer or agent of the corporation has no power to that Atty. Cardenas as administrative manager had
compromise or settle a claim by or against the corporation, authority to bind the corporation or to compromise the case.
except to the extent that such power is given to him either Whatever authority the officers or agents of a corporation
expressly or by reasonable implication from the may have is derived from the board of directors, or other
circumstances. governing body, unless conferred by the charter of the
corporation. A corporate officer's power as an agent of the
251
corporation must therefore be sought from the statute, the misrepresentation. —Equally inapposite is petitioners'
charter, the by-laws, or in a delegation of authority to such invocation of the principle of estoppel. In the case at bar,
officer, from the acts of the board of directors, formally except those made by Attys. Ventura, Cardenas and
expressed or implied from a habit or custom of doing Magpantay, petitioners have not demonstrated any act or
business. In the case at bar no provision of the charter and declaration of the corporation amounting to
bylaws of the corporation or any resolution or any other act 213
of the board of directors has been cited from which we could
VOL. 52, JULY 31, 1973 213
reasonably infer that the administrative manager had been
granted expressly or impliedly the power to bind the Vicente vs. Geraldez
corporation or the authority to compromise the case. The false representation or concealment of material facts
signature of Atty. Cardenas on the agreement would calculated to mislead said petitioners. The acts or conduct for
therefore be legally ineffectual. which the corporation may be liable under the doctrine of
As regards the nomination of Mr. Marquez as estoppel must be by those of the corporation, its governing
commissioner, counsel for respondent corporation has body or authorized officers, and not those of the purported
explained, and this has not been disproven, that Atty. agent who is himself responsible for the misrepresentation.
Cardenas, apparently on his own, submitted the same to the
ORIGINAL ACTION in the Supreme Court. Certiorari
court. There is no iota of proof that when Mr. Marquez' name
was submitted, the respondent corporation knew of the with preliminary injunction.
contents of the compromise agreement. The facts are stated in the opinion of the Court.
Same; Same; Same; When unauthorized acts of agent Librado S. Correa for petitioners Ignacio Vicente
binding upon corporation. —Inorder to ratify the and Moises Angeles.
unauthorized act of an agent and make it binding on the Francisco R. Capistrano and Andreciano F.
corporation, it must be shown that the governing body or Caballero for petitioner Juan Bernabe.
officer authorized to ratify had full and complete knowledge Renato L. Cayetano and Jesus G. Diaz for
of all the material facts connected with the transaction to respondent HI Cement Corporation.
which it relates. It cannot be assumed also that Atty.
Cardenas, as administrative manager of the corporation, had ANTONIO, J.:
authority to ratify. For ratification can never be made on the
part of the corporation by the same persons who wrongfully There are two original actions of certiorari with prayer
assume the power to make the contract, but the ratification for preliminary injunction wherein petitioners seek to
must be by the officer or governing body having authority to annul the orders dated April 24, May 18, and July 18,
make such contract, and, as we have seen, must be with full
1970 of respondent Judge of the Court of First Instance
knowledge.
Same; Same; Same; Estoppel; Corporation cannot be
of Bulacan in Civil Case No. SM-201. (Hi Cement
estopped for acts of an agent who is responsible for the Corporation vs. Juan Bernabe, Ignacio Vicente and
252
Moises Angeles). The two cases are herein decided had requested the defendants to allow its workers to
jointly because they proceed from the same case and enter the area in question for exploration and
involve in substance the same.question of law. development purposes as well as for the extraction of
On September 9, 1967 herein private respondent Hi minerals therefrom, promising to pay the defendants
Cement Corporation filed with the Court of First reasonable amounts as damages, but the defendants
Instance of Bulacan a complaint for injunction and refused to allow entry of the plaintiffs representatives;
damages against herein petitioners Juan Bernabe, that the defendants were threatening the plaintiffs
Ignacio Vicente and Moises Angeles. In said complaint workers with bodily harm if they entered the premises,
the plaintiff alleged that it had acquired on October 27, for which reason the plaintiff had suffered irreparable
1965, Placer Lease Contract No. V-90, from the damages due to its failure to work on and develop its
Banahaw Shale Mining Association, under a deed of claims and to extract minerals therefrom, resulting in
sale and transfer which was duly registered with the its inability to comply with its contractual
Office of the Mining Recorder of Bulacan on November commitments, for all of which reasons the plaintiff
4, 1965 and duly approved by the Secretary of prayed the court to issue preliminary writs of
Agriculture and Natural Resources on December 15, mandatory injunction perpetually restraining the
1965; that the said Placer Lease defendants and those cooperating with them from the
214 commission or continuance of the acts complained of,
214 SUPREME COURT REPORTS ordering defendants to allow plaintiff, or its agents and
ANNOTATED workers, to enter, develop and extract minerals from
Vicente vs. Geraldez the areas claimed by defendants, to declare the
Contract No. V-90 was for a period of twenty-five years injunction permanent after hearing, and to order the
commencing from August 1, 1960 and covered two defendants to pay damages to the plaintiff in the
mining claims (Red Star VIII & IX) with a combined amount of P200,000.00, attorney's fees, expenses of
area of about fifty-one hectares; that within the limits litigation and costs.
of Placer Mining Claim Red Star VIII are three parcels On September 12, 1967 the trial court issued a
of land claimed by the defendants Juan Bernabe (about restraining order and required the defendants to file
two hectares), Ignacio Vicente (about two hectares), and their answers. The defendants filed their respective
Moises Angeles (about one-fourth hectare); that the answers, which contained the usual admissions and
plaintiff had, on several occasions, informed the denials and interposed special and affirmative defenses,
defendants, thru its representatives, of the plaintiffs namely, among others, that they are the rightful owners
acquisition of the aforesaid placer mining claims which of certain portions of the land covered by the supposed
included the areas occupied by them; that the plaintiff mining claims of the plaintiff; that it was the plaintiff
253
and its workers who had committed acts of force and 1. "1.In the attached survey plan, the area covered
violence when they entered into and intruded upon the and embraced full and heavy lines is the Placer
215 Mining Claims of the Plaintiff containing an
VOL. 52, JULY 31, 1973 215 area of 107 hectares while the area bounded by
Vicente vs. Geraldez finebroken lines are the properties of the
defendants' lands; and that the complaint failed to state Defendants.
a cause of action. The defendants set up counter-claims 2. "2.The property of the Defendant MOISES
against the plaintiff for actual and moral damages, as ANGELES, consisting of two (2) parcels known
well as for attorney's fees. as Lot 1-B and Lot 2 of Psu-103374, both
In another pleading filed on the same date, described in O.C.T. No. 0-1769 with a total area
defendant Juan Bernabe opposed the issuance of a writ of 34.984 square meters were totally covered by
of preliminary mandatory or prohibitory injunction. In the Claims of the Plaintiff.
its Order dated September 30, 1967, the trial court, 3. "3.The property of the Defendant IGNACIO
however, directed the issuance of a writ of preliminary VICENTE, containing an area of 32,619 square
mandatory injunction upon the plaintiff s posting of a meters, is also inside the Claims of the Plaintiff.
bond in the amount of P100,000.00. In its order, the 4. "4.The property of the Defendant JUAN
court suggested the relocation of the boundaries of the BERNABE known as Psu-178969, described in
plaintiff s claims in relation to the properties of the O.C.T. No. 0-2050 is partially covered by the
defendants, and to this end named as Commissioner, a Claims of the Plaintiff and the area affected is
Surveyor from the Office of the District Engineer of 57,539 square
Bulacan to relocate the boundaries of the plaintiff s
mining claims, to show in a survey plan the location of 216
the areas thereof in conflict with the portions whose 216 SUPREME COURT REPORTS
ownership is claimed by the defendants and to submit ANNOTATED
his report thereof to the court on or before October 31, Vicente vs. Geraldez
1967. The court also directed the parties to send their
representatives to the place of the survey on the date 1. meters."
thereof and to furnish the surveyor with copies of their
titles. The Commissioner submitted his report to the In an Order issued on December 14, 1967, the court
Court on November 24, 1967 containing the following f approved the report "with the conformity of all the
indings: parties in this case."
254
Thereafter, on April 2,1968 plaintiff HI Cement Corporation denying the averments concerning him in the amended
filed a motion to amend the complaint "so as to conform to complaint.
the facts brought out and/or impliedly admitted in the pre- The respective counsels of the parties then conferred
trial." This motion was granted by the court on April 6, 1968. among
Accordingly, on October 21, 1968, the plaintiff filed its 217
amended complaint. The amendments consisted in the VOL. 52, JULY 31, 1973 217
statement of the correct areas of the land belonging to
Vicente vs. Geraldez
defendants Bernabe (57,539 square meters), Vicente (32,619
square meters) and Angeles (34,984 square meters), as well themselves on the possibility of terminating the case by
as the addition of allegations to the effect, among others, that compromise, the defendants having previously signified
at the pre-trial the defendants Angeles and Vicente declared their willingness to sell to the plaintiff their respective
their willingness to sell to the plaintiff their properties properties at reasonable prices.
covered by the plaintiff s mining claims for P10.00 per square On January 30, 1969 the counsels of the parties
meter, and that when the plaintiff offered to pay only P0.90 executed and submitted to the court for its approval the
per square meter, the said defendants stated that they were following Compromise Agreement:
willing to go to trial on the issue of what would be the "COMPROMISE AGREEMENT
reasonable price for the properties of defendants sought to be
taken by plaintiff. With particular reference to defendant "COME NOW the plaintiff and the defendants, represented
Bernabe, the amended complaint alleged that the said by their respective counsel, and respectfully submit the
defendant neither protested against nor prohibited the following agreement:
predecessor-in-interest of the plaintiff from prospecting,
discovering, locating and contracting minerals from the 1. "1.That the plaintiff is willing to buy the properties
aforementioned claims, or from conducting the survey subject of litigation, and the defendants are willing
thereon, or filed any opposition against the application for to sell their respective properties;
lease by the Red Star Mining Association, and that as a 2. "2.That this Honorable Court authorizes the plaintiff
result of the failure of said defendant to object to the acts of and the defendants to appoint their respective
possession or occupation over the said property by plaintiff, commissioners, that is, one for the plaintiff and one
defendant is now estopped from claiming that plaintiff for each defendant;
committed acts of usurpation on said property. The plaintiff 3. "3.That the parties hereby agree to abide by the
prayed the court, among other things, to fix the reasonable decision of the Court based on the findings of the
value of the defendants' properties as reasonable Commissioners;
compensation for any resulting damage. 4. "4.That the fees of the Commissioners shall be paid as
follows:
Defendant Bernabe filed an amended answer
For those appointed by the parties shall be paid by
substantially reproducing his original answer and
255
them respectively; and for the one appointed by the "GREETINGS:
Court, his fees shall be paid pro-rata by the parties;
5. "5.That the names of the Commissioners to be "Please submit the foregoing Compromise Agreement to the
appointed by the parties shall be submitted to the Honorable Court for the consideration and approval
Court on or before February 8, 1969. immediately upon receipt hereof.
"WHEREFORE, the undersigned respectfully pray that VENTURA, CARDENAS & MAGPANTAY
the foregoing agreement be approved.
"Sta. Maria, Bulacan, January 30, 1969. By:
"For the Plaintiff: (Sgd.) FRANCISCO VENTURA
(Sgd.) FRANCISCO VENTURA t/FRANCISCO VENTURA"
t/ FRANCISCO VENTURA On the same date, the foregoing Compromise
218 Agreement was approved by the trial court, which
218 SUPREME COURT REPORTS enjoined the parties to comply with the terms and
ANNOTATED conditions thereof.
Vicente vs. Geraldez Pursuant to the terms of the said compromise
(Sgd.) FLORENTINO V. CARDENAS agreement the counsel of both parties submitted the
t/FLORENTINO V. CARDENAS names of the persons designated by them as their
(Sgd.) ENRIQUETO I. MAGPANTAY respective commissioners, and in conformity therewith,
t/ ENRIQUETO I. MAGPANTAY the trial court, in its Order dated February 26, 1969,
appointed the following as Commissioners: Mr. Larry G.
"For Juan Bernabe: Marquez, to represent the plaintiff; Mr. Demetrio M.
Aquino, to represent defendant Bernabe; Mr. Moises
(Sgd.) ANDRECIANO F. CABALLERO
t/ ANDRECIANO F. CABALLERO Correa, to represent defendant Angeles; Mr. Santiago
Cabungcal, to
"For Ignacio Vicente and 219
Moises Angeles: VOL. 52, JULY 31, 1973 219
Vicente vs. Geraldez
(Sgd.) CONRADO MANZANO represent defendant Vicente; and Mr. Liberato
t/ CONRADO MANZANO Barrameda, to represent the court, and directed that
"The Clerk of Court said Commissioners should appear before the court on
CFI, Sta. Maria, Bulacan March 17, 1969, to take their oath and qualify as such
Commissioners, and then meet on March 31, 1969 in
256
the court for their first session and to submit their nominated by the said defendant, the price
report not later than April 30, 1969. recommended was P50.00 per square meter. The
On September 15, 1969, Commissioner Liberato Commissioners named by defendants Vicente and
Barrameda submitted to the court for its approval a Angeles recommended P15.00 per square meter for the
Consolidated Report, containing the three reports of the lands owned by the said two defendants, while the
Commissioners of the plaintiff and the three Commissioner named by the plaintiff recommended
defendants, together with an analysis of the said P0.65 per square meter for Vicente's land, and P0.55 per
reports and a summary of the important facts and square meter for Angeles' land.
conclusions. The following unit prices for the three On October 21, 1969, Atty. Francisco Ventura, one of
defendants' properties were recommended in the the three lawyers for plaintiff HI Cement Corporation,
Consolidated Report: filed with the trial court a manifestation stating that on
September 1,
1. "A -JUAN BERNABE at P12.00 per square 220
meter, wherefrom plaintiff has been extracting 220 SUPREME COURT REPORTS
its first output, and would still continue to ANNOTATED
extract therefrom as the property consists of a Vicente vs. Geraldez
mountain of limestone and shale; 1969 he sent a copy of the Compromise Agreement to
2. "B -IGNACIO VICENTE: Mr. Antonio Diokno, President of the corporation,
requesting the latter to intercede with the Board of
1. a)60% or 19,571.4 sq. m. (mineral land) at P12.00 Directors for the confirmation or approval of the
per sq. m. commitment made by the plaintiff s lawyers to abide by
2. b)40% or 13,047.6 sq. m. (riceland) at P8.00 per the decision of the court based on the reports of the
sq. m. Commissioners; and that on October 15, 1969 he
received a letter from Mr. Diokno, a copy of which was
1. "C—MOISES ANGELES (riceland) at P8.00 per attached to the manifestation. In that letter Mr. Diokno
sq. m." said:
"While I realize your interest in cooperating with the Court
It is worthy of note that in the individual report of the in its desire to expedite the disposition of the case, this
Commissioner nominated by plaintiff HI Cement commitment would deprive us of the right to appeal if we do
Corporation, the price recommended for defendant not agree with the valuation set by the Court. Our Board,
Juan Bernabe's property was P0.60 per square meter, therefore, cannot waive its rights; only when it knows the
while in the individual report of the Commissioner value set by the Court on the properties can it decide whether
to abide by it or appeal therefrom. I would like to stress that,
257
under the law, the compromise agreement requires the parties and approved by the court, hence, was binding
express approval of our Board of Directors to be binding on and conclusive upon the parties; and that the
our corporation. Such an approval, I regret to say, cannot be nomination by the plaintiff of Mr. Larry G. Marquez as
obtained at this time." its Commissioner pursuant to the Compromise
On November 5, 1969, defendant Bernabe filed an Agreement, was a clear indication of the plaintiff s tacit
answer to Atty. Ventura's manifestation, praying the approval of the terms and conditions of the Compromise
court to ignore, disregard and, if possible, order striken Agreement, if not an implied ratification of Atty.
from the record, the plaintiffs manifestation on the Ventura's acts.
following grounds: that its filing after the Consolidated On March 13, 1970 the court rendered a decision in
Report of the Commissioners had been submitted and which the terms and conditions of the Compromise
approved, and long after the signing of the Compromise Agreement are reproduced, and the Consolidated
Agreement on January 30, 1969, cast suspicion on the Report of the Commissioners is extensively quoted. The
sincerity of the plaintiffs motive; that when the rationale and dispositive portion of the decision read:
Compromise Agreement was being considered, the "What is fair and just compensation?
court inquired from the parties and their respective 'Just compensation includes all elements of value that
inheres in the property. but it does not exceed market value
lawyers if all the attorneys appearing in the case had
fairly determined. The sum required to be paid the owner
been duly authorized and/or empowered to enter into a does not depend upon the usage to which he has devoted his
compromise agreement, and the three lawyers for the land but is to be arrived at upon just consideration of all the
plaintiff answered in the affirmative; that in fact it was uses for which it is suitable. The highest and most profitable
Atty. Ventura himself who prepared the draft of the use for which the property is adoptable and needed or likely
Compromise Agreement in his own handwriting and to be needed in the reasonably near future is to be
was the first to sign the agreement; that one of the three considered, not necessarily as the measure of value, but to
lawyers for the plaintiff, Atty. Florentino V. Cardenas, the full extent that the prospect of demand for such use
who also signed the Compromise Agreement, was the affects the market value while the property is privately held.'
official representative, indeed was an executive official, "The term fair and just compensation as applied in
of plaintiff corporation; that the Compromise expropriation or eminent domain proceedings need not
necessarily be applied in the present case. In expropriation
Agreement, having been executed pursuant to a pre-
proceedings the government is the party involved and its use
trial conference, partakes the nature of a stipulation of is for public purpose. In the instant case, however. private
facts mutually agreed upon by the parties are involved and the use of the land is a private
221
venture and for profit.
VOL. 52, JULY 31, 1973 221 "It appears that defendants' properties are practically
Vicente vs. Geraldez adjacent to plaintiffs plant site. It also appears that
258
practically all the surrounding areas were acquired by the mining law, coupled with the fact that the plaintiff had
plaintiff by purchase. already taken advantage of the properties even long before
"In the report submitted by the commissioner the rightful acquisition of the same, this Court believes that
representing the plaintiff. it is claimed that the surrounding the just and fair market value of the land should be in the
areas were acquired thru purchase by the plaintiff in the amount of P15.00 per square meter.
amount of less than P1.00 per square meter, On the other "In view of the above findings, the plaintiff pursuant to
hand, it appears from the reports submitted by the the compromise agreement, is hereby ordered to pay the
commissioners representing the defendants that there were defendants the amount of P15.00 per square meter for the
some subject properties, and upon full payment, the restraining
order earlier issued by this Court shall be deemed lifted."
222
222 SUPREME COURT REPORTS On March 23, 1970 defendant Juan Bernabe filed an
ANNOTATED urgent motion for execution of judgment anchored on
Vicente vs. Geraldez the proposition that the judgment, being based on a
recorded sales around the area from P20.00 to P25.00 per compromise agreement, is not appealable and is, on the
square meter and there were subdivision lots which other hand, immediately executory. The other two
command even higher prices. defendants, Moises Angeles and Ignacio Vicente,
"The properties are reported to consist of mineral land likewise filed their respective motions for execution.
which are rocky and barren containing limestone and shale. These motions were granted by the court in its Order of
From the viewpoint of the owners their property which is April 14, 1970.
described as rocky and barren mineral land must necessarily
On April 17, 1970 the plaintiff filed a motion for
command a higher price, and this Court believes that the
plaintiff will adopt the same attitude from the viewpoint of reconsideration of the April 14, 1970 Order, alleging
its business. that it had
223
"While it may be true that the plaintiff acquired
properties within the area in question at a low price, we VOL. 52, JULY 31, 1973 223
cannot overlook the fact that this was so at the time when Vicente vs. Geraldez
plaintiff corporation was not yet in operation and that the an opposition to the defendants' motions for execution,
land owners were not as yet aware of the potential value of and that the Compromise Agreement had been
their landholdings. repudiated by the plaintiff corporation through its Vice
"Irrespective of the different classifications of the President, as earlier manifested by the plaintiff. The
properties owned by the defendants, and considering the plaintiff prayed for ten days from the date of the
benefits that will enure to the plaintiff and bearing in mind
hearing of the motion within which to file its written
the.property rights and privileges to which the property
owners are entitled both under the constitution and the
opposition to the motions for execution. Defendant Juan
259
Bernabe filed an opposition to the plaintiffs motion on On May 9, 1970 the plaintiff filed an opposition to
April 21, 1970. the motions for execution of judgment, on the grounds
On April 22, 1970 the plaintiff filed with the court a that the decision dated March 13, 1970 is contrary to
motion for new trial on the ground that the decision of law for it is based on a compromise agreement executed
the court dated March 13, 1970 is null and void because by the plaintiff s lawyers who had no special power of
it was based on the Compromise Agreement of January attorney as required by Article
30, 1969 which was itself null and void for want of a 224
special authority by the plaintiff s lawyers to enter into 224 SUPREME COURT REPORTS
the said agreement. The plaintiff also prayed that the ANNOTATED
decision dated March 13, 1970 and the Order dated Vicente vs. Geraldez
April 14, 1970 granting the defendants' motions for 1878 of the Civil Code, or any special authority as
execution, be set aside. Defendant Juan Bernabe filed required by Section 23, Rule 138 of the Rules of Court;
on April 27, 1970 an opposition to the plaintiff s motion and that the judgment is void for lack of jurisdiction of
on the grounds that the decision of the court is in the court because. the same is based on a void
accordance with law, for three lawyers for the plaintiff compromise agreement.
signed the Compromise Agreement, and one of them, On May 18, 1970 the court issued an Order setting
Atty. Cardenas, was an official representative of aside its decision dated March 13, 1970, denying the
plaintiff corporation, hence, when he signed the defendants' motions for execution of judgment, and
Compromise Agreement, he did so in the dual capacity setting for June 23, 1970 a pretrial conference in the
of lawyer and representative of the management of the case. The three defendants moved for reconsideration,
corporation; that the plaintiff itself pursued, enforced but their motions were denied in an Order dated July
and implemented the agreement by appointing Mr. 18, 1970.
Larry Marquez as its duly accredited Commissioner; It is in these factual premises that the defendants in
and that the plaintiff is conclusively bound by the acts Civil Case No. SM-201 came to this Court by means of
of its lawyers in entering into the Compromise the present petitions. In G.R. No. L-32473, petitioners
Agreement. Vicente and Angeles pray this Court to issue a writ of
In the meantime, or on April 24, 1970, the court preliminary injunction, and, after hearing, to annul and
issued an Order setting aside its Order of April 14, 1970 set aside the Order dated May 18, 1970 issued by
under which the defendants' motions for execution of respondent Judge setting aside the decision dated
judgment had been granted, and gave the plaintiff ten March 13, 1970; to declare the said decision legal,
days within which to file an opposition to the effective and immediately executory; to dissolve the
defendants' motions for execution. writ of preliminary mandatory injunction issued by
260
respondent Judge on September 30, 1967 commanding judgment. Attorneys have authority to bind their clients
1
petitioners to allow private respondent to enter their in any case by any agreement in relation thereto made
respective properties and excavate thereon; to make the in writing, and in taking appeals, and in all matters of
preliminary injunction permanent; and to award treble ordinary judicial procedure, but they cannot, without
costs in favor of petitioners and against private special authority/compromise their clients' litigation, or
respondent. In G.R. No. L-32483, petitioner Juan receive anything in discharge of their clients' claims but
Bernabe prays this Court to issue a writ of preliminary the full amount in cash. 2
injunction or, at least a temporary restraining order, The Compromise Agreement dated January 30, 1969
and, after hearing, to annul and set aside the Order was signed only by the lawyers for petitioners and by
dated April 24, 1970 issued by respondent Judge setting the lawyers for private respondent corporation. It is not
aside his Order of April 14, 1970 and allowing private disputed that the lawyers of respondent corporation
respondent to file an opposition to petitioners' motion had not submitted to the Court any written authority
for execution, the Order dated May 18, 1970, and the from their client to enter into a compromise.
Order dated July 18, 1970. Petitioner Bernabe also This Court has said that the Rules "require, for
3
seeks the reinstatement of the trial court's decision attorneys to compromise the litigation of their clients, a
dated May 13, 1970 and its Order dated April 14, 1970 special authority. And while the same does not state
granting his motion for execution of judgment, and an that the special authority be in writing the court has
award in his favor of attorney's fees and of actual, moral every reason to expect that, if not in writing, the same
and exemplary damages. be duly established by evidence other than the self-
At issue is whether the respondent court, in setting serving assertion of counsel himself that such authority
aside its decision of March 13, 1970 and denying the was verbally given him." 4
motions for execution of said decision, had acted 2. The law specifically requires that "juridical
without or in excess of its jurisdiction or with grave persons may compromise only in the form and with the
abuse of discretion. We hold that requisites which may be necessary to alienate their
225 property." Under the corporation law the power to
5
VOL. 52, JULY 31, 1973 225 compromise or settle claims in favor of or against the
Vicente vs. Geraldez corporation is ordinarily and primarily committed to
said court did not, in view of the following the Board of Directors. The right of the Directors "to
considerations: compromise a disputed claim against the corporation
1. Special powers of attorney are necessary, among rests upon their right to manage the affairs of the
other cases, in the following: to compromise and to corporation according to their honest and informed
renounce the right to appeal from a judgment and
261
_______________ Bernabe's Answer Dated November 8,1969," said
counsels categorically denied that they ever
1 Article 1878 [3], Civil Code.
2 Rule 138, Section 23, Rules of Court. represented to the court that they were authorized to
3 Ibid. enter into a compromise. Indeed, the complete
4 Home Insurance Company v. United States Lines Co., et al., L-
transcripts of stenographic notes taken at the
25593, November 15, 1967, 21 SCRA 863, 866.
5 Article 2033, New Civil Code.
proceedings on January 30, 1969 are before Us, and
nowhere does it appear therein that respondent
226 corporation's lawyers ever made such a representation.
226 SUPREME COURT REPORTS In any event, assuming arguendo that they did, such a
ANNOTATED self-serving assertion cannot properly be the basis for
Vicente vs. Geraldez the conclusion that the respondent corporation had in
discretion as to what is for the best interests of the fact authorized its lawyers to compromise the litigation.
corporation." This power may however be delegated
6 ________________
either expressly or impliedly to other corporate officials 6 2 Fletcher, Cyclopedia Corporations, 572, 1969 Revised Volume.
or agents. Thus it has been stated, that as a general rule 7 Golden West Credit & Adjustment Co. v. Wilson, 7 P. 2d. 345 119
an officer or agent of the corporation has no power to Cal. App. 627.
compromise or settle a claim by or against the Celeste Sugar Co. v. Dunbar-Dukate Co., 107 So. 493, 160 La 694
corporation, except to the extent that such power is Massachusetts Hospital Life Ins. Co. v. Nesson, 190 N.E. 31, 286
Mass 216.
given to him either expressly or by reasonable Garland Corp. v. Waterloo Loan & Trust Co., 170 N. W. 373 185
implication from the circumstances. It is therefore
7
lowa 190.
necessary to ascertain whether from the relevant facts Wheatland Tube Co. v. McDowell & Co., 176 A. 217 317 Pa 295.
Victoria Park Co. v. Continental Ins. Co. of New York, 178 P.
it could be reasonably concluded that the Board of
Directors of the HI Cement Corporation had authorized 227
its lawyers to enter into the said compromise VOL. 52, JULY 31, 1973 227
agreement. Vicente vs. Geraldez
Petitioners claim that private respondent's attorneys 3. Petitioners however insist that there was tacit
admitted twice in open court on January 30, 1969, that ratification on the part of the corporation, because it
they were authorized to compromise their client's case, nominated Mr. Larry Marquez as its commissioner
which fact, according to them, was never denied by the pursuant to the agreement. paid his services therefor,
said lawyers in any of the pleadings filed by them in the and Atty. Florentino V. Cardenas, respondent
case. The claim is unsupported by evidence. On the corporation's administrative manager, not only did not
contrary, in private respondent's "Reply to Defendant object but even affixed his signature to the agreement.
262
It is also argued that respondent corporation having expressly by the charter, bylaws or action of the stockholders or
directors, or can be implied from powers expressly conferred, or which
represented, through its lawyers, to the court and to are incidental thereto, or where the act is within the apparent powers
petitioners that said lawyers had authority to bind the which the corporation has caused third persons to believe it has
corporation and having induced by such conferred upon the officer or agent. Erie R. Co. v. S.J. Groves & Sons
representations the petitioners to sign the compromise Co., 114 NJL 216, 176 A. 377."
agreement, said respondent is now estopped from 228
questioning the same. 228 SUPREME COURT REPORTS
The infirmity of these arguments is in their ANNOTATED
assumption that Atty. Cerdenas as administrative Vicente vs. Geraldez
manager had authority to bind the corporation or to expressly or impliedly the power to bind the corporation
compromise the case. Whatever authority the officers or or the authority to compromise the case. Absent such
agents of a corporation may have is derived from the authority to enter into the compromise, the signature of
board of directors, or other governing body, unless Atty. Cardenas on the agreement would be legally
conferred by the charter of the corporation. A corporate ineffectual.
of f icer's power as an agent of the corporation must 4. As regards the nomination of Mr. Marquez as
therefore be sought from the statute, the charter, the commissioner, counsel for respondent corporation has
by-laws, or in a delegation of authority to such officer, explained—and this has not been disproven—that Atty.
from the acts of the board of directors, formally Cardenas, apparently on his own, submitted the same
expressed or implied from a habit or custom of doing to the court. There is no iota of proof that at the time of
business. In the case at bar no provision of the charter
8
the submission to the Court, on February 26, 1969, of
and by-laws of the corporation or any resolution or any the name of Mr. Marquez, respondent corporation knew
other act of the board of directors of HI Cement of the contents of the compromise agreement. As matter
Corporation has been cited, from which We could of fact, according to the manifestation of Atty. Ventura
reasonably infer that the administrative manager had to the court, it was only on September 1, 1969 that he
been granted sent to Mr. Antonio Diokno, VicePresident of the
________________
corporation, a copy of the compromise agreement for the
724, 39 Cal. App. 347. approval by the board of directors and on October
8 Board of Liquidators v. Kalaw, L-18805, Aug. 14, 1967, 20 SCRA
22,1969, Mr. Diokno informed him that the approval of
987. the Board cannot be obtained, as under the agreement
2 Fletcher, Cyclopedia Corporations, footnote 70, 301, 1969
Revised Volume: the corporation is deprived of its right to appeal from
"A corporation is bound by the act of an officer or agent only to the the judgment.
extent that the power to do the act has been conferred upon him
263
In the absence of any proof that the governing body contract and, as we have seen, must be with full
of respondent corporation had knowledge, either actual knowledge." 10
or constructive, or the contents of the compromise 5. Equally inapposite is petitioners' invocation of the
agreement before September 1, 1969, why should the principle of estoppel. In the case at bar, except those
nomination of Mr. Marquez as commissioner, by Attys. made by Attys. Ventura, Cardenas and Magpantay,
Ventura, Cardenas and Magpantay, on February 26, petitioners have not demonstrated any act or
1969, be considered as a form of tacit ratification of the declaration of the corporation amounting to false
compromise agreement by the corporation? In order to representation or concealment of material facts
ratify the unauthorized act of an agent and make it calculated to mislead said petitioners. The acts or
binding on the corporation, it must be shown that the conduct for which the corporation may be liable under
governing body or officer authorized to ratify had full the doctrine of estoppel must be those of the
and complete knowledge of all the material facts corporation, its governing body or authorized officers,
connected with the transaction to which it relates. It 9 and not those of the purported agent who is himself
cannot be assumed also that responsible for the misrepresentation. 11
________________ It having been found by the trial court that "the

9 "In order to ratify the unauthorized act of an agent and make it
counsel for
________________
effectual and obligatory upon the principal, the general rule is that the
ratification must be made by the principal with a full and complete
1052, 1969 Revised Volume).
knowledge of all the material facts connected with the transaction to 10 "Ratification can never be made on the part of the corporation by
which it relates; and this rule applies, of course, to ratification by a
the same persons who wrongfully assume the power to make the
corporation of an unauthorized contract or other act by its officers or
contract, but the ratification must be by the officer or governing body
agents, whether the ratification is by the stockholders or by the
having authority to make such contract and, as we have seen, must be
directors, or by a subordinate officer having authority to ratify." (2
with full knowledge. Accordingly, a corporate officer or agent cannot
Fletcher, Cyclopedia Corporations, 1049
ratify an unauthorized act or contract done or entered into by himself
229 so as to bind the corporation. In other words, one who makes an
VOL. 52, JULY 31, 1973 229 unauthorized contract has no more right to ratify their own
unauthorized acts; even though they constitute a majority of the
Vicente vs. Geraldez directors or of the stockholders, and a board of directors, the majority
Atty. Cardenas, as administrative manager of the of which were the members of a preceding board which authorized or
corporation, had authority to ratify. For ratification can entered into an illegal contract, cannot ratify it, since this would be in
effect a ratification of one's own act." (2 Fletcher, Cyclopedia
never be made "on the part of the corporation by the Corporations, 1067-1069, 1969 Revised Volume.)
same persons who wrongfully assume the power to 11 Dr. Beck & Co. v. General Elec. Co., 210 F Supp. 86.
make the contract, but the ratification must be by the Grummit v. Sturgeon Bay Winter Shorts Club, 197 F Supp. 455.
officer or governing body having authority to make such
264
Mannion v. Campbell Soup Co., 243 Cal App 2d 317, 52 Cal Rpts 2 Article 1919
& 6.
Spencer Concrete Products Co. v. City of Spencer, 116 NW 2d 455.
230
VOL. 42, SEPTEMBER 12, 1921 133
Danon vs. Antonio A. Brimo & Co.
ANNOTATED
bility, come within the purview of said Act (No. 2874);
Vicente vs. Geraldez that any provision or provisions in said Act (No. 2874)
the plaintiff entered into the compromise agreement which attempt to restrain the disposition or control of
without the written authority of his client and the latter private lands were null and void and of no effect, and
did not ratify, on the contrary it repudiated and that said Act has no retroactive effect. Therefore, the
disowned the same * * *", We therefore declare that the
12
provisions of said Act cannot be invoked for the purpose
orders of the court a quosubject of these two petitions, of preventing the registration of the parcels of land in
have not been issued in excess of its jurisdictional question in favor of the petitioner herein, upon the
authority or in grave abuse of its discretion. ground that he is not a citizen of the United States or of
WHEREFORE, the petitions in these two cases are the Philippine Islands.
hereby dismissed. Costs against the petitioners. The applicant having, by a large preponderance of
Makalintal, evidence, which was not disputed in any manner,
Actg. C.J., Castro, Teehankee, Barredo, Makasiar and proved that he and his predecessors had been in the
Esguerra, JJ., concur. open, continuous, exclusive, and notorious possession of
Zaldivar, J., is on leave. the lands in question, which were agricultural lands, for
Fernando, J., did not take part. a period of more than ten years prior to the taking effect
Petitions dismissed. of Act No. 926, he is clearly entitled to have all of said
parcels of land registered under the Torrens system.
Therefore, the decree of the lower court is hereby
affirmed, with costs. So ordered.
Araullo, Street, Avanceña, and Villamor, JJ.,
concur.
Judgment affirmed.
——————————
[No. 15823. September 12, 1921]
265
JULIO DANON, plaintiff and appellee, vs. ANTONIO A. is, that the duty assumed by the broker is to bring
BRIMO & CO., defendant and appellant. the minds of the buyer and seller to an agreement for
a sale, and the price and terms on which it is to be
1.AGENCY; BROKERAGE; COMMISSION AGENT NOT
made, and until that is done his right to commissions
ENTITLED TO COMMISSIONS FOR UNSUCCESSFUL
does not accrue. A broker is never entitled to
EFFORTS.—B agreed to pay D a commission of 5 per
commissions for unsuccessful efforts. The risk of a
cent if D could sell B's factory for P1,200,000. No
failure is wholly his. The reward comes only with his
definite period of time was fixed within which D
success.
should effect the sale. D found a person who intended
4.ID.; ID.; ID.—The undertaking to procure a purchaser
to purchase such a factory as B was selling; but
requires of the party so undertaking, not simply to
before such would-be purchaser definitely decided to
name or introduce a person who may be willing to
buy the factory in question at the fixed price of
make any sort of contract in reference to the
P1,200,000, B (the owner of the factory) had effected
property, but to produce a party capable, and who
the sale for P1,300,000 through another broker.
ultimately becomes the purchaser.
Thereafter D brought an action against B to recover
5.ID.; ID.; RIGHT OF PRINCIPAL TO TERMINATE AGENT'S
P60,000 (5% of P,200,000) "for services rendered,"
AUTHORITY.—Where no time for the continuance of
claiming that he could have effected the sale of said
the contract is fixed by its terms, either party is at
factory if B had not sold it to someone else. Held:
134
liberty to terminate it at will, subject only to the
ordinary requirements of good faith. Usually the
134 PHILIPPINE REPORTS broker is entitled to a fair and reasonable
ANNOTATED opportunity to perform his obligation, subject of
Danon vs. Antonio A. Brimo & Co. course to the rightt of the seller to sell independently.
D is not entitled to recover anything; complaint But having been granted him, the right of the
dismissed, and defendant absolved from all liability principal to terminate his authority is absolute and
thereunder. unrestricted, except only that he may not do it in bad
2.ID.; ID.; ID.—The broker must be the efficient agent or faith, and as a mere device to escape the payment of
the procuring cause of the sale. The means employed the broker's commissions.
by him and his efforts must result in the sale. He
must find the purchaser, and the sale must proceed
of Manila. Del Rosario, J.
from his efforts acting as broker.
3.ID.; ID.; ID.—In all cases, under all and varying forms
Claro M. Recto for appellant.
of expression, the fundamental and correct doctrine
266
Canillas & Cardenas for appellee. P60,000, with costs. From that judgment the defendant
appealed to this court.
JOHNSON, J.:
The proof with regard to the authority of the plaintiff
This action was brought to recover the sum of
to sell the factory in question for the defendant, on com-
P60,000, alleged to be the value of services rendered to
mission, is extremely unsatisfactory. It consists solely
the defendant by the plaintiff as a broker. The plaintiff
of the testimony of the plaintiff, on the one hand, and of
alleges that in the month of August, 1918, the
the manager of the defendant company, Antonio A.
defendant company, through its manager, Antonio A.
Brimo, on the other. From a reading of their testimony
Brimo, employed
135
we believe that neither of them has been entirely free
VOL. 42, SEPTEMBER 12, 1921 135 from prevarications. However, after giving due weight
to the finding of the trial court in this regard and after
Danon vs. Antonio A. Brimo & Co.
carefully considering the inherent probability or
him to look for a purchaser of its factory known as "Hol-
improbability of the testimony of each of said witnesses,
land American Oil Co.," for the sum of P1,200,000, pay-
we believe we are approximating the truth in finding:
able in cash; that the defendant promised to pay to the
(1) That Antonio A. Brimo, in a conversation with the
plaintiff, as compensation for his services, a commission
plaintiff, Julio Danon, about the middle of August,.
of five per cent on the said sum of P1,200,000, if the sale
1918, informed the latter that he (Brimo) desired to sell
was consummated, or if the plaintiff should find a pur-
his factory, the Holland American Oil Co., for the sum
chaser ready, able and willing to buy said factory for the
of P1,200,000; (2) that he agreed and promised to pay to
said sum of P1,200,000; that subsequently the plaintiff
the plaintiff a commission of 5 per cent provided the
found such a purchaser, but that the defendant refused
latter could sell said factory for
to sell the said factory without any justifiable motive or 136
reason therefor and without having previously notified 136 PHILIPPINE REPORTS
the plaintiff of its desistance or variation in the price ANNOTATED
and terms of the sale. Danon vs. Antonio A. Brimo & Co.
To that complaint the defendant interposed a
that amount; and (3) that no definite period of time was
general denial. Upon the issue thus presented, the
fixed within which the plaintiff should effect the sale. It
Honorable Simplicio del Rosario, judge, after hearing
seems that another broker, Sellner, was also
and considering the evidence adduced during the trial
negotiating the sale, or trying to find a purchaser for the
of the cause, rendered a judgment in favor of the
same property and that the plaintiff was informed of
plaintiff and against the defendant for the sum of
that fact either by Brimo himself or by someone else; at
least, it is probable that the plaintiff was aware that he
267
was not alone in the field, and his whole effort was to someone else. The evidence does not show that the
forestall his competitor by being the first to find a Santa Ana Oil Mill
purchaser and effect the sale. Such, we believe, was the 137
contract between the plaintiff and the defendant, upon VOL. 42, SEPTEMBER 12, 1921 137
which the present action is based. Damon vs. Antonio A. Brimo & Co.
The next question to determine is whether the had definitely decided to buy the property in question at
plaintiff had performed all that was required of him the fixed price of Pl,200,000. The board of directors of
under that contract to entitle him to recover the said corporation had not resolved to purchase said prop-
commission agreed upon. The proof in this regard is no erty; and even if its president could legally make the
less unsatisfactory. It seems that immediately after purchase without previous formal authorization of the
having an interview with Mr. Brimo, as above stated, board of directors, yet said president does not pretend
the plaintiff went to see Mr. Mauro Prieto, president of that he had definitely and formally agreed to buy the
the Santa Ana Oil Mill, a corporation, and offered to sell factory in question on behalf'of his corporation at the
to him the defendant's property at P1,200,000. The said price stated. On direct examination he testified for the
corporation was at that time in need of such a factory plaintiff as follows:
as the plaintiff was offering for sale, and Mr. Prieto, its "Q. You say that we were going to accept or that it was
president, instructed the manager, Samuel E. Kane, to beneficial for us; will you say to whom you refer, when you
see Mr. Brimo and ascertain whether he really wanted say 'we?'—A. Our company, the Santa Ana Oil Mill.
to sell said factory, and, if so, to get permission from him "Q. And is that company able to pay the sum of
Pl,200,000?—A. Yes, sir.
to inspect the premises. Mr. Kane inspected the factory
"Q. And you accepted it at that price of P1,200,000?— A.
and, presumably, made a favorable report to Mr. Prieto. Surely, because as I already said before, we were in the
The latter asked for an appointment with Mr. Brimo to difficult position of not being able to operate our factory,
perfect the negotiation. In the meantime Sellner, the because of the obstacle placed by the Government.
other broker referred to, had found a purchaser for the "Q. And did you inform Mr. Danon of this acceptance?—
same property, who ultimately bought it for Pl,300,000. A. I did not explain to Mr. Danon."
For that reason Mr. Prieto, the would be purchaser
found by the plaintiff, never came to see Mr. Brimo to On cross-examination the same witness testified:
"Q. What actions did the board of directors of the Santa
perfect the proposed negotiation.
Ana Oil Mill take in order to acquire or to make an offer to
Under the proofs in this case, the most that can be Mr. Brimo of the Holland American Oil Company?—A. But
said as to what the plaintiff had accomplished is, that nothing was effected, because Mr. Danon stated that the
he had found a person who might have bought the property had been sold when I was going to deal with him.
defendant's factory if the defendant had not sold it to
268
"Q. But do you not say that you made an offer of plaintiff had accomplished by way of performance of his
P1,200,000?—A. No; it was Mr. Danon who made the offer contract was, that he had found a person who might
and we were sure to put the deal through because we have have bought the factory in question had not the
bound ourselves." defendant sold it to someone else. (Beaumont vs. Prieto,
The plaintiff claims that the reasons why the sale to 41 Phil., 670; 249 U. S., 554.)
the Santa Ana Oil Mill was not consummated was Under these circumstances it is difficult to see how
because "Mr. Brimo refused to sell to a Filipino firm and the plaintiff can recover anything in the premises. The
preferred an American buyer; that upon learning such plaintiff's action is not one for damages for breach of
attitude of the defendant the plaintiff endeavored to contract; it is an action to recover "the reasonable value"
procure another pur- of services rendered. This is unmistakable both from the
138 plaintiff's complaint and his testimony as a witness
138 PHILIPPINE REPORTS during the trial.
ANNOTATED "Q. And what is the reasonable value of the services you
Danon vs. Antonio A. Brimo & Co. rendered to Mr. Brimo?—A. Five per cent of the price at
which it was sold.
chaser and found a Mr. Leas, who delivered to the plain-
"Q. Upon what do you base your qualification that those
tiff a letter addressed to Mr. Brimo, offering to buy the services were reasonable?—A. First, because that is the
factory in question at P1,200,000, the offer being good common rate in the city, and, secondly, because of the big
for twenty-four hours; that said offer was not accepted gain that he obtained from the sale."
by Brimo because while he was reading the letter of
Leas, Sellner came in, drew Brimo into another room, What benefit did the plaintiff, by his "services,"
and then and there closed the deal at P1,300,000. The bestow upon the defendant to entitle him to recover
last statement is admitted by the defendant. from the
139
Such are the facts in this case, as nearly accurate as
VOL. 42, SEPTEMBER 12, 1921 139
we can gather them from the conflicting evidence before
us. Under those facts, is the plaintiff entitled to recover Damon vs. Antonio A. Brimo & Co.
the sum of P60,000, claimed by him as compensation for latter the sum of P60,000? It is perfectly clear and un-
his services? It will be noted that, according to the disputed that his "services" did not in any way
plaintiff's own testimony, the defendant agreed and contribute towards bringing about the sale of the
promised to pay him a commission of 5 per factory in question. He was not "the efficient agent or
cent provided he (the plaintiff) could sell the factory at the procuring cause of the sale."
P,200,000 ("con tal que V. me venda la fabrica en "The broker must be the efficient agent or the procuring
cause of the sale. The means employed by him and his efforts
P1,200,000"). It will also be noted that all that the
269
must result in the sale. He must find the purchaser, and the Damon vs. Antonio A. Brimo & Co.
sale must proceed from his efforts acting as broker." money with ever so much of devotion to the interest of his
(Wylie vs. Marine National Bank, 61 N. Y., 415, 416, citing: employer, and yet if he fails, if without effecting an
McClure vs. Paine, 49 N. Y., 561; Lloyd vs. Mathews, 51 id., agreement or accomplishing a bargain, he abandons the
124; Lyon vs. Mitchell, 36 id., 235; Briggs vs. Rowe, 4 Keyes, effort, or his authority is fairly and in good faith terminated,
424; Murray vs. Currie, 7 Carr. & Payne, 584; he gains no right to commissions. He loses the labor and
Wilkinson vs. Martin, 8 id., 5.) effort which was staked upon success. And in such event it
matters not that after his failure, and the termination of his
A leading case on the subject is that of
agency, what he has done proves of use and benefit to the
Sibbald vs. Bethlehem Iron Co. (83 N. Y., 378; 38 Am. principal. In a multitude of cases that must necessarily
Rep, 441). In that case, after an exhaustive review of result. He may have introduced to each other parties who
various cases, the Court of Appeals of New York stated otherwise would have never met; he may have created
the rule as follows: impressions, which under later and more favorable
"In all the cases, under all and varying forms of expres- circumstances naturally lead to and materially assist in the
sion, the fundamental and correct doctrine is, that the duty consummation of a sale; he may have planted the very seed
assumed by the broker is to bring the minds of the buyer and from which others reap the harvest; but all that gives him no
seller to an agreement for a sale, and the price and terms on claim. It was part of his risk that failing himself, not
which it is to be made, and until that is done his right to successful in fulfilling his obligation, others might be left to
commissions does not accrue. (McGavock vs. Woodlief, 20 some extent to avail themselves of the fruit of his labors. As
How, 221; Barnes vs. Roberts, 5 Bosw, 73; Holly vs. Gosling, was said in Wylie vs. Marine National Bank (61 N. Y., 416),
3 E. D. Smith, 262; Jacobs vs. Kolff, 2 Hilt, 133; in such a case the principal violates no right of the broker by
Kock vs. Emmerling, 22 How, 72; Corning vs. Calvert, 2 Hilt, selling to the first party who offers the price asked, and it
56; Trundy vs. N. Y. & Hartf. Steamboat Co, 6 Robt, 312; Van matters not that sale is to the very party with whom the
Lien vs. Burns, 1 Hilt, 134.)" broker had been negotiating. He failed to find or produce a
* * * * * * * purchaser upon the terms prescribed in his employment, and
"It follows, as a necessary deduction from the established the principal was under no obligation to wait longer that he
rule, that a broker is never entitled to commissions for might make further efforts. The failure therefore and its con-
unsuccessful efforts. The risk of a failure is wholly his. The sequences were the risk of the broker only. This however
reward comes only with his success. That is the plain must be taken with one important and necessary limitation.
contract and contemplation of the parties. The broker may If the efforts of the broker are rendered a failure by the fault
devote his time and labor, and expend his of the employer; if capriciously he changes his mind after the
140 purchaser, ready anal willing, and consenting to the
140 PHILIPPINE REPORTS prescribed terms, is produced; or if the latter declines to
complete the contract because of some defect of title in the
ANNOTATED
ownership of the seller, some unremoved incumbrance, some
270
defect which is the fault of the latter, then the broker does prevented by the principal. But if the latter acts in good faith,
not lose his commissions. And that upon the familiar not seeking to escape the payment of commissions,
principle that no one can avail but moved fairly by a view of his own interest, he has the
141 absolute right before a bargain is made while negotiations
remain unsuccessful, before commissions are earned, to
VOL. 42, SEPTEMBER 12, 1921 141
revoke the broker's authority, and the latter cannot
Danon vs. Antonio A. Brimo & Co. thereafter claim compensation for a sale made by the
himself of the nonperformance of a condition precedent, who principal, even though it be to a customer with whom the
has himself occasioned its nonperformance. But this broker unsuccessfully negotiated, and even though, to some
limitation is not even an exception to the general rule extent, the seller might justly be said to have availed
affecting the broker's right for it goes on the ground that the 142
broker has done his duty, that he has brought buyer and
seller to an agreement, but that the contract is not 142 PHILIPPINE REPORTS
consummated and fails though the after-fault of the seller. ANNOTATED
The cases are uniform in this respect. (Moses vs. Burling, 31 Damon vs. Antonio A. Brimo & Co.
N. Y., 462; Glentworth vs. Luther, 21 Barb., 147; Van himself of the fruits of the broker's labor." (Ibid. pp. 444, 445
Lien vs. Burns, 1 Hilt., 134.) and 446.)
"One other principle applicable to such a contract as
existed in the present case needs to be kept in view. Where The rule laid down in the foregoing case was adopted
no time for the continuance of the contract is fixed by its terms and followed in the cases of Zeimer vs. Antisell (75 Cal.
either party is at liberty to terminate it at will, subject only to 509), and Ayres vs. Thomas (116 Cal., 140).
the ordinary requirements of good faith. Usually the broker "The undertaking to procure a purchaser requires of the
is entitled to a fair and reasonable opportunity to perform his party so undertaking, not simply to name or introduce a
obligation, subject of course to the right of the seller to sell person who may be willing to make any sort of contract in
independently. But having been granted him, the right of the reference to the property, but to produce a party capable, and
principal to terminate his authority who ultimately becomes the purchaser."
is absolute and unrestricted, except only that he may not do (Kimberly vs. Henderson and Lupton, 29 Md., 512, 515,
it in bad faith, and as a mere device to escape the payment citing: Keener vs. Harrod & Brooke, 2 Md. 63;
of the broker's commissions. Thus, if in the midst of McGavock vs. Woodlief, 20 How., 221. See also Richards,
negotiations instituted by the broker, and which were plainly Executor, vs. Jackson, 31 Md., 250.)
and evidently approaching success, the seller should revoke "The defendant sent a proposal to a broker in these words:
the authority of the broker, with the view of concluding the If you send or cause to be sent to me, by advertisement or
bargain without his aid, and avoiding the payment of otherwise, any party with whom I may see fit and proper to
commission about to be earned, it might be well said that the effect a sale or exchange of my real estate, above described I
due performance his obligation by the broker was purposely will pay you the sum of $200. The broker found a person who
271
proposed to purchase the property, but the sale was not
effected. Held: That the broker was not entitled to
compensation." (Walker vs. Tirrel, 3 Am. Rep., 352.) G.R. No. 66715. September 18, 1990. *
PHILIPPINE NATIONAL BANK, petitioner, vs. THE

It is clear from the foregoing authorities that, HONORABLE INTERMEDIATE APPELLATE
although the present plaintiff could probably have COURT (First Civil Cases Division) and ROMEO
effected the sale of the defendant's factory had not the ALCEDO, respondents.
defendant sold it to someone else, he is not entitled to
the commissions agreed upon because he had no Civil Law; Estoppel; A party may not go back on his own
intervention whatever in, and much sale in question. It acts and representations to the prejudice of the other party
who relied upon them.—We agree with the opinion of the
must be borne in mind that no definite period was fixed
appellate court that under the doctrine of promissory
by the defendant within which the plaintiff might effect estoppel enunciated in the case of Republic Flour Mills, Inc.
the sale of its factory. Nor was the plaintiff given by the vs. Central Bank, L-23542, August 11, 1979, the act and
defendant the exclusive agency of such sale. Therefore, assurance given by the PNB to Alcedo “that we shall exclude
the plaintiff cannot complain of the defendant's conduct the aforementioned lot [Lot No. 1402] as a collateral of
in selling the property through another agent before the Leticia de la VinaSepe in our recommendation for her 1971-
plaintiff's efforts were crowned with success. "One who 72 sugar crop loan” (p. 37, Rollo) is binding on the bank.
has employed a broker can himself sell the property to Having given that assurance, the bank may not turn around
a purchaser whom he has procured, without any aid and do the exact opposite of what it said it would not do. One
from the may not take inconsistent positions (Republic vs. Court of
Appeals, 133 SCRA 505). A party may not go back on his own
acts and representations to the prejudice of the other party
who relied upon them (Lazo vs. Republic Surety & Insurance
Co., Inc., 31 SCRA 329.)
Same; Agency; Special Power of Attorney; The
revocation of a special power of attorney, although embodied
in a private writing, is valid and binding between the
parties.—While Article 1358 of the New Civil Code requires
that the revocation of Alcedo’s Special Power of
_______________
* FIRST DIVISION.
681
272
VOL. 189, SEPTEMBER 681 Regional Trial Court), Branch IV, Bacolod City, in Civil
18, 1990 Case No. 11393; and (b) respondent court’s resolution
Philippine National Bank vs. dated February 29, 1984 denying petitioner Philip-pine
Intermediate Appellate Court National Bank’s (PNB for short) motion for
Attorney to mortgage his property should appear in a reconsideration.
public instrument: x x x nevertheless, a revocation embodied The facts of the case are the following:
in a private writing is valid and binding between the parties On March 20, 1968, Leticia de la Vina-Sepe executed
(Doliendo v. Depino, 12 Phil. 758; Hawaiian-Philippines Co. a real estate mortgage in favor of PNB, San Carlos
vs. Hernaez, 45 Phil. 746) for—“The legalization by a public Branch, over a lot registered in her name under TCT
writing and the recording of the same in the registry are not No. T-31913 to secure the payment of a sugar crop loan
essential requisites of a contract entered into, as between the of P3,400. Later, Leticia Sepe, acting as attorney-in-fact
parties, but mere conditions of form or solemnities which the
for her brother-in-law, private respondent Romeo
law imposes in order that such contract may be valid as
Alcedo, executed an amended real estate mortgage to
against third persons, and to insure that a publicly executed
and recorded agreement shall be respected by the latter.” include his (Alcedo’s) Lot No. 1626 (being a portion of
(Alano, et al. vs. Babasa, 10 Phil. 511.) Lot No. 1402, covered by TCT 52705 of the Isabela
Cadastre) as additional collateral for Sepe’s increased
PETITION for certiorari to review the decision and loan of P16,500 (pp. 5-
resolution of the then Intermediate Appellate Court. 682
The facts are stated in the opinion of the Court. ANNOTATED
Juan D. Diaz, Benjamin C. Del Rosario and Pedro Philippine National Bank vs. Intermediate
R. Lazo for petitioner. Appellate Court
Carlos S. Ayeng, Augustus C. Rallosand Orlando 6, PNB’s Brief, p. 74, Rollo). Leticia Sepe and private
S. Ayeng for private respondent. respondent Alcedo verbally agreed to split fifty-fifty (50-
50) the proceeds of the loan (p. 94, Rollo) but failing to
GRIÑO-AQUINO, J.: receive his one-half share from her, Alcedo wrote a
letter on May 12, 1970 to the PNB, San Carlos Branch,
This is a petition for certiorari which seeks to set aside:
revoking the Special Power of Attorney which he had
(a) the decision dated November 29, 1983 of the
given to Leticia Sepe to mortgage his Lot No. 1626 (p.
Intermediate Appellate Court (now Court of Appeals)
95, Rollo).
in CA-G.R. CV No. 68021 which affirmed the decision of
Replying on May 22, 1970, the PNB Branch
the Court of First Instance of Negros Occidental (now
Manager, Jose T. Gellegani, advised Alcedo that his
273
land had already been included as collateral for Sepe’s 683
1970-71 sugar crop loan, which the latter had already VOL. 189, SEPTEMBER 18, 683
availed of, nevertheless, he assured Alcedo that the 1990
bank would exclude his lot as collateral for Sepe’s Philippine National Bank vs.
forthcoming (1971-72) sugar crop loan (p. 95, Rollo). The Intermediate Appellate Court
letter reads: (pp. 6-7, Record on Appeal, p. 75, Rollo.)
“May 22, 1970
“Mr. Romeo Alcedo On the same day, May 22, 1970, PNB advised Sepe in
Mamballo, M. Padilla writing to replace Lot No. 1402 with another collateral
Negros Occidental of equal or higher value.
“Dear Mr. Alcedo: “May 22, 1970
“This is to acknowledge receipt of your letter dated “Mrs. Leticia de la Vina-Sepe
May 12, 1970, requesting us to revoke the ‘Special Canla-on City
Power of Attorney’ you have executed in favor of Mrs. “Dear Mrs. Sepe:
Leticia de la Vina-Sepe, on February 18, 1969, on Lot “We wish to advice you that Mr. Romeo Alcedo, in a
No. 1402, Isabela Cadastre, covered by Transfer letter written to us, has plans to revoke the ‘Special
Certificate of Title No. 52705, with an area of 20.9200 Power of Attorney’ he executed in 1969 in your favor,
hectares. affecting Lot No. 1402, Isabela Cadastre, covered by
“In this connection, we wish to advise you that the Transfer Certificate of Title No. 52705 with an area of
aforementioned parcel of land had been included as 20.9200 Hectares. Our record shows that this parcel of
collateral to secure the 1970-71 sugar crop loan of Mrs. land is mortgaged to us to secure the agricultural sugar
Leticia de la Vina-Sepe, which she had already availed crop loans we have granted you.
of. In view of your late request, please be advised and “Mr. Alcedo made us understand that this said
assured that we shall exclude the aforementioned lot as property shall serve as security for your 1969/70 sugar
a collateral of Leticia de la Vina-Sepe in our crop loan only. As it already secures your 1970-71 crop
recommendation for her 1971-72 sugar crop loan. loan, which you have already availed, the same may be
“For your information, we enclose a copy of our letter excluded as security for future crop loans. In the
to Mrs. Sepe, which is self-explanatory. meantime, it is requested that you replace Lot No. 1402,
“Thank you. above-mentioned, with the same or more appraised
“Very truly yours, value.
“(Sgd.) JOSE T. GELLEGANI “Kindly call on us regarding this matter at your
“Manager” earliest convenience. “Thank you.
274
“Very truly yours, corresponding Sheriff’s Certificate of Sale was issued to
“(Sgd.) JOSE T. GELLEGANI the Bank (p. 33, Rollo).
“Manager” On October 18, 1975, Alcedo filed an amended
(pp. 7-8, Record on Appeal, p. 75, Rollo.) complaint against Leticia and her husband Elias Sepe,
and the Provincial Sheriff of Negros Occidental praying
Despite the above advice from PNB, Sepe was still able
additionally for annulment of the extrajudicial
to obtain an additional loan from PNB increasing her
foreclosure sale and reconveyance of the land to him
debt of P16,500 to P56,638.69 on the security of Alcedo’s
free from liens and encumbrances, with damages.
property as collateral. On January 15, 1974, Alcedo
With leave of court, Alcedo filed a second amended
received two (2) letters from PNB: (1) informing him of
complaint withdrawing his action to collect his one-half
Sepe’s failure to pay her loan in the total amount of
share (amounting to P28,319.34) out of the proceeds of
P56,638.69; and (2) giving him six (6) days to settle
the sugar crop loans obtained by Sepe (p. 34, Rollo).
Sepe’s outstanding obligation, as otherwise, foreclosure
In its answer, PNB alleged that it had no knowledge
proceedings would be commenced against his property
of the agreement between Mrs. Sepe and Alcedo to split
(p.
684
the crop loan proceeds between them. It required Sepe
684 SUPREME COURT REPORTS to put up other collaterals when it granted her an
ANNOTATED additional loan because Alcedo informed the Bank that
he was revoking the Special Power of Attorney he gave
Philippine National Bank vs. Intermediate
Sepe; that the revocation was not formalized in
Appellate Court
accordance with law; and that in any event, the
33, Rollo). Alcedo requested Sepe to pay her accounts to revocation of the Special Power of Attorney on May 12,
forestall foreclosure proceedings against his property, 1970 by Alcedo did not impair the real estate mortgage
but to no avail (p. 15, Rollo). earlier executed on April 28, 1969 by Sepe in favor of
On April 17, 1974, Alcedo sued Sepe and PNB in the the Bank (p. 36, Rollo).
Court of First Instance of Negros Occidental for On March 14, 1980, the trial court rendered
collection and injunction with damages (p. 33, Rollo). judgment in favor of Alcedo—
During the pendency of the case, PNB filed in the
Office of the Sheriff at Pasig, Metro Manila, a petition 1. “1.Declaring the public auction sale and the
for extrajudicial foreclosure of its real estate mortgage certificate of sale executed by the Provincial Sheriff
on Alcedo’s land. On November 19, 1974, the property of Negros Occidental relative to Lot No. 1626,
was sold to PNB as the highest bidder in the sale. The Isabela Cadastre (TCT No. T-52705), as null and
void;
275
2. “2.Ordering the defendant Philippine National Bank assured Alcedo on May 22, 1970 “that we shall exclude
to reconvey to plaintiff the title to aforesaid Lot No. the aforementioned lot as a collateral of Leticia de la
1626 free from all liens and encumbrances relative Vina-Sepe in our recommendation for her 1971-72
to the loans obtained by defendant Leticia sugar crop loan” (p. 37, Rollo). The Court of Appeals
held:
685
“x x x Plaintiff-appellee’s letter was unequivocal and clear to
VOL. 189, SEPTEMBER 18, 1990 685 the effect that defendant Leticia de la Vina Sepe was no
Philippine National Bank vs. Intermediate longer empowered to bind, encumber or mortgage his
Appellate Court property. Although We may not hold this revocation to
retroact to April 28, 1969 which was the date of the original
1. de la Vina-Sepe; mortgage, We can neither interpret it in any other way than
2. “3.Ordering defendant spouses Leticia de la Vina- that from the moment of notice to the PNB, it was the
Sepe and Elias Sepe and the Philippine National absolute intention of the owner to withdraw all authority
Bank, in solidum, to pay to the plaintiff moral from said defendant to further bind or encumber his
damages in the sum of P10,000.00, and another sum property. This was clearly understood by the defendant-
of P5,000.00 as attorney’s fees and expenses of appellant PNB. There was no question on its part that
litigation; Leticia de la Vina Sepe was no longer authorized to offer
3. “4.On the cross-claim of defendant PNB against plaintiff-appellee’s property as collateral for her contract of
Leticia de la Vina-Sepe, considering that no evidence mortgage with the PNB. Defendant-appellant, therefore,
has been adduced regarding the updated actual acknowledged this revocation of the agency and in no
accountability of the latter with the former, it is uncertain terms assured the plaintiff-appellee that indeed,
hereby directed that PNB proceed to collect against the latter’s property will no longer be accepted by it as
the cross-defendant whatever outstanding collateral for the sugar crop loan of the aforementioned
obligation the latter owes the former arising from defendant for the year 1971 to 1972. This meeting of the
transactions in connection with the instant case. minds between the plaintiff-appellee and defendant-
appellant took place not through verbal communications
“No pronouncement as to costs.” (pp. 10-11, Rollo.) only, but in writing, as shown by their letters dated May 12,
1970 and May 22, 1970, respectively. x x x.
The bank appealed but to no avail for on November 29,
1983, the Intermediate Appellate Court 686
affirmed intoto the judgment of the trial court (p. 54, 686 SUPREMECOURT REPORTS
Rollo.) The appellate court reasoned out that the Bank ANNOTATED
was estopped from foreclosing the mortgage on Alcedo’s Philippine National Bank vs. Intermediate
lot to pay Sepe’s 1971-72 sugar crop loan, after having Appellate Court
276
"xxx xxx xxx acts on such belief, so that he will be prejudiced if the former is
“x x x To Our minds, the aforementioned act and permitted to deny the existence of such facts (Huyatid v. Huyatid,
declaration of defendant-appellant PNB as embodied in said 47265-R, Jan. 4, 1978).
letter binds said bank under the principle of estoppel by deed “‘The doctrine of estoppel is based upon the grounds of public
policy, fair dealing, good faith and justice, and its purpose is to
and defined as follows:
forbid one to speak against his own act, representations, or
“‘A doctrine in American jurisprudence whereby a party creating
commitments to the injury of one to whom they were directed and
an appearance of fact which is not true is held bound by that
who reasonably relied thereon. Said doctrine springs from
appearance as against another person who has acted on the faith
of it. (Strong v. Gutierrez Repide, 6 Phil. 685). 687
which is provided for in Articles 1431 and 1433 of the New

VOL. 189, SEPTEMBER 18, 1990 687
Civil Code in conjunction with Section 3, paragraph (a), Rule Philippine National Bank vs. Intermediate
131 of the Rules of Court, all of which provide: Appellate Court
“‘Art.1431. Through estoppel an admission or representation is equitable principles and the equities of the case. It is designed to
rendered conclusive upon the person making it, and cannot be aid the law in the administration of justice where without its aid
denied or disproved as against the person relying thereon.’ injustice might result.’ (Philippine National Bank v. Court of
“‘Art.1433. Estoppel may be in pais or by deed.’ Appeals, L-30831, November 21, 1979, 94 SCRA 368)
“‘Sec.3. Conclusive presumptions.—The following are instances
of conclusive presumptions: “By its letter dated May 22, 1970, defendant-appellant
PNB led plaintiff-appellee to believe that his property
1. “‘(a)Whenever a party has, by his own declaration, act, or covered by TCT T-52705 would no longer be included as
omission, intentionally and deliberately led another to collateral in the sugar crop loan of defendant Leticia de la
believe a particular thing true, and to act upon such Vina Sepe for the year 1971-72. It led said plaintiff-appellee
belief, he cannot, in any litigation arising out of such to believe that his property as of said year will no longer be
declaration, act, or omission, be permitted to falsify it.’ encumbered and will be free from any lien or mortgage.
Plaintiff-appellee had the right to rely on said belief, because
and which was enunciated in the following decisions of of the aforementioned act and declaration of defendant-
the Supreme Court: appellant bank. Under the laws and jurisprudence
“‘Whenever a party has, by his own declaration, act or omission aforequoted, defendant-appellant bank can no longer be
intentionally and deliberately led another to believe a particular allowed to deny or falsify its act or declaration, or to renege
thing true and to act upon such belief, he cannot, in any litigation
from it. This is one of the conclusive presumptions provided
arising out of such declaration, act, or omission, be permitted to
for by the Rules of Court.” (pp. 37, 38-39, Rollo.)
falsify it.
“‘Estoppel arises when one, by his acts, representations, or PNB seeks a review of that decision on the grounds
admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence induces another to
that:
believe certain facts to exist and such other rightfully relies and
277
1. 1.the doctrine of promissory estoppel does not Philippine National Bank vs. Intermediate
apply to this case; Appellate Court
2. 2.PNB was a mortgagee in good faith and for around and do the exact opposite of what it said it would
value; and not do. One may not take inconsistent positions
3. 3.PNB adduced substantial evidence in support (Republic vs. Court of Appeals, 133 SCRA 505). A party
of its cross-claim against defendant Leticia Sepe may not go back on his own acts and representations to
(p. 15, Rollo). the prejudice of the other party who relied upon them
(Lazo vs. Republic Surety & Insurance Co., Inc., 31
These issues boil down to whether or not PNB validly SCRA 329.)
foreclosed the real estate mortgage on Alcedo’s property In the case of Philippine National Bank vs. Court of
despite notice of Alcedo’s revocation of the Special Appeals (94 SCRA 357), where the bank manager
Power of Attorney authorizing Leticia Sepe to mortgage assured the heirs of the debtor-mortgagor that they
his property as security for her sugar crop loans and would be allowed to pay the remaining obligation of
despite the Bank’s written assurance to Alcedo that it their deceased parents, the Supreme Court held that
would exclude his property as collateral for Sepe’s the bank must abide by its representations.
future loan obligations. “On equitable principles, particularly on the ground of
After careful deliberation, the Court is not persuaded estoppel, we must rule against petitioner Bank. The doctrine
to disturb the decisions of the trial court and the Court of estoppel is based upon the grounds of public policy, fair
of Appeals in this case. dealing, good faith and justice, and its purpose is to forbid
We agree with the opinion of the appellate court that one to speak against its own act, representations, or
under the doctrine of promissory estoppel enunciated in commitments to the injury of one to whom they were directed
and who reasonably relied thereon. The doctrine of estoppel
the case of Republic Flour Mills, Inc. vs. Central
springs from equitable principles and the equities in the
Bank, L-23542, August 11, 1979, the act and assurance
case. It is designed to aid the law in the administration of
given by the PNB to Alcedo “that we shall exclude the justice where without its aid injustice might result. It has
aforementioned lot [Lot No. 1402] as a collateral of been applied by this Court wherever and whenever the
Leticia de la Vina-Sepe in our recommendation for her special circumstances of a case so demands.”
1971-72 sugar crop loan” (p. 37, Rollo) is binding on the
bank. Having given that assurance, the bank may not In the case at bar, since PNB had promised to exclude
turn Alcedo’s property as collateral for Sepe’s 1971-72 sugar
688 crop loan, it should have released the property to
688 SUPREME COURT REPORTS Alcedo. The mortgage which Sepe gave to the bank on
ANNOTATED Alcedo’s lot as collateral for her 1971-72 sugar crop loan
278
was null and void for having been already disauthorized agreement shall be respected by the latter.” (Alano, et al.
by Alcedo. Since Alcedo’s property secured vs.Babasa, 10 Phil. 511.)
only P13,100.00 of Sepe’s 1970-71 sugar crop loan of The PNB acted with bad faith in proceeding against
P16,500.00 (because P3,400 was secured by Sepe’s own Alcedo’s property to satisfy Sepe’s unpaid 1971-72 sugar
property), Alcedo’s property may be held to answer for crop loan. The extrajudicial foreclosure being null and
only the unpaid balance, if any, of Sepe’s 1970-71 loan, void abinitio, the certificate of sale which the Sheriff
but not the 1971-72 crop loan. delivered to PNB as the highest bidder at the sale is also
While Article 1358 of the New Civil Code requires null and void.
that the revocation of Alcedo’s Special Power of WHEREFORE, finding no reversible error in the
Attorney to mortgage his property should appear in a decision of the Court of Appeals, the petition for review
public instrument: is denied for lack of merit.
“Art.1358. The following must appear in a public document:
SO ORDERED.
(1) Acts or contracts which have for their object the
creation, Narvasa (Actg.
C.J.), Cruz, Gancaycoand Medialdea, JJ., concur.
689
VOL. 189, SEPTEMBER 18, 1990 689 Petition denied.
Philippine National Bank vs. Intermediate
Appellate Court
transmission, modification or extinguishment of real rights
over immovable property; sales of real property or of an
interest therein are governed by Articles 1403, No. 2 and
1405.” No. L-36585. July 16, 1984. *
MARIANO DIOLOSA and ALEGRIA VILLANUEVA-

nevertheless, a revocation embodied in a private DIOLOSA, petitioners, vs.THE HON. COURT OF
writing is valid and binding between the parties APPEALS, and QUIRINO BATERNA (As owner and
(Doliendo v. Depino, 12 Phil. 758; Hawaiian- proprietor of QUIN BATERNA REALTY), respondents.
Philippines Co. vs. Hernaez, 45 Phil. 746) for—
“The legalization by a public writing and the recording of Agency; Contracts; Where the agency contract stipulated
thesame in the registry are not essential requisites of a that the agent is authorized to dispose the subdivided
contract enteredinto, as between the parties, but mere property until the same is fully disposed of, the authority to
conditions of form or solemnities which the law imposes in sell continuous until all lots are sold. The contract cannot be
order that such contract may be valid asagainst third terminated by landowner before then.—Under the contract,
persons, and to insure that a publicly executed andrecorded Exhibit “A”, herein petitioners allowed the private
279
respondent “to dispose of, sell, cede, transfer and convey x x Diolosa vs. Court of Appeals
x until all the subject property as subdivided is fully disposed Iloilo where private respondents instituted a case of
of.” The authority to sell is not extinguished until all the lots recovery of unpaid commission against petitioners over
have been disposed of. When, therefore, the petitioners
some of the lots subject of an agency agreement that
revoked the contract with private respondent in a letter,
were not sold. Said complaint, docketed as Civil Case
Exhibit “B” x x x x x x they become liable to the private
respondent for damages for breach of contract. No. 7864 and entitled: “Quirino Baterna vs. Mariano
Same; Same; Agency agreement can be terminated only Diolosa and Alegria Villanueva-Diolosa”, was dismissed
on the grounds specified by Art. 1381 N.C.C.—And, it may be by the trial court after hearing. Thereafter, private
added that since the agency agreement, Exhibit “A”, is a respondent elevated the case to respondent court whose
valid contract, the same may be rescinded only on grounds decision is the subject of the present petition.
specified in Articles 1381 and 1382 of the Civil Code, as The parties—petitioners and respondents—agree on
follows: x x x. the findings of facts made by respondent court which
are based largely on the pre-trial order of the trial court,
APPEAL by certiorari from a decision of the Court of as follows:
Appeals. “PRE-TRIAL ORDER
The facts are stated in the opinion of the Court. When this case was called for a pre-trial conference today,
Enrique I. Soriano for petitioners. the plaintiff, assisted by Atty. Domingo Laurea, appeared
Domingo Laurea for private respondent. and the defendants, assisted by Atty. Enrique Soriano, also
appeared.
RELOVA, J.: “A.—During the pre-trial conference the parties, in
addition to what have been admitted in the pleadings, have
Appeal by certiorari from a decision of the then Court of agreed and admitted that the following facts are attendant
Appeals ordering herein petitioners to pay private in this case and that they will no longer adduce evidence to
respondent “the sum of P10,000.00 as damages and the prove them:
sum of P2,000.00 as attorney’s fees, and the costs.”
This case originated in the then Court of First 1. “1.That the plaintiff was and still is a licensed real
Instance of estate broker, and as such licensed real estate
_______________ broker on June 20, 1968, an agreement was entered
into between him as party of the second part and the
* FIRST DIVISION. defendants spouses as party of the first part,
whereby the former was constituted as exclusive
351
sales agent of the defendants, its successors, heirs
VOL. 130, JULY 16, 1984 351 and assigns, to dispose of, sell, cede, transfer and
280
convey the lots included in VILLA ALEGRE attorney’s fees in the amount of P10,000.00 to
SUBDIVISION owned by the defendants, under the protect his rights and interests, plus exemplary
terms and conditions embodied in Exhibit “A”, and damages to be fixed by the Court.
pursuant to said agreement (Exhibit “A”), the 3. “3.That the plaintiff is entitled to a commission on the
plaintiff acted for and in behalf of the defendants as lots unsold because of the rescission of the contract.
their agent in the sale of the lots included in the
VILLA ALEGRE SUBDIVISION; “C—The defendants during the trial will prove by
2. “2.That on September 27, 1968, the defendants competent evidence the following:
terminated the services of plaintiff as their exclusive
sales agent per letter marked as Exhibit “B”, for the 1. “1.That the plaintiff’s complaint was filed to make
reason stated in the latter. money out of the suit from defendants, to harrass
and to molest defendants;
“B.—During the trial of this case on the merit, the 2. “2.That because of the unjustified and unlaunded
plaintiff will adduce by competent evidence the following complaint of the plaintiff, the defendants suffered
facts: moral damages in the amount of P50,000.00, and
that for the public good, the court may order the
352
plaintiff to pay the defendants exemplary damages
in the amount of P20,000.00, plus attorney’s fees of
ANNOTATED P10,000.00.
Diolosa vs. Court of Appeals
“D.—Contentions of the parties:
1. “1.That as a real estate broker, he had sold the lots
comprised in several subdivisions, to wit: Greenfield 1. “1.The plaintiff contends:
Subdivision, the Villa Beach Subdivision, the
Juntado Subdivision, the St. Joseph Village, the 1. (a)That under the terms of the contract (Exhibit “A”)
Ledesma Subdivision, the Brookside Subdivision, the plaintiff had unrevocable authority to sell all the
the Villa Alegre Subdivision, and Cecilia lots included in the Villa Alegre Subdivision and to
Subdivision, all in the City of Iloilo except St. Joseph act as exclusive sales agent of the defendants until
which is in Pavia Iloilo. all the lots shall have been disposed of;
2. “2.That the plaintiff, as a licensed real estate broker, 2. (b)That the rescission of the contract under Exhibit
has been seriously damaged by the action of the “B”, contravenes the agreement of the parties.
defendants in rescinding, by Exhibit “B” the contract
(Exhibit “A”) for which the plaintiff suffered moral 353
damages in the amount of P50,000.00, damages to VOL. 130, JULY 16, 1984 353
his good will in the amount of P100,000.00, for
281
Diolosa vs. Court of Appeals Iloilo City, Philippines, August 14, 1969.
“2. The defendants contend: (SGD) VALERIO V. ROVIRA
Judge”
1. (a)That they were within their legal right to (pp. 22-25, Rollo)
terminate the agency on the ground that they
The only issue in this case is whether the petitioners
needed the undisposed lots for the use of the family;
could terminate the agency agreement, Exhibit “A”,
2. (b)That the plaintiff has no right in law to claim for
commission on lots that they have not sold. without paying
354
“E.—The parties hereby submit to the Court the following

issues: ANNOTATED
Diolosa vs. Court of Appeals
1. “1.Whether under the terms of Exhibit “A” the damages to the private respondent. Pertinent portion of
plaintiff has the irrevocable right to sell or dispose said Exhibit “A” reads:
of all the lots included within Villa Alegre “That the PARTY OF THE FIRST PART is the lawful and
Subdivision; absolute owner in fee simple of VILLA ALEGRE
2. “2.Can the defendants terminate their agreement SUBDIVISION situated in the District of Mandurriao, Iloilo
with the plaintiff by a letter like Exhibit “B”? City, which parcel of land is more particularly described as
follows, to wit:
“F.—The plaintiff submitted the following exhibits which “A parcel of land, Lot No. 2110-b-2-C, PSD 74002, Transfer
were admitted by the defendants: Certificate of Title No. T____ situated in the District of
Exhibit “A”—agreement entered into between the parties on June Mandurriao, Iloilo, Philippines, containing an area of 39016 square
20, 1968 whereby the plaintiff had the authority to sell the meters, more or less, with improvements thereon.
subdivision lots included in Villa Alegre subdivision;
Exhibit “B”—letter of the defendant Alegria V. Diolosa dated
“That the PARTY OF THE FIRST PART by virtue of
September 27, 1968 addressed to the plaintiff terminating the these presents, to enhance the sale of the lots of the above-
agency and rescinding Exhibit “A” for the reason that the lots described subdivision, is engaging as their EXCLUSIVE
remained unsold lots were for reservation for their grandchildren. SALES AGENT the PARTY OF THE SECOND PART, its
successors, heirs and assigns to dispose of, sell, cede, transfer
“The Court will decide this case based on the facts and convey the above-described property in whatever
admitted in the pleadings, those agreed by the parties during manner and nature the PARTY OF THE SECOND PART,
the pre-trial conference, and those which they can prove with the concurrence of the PARTY OF THE FIRST PART,
during the trial of this case, in accordance with the may deem wise and proper under the premises, whether it
contention of the parties based on the issues submitted by be in cash or installment basis, until all the subject property
them during the pre-trial conference.
SO ORDERED.
282
as subdivided is fully disposed of. (p. 7 of Petitioner’s brief. transfer and convey x x x until all the subject property
Italics supplied). as subdivided is fully disposed of.” The authority to sell
Respondent court, in its decision which is the subject of is not extinguished until all the lots have been disposed
review said: of. When, therefore, the petitioners revoked the contract
“Article 1920 of the Civil Code of the Philippines with private respondent in a letter, Exhibit “B”—
notwithstanding, the defendants could not terminate the “Dear Mr. Baterna:
agency agreement, Exh. “A”, at will without paying damages.
The said agency agreement expressly stipulates x x x until Please be informed that we have finally decided to
all the subject property as subdivided is fully disposed of x x reserve the remaining unsold lots, as of this date of our
x.” The testimony of Roberto Malundo (t.s.n. p. 99) that the VILLA ALEGRE Subdivision for our grandchildren.
plaintiff agreed to the intention of Mrs. Diolosa to reserve In view thereof, notice is hereby served upon you to
some lots for her own family use cannot prevail over the clear the effect that our agreement dated June 20, 1968
terms of the agency agreement. Moreover, the plaintiff giving you the authority to sell as exclusive sales agent
denied that there was an agreement to reserve any of the lots of our subdivision is hereby rescinded.
for the family of the defendants. (T.s.n. pp. 16). Please be duly guided.
“There are twenty seven (27) lots of the subdivision
Very truly yours,
remaining unsold on September 27, 1968 when the
defendants rescinded the agency agreement, Exhibit “A”. On
(SGD) ALEGRIA V. DIOLOSA
that day the defendants had only six grandchildren. That the Subdivision Owner”
defendants wanted to reserve the twenty seven remaining (p. 11 of Petitioner’s Brief)
lots for the six grandchildren is not a legal reason for
they become liable to the private respondent for
defendants rescind the agency agreement. Even if the
damages for breach of contract.
355 And, it may be added that since the agency
VOL. 130, JULY 16, 1984 355 agreement, Exhibit “A”, is a valid contract, the same
Diolosa vs. Court of Appeals may be rescinded only on grounds specified in Articles
grandchildren were to be given one lot each, there would still 1381 and 1382 of the Civil Code, as follows:
be twenty one lots available for sale. Besides it is undisputed “ART. 1381. The following contracts are rescissible:
that the defendants have other lands which could be “(1) Those which are entered into by guardians whenever the
reserved for their grandchildren.” (pp. 26-27, Rollo) wards whom they represent suffer lesion by more than one
356
The present appeal is manifestly without merit.
Under the contract, Exhibit “A”, herein petitioners 356 SUPREME COURT REPORTS
allowed the private respondent “to dispose of, sell, cede, ANNOTATED
283
Diolosa vs. Court of Appeals Teehankee (Chairman), Melencio-
Herrera, Plana, Gutierrez, Jr. and De la Fuente, JJ.,
1. fourth of the value of the things which are the object concur.
thereof;
2. “(2)Those agreed upon in representation of absentees, Petition dismissed.
If the latter suffer the lesion stated in the preceding
number;
3. “(3)Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims
G.R. No. 157186 October 19, 2007
due them;
4. “(4)Those which refer to things under litigation if they
ACTIVE REALTY and DEVELOPMENT
have been entered into by the defendant without the CORPORATION, Petitioner,
knowledge and approval of the litigants or of vs.
competent judicial authority; BIENVENIDO FERNANDEZ, Respondent.*
5. “(5)All other contracts specially declared by law to be
subject to rescission. DECISION
“ART. 1382. Payments made in a state of insolvency for AUSTRIA-MARTINEZ, J.:

obligations to whose fulfillment the debtor could not be
compelled at the time they were effected, are also Before the Court is a Petition for Certiorari under Rule 65 of the
rescissible.” Revised Rules of Court assailing the May 30, 2002 Decision1 of
the Court of Appeals (CA) in CA-G.R. SP No. 64697, which
In the case at bar, not one of the grounds mentioned affirmed the February 3, 2000 Decision2 of the Regional Trial
above is present which may be the subject of an action Court (RTC) of Negros Occidental, Branch 54, in Civil Case No.
of rescission, much less can petitioners say that the 98-10499. The RTC reversed the Decision3 of the Municipal Trial
Court in Cities (MTCC) of Bacolod City, ordering Bienvenido
private respondent violated the terms of their
Fernandez (respondent) to vacate the land allegedly owned by
agreement—such as failure to deliver to them Active Realty & Development Corporation (petitioner). Likewise
(Subdivision owners) the proceeds of the purchase price questioned is the December 5, 2002 Resolution4 of the CA which
of the lots. denied petitioner’s motion for reconsideration.
ACCORDINGLY, the petition is hereby dismissed
without pronouncement as to costs. As culled from the records, the following are the antecedent facts:
SO ORDERED.
On November 27, 1997, petitioner filed a Complaint5 for unlawful
detainer against respondent with the MTCC docketed as Civil
Case No. 24073. Petitioner alleged that it had become the owner
284
of the parcel of land covered by Transfer Certificate of Title (TCT) their respective landholdings the petitioners in DARAB Case No.
No. T-855416 by virtue of the Deed of Sale7 executed between R-0605-142-96. The DARAB case was resolved by the Provincial
petitioner and Philippine National Bank (PNB), the previous Agrarian Report Adjudication Board (PARAB) in its April 14, 1997
owner of the land; that respondent had been occupying the Order19 which directed the DAR-PARO to make a factual finding
subject land by reason of PNB’s tolerance; that on March 6, 1997, on the "carpability" or "non-carPability" of the subject land.
petitioner sent a letter of demand to respondent asking the latter Aggrieved by the said order, petitioner elevated the matter to the
to vacate the subject property not later than March 31, 1997; and DARAB, where it was docketed as DARAB Case No. 6567.
that despite the demand, respondent failed and refused to vacate
the subject land, as a consequence of which, petitioner had been Meanwhile, on July 27, 1998, the MTC rendered a Decision,20 the
unlawfully deprived of the possession of the lot and the rental
value of ₱500.00 per month8 . dispositive portion of which reads as follows:
On September 3, 1998, respondent filed a Motion to WHEREFORE, judgment is hereby rendered ordering the
Dismiss,9 contending that the MTCC lacked jurisdiction over the defendants (including herein private respondent), their heirs and
case as it involved the implementation of agrarian reform and successors-in-interest:
should fall within the exclusive and original jurisdiction of the
Department of Agrarian Reform (DAR).10 Attached to the Motion
1. To vacate the premises covered by Transfer Certificate
were two Investigation Reports of Municipal Agrarian Reform
of Title No. T-85541 situated in Eroreco Subdivision,
Officer Peregrin P. Villa (MARO Villa) addressed to the Provincial
Bacolod City;
Agrarian Reform Office, Negros Occidental, dated March 4,
199711 and March 26, 1997.12
2. To pay plaintiff (herein petitioner) actual damages in
the amount of ₱500.00 monthly computed from
On February 27, 1998, the MTC issued an Order13 denying the
November 27, 1997 until the lot is actually vacated;
Motion to Dismiss14 and considering the motion for
reconsideration filed by respondent as his answer. The parties
were then directed to submit their position papers supporting their 3. To pay plaintiff the sum of ₱3,000.00 as attorney’s fees
respective claims15 . and the amount of cost.
In the Supplemental Position Paper16 filed by the respondent on SO ORDERED.21

May 25, 1998, he insisted that there was a pending case between
the same parties involving the same property and the same Respondent appealed the MTC Decision to the RTC, where it
issues before the Department of Agrarian Reform Adjudication was docketed as Civil Case No. 98-10499.
Board (DARAB) which was filed on September 19, 1996,
docketed as DARAB Case No. R-0605-142-96.17 In fact, On October 28, 1998, the DARAB rendered a Decision22 in
according to the private respondent, an Injunction Order18 dated DARAB Case No. 6567 which held that the subject matter is not
January 3, 1996 was issued against the petitioner ordering the within its jurisdiction. It was further held that in order to give
latter to cease, desist and refrain from harassing, molesting, DARAB jurisdiction over the case, it was necessary that the
disturbing, threatening, ousting, and removing or ejecting from complaint itself should contain statements of facts that would
285
bring the party clearly within the class of cases under the Rules of Court, the service to Teresita F. Mendoza of the July 9,
DARAB’s jurisdiction. 2001 Resolution, although actually unserved, shall be considered
completed on August 13, 2001.
On February 3, 2000 the RTC rendered a Decision23 reversing
and setting aside the MTC judgment. The RTC held: the MTC On May 30, 2002, the CA rendered a Decision32 affirming the
should have yielded to the DARAB as the quasi-judicial body RTC judgment. The CA took into consideration the Investigation
clothed with primary jurisdiction over agrarian issues; trial court Report33 of MARO Officer Villa dated March 4, 1997,34 stating that
judges had been explicitly reminded by the Court through the land in dispute is part of the 48.35 hectares of agricultural
Administrative Circular 8-9224 that in cases where agrarian issues land, covered by 434 transfer certificates of title, with twenty-two
are raised, primary jurisdiction is with the DARAB to avoid conflict registered potential CARP beneficiaries; and recommending that
of jurisdiction with the DAR and for the proper application of the the subject landholding be placed under the coverage of PD
Comprehensive Agrarian Reform Law (R.A. No. 6657); the MTC 27/CARP.35
should have heard the Motion to Dismiss filed by the private
respondent for the precise purpose of determining whether or not The CA also took note of the subsequent Investigation
it possessed jurisdiction over the case; it was clear that the Report36 dated March 26, 1997 of MARO Officer Villa,
private respondent was seeking the protection of the agrarian recommending that the DAR should initiate proceedings in the
laws when he alleged that there was a pending case before the court of competent jurisdiction to have the said sale declared as
DARAB and that a copy of the complaint in the DARAB was null and void in violation of R.A. No. 6657 and A.O. No. 1, Series
submitted to the trial court; it is provided under Section 7 of R.A. of 1989; and to initiate action so as to declare the conversion
No. 6657 and under Executive Order No. 360, Series of 1989, made by the ACTIVE GROUP in violation of A.O. No. 12, Series
that the DAR has the right of first refusal of the sale or disposition of 1994.37
of the acquired assets of the PNB, the latter being a government
financial institution. Petitioner moved for the reconsideration of Petitioner filed a motion for reconsideration38 but the CA denied
said decision25 . the motion in a Resolution dated December 5, 2002.39
The RTC, on February 7, 2001, issued an order denying the Hence, the present Petition for Certiorari40 on the sole issue, to
motion for reconsideration filed by the petitioner in Civil Case No. wit:
98-10499 per the Order26 dated February 7, 2001. Petitioner then
filed with the CA a petition for review under Rule 42 of the Rules
WHETHER OR NOT THIS CASE PRESENTS AN AGRARIAN
of Court on May 9, 2001, docketed as CA-G.R. SP No. 6469727 .
DISPUTE. IF IT DOES, JURISDICTION OVER IT SHOULD BE
WITH THE DARAB, OTHERWISE, IT SHOULD BE WITH THE
Pending resolution of the petition and upon information given by REGULAR COURTS.
counsel for respondent in his "Comment" dated June 15, 2001
that respondent died on May 1, 1999, the CA issued a
On June 26, 2003, Atty. Romulo A. Deles, the former counsel of
Resolution28 requiring Teresita F. Mendoza to cause her
the respondent, filed a Manifestation41 before the Court insisting
appearance as party-respondent in behalf of the deceased
that the filing of the instant Petition for Certiorari dated January
respondent.29 On November 28, 2001, the CA issued a
17, 2003 constitutes a direct contempt of court. According to Atty.
Resolution30 stating that pursuant to Sec. 10, Rule 1331 of the
286
Deles, the filing of a petition for certiorari while administrative proscribes a resort to certiorari, because one of the requisites for
proceedings are pending clearly constitutes direct contempt of availment of the latter is precisely that "there should be no
court as it is clearly an inevitable case of forum shopping. appeal".47 The remedy of appeal under Rule 45 of the Rules of
Court was still available to the petitioner.
The Court shall first discuss the procedural aspect of the present
case. The Court has held that where an appeal is
available, certiorari will not prosper, even if the ground therefor is
The petitioner brought the instant case before the Court via a grave abuse of discretion.48 Hence, despite allegation by the
petition for certiorari under Rule 65 of the Rules of Court. petitioner that the CA committed grave abuse of discretion, this
does not negate the fact that the proper remedy should still be a
The proper remedy available to the petitioner should have been a petition for review on certiorari under Rule 45 of the Rules of
petition for review on certiorari under Rule 45 of the Rules of Court.
Court, not a petition for certiorari under Rule 65 of the Rules of
Court. While on some occasions, the Court has treated a petition
for certiorari under Rule 65 as having been filed under Rule 45 to
A petition for certiorari under Rule 65 is proper to correct errors of serve the higher interest of justice, such liberal application of the
jurisdiction committed by the lower court, or grave abuse of rules finds no application if the petition is filed well beyond the
discretion which is tantamount to lack of jurisdiction.42 This reglementary period for filing a petition for review without any
remedy can be availed of when "there is no appeal, or any plain, reason therefor.49
speedy, and adequate remedy in the ordinary course of law.43 "
In the present case, petitioner filed a Motion for Reconsideration
Appeal by certiorari under Rule 45 of the Rules of Court, on the of the CA Decision on June 28, 2002.50 The Motion for
other hand, is a mode of appeal available to a party desiring to Reconsideration was denied by the CA in its Resolution dated
raise only questions of law from a judgment or final order or December 5, 2002,51 a copy of which was received by the
resolution of the Court of Appeals, the Sandiganbayan, the petitioner on December 16, 2002.52 Herein petition was filed on
Regional Trial Court or other courts whenever authorized by February 12, 2003.53
law.44
At the time of the filing of the complaint for ejectment, the rule is
In the present case, the petitioner seeks to reverse the Decision that in cases where a party filed a motion for reconsideration
of the CA, which affirmed the Decision of the RTC, which in turn instead of filing a notice of appeal, the filing will interrupt the
reversed the Decision of the MTC ordering the respondent to running of the 15-day appeal period.54Thus, should a party file the
vacate the subject property. The general rule is that the remedy motion for reconsideration on the last day of the 15-day
to obtain reversal or modification of judgment on the merits is reglementary period to appeal, the party is left with only one day
appeal.45 Thus, the proper remedy for the petitioner should have to file the notice of appeal upon receipt of the notice of denial of
been a petition for review on certiorari under Rule 45 of the Rules the motion for reconsideration.
of Court since the decision sought to be reversed is that of the
CA.46 The existence and availability of the right of appeal
287
In 2005, pending resolution of herein petition, this rule was Clearly, the petitioner had lost its right to appeal by failing to avail
amended by the Court in Neypes v. Court Appeals.55The Court itself of it seasonably either before or after the "fresh period rule".
held:
To remedy that loss, petitioner resorted to the extraordinary
To standardize the appeal periods provided in the Rules and to remedy of certiorari as a mode of obtaining a reversal of the
afford litigants fair opportunity to appeal their cases, the Court judgment from which they failed to appeal. This cannot be done.
deems it practical to allow a fresh period of 15 days within which The CA decision had become final and had thus gone beyond the
to file the notice of appeal in the Regional Trial Court, counted reach of any court to modify in any substantive aspect.
from receipt of the order dismissing a motion for a new trial or
motion for reconsideration. The special civil action of certiorari cannot be used as a substitute
for an appeal which the petitioner already lost.59
Henceforth, this "fresh period rule" shall also apply to Rule 40
governing appeals from the Municipal Trial Courts to the Regional Consequently, the Court should have outrightly dismissed the
Trial Courts; Rule 42 on petitions for review from the Regional present petition for the wrong mode of remedy. However, in the
Trial Courts to the Court of Appeals; Rule 43 on appeals from exercise of its equity jurisdiction, the Court may disregard
quasi-judicial agencies to the Court of Appeals and Rule 45 procedural lapses, so that a case may be resolved on its merits
governing appeals by certiorari to the Supreme Court. The based on the evidence presented by the parties60 .
new rule aims to regiment or make the appeal period uniform, to
be counted from receipt of the order denying the motion for new Petitioner seeks to evict the private respondent from the subject
trial, motion for reconsideration (whether full or partial) or any final land, contending that the latter occupied the property by reason of
order or resolution.56 (Emphasis supplied) PNB’s tolerance.
Thus, with the advent of the "fresh period rule," parties who Petitioner maintains that the allegation of the agrarian nature of a
availed themselves of the remedy of motion for reconsideration case is a defense which is often raised by a defendant in an
are now allowed to file a notice of appeal within fifteen days from ejectment case, and that this allegation is an attempt to divest the
the denial of that motion. regular courts of their jurisdiction over the ejectment case.
Petitioner further argues that before the regular courts are
A petition for review on certiorari under Rule 45 of the Rules of divested of their jurisdiction, it would be essential to first establish
Court should have been filed with the court fifteen days from all the indispensable elements of tenancy relationship, to wit: (1)
December 16, 2002, or from the date of notice of the denial of the parties are the landowner and the tenant; (2) the subject is
petitioner’s motion for reconsideration, as provided for in Section agricultural land; (3) there is consent by the landowner; (4) the
2, Rule 45 of the Rules of Court,57 as amended purpose is agricultural production; (5) there is personal
by Neypes.58 Instead, petitioners filed with the court a petition cultivation; and (6) there is a sharing of the harvests.61
for certiorari under Rule 65 of the Rules of Court on February 12,
2003, way beyond the "fresh period rule." Respondent, on the other hand, asserts that the present case
from the outset has involved a determination of an agrarian
dispute over the land in question originally owned by PNB. Citing
288
the RTC Decision, respondent contends that the Motion to Further, the CA should not have relied on the Investigation
Dismiss filed before the MTC on the pendency of the agrarian Reports of MARO Officer Villa dated March 4, 1997 and March
case before the DAR Adjudication Board should have caused the 26, 1997, as the same were not executed pursuant or in relation
MTC to proceed with caution, rather than brushing aside the to any pending case. Moreover, browsing through the
allegation of the pendency of an agrarian issue before the DAR.62 Investigation Reports, it is clear that its tenor is only
recommendatory or directory in nature. Thus, the execution of the
From the outset, respondent has insisted that the MTC had no Investigation Reports does not automatically divest the regular
jurisdiction over the unlawful detainer case. In his Supplemental
1âwphi1
courts of their jurisdiction over the unlawful detainer case.
Position Paper,63 respondent argued that the MTC cannot take
jurisdiction over the case in view of pending DARAB CASE No. It bears stressing that respondent died on May 1, 1999. However,
R-0605-142-96, between the parties, involving the same property up to this point, no proper substitution has yet been effected upon
and issues. the person of Mrs. Teresita Fernandez, the heir of respondent. In
fact, nothing has been heard from Mrs. Teresita Fernandez
Essentially, respondent sought the dismissal of the pending throughout the pendency of the case before this Court.
unlawful detainer case in the MTC by invoking the defense of litis
pendentia. Despite several pleadings filed before this Court, nowhere in the
records is it shown that Atty. Romeo A. Deles, counsel for the
For litis pendentia to lie as a ground for a motion to dismiss, the deceased respondent, was authorized by Mrs. Teresita
following requisites must be present: (1) that the parties to the Fernandez to represent her.
action are the same; (2) that there is substantial identity in the
causes of action and reliefs sought; (3) that the result of the first The death of a client divests counsel of authority. A dead client
action is determinative of the second in any event and regardless has no personality and cannot be represented by an attorney67 .
of which party is successful64 . The relationship of attorney and client ceases68 . Thus, all
pleadings filed by the counsel on behalf of the decedent were all
A closer examination of the records of the case reveals that unauthorized pleadings, hence, invalid69 .
herein respondent is not included as a party to DARAB CASE No.
R-0605-142-96 mentioned by him in his Supplemental Position Thus, the Manifestation dated June 26, 2003 of Atty. Romeo A.
Paper.65 Litis pendentia cannot, therefore, be invoked by the Deles, former counsel of respondent, that the representatives of
respondent. Contrary to the claim of respondent, the parties in the the petitioner should be punished for direct contempt for
unlawful detainer case in the MTC and the DARAB case are deliberate forum shopping does not deserve consideration. First,
different, as he is not included as a petitioner in the DARAB case. it was filed by a former counsel; and second, the issue of forum
shopping was raised by respondent before the Court for the first
More significantly, not being a party to the DARAB case, time in the June 26, 2003 Manifestation. Well-settled is the rule
respondent has no personality to assert that the DAR has primary that higher courts are precluded from entertaining matters neither
jurisdiction over the land subject matter of the MTC case alleged in the pleadings nor raised during the proceedings below,
considering that he is not identified as one of the farmers- but ventilated for the first time only in a motion for reconsideration
beneficiaries-petitioners in the DARAB case.66 or on appeal.70
289
WHEREFORE, the petition is GRANTED. The May 30, 2002 On January 5, 1911, for the plaintiff Antonio M.a Barretto filed suit
Decision and the December 5, 2002 Resolution of the Court of against Jose Santa Marina, alleging that the defendant, a resident
Appeals are SET ASIDE. The July 27, 1998 Decision of the of Spain, was then the owner and proprietor of the business
Municipal Trial Court, Bacolod City (Branch 2) known as the La Insular Cigar and Cigarette Factory, established
is REINSTATED. No pronouncement as to costs. in these Islands, which business consisted in the purchase of leaf
tobacco and other raw material, in the preparation of the same,
SO ORDERED. and in the sale of cigars and cigarettes in large quantities; that on
January 8, 1910, and for a long time prior thereto, the plaintiff
MA. ALICIA AUSTRIA-MARTINEZ held and had held the position of agent of the defendant in the
Associate Justice Philippine Islands for the management of the said business in the
name and for the account of the said defendant; that the plaintiff's
services were rendered in pursuance of a contract whereby the
defendant obligated himself in writing to hire the said services for
so long a time as the plaintiff should not show discouragement
G.R. No. L-8169 December 29, 1913 and to compensate such services at the rate of P37,000
Philippine currency per annum; that, on the aforesaid 8th day of
ANTONIO M. A. BARRETTO, plaintiff-appellant, January, 1910, the defendant, without reason, justification, or
vs. pretext and in violation of the contract before mentioned,
JOSE SANTA MARINA, defendant-appellee. summarily and arbitrarily dispensed with the plaintiff's services
and removed him from the management of the business, since
Hausserman, Cohn and Fisher, for appellant. which date the defendant had refused to pay him the
W. A. Kincaid and Thos. L. Hartigan, for appellee. compensation, or any part thereof, due him and payable in full for
services rendered subsequent to December 31, 1909; and that,
as a second cause of action based upon the facts aforestated,
the plaintiff had suffered losses and damages in the sum of
P100,000 Philippine currency. Said counsel therefore prayed that
judgment be rendered against the defendant by sentencing him to
TORRES, J.: pay to the plaintiff P137,000 Philippine currency, and the interest
thereon at the legal rate, in addition to the payment of the costs,
These cases were appealed by counsel for the plaintiff, through a together with such other equitable remedies as the law allows.
bill of exceptions, from the judgment of January 17, 1912, and the
order of February 5 of the same year, whereby the Honorable S. By an order of March 14, 1911, the Honorable A. S. Crossfield,
del Rosario, judge, sentenced the defendant to pay to the plaintiff judge overruled the demurrer to the first cause of action, but
the salary to which he was entitled for the first eight days of sustained that to the second. Counsel for the plaintiff entered an
January, 1910, also that for the following month, at the rate of exception to this order in so far as it sustained the demurrer
P3,083.33 per month, without special finding as to costs, and interposed by the defendant to the second cause of action.
dismissed the second cause of action contained in the complaint
presented in that case.
290
By his written answer to the complaint, on July 19, 1911, counsel According to the statement of the sums collected by Antonio M.a
for the defendant, reserving his exception to the order of the court Barretto as the judicial administrator of the estate of Joaquin
overruling his demurrer filed against the first cause of action, Santa Marina from November, 1908, to March, 1910, and during
denied each and all of the allegations contained in the complaint, twenty-three days of April of the latter year, the total amount so
relative to such first cause of action. collected was P5,923.28.
As a special defense of the latter, he set forth that the plaintiff had Antonio M.a Barretto ceased to manage the La Insular factory, as
no contract whatever with the defendant in which any period of the judicial administrator of the estate of the deceased Joaquin
time was stipulated during which the former was to render his Santa Marina, in October, 1909, and not on November 7, 1908,
services as manager of the La Insular factory; that the defendant as erroneously out in the stenographic notes.
revoked for just cause the power conferred upon the plaintiff; that
subsequent to the revocation of such power, and on the occasion The remuneration paid to Barretto as judicial administrator of the
of the plaintiff's having sold all his rights and interests in the estate of Santa Marina was independent of that which pertained
business of the La Insular factory to the defendant, in to him for his services as manager of the La Insular factory both
consideration of the sum received by him, the plaintiff renounced before and after the date on which he ceased to administer the
all action, intervention and claim that he might have against the said factory as such judicial administrator.
defendant relative to the business aforementioned, whereby all
the questions that might have arisen between them were settled. In the stipulation before mentioned there also appears the
following: "The facts above stated are true, but there is a
On December 19, 1911, counsel for each of the parties presented controversy between the attorneys for the plaintiff and the
to the court as stipulation of the following purport: defendant, as to whether such facts are relevant as evidence in
the said case. They therefore submit this question to the court if it
In clause 11 of the will executed by Don Joaquin Santa determines that they are relevant as evidence they should be
Marina y Perez in Madrid before a notary public on admitted as such, with exception by the defendant, but if it
August 4, 1901, and duly legalized in these Islands, there determines that they are not relevant as evidence they should be
appears the following: excluded, with exception by the plaintiff."
"The testator provides that the testamentary After the hearing of the case, with the introduction of evidence by
executor who is holding office as such shall enjoy both parties, the court, on January 17, 1912, rendered the
a salary, allotment, or emolument of 4,000 pesos judgment aforementioned, to which an exception was taken by
per annum which shall be paid out of the testator's counsel for the plaintiff, who by written motion asked that the said
estate; but that in case of consultation, the judgment be set aside and a new trial granted, because such
testamentary executors consulted shall not be judgment was not sufficiently warranted by the evidence and was
entitled to this allotment, nor to any other, on contrary to law and because the findings of fact therein contained
account of such consultation." were openly and manifestly contrary to the weight of the
evidence. This motion was denied, with exception by the plaintiff.
By an order of the 5th of the following month of February, issued
in view of a petition presented by counsel for the plaintiff, the
291
court dismissed the second cause of action set out in the because they have spent everything. I will turned the
complaint, to which order said counsel likewise excepted. matter over to my attorney in order that he may sue the
party. I am not attempting to make light of this matter. I
Upon presentation of the proper bill of exceptions, the same was acknowledge that I have been rather more generous with
approved, certified, and forwarded to the clerk of this court. this fellow than I should have been; but this is the way of
doing business here. . . .
Demand is made in this suit for the payment of the considerable
sum of P137,000, together with the legal interest thereon. Two I have always thought that when the manager of a
amounts make up this sum: One of P37,000, as salary for the business trips up in a matter like this he should tender his
year 1910, claimed to be due for services rendered by the plaintiff resignation, and I still think so. The position is at your
as agent and manager of the tobacco factory known as La disposal to do as you like.
Insular; and the other of P100,000, as an indemnity for losses
and damages, on account of the plaintiff's removal without just This letter is authentic and was neither denied nor rejected by the
cause from his position as agent and manager of said factory, plaintiff, Barretto.
lawphil.net
effected arbitrarily and in violation of the contract of hire of

services between the parties, the plaintiff claiming to be still Although Santa Marina did not immediately reply and tell him
entitled to hold the position from which he was dismissed. what opinion he may have formed and the decision he had
reached in the matter, it is no less true that the silence and lack of
The most important fact in this case, which stands out reply on the part of the chief owner of the factory were sufficient
prominently from the evidence regarded as a whole, is that of the indications that the resignation had been virtually accepted and
plaintiff Barretto's renunciation or registration of the position he that if he did not reply immediately it was because he intended to
held as agent and manager of the said factory, which was freely act cautiously. As the addressee, the chief owner of the factory,
and voluntarily made by him on the occasion of the insolvency knew of no one at that time whom he could appoint relieve the
and disappearance of the Chinaman Uy Yan, who had bought writer, who had resigned, it was to be presumed that he was
from the factory products aggregating in value the considerable thereafter looking for some trustworthy person who might
sum of P97,000 and, without paying this large debt, disappeared substitute the plaintiff in his position of agent and manager of the
and has not been seen since. factory, communicated to the plaintiff that he had revoked the
power conferred upon him and had appointed Mr. J. McGavin to
Antonio M.a Barretto the agent and manager of the said factory, substitute him in his position of manager of the La Insular factory,
said among other things the following, in the letter, Exhibit 3, whereby the plaintiff's resignation, tendered in his aforesaid letter
addressed by him to Jose Santa Marina, on January 2, 1909: of January 2, 1909, Exhibit 3, was expressly accepted.
I have to report to you an exceedingly disagreeable After the plaintiff had resigned the position he held, and
matter. This Chinaman Uy Yan, with whose name I begin notwithstanding the lapse of several months before its express
this paragraph, has failed and owes the factory the acceptance, it cannot be understood that he has any right to
considerable sum of P97,000. We will see that I can get demand an indemnity for losses and damages particularly since
from him, although when these Chinamen fail it is he ostensibly and frankly acknowledged that he had been
negligent in the discharge of his duties and that he had
292
overstepped his authority in the management of the factory, with if its acceptance was not communicated to him immediately it was
respect to the Chinaman mentioned. The record does not show owing to the circumstance that the principal owner of the factory
that Santa Marina, his principal, required him to resign his did not then have, nor until several months afterwards, any other
position as manager, but that Barretto himself voluntarily stated person whom he could appoint and place in his stead, for, as
by letter to his principal that, for the reasons therein mentioned, soon as the defendant Santa Marina could appoint the said
he resigned and placed at the latter's disposal the position of McGavin, he revoked the power he had conferred upon the
agent and manager of the La Insular factory; and if the principal, plaintiff and communicated this fact to the latter, by means of the
Santa Marina, deemed it suitable to relieve the agent, for having letter, Exhibit D, which was presented to him by the bearer
been negligent and overstepping his authority in the discharge of thereof, McGavin himself, the new manager and agent appointed.
his office, and furthermore because of his having expressly
resigned his position, and placed it at the disposal of the chief Omitting consideration for the moment of the first error attributed
owner of the business, it cannot be explained how such person to the trial judge by his sustaining the demurrer filed against the
can be entitled to demand an indemnity for losses and damages, second cause of action, relative to the collection of P100,000 as
from his principal, who merely exercised his lawful right of the amount of the losses and damages occasioned to the plaintiff,
relieving the plaintiff from the position which he had voluntarily and turning our attention to the second error imputed to him by
given up. his refusal to sentence the defendant, for the first cause of action,
to the payment of P37,000 or of any sum over P3,083.33, we
So, the agent and manager Barretto was not really dismissed or shall proceed to examine the question whether any period or term
removed by the defendant Santa Marina. What did occur was for the duration of the position of agent and manager was fixed in
that, in view of the resignation rendered by the plaintiff for the the verbal contract made between the deceased Joaquin Santa
reasons which he himself conscientiously deemed to warrant his Marina, the defendant's predecessor in interest, and the plaintiff
surrender of the position he was holding in the La Insular factory, antonio M.a Barretto — a contract which, after Joaquin Santa
the principal owner of the establishment, the defendant Santa Marina's death was ratified by his brother and heir, the defendant
Marina, had to took for and appoint another agent and manager Jose Santa Marina.
to relieve and substitute him in the said employment — a lawful
act performed by the principal owner of the factory and one which The defendant acknowledged the said verbal contract and also its
cannot serve as a ground upon which to demand from the latter ratification by him after his brother's death; but he denied any
an indemnity for losses and damages, inasmuch as, in view of the stipulation therein that Barretto should hold his office for any
facts that occurred and were acknowledged and confessed by specific period of time fixed by and between the contracting
Barretto in his letters, Exhibits 3 and 6, the plaintiff could not parties, for the deceased Joaquin Santa Marina, in conferring
expect, nor ought to have expected, that the defendant should power upon the plaintiff, did not do so for any specific time nor did
have insisted on the unsuccessful agent's continuance in his he set any period within which he should hold his office of agent
position, or that he should not have accepted the resignation and manager of the La Insular factory; neither did he fix the date
tendered by the plaintiff in his first letter. By the mere fact that the for the termination of such services, in the instrument of power of
defendant remained silent and designated another person, Mr. J. attorney executed by the defendant Santa Marina before a notary
McGavin, to, discharge in the plaintiff's stead the powers and on the 25th of September, 1908. (Record, p. 20.)
duties of agent and manager of the said factory, Barretto should
have understood that his resignation had been accepted and that
293
From the context of the instrument just mentioned it can not be The record does not show it to have been duly proved.
concluded that any time whatever was fixed during which the notwithstanding the plaintiff's allegation, that a period was fixed
plaintiff should hold his position of agent. The defendant, in for holding his agency or office of agent and manager of the La
executing that instrument, whereby the agreement made between Insular factory. It would be improper, for the purpose of supplying
his brother Joaquin and Barretto was ratified, did no more than such defect, to apply to the present case the provisions of article
accord to the plaintiff the same confidence that the defendant's 1128 of the Civil Code. This article relates to obligation for which
predecessor in interest had in him; and so long as this merely no period has been fixed for their fulfillment, but, which, from their
subjective condition of trust lodged in the agent existed, the time nature and circumstances, allow the inference that there was an
during which the latter might hold his office could be considered intention to grant such period to the debtor, wherefore the courts
indefinite or undetermined, but as soon as that indespensable are authorized to fix the duration of the same, and the reason why
condition of a power of attorney disappeared and the conduct of it is inapplicable is that the rights and obligations existing between
the agent deceased to inspire confidence, the principal had a Barretto and Santa Marina are absolutely different from those to
right to revoke the power he had conferred upon his agent, which it refers, for, according to article 1732 of the Civil Code,
especially when the latter, for good reasons, gave up the office he agency is terminated:
was holding.
1. By revocation.
Article 1733 of the civil Code, applicable to the case at bar,
according to the provisions of article 2 of the Code of Commerce, 2. By withdrawal of the agent.
prescribes: "The principal may, at his will, revoke the power and
compel the agent to return the instrument containing the same in 3. By death, interdiction, bankruptcy, or insolvency of the
which the authority was given." principal or of the agent.
Article 279 of the Code of Commerce provides: "The principal It is not incumbent upon the courts to fix the period during which
may revoke the commission intrusted to an agent at any stage of contracts for services shall last. Their duration is understood to be
the transaction, advising him thereof, but always being liable for implicity fixed, in default of express stipulation, by the period for
the result of the transactions which took place before the latter the payment of the salary of the employee. Therefore the doctrine
was informed of the revocation." 1awphi1.net
of the tacit renewal of leases of property, established in article

1566 of the Civil Code, is not applicable to the case at bar. And
From the above legal provisions it is clearly to be inferred that the even though the annual salary fixed for the services to be
contract of agency can subsist only so long as the principal has rendered by the plaintiff as agent and manager of the La Insular
confidence in his agent, because, from the moment such factory, was P37,000, yet, in accordance with the custom
confidence disappears and although there be a fixed period for universally observed throughout the world, salaries fixed for the
the excercise of the office of agent, a circumstance that does not year are collected and paid in monthly installments as they fall
appear in the present case the principal has a perfect right to due, and so the plaintiff collected and was paid his remuneration;
revoke the power that he had conferred upon the agent owing to therefore, on the latter's discontinuance in his office as agent, he
the confidence he had in him and which for sound reasons had would at most be entitled to the salary for one month and some
ceased to exist. odd days, allowed in the judgment of the lower court.
294
Article 302 of the Code of Commerce reads thus: another new agent, Mr. McGavin, stated among other things that
the loan contracted by the agent Barretto, without the approval of
In cases in which no special time is fixed in the contracts the principal, caused a great panic among the stockholders of the
of service, any one of the parties thereto may dissolve it, factory and that the defendant hoped to allay it by the new
advising the other party thereof one month in advance. measure that he expected to adopt. This, then, was still another
reason the induced the principal to withdraw the confidence
The factor or shop clerk shall be entitled, in such case, to placed in the plaintiff and to revoke the power he had conferred
the salary due for one month. upon him. Therefore, even omitting consideration of the
resignation before mentioned, we find duly warranted the reasons
which impelled the defendant to revoke the said power and
From the mere fact that the principal no longer had confidence in
relieve the plaintiff from the position of agent and manager of the
the agent, he is entitled to withdraw it and to revoke the power he
La Insular factory.
conferred upon the latter, even before the expiration of the period
of the engagement or of the agreement made between them; but,
in the present case, once it has been shown that, between the In accordance with the provisions of article 283 of the Code of
deceased Joaquin Santa Marina and the latter's heir, now the Commerce, the manager of an enterprise or manufacturing or
defendant, on the one hand, and the plaintiff Barretto, on the commercial establishment, authorized to administer it and direct
other, no period whatever was stipulated during which the last- it, with more or less powers, as the owner may have considered
named should hold the office and manager of the said factory, it advisable, shall have the legal qualifications of an agent.
is unquestionable that the defendant, even without good reasons,
could lawfully revoke the power conferred upon the plaintiff and Article 300 of the same code prescribes: "The following shall be
appoint in his place Mr. McGavin, and thereby contracted no special reasons for which principals may discharge their
liability whatever other than the obligation to pay the plaintiff the employees, even though the time of service of the contract has
salary pertaining to one month and some odd days, as held in the not elapsed: Fraud or breach of trust in the business intrusted to
judgment below. them . . . "
Barretto himself acknowledged in his aforesaid letter, Exhibit 3, By reason of these legal provisions the defendant, in revoking the
that he had exceeded his authority and acted negligently in authority conferred upon the plaintiff, acted within his
selling on credit to the said Chinaman a large quantity of the unquestionable powers and did not thereby violate any statute
products of the factory under the plaintiff's management, reaching whatever that may have limited them; consequently, he could not
the considerable value of P97,000; whereby he confessed one of have caused the plaintiff any harm or detriment to his rights and
the causes which led to his removal, the revocation of the power interests, for not only had Santa Marina a justifiable reason to
conferred upon him and the appointment of a new agent in his proceed as he did, but also no period whatever had been
place. stipulated during which the plaintiff should be entitled to hold his
position; and furthermore, because, in relieving the latter and
The defendant, Jose Santa Marina, in his letter of December 2, appointing another person in his place, the defendant acted in
1909, whereby he communicated to the plaintiff the revocation of accordance with the renunciation and resignation which the
the power he had conferred upon him and the appointment of plaintiff had tendered. If the plaintiff is entitled to any indemnity in
accordance with law, such was awarded to him in the judgment of
295
the lower court by granting him the right to collect salary for one
month and some odd days.
As for the other features of the case, the record does not show
that the plaintiff has any good reason or legal ground upon which
to claim an indemnity for losses and damages in the sum of
P100,000, for it was not proved that he suffered to that extent,
and the judgment appealed from has awarded him the month's
salary to which he is entitled. Therefore that judgment and the
order of March 14 sustaining the demurrer to the second cause of
action are both in accordance with the law.
For the foregoing reasons, whereby the errors assigned to the

said judgment and order are deemed to have been refuted, both
judgment and order are hereby affirmed, with costs against the
appellant.
296

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G.R. No. 88866. February 18, 1991.

* Mercantile Law; Negotiable Instruments; Requisites of

171 1979, in the amount of P508,000.00, the second on July

Court of Appeals courts which we see no reason to disturb. And as we said

Forgery cannot be presumed (Siasat, et al. v. IAC, et al., 139

Torres Enterprises, Inc. (CTTEI), the exclusive real

8 between it and Kee was rescinded long before the

the liability of petitioner, as such fact does not negate

CTTEI was acting within its authority as the sole

shall be mutually disregarded and shall not be 22

Obviously, the deed of sale can have no effect on the

The award of attorney’s fees lies within the 24

The facts are stated in the opinion of the Court.

More than two weeks after the deposits, Gloria

171 1979, in the amount of P508,000.00, the second on July

Mindoro. After trial, judgment was rendered in favor of

1. 1.Dismissing the complaint with costs against the ________________

respondent Court of Appeals, Metrobank is made to

Court of Appeals courts which we see no reason to disturb. And as we said

the purpose of guaranteeing the genuineness of the 179

440 In its decision, the Court of Appeals resolved the

Further, I hereby give and grant to RENE SAVELLON

Authorization (Exhibit “C” and Exhibit “1”), dated 1

4 Id., 11. The document is not acknowledged before a notary public.

trips to Davao.” 464

1. 1.Whether or not defendants are jointly liable to

VOL. 245, JUNE 29, 1995 467

Or, as stated in Harry E. Keller Electric Co. vs. 469

See Article 1876, Civil Code.

471 Since the principal subject of the Authorization is the

formal proposal and also for him to He further declared as follows:

A Few days later he came to our office and 474

A Yes, sir. is only a photocopy and, despite its reservation to

mining or in coal business, SMC should have required

Elmer Baliquig, is not the petitioners’ employee but of

need to verify the ownership of the vessel because such

had affirmed the Decision dated October 10, 1989 of the

3 Id., at pp. 57-63. Penned by Judge Clemente M. Soriano.

Pedroso went to the Escolta branch where Alcantara gave her

yellow-colored agent’s receipt he issued to the latter.

when Pedroso tried to withdraw her investment, Valle 546

authority. While it is true that a person deal-

547 SCRA 634, 641 (1964).

32 14 Art. 1292 of the Civil Code states:

were remitted to Manila Remnant as payments of 6 Civil Case No. 90979.

Crisostomo for which the former issued receipts in favor

1972. Valencia complied with the court’s order on

628 While petitioner Manila Remnant has not refuted

hold the principal liable, to ascertain not only the fact of

that the terms of the sale were subject to negotiation. 4

Meanwhile, with the assumption of Corazon C. Dear Sir:

On July 3, 1995, the trial court rendered judgment in

The Litonjuas then filed a complaint for specific

_______________ on such issues, as affirmed by the CA, are conclusive on

20 Weathersby v. Gore, 556 F.2d 1247 (1977).

incorporated under this Code has the power and capacity:

_______________ requires a specific form. However, to create or convey

real rights over immovable property, a special power of

35 CIVIL CODE, Art. 1869, paragraph 2.