PARTNERSHIP CASES

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION 

G.R. No. 112675 January 25, 1999

AFISCO INSURANCE CORPORATION; CCC INSURANCE CORPORATION; CHARTER INSURANCE CO., INC.; CIBELES INSURANCE CORPORATION; COMMONWEALTH INSURANCE COMPANY; CONSOLIDATED INSURANCE CO., INC.; DEVELOPMENT INSURANCE & SURETY CORPORATION DOMESTIC INSURANCE COMPANY OF THE PHILIPPINE; EASTERN ASSURANCE COMPANY & SURETY CORP; EMPIRE INSURANCE COMPANY; EQUITABLE INSURANCE CORPORATION; FEDERAL INSURANCE CORPORATION INC.; FGU INSURANCE CORPORATION; FIDELITY & SURETY COMPANY OF THE PHILS., INC.; FILIPINO MERCHANTS' INSURANCE CO., INC.; GOVERNMENT SERVICE INSURANCE SYSTEM; MALAYAN INSURANCE CO., INC.; MALAYAN ZURICH INSURANCE CO.; INC.; MERCANTILE INSURANCE CO., INC.; METROPOLITAN INSURANCE COMPANY; METRO-TAISHO INSURANCE CORPORATION; NEW ZEALAND INSURANCE CO., LTD.; PAN-MALAYAN INSURANCE CORPORATION; PARAMOUNT INSURANCE CORPORATION; PEOPLE'S TRANS-EAST ASIA INSURANCE CORPORATION; PERLA COMPANIA DE SEGUROS, INC.; PHILIPPINE BRITISH ASSURANCE CO., INC.; PHILIPPINE FIRST INSURANCE CO., INC.; PIONEER INSURANCE & SURETY CORP.; PIONEER INTERCONTINENTAL INSURANCE CORPORATION; PROVIDENT INSURANCE COMPANY OF THE PHILIPPINES; PYRAMID INSURANCE CO., INC.; RELIANCE SURETY & INSURANCE COMPANY; RIZAL SURETY & INSURANCE COMPANY; SANPIRO INSURANCE CORPORATION; SEABOARD-EASTERN INSURANCE CO., INC.; SOLID GUARANTY, INC.; SOUTH SEA SURETY & INSURANCE CO., INC.; STATE BONDING & INSURANCE CO., INC.; SUMMA INSURANCE CORPORATION; TABACALERA INSURANCE CO., INC. — all assessed as "POOL OF MACHINERY INSURERS, petitioner, vs.COURT OF APPEALS, COURT OF TAX APPEALS and COMISSIONER OF INTERNAL REVENUE, respondent.

PANGANIBAN, J.:

Pursuant to "reinsurance treaties," a number of local insurance firms formed themselves into a "pool" in order to facilitate the handling of business contracted with a nonresident foreign insurance company. May the "clearing house" or "insurance pool" so formed be deemed a partnership or an association that is taxable as a corporation under the National Internal Revenue Code (NIRC)? Should the pool's remittances to the member companies and to the said foreign firm be taxable as dividends? Under the facts of this case, has the goverment's right to assess and collect said tax prescribed?

The Case

These are the main questions raised in the Petition for Review on Certiorari before us, assailing the October 11, 1993 Decision 1 of the Court of Appeals 2 in CA-GR SP 25902, which dismissed petitioners' appeal of the October 19, 1992 Decision 3 of the Court of Tax Appeals 4 (CTA) which had previously sustained petitioners' liability for deficiency income tax, interest and withholding tax. The Court of Appeals ruled:

WHEREFORE, the petition is DISMISSED, with costs against petitioner 5

The petition also challenges the November 15, 1993 Court of Appeals (CA) Resolution 6 denying reconsideration.

The Facts

The antecedent facts, 7 as found by the Court of Appeals, are as follows:

The petitioners are 41 non-life insurance corporations, organized and existing under the laws of the Philippines. Upon issuance by them of Erection, Machinery Breakdown, Boiler Explosion and Contractors' All Risk insurance policies, the petitioners on August 1, 1965 entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-resident foreign insurance corporation. The reinsurance treaties required petitioners to form a [p]ool. Accordingly, a pool composed of the petitioners was formed on the same day.

On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an "Information Return of Organization Exempt from Income Tax" for the year ending in 1975, on the basis of which it was assessed by the Commissioner of Internal Revenue deficiency corporate taxes in the amount of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the petitioners, respectively. These assessments were protested by the petitioners through its auditors Sycip, Gorres, Velayo and Co.

On January 27, 1986, the Commissioner of Internal Revenue denied the protest and ordered the petitioners, assessed as "Pool of Machinery Insurers," to pay deficiency income tax, interest, and with [h]olding tax, itemized as follows:

Net income per information return P3,737,370.00===========

Income tax due thereon P1,298,080.00Add: 14% Int. fr. 4/15/76 to 4/15/79 545,193.60

——————TOTAL AMOUNT DUE & COLLECTIBLE P1,843,273.60Dividend paid to MunichReinsurance Company P3,728,412.00

——————35% withholding tax atsource due thereon P1,304,944.20Add: 25% surcharge 326,236.0514% interest from1/25/76 to 1/25/79 137,019.14Compromise penalty-non-filing of return 300.00late payment 300.00

——————TOTAL AMOUNT DUE & P1,768,799.39COLLECTIBLE ===========Dividend paid to Pool Members P655,636.00

===========10% withholding tax atsource due thereon P65,563.60Add: 25% surcharge 16,390.9014% interest from1/25/76 to 1/25/79 6,884.18Compromise penalty-non-filing of return 300.00late payment 300.00

——————TOTAL AMOUNT DUE & P89,438.68COLLECTIBLE =========== 8

The CA ruled in the main that the pool of machinery insurers was a partnership taxable as a corporation, and that the latter's collection of premiums on behalf of its members, the ceding companies, was taxable income. It added that prescription did not bar the Bureau of Internal Revenue (BIR) from collecting the taxes due, because "the taxpayer cannot be located at the address given in the information return filed." Hence, this Petition for Review before us. 9

The Issues

Before this Court, petitioners raise the following issues:

1. Whether or not the Clearing House, acting as a mere agent and performing strictly administrative functions, and which did not insure or assume any risk in its own name, was a partnership or association subject to tax as a corporation;

2. Whether or not the remittances to petitioners and MUNICHRE of their respective shares of reinsurance premiums, pertaining to their individual and separate contracts of reinsurance, were "dividends" subject to tax; and

3. Whether or not the respondent Commissioner's right to assess the Clearing House had already prescribed. 10

The Court's Ruling

The petition is devoid of merit. We sustain the ruling of the Court of Appeals that the pool is taxable as a corporation, and that the government's right to assess and collect the taxes had not prescribed.

First Issue:

Pool Taxable as a Corporation

Petitioners contend that the Court of Appeals erred in finding that the pool of clearing house was an informal partnership, which was taxable as a corporation under the NIRC. They point out that the reinsurance policies were written by them "individually and separately," and that their liability was limited to the extent of their allocated share in the original risk thus reinsured. 11 Hence, the pool did not act or earn income as a reinsurer. 12 Its role was limited to its principal function of "allocating and distributing the risk(s) arising from the original insurance among the signatories to the treaty or the members of the pool based on their ability to absorb the risk(s) ceded[;] as well as the performance of incidental functions, such as records, maintenance, collection and custody of funds, etc." 13

Petitioners belie the existence of a partnership in this case, because (1) they, the reinsurers, did not share the same risk or solidary liability, 14 (2) there was no common fund; 15 (3) the executive board of the pool did not exercise control and management of its funds, unlike the board of directors of a corporation; 16 and (4) the pool or clearing house "was not and could not possibly have engaged in the business of reinsurance from which it could have derived income for itself." 17

The Court is not persuaded. The opinion or ruling of the Commission of Internal Revenue, the agency tasked with the enforcement of tax law, is accorded much weight and even finality, when there is no showing. that it is patently wrong, 18 particularly in this case where the findings and conclusions of the internal revenue commissioner were subsequently affirmed by the CTA, a specialized body created for the exclusive purpose of reviewing tax cases, and the Court of Appeals. 19Indeed,

[I]t has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the nature of its functions, is dedicated exclusively to the study and

consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of its authority. 20

This Court rules that the Court of Appeals, in affirming the CTA which had previously sustained the internal revenue commissioner, committed no reversible error. Section 24 of the NIRC, as worded in the year ending 1975, provides:

Sec. 24. Rate of tax on corporations. — (a) Tax on domestic corporations. — A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, no matter how created or organized, but not including duly registered general co-partnership (compañias colectivas), general professional partnerships, private educational institutions, and building and loan associations . . . .

Ineludibly, the Philippine legislature included in the concept of corporations those entities that resembled them such as unregistered partnerships and associations. Parenthetically, the NIRC's inclusion of such entities in the tax on corporations was made even clearer by the tax Reform Act of 1997, 21 which amended the Tax Code. Pertinent provisions of the new law read as follows:

Sec. 27. Rates of Income Tax on Domestic Corporations. —

(A) In General. — Except as otherwise provided in this Code, an income tax of thirty-five percent (35%) is hereby imposed upon the taxable income derived during each taxable year from all sources within and without the Philippines by every corporation, as defined in Section 22 (B) of this Code, and taxable under this Title as a corporation . . . .

Sec. 22. — Definition. — When used in this Title:

xxx xxx xxx

(B) The term "corporation" shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), associations, or insurance companies, but does not include general professional partnerships [or] a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract without the Government. "General professional partnerships" are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business.

xxx xxx xxx

Thus, the Court in Evangelista v. Collector of Internal Revenue 22 held that Section 24 covered these unregistered partnerships and even associations or joint accounts, which had no legal personalities apart from their individual members. 23 The Court of Appeals astutely applied Evangelista. 24

. . . Accordingly, a pool of individual real property owners dealing in real estate business was considered a corporation for purposes of the tax in sec. 24 of the Tax Code in Evangelista v. Collector of Internal Revenue, supra. The Supreme Court said:

The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on. *** (8 Merten's Law of Federal Income Taxation, p. 562 Note 63)

Art. 1767 of the Civil Code recognizes the creation of a contract of partnership when "two or more persons bind themselves to contribute money, property, or Industry to a common fund, with the intention of dividing the profits among themselves." 25 Its requisites are: "(1) mutual contribution to a common stock, and (2) a joint interest in the profits." 26 In other words, a partnership is formed when persons contract "to devote to a common purpose either money, property, or labor with the intention of dividing the profits betweenthemselves." 27 Meanwhile, an association implies associates who enter into a "joint enterprise . . . for the transaction of business." 28

In the case before us, the ceding companies entered into a Pool Agreement 29 or an association 30 that would handle all the insurance businesses covered under their quota-share reinsurance treaty 31 and surplus reinsurance treaty 32 with Munich. The following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC:

(1) The pool has a common fund, consisting of money and other valuables that are deposited in the name and credit of the pool. 33 This common fund pays for the administration and operation expenses of the pool. 24

(2) The pool functions through an executive board, which resembles the board of directors of a corporation, composed of one representative for each of the ceding companies. 35

(3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its work is indispensable, beneficial and economically useful to the business of the ceding companies and Munich, because without it they would not have received their premiums. The ceding companies share "in the business ceded to the pool" and in the "expenses" according to a

"Rules of Distribution" annexed to the Pool Agreement. 36 Profit motive or business is, therefore, the primordial reason for the pool's formation. As aptly found by the CTA:

. . . The fact that the pool does not retain any profit or income does not obliterate an antecedent fact, that of the pool being used in the transaction of business for profit. It is apparent, and petitioners admit, that their association or coaction was indispensable [to] the transaction of the business, . . . If together they have conducted business, profit must have been the object as, indeed, profit was earned. Though the profit was apportioned among the members, this is only a matter of consequence, as it implies that profit actually resulted. 37

The petitioners' reliance on Pascuals v. Commissioner 38 is misplaced, because the facts obtaining therein are not on all fours with the present case. In Pascual, there was no unregistered partnership, but merely a co-ownership which took up only two isolated transactions. 39 The Court of Appeals did not err in applying Evangelista, which involved a partnership that engaged in a series of transactions spanning more than ten years, as in the case before us.

Second Issue:

Pool's Remittances are Taxable

Petitioners further contend that the remittances of the pool to the ceding companies and Munich are not dividends subject to tax. They insist that such remittances contravene Sections 24 (b) (I) and 263 of the 1977 NIRC and "would be tantamount to an illegal double taxation as it would result in taxing the same taxpayer" 40 Moreover, petitioners argue that since Munich was not a signatory to the Pool Agreement, the remittances it received from the pool cannot be deemed dividends. 41They add that even if such remittances were treated as dividends, they would have been exempt under the previously mentioned sections of the 1977 NIRC, 42 as well as Article 7 of paragraph 1 43 and Article 5 of paragraph 5 44 of the RP-West German Tax Treaty. 45

Petitioners are clutching at straws. Double taxation means taxing the same property twice when it should be taxed only once. That is, ". . . taxing the same person twice by the same jurisdiction for the same thing" 46 In the instant case, the pool is a taxable entity distinct from the individual corporate entities of the ceding companies. The tax on its income is obviously different from the tax on thedividends received by the said companies. Clearly, there is no double taxation here.

The tax exemptions claimed by petitioners cannot be granted, since their entitlement thereto remains unproven and unsubstantiated. It is axiomatic in the law of taxation that taxes are the lifeblood of the nation. Hence, "exemptions therefrom are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right." 47 Petitioners have failed to discharge this burden of proof. The sections of the 1977 NIRC which they cite are inapplicable, because these were not yet in effect when the income was earned and when the subject information return for the year ending 1975 was filed.

Referring, to the 1975 version of the counterpart sections of the NIRC, the Court still cannot justify the exemptions claimed. Section 255 provides that no tax shall ". . . be paid upon reinsurance by any company that has already paid the tax . . ." This cannot be applied to the present case because, as previously discussed, the pool is a taxable entity distinct from the ceding companies; therefore, the latter cannot individually claim the income tax paid by the former as their own.

On the other hand, Section 24 (b) (1) 48 pertains to tax on foreign corporations; hence, it cannot be claimed by the ceding companies which are domestic corporations. Nor can Munich, a foreign corporation, be granted exemption based solely on this provision of the Tax Code, because the same subsection specifically taxes dividends, the type of remittances forwarded to it by the pool. Although not a signatory to the Pool Agreement, Munich is patently an associate of the ceding companies in the entity formed, pursuant to their reinsurance treaties which required the creation of said pool.

Under its pool arrangement with the ceding companies; Munich shared in their income and loss. This is manifest from a reading of Article 3 49 and 10 50 of the Quota-Share Reinsurance treaty and Articles 3 51 and 10 52 of the Surplus Reinsurance Treaty. The foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a tax exemption must be construed strictissimi juris, and the statutory exemption claimed must be expressed in a language too plain to be mistaken. 53

Finally the petitioners' claim that Munich is tax-exempt based on the RP- West German Tax Treaty is likewise unpersuasive, because the internal revenue commissioner assessed the pool for corporate taxes on the basis of the information return it had submitted for the year ending 1975, a taxable year when said treaty was not yet in effect. 54 Although petitioners omitted in their pleadings the date of effectivity of the treaty, the Court takes judicial notice that it took effect only later, on December 14, 1984. 55

Third Issue:

Prescription

Petitioners also argue that the government's right to assess and collect the subject tax had prescribed. They claim that the subject information return was filed by the pool on April 14, 1976. On the basis of this return, the BIR telephoned petitioners on November 11, 1981, to give them notice of its letter of assessment dated March 27, 1981. Thus, the petitioners contend that the five-year statute of limitations then provided in the NIRC had already lapsed, and that the internal revenue commissioner was already barred by prescription from making an assessment. 56

We cannot sustain the petitioners. The CA and the CTA categorically found that the prescriptive period was tolled under then Section 333 of the NIRC, 57 because "the taxpayer cannot be located at the address given in the information return filed and for which reason there was delay in

sending the assessment." 58 Indeed, whether the government's right to collect and assess the tax has prescribed involves facts which have been ruled upon by the lower courts. It is axiomatic that in the absence of a clear showing of palpable error or grave abuse of discretion, as in this case, this Court must not overturn the factual findings of the CA and the CTA.

Furthermore, petitioners admitted in their Motion for Reconsideration before the Court of Appeals that the pool changed its address, for they stated that the pool's information return filed in 1980 indicated therein its "present address." The Court finds that this falls short of the requirement of Section 333 of the NIRC for the suspension of the prescriptive period. The law clearly states that the said period will be suspended only "if the taxpayer informs the Commissioner of Internal Revenue of any change in the address."

WHEREFORE, the petition is DENIED. The Resolution of the Court of Appeals dated October 11, 1993 and November 15, 1993 are hereby AFFIRMED. Cost against petitioners.1âwphi1.nêt

SO ORDERED.

Romero, Vitug, Purisima, Gonzaga-Reyes, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION 

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners, vs.COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory of real property will not ipso facto release the contracting partners from their respective obligations to each other arising from acts executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court of Appeals 2 (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are likewise ordered dismissed. No pronouncement as to costs. 3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for the development of the subdivision. 4 All three of them also agreed to share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and skills." They add that respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA.

Hence, this Petition. 6

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing with the trial court's pronouncement that losses as well as profits in a joint venture should be distributed equally, 7 the CA invoked Article 1797 of the Civil Code which provides:

Art. 1797 — The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction

. . . between the petitioners and respondent was that of a joint venture/partnership, ignoring outright the provision of Article 1769, and other related provisions of the Civil Code of the Philippines. 8

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property. 9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the SECOND PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency upon the execution of this contract for the property entrusted by the SECOND PARTY, for sub-division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties hereto do hereby stipulate and agree as follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this particular amount will serve as an advance payment from the FIRST PARTY for the property mentioned to be sub-divided and to be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount involving the amount of TWENTY THOUSAND

(P20,000.00) Pesos, Philippine Currency, until the sub-division project is terminated and ready for sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the sales will be divided equally according to the . . . percentage [agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and-the FIRST PARTY will be given a grace period to turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and voluntarily for the uses and purposes therein stated. 10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership. 11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

Petitioners Bound by Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their obligations. They cannot now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms.

Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides:

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited provision which is a complement of Article

1771, 12 "The execution of a public instrument would be useless if there is no inventory of the property contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by the law when no such inventory is made." The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the property. 13 They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another. 15

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used. As explained by the trial court, "the land was in effect given to the partnership as [petitioner's] participation therein. . . . There was therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty percent of the net profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners maintain that he should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the failure of the project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing the blame solely to him, petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this doctrine. 18 Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners.

SO ORDERED

Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 172690               March 3, 2010

HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners, vs.JULIET VILLA LIM, Respondent.

D E C I S I O N

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure, assailing the Court of Appeals (CA) Decision2 dated June 29, 2005, which reversed and set aside the decision3 of the Regional Trial Court (RTC) of Lucena City, dated April 12, 2004.

The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito Lim (Elenito). They filed a Complaint4 for Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to engage in the trucking business. Initially, with a contribution of P50,000.00 each, they purchased a truck to be used in the hauling and transport of lumber of the sawmill. Jose managed the operations of this trucking business until his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and partners agreed to continue the business under the management of Elfledo. The shares in the partnership profits and income that formed part of the estate of Jose were held in trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire properties using said funds.

Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving as his father’s driver in the trucking business. He was never a partner or an investor in the business and merely supervised the purchase of additional trucks using the income from the trucking business of the partners. By the time the partnership ceased, it had nine trucks, which were all registered in Elfledo's name. Petitioners asseverated that it was also through Elfledo’s management of the partnership that he was able to purchase numerous real properties by using the profits derived therefrom, all of which were registered in his name and that of respondent. In addition to the nine trucks, Elfledo also acquired five other motor vehicles.

On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that respondent took over the administration of the aforementioned properties, which belonged to the estate of Jose, without their consent and approval. Claiming that they are co-owners of the properties, petitioners required respondent to submit an accounting of all income, profits and rentals received from the estate of Elfledo, and to surrender the administration thereof. Respondent refused; thus, the filing of this case.

Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto and Jimmy. Respondent also claimed that per testimony of Cresencia, sometime in 1980, Jose gave ElfledoP50,000.00 as the latter's capital in an informal partnership with Jimmy and Norberto. When Elfledo and respondent got married in 1981, the partnership only had one truck; but through the efforts of Elfledo, the business flourished. Other than this trucking business, Elfledo, together with respondent, engaged in other business ventures. Thus, they were able to buy real properties and to put up their own car assembly and repair business. When Norberto was ambushed and killed on July 16, 1993, the trucking business started to falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent talked to Jimmy and to the heirs of Norberto, as she could no longer run the business. Jimmy suggested that three out of the nine trucks be given to him as his share, while the other three trucks be given to the heirs of Norberto. However, Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the same to respondent, who paid for them in installments.

Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left no properties that Elfledo could have held in trust. Respondent maintained that all the properties involved in this case were purchased and acquired through her and her husband’s joint efforts and hard work, and without any participation or contribution from petitioners or

from Jose. Respondent submitted that these are conjugal partnership properties; and thus, she had the right to refuse to render an accounting for the income or profits of their own business.

Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of petitioners, thus:

WHEREFORE, premises considered, judgment is hereby rendered:

1) Ordering the partition of the above-mentioned properties equally between the plaintiffs and heirs of Jose Lim and the defendant Juliet Villa-Lim; and

2) Ordering the defendant to submit an accounting of all incomes, profits and rentals received by her from said properties.

SO ORDERED.

Aggrieved, respondent appealed to the CA.

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners' complaint for lack of merit. Undaunted, petitioners filed their Motion for Reconsideration,5 which the CA, however, denied in its Resolution6 dated May 8, 2006.

Hence, this Petition, raising the sole question, viz.:

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE PARTNERSHIP?7

In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving partner, Elfledo was not a partner; and that he and Norberto entered into a partnership with Jose. Thus, the CA erred in not giving that testimony greater weight than that of Cresencia, who was merely the spouse of Jose and not a party to the partnership.8

Respondent counters that the issue raised by petitioners is not proper in a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the review, evaluation, calibration, and re-weighing of the factual findings of the CA. Moreover, respondent invokes the rationale of the CA decision that, in light of the admissions of Cresencia and Edison and the testimony of respondent, the testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of the RTC's findings was fully justified.9

We resolve first the procedural matter regarding the propriety of the instant Petition.

Verily, the evaluation and calibration of the evidence necessarily involves consideration of factual issues — an exercise that is not appropriate for a petition for review on certiorari under Rule 45. This rule provides that the parties may raise only questions of law, because the Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze again and weigh the evidence introduced in and considered by the tribunals below.10When supported by substantial evidence, the findings of fact of the CA are conclusive and binding on the parties and are not reviewable by this Court, unless the case falls under any of the following recognized exceptions:

(1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures;(2) When the inference made is manifestly mistaken, absurd or impossible;(3) Where there is a grave abuse of discretion;(4) When the judgment is based on a misapprehension of facts;(5) When the findings of fact are conflicting;(6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee;(7) When the findings are contrary to those of the trial court;(8) When the findings of fact are conclusions without citation of specific evidence on which they are based;(9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the respondents; and(10) When the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and contradicted by the evidence on record.11

We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus, our review of such findings is warranted.

On the merits of the case, we find that the instant Petition is bereft of merit.

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses among them. A contract of partnership is defined by the Civil Code as one where two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.12

Undoubtedly, the best evidence would have been the contract of partnership or the articles of partnership. Unfortunately, there is none in this case, because the alleged partnership was never formally organized. Nonetheless, we are asked to determine who between Jose and Elfledo was the "partner" in the trucking business.

A careful review of the records persuades us to affirm the CA decision. The evidence presented by petitioners falls short of the quantum of proof required to establish that: (1) Jose was the partner and not Elfledo; and (2) all the properties acquired by Elfledo and respondent form part of the estate of Jose, having been derived from the alleged partnership.

Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against respondent. It must be considered and weighed along with petitioners' other evidence vis-à-vis respondent's contrary evidence. In civil cases, the party having the burden of proof must establish his case by a preponderance of evidence. "Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either side and is usually considered synonymous with the term "greater weight of the evidence" or "greater weight of the credible evidence." "Preponderance of evidence" is a phrase that, in the last analysis, means probability of the truth. It is evidence that is more convincing to the court as worthy of belief than that which is offered in opposition thereto.13 Rule 133, Section 1 of the Rules of Court provides the guidelines in determining preponderance of evidence, thus:

SECTION I. Preponderance of evidence, how determined. In civil cases, the party having burden of proof must establish his case by a preponderance of evidence. In determining where the preponderance or superior weight of evidence on the issues involved lies, the court may consider all the facts and circumstances of the case, the witnesses' manner of testifying, their intelligence, their means and opportunity of knowing the facts to which they are testifying, the nature of the facts to which they testify, the probability or improbability of their testimony, their interest or want of interest, and also their personal credibility so far as the same may legitimately appear upon the trial. The court may also consider the number of witnesses, though the preponderance is not necessarily with the greater number.

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals14 is enlightening. Therein, we cited Article 1769 of the Civil Code, which provides:

Art. 1769. In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property;(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installments or otherwise;(b) As wages of an employee or rent to a landlord;(c) As an annuity to a widow or representative of a deceased partner;(d) As interest on a loan, though the amount of payment vary with the profits of the business;(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

Applying the legal provision to the facts of this case, the following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital in the partnership;15 (2) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any intervention or opposition whatsoever from any of petitioners herein;16 (3) all of the properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he actually received were shares of the profits of the business;17 and (5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,18 a demand for periodic accounting is evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties acquired and registered in the names of Elfledo and respondent formed part of the estate of Jose, having been derived from Jose's alleged partnership with Jimmy and Norberto. They failed to refute respondent's claim that Elfledo and respondent engaged in other businesses. Edison even admitted that Elfledo also sold Interwood lumber as a sideline.19 Petitioners could not offer any credible evidence other than their bare assertions. Thus, we apply the basic rule of evidence that between documentary and oral evidence, the former carries more weight.20

Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a hired help but one of the partners in the trucking business, active and visible in the running of its affairs from day one until this ceased operations upon his demise. The extent of his control, administration and management of the partnership and its business, the fact that its properties were placed in his name, and that he was not paid salary or other compensation by the partners, are indicative of the fact that Elfledo was a partner and a controlling one at that. It is apparent that the other partners only contributed in the initial capital but had no say thereafter on how the business was ran. Evidently it was through Elfredo’s efforts and hard work that the partnership was able to acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of the partnership by acting as the bookkeeper sans salary.1avvphi1

It is notable too that Jose Lim died when the partnership was barely a year old, and the partnership and its business not only continued but also flourished. If it were true that it was Jose Lim and not Elfledo who was the partner, then upon his death the partnership should have

been dissolved and its assets liquidated. On the contrary, these were not done but instead its operation continued under the helm of Elfledo and without any participation from the heirs of Jose Lim.

Whatever properties appellant and her husband had acquired, this was through their own concerted efforts and hard work. Elfledo did not limit himself to the business of their partnership but engaged in other lines of businesses as well.

In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are amply supported by the law and by the evidence on record.

WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against petitioners.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Republic of the PhilippinesSUPREME COURT

SECOND DIVISION

G.R. No. 126881             October 3, 2000

HEIRS OF TAN ENG KEE, petitioners, vs.COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG LAY,respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision1 dated March 13, 1996 of the former Fifth Division2 of the Court of Appeals in CA-G.R. CV No. 47937, the dispositive portion of which states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY on February 19, 1990. The complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay.

On March 18, 1991, the petitioners filed an amended complaint4 impleading private respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the trial court in its Order dated May 3, 1991.5

The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and construction supplies. They named their enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's death. Petitioners herein averred that the business prospered due to the hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners prayed for accounting of the partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6 on April 12, 1995, to wit:

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

a) Declaring that Benguet Lumber is a joint venture which is akin to a particular partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a business venture and/or particular partnership called Benguet Lumber and as such should share in the profits and/or losses of the business venture or particular partnership;

c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal right to share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a particular partnership have descended to the plaintiffs who are his legal heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber Company, Inc. so the plaintiffs know their proper share in the business;

f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber Company, Inc. until such time that said corporation is finally liquidated are directed to submit the name of any person they want to be appointed as receiver

failing in which this Court will appoint the Branch Clerk of Court or another one who is qualified to act as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the instant case.

h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the assailed decision reversing the judgment of the trial court. Petitioners' motion for reconsideration7 was denied by the Court of Appeals in a Resolution8 dated October 11, 1996.

Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of commercial documents by a private individual. On March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges were filed, rendered judgment9 dismissing the cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that:

I

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).

II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET LUMBER COMPOUND;

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES THEREIN;

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).

V

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not be disturbed on appeal if such are supported by the evidence.10 Our jurisdiction, it must be emphasized, does not include review of factual issues. Thus:

Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth.11 [emphasis supplied]

Admitted exceptions have been recognized, though, and when present, may compel us to analyze the evidentiary basis on which the lower court rendered judgment. Review of factual issues is therefore warranted:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such findings are contrary to the admissions of both appellant and appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will justify a different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence on which they are based; and

(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are contradicted by the evidence on record.12

In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quo over extended the issue because while the plaintiffs mentioned only the existence of a partnership, the Court in turn went beyond that by justifying the existence of a joint venture.

When mention is made of a joint venture, it would presuppose parity of standing between the parties, equal proprietary interest and the exercise by the parties equally of the conduct of the business, thus:

xxx             xxx             xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of the pre-war Benguet Lumber were confiscated if not burned by the Japanese. After the war, because of the absence of capital to start a lumber and hardware business, Lay and Kee pooled the proceeds of their individual businesses earned from buying and selling military supplies, so that the common fund would be enough to form a partnership, both in the lumber and hardware business. That Lay and Kee actually established the Benguet Lumber in Baguio City, was even testified to by witnesses. Because of the pooling of resources, the post-war Benguet Lumber was eventually established. That the father of the plaintiffs and Lay were partners, is obvious from the fact that: (1) they conducted the affairs of the business during Kee's lifetime, jointly, (2) they were the ones giving orders to the employees, (3) they were the ones preparing orders from the suppliers, (4) their families stayed together at the Benguet Lumber compound, and (5) all their children were employed in the business in different capacities.

xxx             xxx             xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to submit an accounting corresponding to the period after the war until Kee's death in 1984. It had no business book, no written account nor any memorandum for that matter and no license mentioning the existence of a partnership [citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the only registered owner of the Benguet Lumber and Hardware. His application for registration, effective 1954, in fact mentioned that his business started in 1945 until 1985 (thereafter, the incorporation). The deceased, Kee, on the other hand, was merely an employee of the Benguet Lumber Company, on the basis of his SSS coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee was

similarly listed only as an employee; precisely, he was on the payroll listing. In the Termination Notice, Exhibit "5", Lay was mentioned also as the proprietor.

xxx             xxx             xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any form, but when an immovable is constituted, the execution of a public instrument becomes necessary. This is equally true if the capitalization exceeds P3,000.00, in which case a public instrument is also necessary, and which is to be recorded with the Securities and Exchange Commission. In this case at bar, we can easily assume that the business establishment, which from the language of the appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real properties and to the fact that it is now a compound. The execution of a public instrument, on the other hand, was never established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only Lay and the members of his family. There is no proof either that the capital assets of the partnership, assuming them to be in existence, were maliciously assigned or transferred by Lay, supposedly to the corporation and since then have been treated as a part of the latter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint.

These are not evidences supporting the existence of a partnership:

1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk house in Trinidad, but within the compound of the lumber establishment, as testified to by Tandoc; 2) that both Lay and Kee were seated on a table and were "commanding people" as testified to by the son, Elpidio Tan; 3) that both were supervising the laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by Kee that the proceeds of the 80 pieces of the G.I. sheets were added to the business.

Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or written. However, if it involves real property or where the capital is P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3) money property or industry contribution; 4) community of funds and interest, mentioning equality of the partners or one having a proportionate share in the benefits; and 5) intention to divide the profits, being the true test of the partnership. The intention to join in the business venture for the purpose of obtaining profits thereafter to be divided, must be established. We cannot see these elements from the testimonial evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In this connection, we have held that whether a partnership exists is a factual matter; consequently,

since the appeal is brought to us under Rule 45, we cannot entertain inquiries relative to the correctness of the assessment of the evidence by the court a quo.13 Inasmuch as the Court of Appeals and the trial court had reached conflicting conclusions, perforce we must examine the record to determine if the reversal was justified.

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A contract of partnership is defined by law as one where:

. . . two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.14

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves.15 The agreement need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real rights are contributed,16 and (2) when the partnership has a capital of three thousand pesos or more.17 In both cases, a public instrument is required.18 An inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to the partnership.19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it said is akin to a particular partnership.20 A particular partnership is distinguished from a joint adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership, with no firm name and no legal personality. In a joint account, the participating merchants can transact business under their own name, and can be individually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing to a successful termination may continue for a number of years; a partnership generally relates to a continuing business of various transactions of a certain kind.21

A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in which each party has an equal proprietary interest in the capital or property contributed, and where each party exercises equal rights in the conduct of the business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture may be likened to a particular partnership, thus:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their elements are similar — community of interest in the business, sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdiction is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there is none. The alleged partnership, though, was never formally organized. In addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was allegedly formed sometime in 1945, although the contrary may well be argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect on August 30, 1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a partnership existed based purely on circumstantial evidence. A review of the record persuades us that the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof required to establish a partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on the precise nature of the business relationship between them. In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing a partnership. The testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not with the number of witnesses wherein preponderance lies;24 the quality of their testimonies is to be considered. None of petitioners' witnesses could suitably account for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo.25 He stated that when he met Tan Eng Kee after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers.26Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and his brother.27 Tan Eng Lay consistently testified that

he had his business and his brother had his, that it was only later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership.28

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and losses.29 Each has the right to demand an accounting as long as the partnership exists.30 We have allowed a scenario wherein "[i]f excellent relations exist among the partners at the start of the business and all the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible."31 But in the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to take ordinary care of his concerns.32 As we explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did not furnish any help or intervention in the management of the theatre. In the third place, it does not appear that she has even demanded from defendant any accounting of the expenses and earnings of the business. Were she really a partner, her first concern should have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that she did was to receive her share of P3,000.00 a month, which cannot be interpreted in any manner than a payment for the use of the premises which she had leased from the owners. Clearly, plaintiff had always acted in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the real contract between them.33 [emphasis supplied]

A demand for periodic accounting is evidence of a partnership.34 During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.

This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called. The authenticity of these documents was questioned by petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as wages of an employee. In connection therewith, Article 1769 of the Civil Code provides:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property;(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property which the returns are derived;(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installment or otherwise;(b) As wages of an employee or rent to a landlord;(c) As an annuity to a widow or representative of a deceased partner;(d) As interest on a loan, though the amount of payment vary with the profits of the business;(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square one, so to speak, since they did not present and offer evidence that would show that Tan Eng Kee received amounts of money allegedly representing his share in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share in the profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business between themselves, which is one of the essential features of a partnership.

Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees; that both were supervising the employees; that both were the ones who determined the price at which the stocks were to be sold; and that both placed orders to the suppliers of the Benguet Lumber Company. They also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary employees.

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above enumerated powers and privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in Benguet Lumber for the following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and directions to his subordinates. So long, therefore, that an employee's position is higher in rank, it is not unusual that he orders around those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can order materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does not necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was not accorded to other employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal relations existed between them. Whatever privileges Tan Eng Lay gave his brother, and which were not given the other employees, only proves the kindness and generosity of Tan Eng Lay towards a blood relative.

(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in connection with the pricing of stocks, this does not adequately prove the existence of a partnership relation between them. Even highly confidential employees and the owners of a company sometimes argue with respect to certain matters which, in no way indicates that they are partners as to each other.35

In the instant case, we find private respondent's arguments to be well-taken. Where circumstances taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective effect of these circumstances may be such as to support a finding of the existence of the parties' intent.36 Yet, in the case at bench, even the aforesaid circumstances when taken together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that as a member of the family, he occupied a niche above the rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet Lumber Company compound. He would have moral, if not actual, superiority over his fellow employees, thereby entitling him to exercise powers of supervision. It may even be that among his duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a business organized and run as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is herebyAFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

Bellosillo, Mendoza, Quisumbing and Buena, JJ ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 154486               December 1, 2010

FEDERICO JARANTILLA, JR., Petitioner, vs.ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA REMOTIGUE, DOROTEO JARANTILLA and TOMAS JARANTILLA, Respondents.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals dated July 30, 2002 in CA-G.R. CV No. 40887, which set aside the Decision3 dated December 18, 1992 of the Regional Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.

The pertinent facts are as follows:

The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the grandchild of the late Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife Leda Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas Jarantilla.

Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla, his aunt, was the plaintiff therein. His co-respondents before he joined his aunt Antonieta in her complaint, were his late aunt Conchita Jarantilla’s husband Buenaventura Remotigue, who died during the pendency of the case, his cousin Cynthia Remotigue, the adopted daughter of Conchita Jarantilla and Buenaventura Remotigue, and his brothers Doroteo and Tomas Jarantilla.6

In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of their deceased parents.7 With the exception of the real property adjudicated to Pacita Jarantilla, the heirs also agreed to allot the produce of the said real properties for the years 1947-1949 for the studies of Rafael and Antonieta Jarantilla.8

In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an agreement with the spouses Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to each other by way of financial support to any commercial and agricultural activity on a joint business arrangement. This business relationship proved to be successful as they were

able to establish a manufacturing and trading business, acquire real properties, and construct buildings, among other things.9 This partnership ended in 1973 when the parties, in an "Agreement,"10 voluntarily agreed to completely dissolve their "joint business relationship/arrangement."11

On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a document wherein they acknowledged that while registered only in Buenaventura Remotigue’s name, they were not the only owners of the capital of the businesses Manila Athletic Supply (712 Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo City) and Remotigue Trading (Cotabato City). In this same "Acknowledgement of Participating Capital," they stated the participating capital of their co-owners as of the year 1952, with Antonieta Jarantilla’s stated as eight thousand pesos (P8,000.00) and Federico Jarantilla, Jr.’s as five thousand pesos (P5,000.00).12

The present case stems from the amended complaint13 dated April 22, 1987 filed by Antonieta Jarantilla against Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and Tomas Jarantilla, for the accounting of the assets and income of the co-ownership, for its partition and the delivery of her share corresponding to eight percent (8%), and for damages. Antonieta claimed that in 1946, she had entered into an agreement with Conchita and Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to engage in business. Antonieta alleged that the initial contribution of property and money came from the heirs’ inheritance, and her subsequent annual investment of seven thousand five hundred pesos (P7,500.00) as additional capital came from the proceeds of her farm. Antonieta also alleged that from 1946-1969, she had helped in the management of the business they co-owned without receiving any salary. Her salary was supposedly rolled back into the business as additional investments in her behalf. Antonieta further claimed co-ownership of certain properties14 (the subject real properties) in the name of the defendants since the only way the defendants could have purchased these properties were through the partnership as they had no other source of income.

The respondents, including petitioner herein, in their Answer,15 denied having formed a partnership with Antonieta in 1946. They claimed that she was in no position to do so as she was still in school at that time. In fact, the proceeds of the lands they partitioned were devoted to her studies. They also averred that while she may have helped in the businesses that her older sister Conchita had formed with Buenaventura Remotigue, she was paid her due salary. They did not deny the existence and validity of the "Acknowledgement of Participating Capital" and in fact used this as evidence to support their claim that Antonieta’s 8% share was limited to the businesses enumerated therein. With regard to Antonieta’s claim in their other corporations and businesses, the respondents said these should also be limited to the number of her shares as specified in the respective articles of incorporation. The respondents denied using the partnership’s income to purchase the subject real properties and said that the certificates of title should be binding on her.16

During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the original defendants, entered into a compromise agreement17 with Antonieta Jarantilla wherein he supported Antonieta’s claims and asserted that he too was entitled to six percent (6%) of the

supposed partnership in the same manner as Antonieta was. He prayed for a favorable judgment in this wise:

Defendant Federico Jarantilla, Jr., hereby joins in plaintiff’s prayer for an accounting from the other defendants, and the partition of the properties of the co-ownership and the delivery to the plaintiff and to defendant Federico Jarantilla, Jr. of their rightful share of the assets and properties in the co-ownership.181avvphi1

The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve Compromise Agreement20and on December 18, 1992, decided in favor of Antonieta, to wit:

WHEREFORE, premises above-considered, the Court renders judgment in favor of the plaintiff Antonieta Jarantilla and against defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas Jarantilla ordering the latter:

1. to deliver to the plaintiff her 8% share or its equivalent amount on the real properties covered by TCT Nos. 35655, 338398, 338399 & 335395, all of the Registry of Deeds of Quezon City; TCT Nos. (18303)23341, 142882 & 490007(4615), all of the Registry of Deeds of Rizal; and TCT No. T-6309 of the Registry of Deeds of Cotabato based on their present market value;

2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue Agro-Industrial Corporation, Manila Athletic Supply, Inc., MAS Rubber Products, Inc. and Buendia Recapping Corporation based on the shares of stocks present book value;

3. to account for the assets and income of the co-ownership and deliver to plaintiff her rightful share thereof equivalent to 8%;

4. to pay plaintiff, jointly and severally, the sum of P50,000.00 as moral damages;

5. to pay, jointly and severally, the sum of P50,000.00 as attorney’s fees; and

6. to pay, jointly and severally, the costs of the suit.21

Both the petitioner and the respondents appealed this decision to the Court of Appeals. The petitioner claimed that the RTC "erred in not rendering a complete judgment and ordering the partition of the co-ownership and giving to [him] six per centum (6%) of the properties."22

While the Court of Appeals agreed to some of the RTC’s factual findings, it also established that Antonieta Jarantilla was not part of the partnership formed in 1946, and that her 8% share was limited to the businesses enumerated in the Acknowledgement of Participating Capital. On July 30, 2002, the Court of Appeals rendered the herein challenged decision setting aside the RTC’s decision, as follows:

WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE and a new one is hereby entered ordering that:

(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the assets and profits of Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City;

(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the assets and profits of the above-mentioned enterprises; and, holding that

(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the extent stated in their Articles of Incorporation:

(a) Rural Bank of Barotac Nuevo, Inc.;

(b) MAS Rubber Products, Inc.;

(c) Manila Athletic Supply, Inc.; and

(d) B. Remotigue Agro-Industrial Development Corp.

(4) No costs.23

The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but the Court of Appeals denied this in a Resolution24 dated March 21, 2003.

Antonieta Jarantilla filed before this Court her own petition for review on certiorari25 dated September 16, 2002, assailing the Court of Appeals’ decision on "similar grounds and similar assignments of errors as this present case"26 but it was dismissed on November 20, 2002 for failure to file the appeal within the reglementary period of fifteen (15) days in accordance with Section 2, Rule 45 of the Rules of Court.27

Petitioner filed before us this petition for review on the sole ground that:

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT PETITIONER FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS USING COMMON FUNDS FROM THE BUSINESSES WHERE HE HAD OWNED SUCH SHARE.28

Petitioner asserts that he was in a partnership with the Remotigue spouses, the Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by the Acknowledgement of Participating Capital the Remotigue spouses executed in 1957. He contends that from this partnership, several other corporations and businesses were

established and several real properties were acquired. In this petition, he is essentially asking for his 6% share in the subject real properties. He is relying on the Acknowledgement of Participating Capital, on his own testimony, and Antonieta Jarantilla’s testimony to support this contention.

The core issue is whether or not the partnership subject of the Acknowledgement of Participating Capital funded the subject real properties. In other words, what is the petitioner’s right over these real properties?

It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, only questions of law may be raised by the parties and passed upon by this Court.29

A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.30

Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in resolving the questions of law that are now in issue, shall look into the facts only in so far as the two courts a quo differed in their appreciation thereof.

The RTC found that an unregistered partnership existed since 1946 which was affirmed in the 1957 document, the "Acknowledgement of Participating Capital." The RTC used this as its basis for giving Antonieta Jarantilla an 8% share in the three businesses listed therein and in the other businesses and real properties of the respondents as they had supposedly acquired these through funds from the partnership.31

The Court of Appeals, on the other hand, agreed with the RTC as to Antonieta’s 8% share in the business enumerated in the Acknowledgement of Participating Capital, but not as to her share in the other corporations and real properties. The Court of Appeals ruled that Antonieta’s claim of 8% is based on the "Acknowledgement of Participating Capital," a duly notarized document which was specific as to the subject of its coverage. Hence, there was no reason to pattern her share in the other corporations from her share in the partnership’s businesses. The Court of Appeals also said that her claim in the respondents’ real properties was more "precarious" as these were all covered by certificates of title which served as the best evidence as to all the matters contained therein.32 Since petitioner’s claim was essentially the same as Antonieta’s, the Court of Appeals also ruled that petitioner be given his 6% share in the same businesses listed in the Acknowledgement of Participating Capital.

Factual findings of the trial court, when confirmed by the Court of Appeals, are final and conclusive except in the following cases: (1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is a grave abuse of discretion; (3) when the finding is grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.33

In this case, we find no error in the ruling of the Court of Appeals.

Both the petitioner and Antonieta Jarantilla characterize their relationship with the respondents as a co-ownership, but in the same breath, assert that a verbal partnership was formed in 1946 and was affirmed in the 1957 Acknowledgement of Participating Capital.

There is a co-ownership when an undivided thing or right belongs to different persons.34 It is a partnership when two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.35 The Court, in Pascual v. The Commissioner of Internal Revenue,36 quoted the concurring opinion of Mr. Justice Angelo Bautista in Evangelista v. The Collector of Internal Revenue37 to further elucidate on the distinctions between a co-ownership and a partnership, to wit:

I wish however to make the following observation: Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;

From the above it appears that the fact that those who agree to form a co- ownership share or do not share any profits made by the use of the property held in common does not convert their venture into a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. This only means that, aside from the circumstance of profit, the presence of other

elements constituting partnership is necessary, such as the clear intent to form a partnership, the existence of a juridical personality different from that of the individual partners, and the freedom to transfer or assign any interest in the property by one with the consent of the others.

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit in the absence of other circumstances showing a contrary intention cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself which the proceeds derived.

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an agreement to share the profits and losses on the sale of land create a partnership; the parties are only tenants in common.

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in common, and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiff’s commission, no partnership existed as between the three parties, whatever their relation may have been as to third parties.

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally participating in both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party to make contract, manage the business, and dispose of the whole property. x x x.

The common ownership of property does not itself create a partnership between the owners, though they may use it for the purpose of making gains; and they may, without becoming partners, agree among themselves as to the management, and use of such property and the application of the proceeds therefrom.38 (Citations omitted.)

Under Article 1767 of the Civil Code, there are two essential elements in a contract of partnership: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, all the parties in this case have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did.39 It is not denied that all the parties in this case have agreed to contribute capital to a common fund to be able to later on share its profits. They have admitted this fact, agreed to its veracity, and even submitted one common documentary evidence to prove such partnership - the Acknowledgement of Participating Capital.

As this case revolves around the legal effects of the Acknowledgement of Participating Capital, it would be instructive to examine the pertinent portions of this document:

ACKNOWLEDGEMENT OF PARTICIPATING CAPITAL

KNOW ALL MEN BY THESE PRESENTS:

That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of legal age, Filipinos and residents of Loyola Heights, Quezon City, P.I. hereby state:

That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo City and the Remotigue Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods and equipments, and general merchandise are recorded in their respective books with Buenaventura Remotigue as the registered owner and are being operated by them as such:

That they are not the only owners of the capital of the three establishments and their participation in the capital of the three establishments together with the other co-owners as of the year 1952 are stated as follows:

1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)P25,000.00

2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND)… 25,000.00

3. Vicencio Deocampo (FIFTEEN THOUSAND)…… 15,000.00

4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... 15,000.00

5. Antonieta Jarantilla (EIGHT THOUSAND)……….. 8,000.00

6. Rafael Jarantilla (SIX THOUSAND)…………….. ... 6,000.00

7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. 5,000.00

8. Quintin Vismanos (TWO THOUSAND)…………... 2,000.00

That aside from the persons mentioned in the next preceding paragraph, no other person has any interest in the above-mentioned three establishments.

IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of April, 1957.

[Sgd.]BUENAVENTURA REMOTIGUE

[Sgd.]CONCHITA JARANTILLA DE REMOTIGUE40

The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed by Conchita Jarantilla-Remotigue and Buenaventura Remotigue in 1957. Petitioner does not dispute its contents and is actually relying on it to prove his participation in the partnership. Article 1797 of the Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. (Emphases supplied.)

It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the absence of any such stipulations, then to his share in proportion to his contribution to the partnership. The petitioner himself claims his share to be 6%, as stated in the Acknowledgement of Participating Capital. However, petitioner fails to realize that this document specifically enumerated the businesses covered by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City. Since there was a clear agreement that the capital the partners contributed went to the three businesses, then there is no reason to deviate from such agreement and go beyond the stipulations in the document. Therefore, the Court of Appeals did not err in limiting petitioner’s share to the assets of the businesses enumerated in the Acknowledgement of Participating Capital.

In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity, the shares to be paid out to the partners is necessarily limited only to its total resources, to wit:

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be compensated. After all the creditors have been paid, whatever is left of the partnership assets becomes available for the payment of the partners’ shares.42

There is no evidence that the subject real properties were assets of the partnership referred to in the Acknowledgement of Participating Capital.

The petitioner further asserts that he is entitled to respondents’ properties based on the concept of trust. He claims that since the subject real properties were purchased using funds of the partnership, wherein he has a 6% share, then "law and equity mandates that he should be considered as a co-owner of those properties in such proportion."43 In Pigao v. Rabanillo,44 this Court explained the concept of trusts, to wit:

Express trusts are created by the intention of the trustor or of the parties, while implied trusts come into being by operation of law, either through implication of an intention to create a trust as a matter of law or through the imposition of the trust irrespective of, and even contrary to, any such intention. In turn, implied trusts are either resulting or constructive trusts. Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and are presumed always to have been contemplated by the parties. They arise from the nature or circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of another.45

On proving the existence of a trust, this Court held that:

Respondent has presented only bare assertions that a trust was created. Noting the need to prove the existence of a trust, this Court has held thus:

"As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and such proof must be clear and satisfactorily show the existence of the trust and its elements. While implied trusts may be proved by oral evidence, the evidence must be trustworthy and received by the courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite declarations. Trustworthy evidence is required because oral evidence can easily be fabricated." 46

The petitioner has failed to prove that there exists a trust over the subject real properties. Aside from his bare allegations, he has failed to show that the respondents used the partnership’s money to purchase the said properties. Even assuming arguendo that some partnership income was used to acquire these properties, the petitioner should have successfully shown that these funds came from his share in the partnership profits. After all, by his own admission, and as stated in the Acknowledgement of Participating Capital, he owned a mere 6% equity in the partnership.

In essence, the petitioner is claiming his 6% share in the subject real properties, by relying on his own self-serving testimony and the equally biased testimony of Antonieta Jarantilla. Petitioner has not presented evidence, other than these unsubstantiated testimonies, to prove that the respondents did not have the means to fund their other businesses and real properties without the partnership’s income. On the other hand, the respondents have not only, by testimonial evidence, proven their case against the petitioner, but have also presented sufficient documentary evidence to substantiate their claims, allegations and defenses. They presented preponderant proof on how they acquired and funded such properties in addition to tax receipts

and tax declarations.47 It has been held that "while tax declarations and realty tax receipts do not conclusively prove ownership, they may constitute strong evidence of ownership when accompanied by possession for a period sufficient for prescription."48Moreover, it is a rule in this jurisdiction that testimonial evidence cannot prevail over documentary evidence.49This Court had on several occasions, expressed our disapproval on using mere self-serving testimonies to support one’s claim. In Ocampo v. Ocampo,50 a case on partition of a co-ownership, we held that:

Petitioners assert that their claim of co-ownership of the property was sufficiently proved by their witnesses -- Luisa Ocampo-Llorin and Melita Ocampo. We disagree. Their testimonies cannot prevail over the array of documents presented by Belen. A claim of ownership cannot be based simply on the testimonies of witnesses; much less on those of interested parties, self-serving as they are.51

It is true that a certificate of title is merely an evidence of ownership or title over the particular property described therein. Registration in the Torrens system does not create or vest title as registration is not a mode of acquiring ownership; hence, this cannot deprive an aggrieved party of a remedy in law.52 However, petitioner asserts ownership over portions of the subject real properties on the strength of his own admissions and on the testimony of Antonieta Jarantilla.1avvphi1 As held by this Court in Republic of the Philippines v. Orfinada, Sr.53:

Indeed, a Torrens title is generally conclusive evidence of ownership of the land referred to therein, and a strong presumption exists that a Torrens title was regularly issued and valid. A Torrens title is incontrovertible against any informacion possessoria, of other title existing prior to the issuance thereof not annotated on the Torrens title. Moreover, persons dealing with property covered by a Torrens certificate of title are not required to go beyond what appears on its face.54

As we have settled that this action never really was for partition of a co-ownership, to permit petitioner’s claim on these properties is to allow a collateral, indirect attack on respondents’ admitted titles. In the words of the Court of Appeals, "such evidence cannot overpower the conclusiveness of these certificates of title, more so since plaintiff’s [petitioner’s] claims amount to a collateral attack, which is prohibited under Section 48 of Presidential Decree No. 1529, the Property Registration Decree."55

SEC. 48. Certificate not subject to collateral attack. – A certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.

This Court has deemed an action or proceeding to be "an attack on a title when its objective is to nullify the title, thereby challenging the judgment pursuant to which the title was decreed."56 In Aguilar v. Alfaro,57 this Court further distinguished between a direct and an indirect or collateral attack, as follows:

A collateral attack transpires when, in another action to obtain a different relief and as an incident to the present action, an attack is made against the judgment granting the title. This manner of attack is to be distinguished from a direct attack against a judgment granting the title, through an action whose main objective is to annul, set aside, or enjoin the enforcement of such judgment if not yet implemented, or to seek recovery if the property titled under the judgment had been disposed of. x x x.

Petitioner’s only piece of documentary evidence is the Acknowledgement of Participating Capital, which as discussed above, failed to prove that the real properties he is claiming co-ownership of were acquired out of the proceeds of the businesses covered by such document. Therefore, petitioner’s theory has no factual or legal leg to stand on.

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in CA-G.R. CV No. 40887, dated July 30, 2002 is AFFIRMED.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner, vs.PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR CV41477, 1 which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed. 2

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiff's invoices and computed on their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;

ii. Accrued interest for P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of attachment) to September 12, 1991 (date of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the total judgment obligation as computed above would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats and for the

reimbursement of the P900,000.00 deposited by it with the Clerk of Court.

SO ORDERED. 3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to the Corporation. 4

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission. 5 On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned over to respondent some of the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.6 The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of P900,000. 7

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. 8

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three 9 in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages.10 The Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be presumed from the equal distribution of the profit and loss. 21

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is for commercial fishing . . . . Oviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is what a partnership essentially is . . . . By a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves (Article 1767, New Civil Code). 13

Hence, petitioner brought this recourse before this Court. 14

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIM'S GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats from respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.

This Court's Ruling

The Petition is devoid of merit.

First and Second Issues:Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two the main asset of the purported partnership — the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:

Art. 1767 — By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings: 15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yao's partner;

(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and other expenses for the boats would be shouldered by Chua and Yao;

(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with borrowed money, fell under the term "common fund" under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and

operation of the boats would be divided equally among them also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them.

We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of the exceptions to the rule. 16 In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the relationship extant among the parties prior to its execution.

A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the document and explored all the possible consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument that the existence of a partnership was based only on the Compromise Agreement.

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim.

We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Again, we disagree.

Sec. 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. — All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. "The reason behind this doctrine is obvious — an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the

liabilities of a principal, a person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered into or for other acts performed as such agent. 17

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages and benefits.

On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question here is whether petitioner should be held jointly 18 liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: 19

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing aside as wholly trivial and

indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.

Third Issue:

Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

Melo, Purisima and Gonzaga-Reyes, JJ., concur.

Vitug, J., pls. see concurring opinion.

Republic of the PhilippinesSUPREME COURT

THIRD DIVISION

G.R. NOS. 166299-300 December 13, 2005

AURELIO K. LITONJUA, JR., Petitioner, vs.EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA THEATER, INC., E & L REALTY, (formerly E & L INT’L SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP.,

EQUITY TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC. (formerly General Theatrical & Film Exchange, INC.), AVENUE REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES),Respondents.

D E C I S I O N

GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals (CA) dated March 31, 20041 in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07, 2004,2 denying petitioner’s motion for reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them started when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several corporations for specific performance and accounting. In his complaint,3 docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of the court,4 Aurelio alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other corporations. Yang is described in the complaint as petitioner’s and Eduardo’s partner in their Odeon Theater investment.5 The same complaint also contained the following material averments:

3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the continuation of their family business and common family funds ….

3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduardo to his siblings, parents and other relatives. Copy of this memorandum is attached hereto and made an integral part as Annex   "A"   and the portion referring to [Aurelio] submarked as   Annex "A-1 ".

3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelio’s] retaining his share in the remaining family businesses (mostly, movie theaters, shipping and land development) and contributing his industry to the continued operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever is greater. . . .

4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had accumulated in their joint venture/partnership various assets including but not limited to the corporate defendants and [their] respective assets.

4.02 In addition . . . the joint venture/partnership … had also acquired [various other assets], but Eduardo caused to be registered in the names of other parties….

xxx xxx xxx

4.04 The substantial assets of most of the corporate defendants consist of real properties …. A list of some of these real properties is attached hereto and made an integral part as Annex "B".

xxx xxx xxx

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio] requested for an accounting and liquidation of his share in the joint venture/partnership [but these demands for complete accounting and liquidation were not heeded].

xxx xxx xxx

5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants as well as Bobby [Yang], are transferring . . . various real properties of the corporations belonging to the joint venture/partnership to other parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles of these real properties… a notice of lis pendens …. (Emphasis in the original; underscoring and words in bracket added.)

For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been meant for him by his brother Eduardo, pertinently reads:

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:

You have now your own life to live after having been married. ….

I am trying my best to mold you the way I work so you can follow the pattern …. You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office every time I am away. I want you to run it the way I am trying to run it because I will be all alone and I will depend entirely to you (sic). My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the whole thing of what I have and what you are entitled to. …. It will be you and me alone on this. If ever I pass away, I want you to take care of all of this. You keep my share

for my two sons are ready take over but give them the chance to run the company which I have built.

xxx xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form of stocks which you can keep. This stock I assure you is good and saleable. I will also gladly give you the share of Wack-Wack …and Valley Golf … because you have been good. The rest will be in stocks from all the corporations which I repeat, ten percent (10%) equity. 6

On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWERWith Compulsory Counterclaim denying under oath the material allegations of the complaint, more particularly that portion thereof depicting petitioner and Eduardo as having entered into a contract of partnership. As affirmative defenses, Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint states no cause of action, since no cause of action may be derived from the actionable document, i.e., Annex "A-1",being void under the terms of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking Eduardo agreed to do, if any, under Annex "A-1", are unenforceable under the provisions of the Statute of Frauds.7

For his part, Yang - who was served with summons long after the other defendants submitted their answer – moved to dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action and the complaint does not state any.8 Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.9 To this motion, petitioner interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial.10

Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated March 5, 2003, denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10, 2003.11

In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for reconsideration12 and Yang’s motion to dismiss. The following then transpired insofar as Yang is concerned:

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss13 to its full resolution.

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion was denied in an Order of July 4, 2003.14

3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 78774,15 to nullify the separate orders of the trial court, the first denying his motion to dismiss the basic complaint and, the second, denying his motion for reconsideration.

Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and injudicious haste attended the issuance of the trial court’s aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief from the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP No. 76987.

Per its resolution dated October 2, 2003,16 the CA’s 14th Division ordered the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.

Following the submission by the parties of their respective Memoranda of Authorities, the appellate court came out with the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein, disposing as follows:

WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these consolidated cases annulling, reversing and setting aside the assailed orders of the court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private respondent [now petitioner Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the court a quo is hereby dismissed.

SO ORDERED.17 (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as evidenced by the actionable documents, Annex "A" and "A-1" attached to the complaint, and upon which petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate defendants a quo is "void or legally inexistent".

In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally assailedResolution of December 7, 2004.18 .

Hence, petitioner’s present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the actionable document because this was not a public instrument and immovable properties were contributed to the partnership.

B. When it ruled that the actionable document did not create a demandable right in favor of petitioner.

C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and

D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done was to support his pleaded cause of action by another legal perspective/argument.

The petition lacks merit.

Petitioner’s demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or payment to him, as Eduardo’s and Yang’s partner, of his partnership/joint venture share, after an accounting has been duly conducted of what he deems to be partnership/joint venture property.19

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses between them.20 A contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves.21 A joint venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements are similar, i.e., community of interests in the business and sharing of profits and losses. Being a form of partnership, a joint venture is generally governed by the law on partnership.22

The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and respondent Eduardo are partners in the theatre, shipping and realty business, as one claims but which the other denies. And the issue bearing on the first assigned error relates to the question of what legal provision is applicable under the premises, petitioner seeking, as it were, to enforce the actionable document - Annex "A-1" - which he depicts in his complaint to be the contract of partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal provisions determinative of the existence, or defining the formal requisites, of a partnership is indicated. Foremost of these are the following provisions of the Civil Code:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.

Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that Annex "A-1" does not meet the public instrumentation requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, Annex "A-1" cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to the partnership, the next logical point of inquiry turns on the nature of petitioner’s contribution, if any, to the supposed partnership.

The CA, addressing the foregoing query, correctly stated that petitioner’s contribution consisted of immovables and real rights. Wrote that court:

A further examination of the allegations in the complaint would show that [petitioner’s] contribution to the so-called "partnership/joint venture" was his supposed share in the family business that is consisting of movie theaters, shipping and land development under paragraph 3.02 of the complaint. In other words, his contribution as a partner in the alleged partnership/joint venture consisted of immovable properties and real rights. ….23

Significantly enough, petitioner matter-of-factly concurred with the appellate court’s observation that, prescinding from what he himself alleged in his basic complaint, his contribution to the partnership consisted of his share in the Litonjua family businesses which owned variable immovable properties. Petitioner’s assertion in his motion for reconsideration24 of the CA’s decision, that "what was to be contributed to the business [of the partnership] was [petitioner’s] industry and his share in the family [theatre and land development] business" leaves no room for speculation as to what petitioner contributed to the perceived partnership.

Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code applies as long real property or real rights are initially brought into the partnership. In short, it is really of no moment which of the partners, or, in this case, who between petitioner and his brother Eduardo, contributed immovables. In context, the more important consideration is that real property was contributed, in which case an inventory of the contributed property duly signed by the parties should be attached to the public instrument, else there is legally no partnership to speak of.

Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in question were not contributed, but were acquired after the formation of the supposed partnership. Needless to stress, the Court cannot accord cogency to this specious argument. For, as earlier stated, petitioner himself admitted contributing his share in the supposed shipping, movie theatres and realty development family businesses which already owned immovables even before Annex "A-1" was allegedly executed.

Considering thus the value and nature of petitioner’s alleged contribution to the purported partnership, the Court, even if so disposed, cannot plausibly extend Annex "A-1" the legal effects

that petitioner so desires and pleads to be given. Annex "A-1", in fine, cannot support the existence of the partnership sued upon and sought to be enforced. The legal and factual milieu of the case calls for this disposition. A partnership may be constituted in any form, save when immovable property or real rights are contributed thereto or when the partnership has a capital of at least P3,000.00, in which case a public instrument shall be necessary.25 And if only to stress what has repeatedly been articulated, an inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its assailed Decision26 about the probative value and legal effect of Annex "A-1" commends itself for concurrence:

Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties to the alleged partnership, the "Memorandum" (Annex "A" of the complaint) which purports to establish the said "partnership/joint venture" is NOT a public instrument and there was NO inventory of the immovable property duly signed by the parties. As such, the said "Memorandum" … is null and void for purposes of establishing the existence of a valid contract of partnership. Indeed, because of the failure to comply with the essential formalities of a valid contract, the purported "partnership/joint venture" is legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract cannot be the source of any contractual or legal right. Accordingly, the allegations in the complaint, including the actionable document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or legal right which could be violated by the [individual respondents] herein. As a consequence, [petitioner’s] complaint does NOT state a valid cause of action because NOT all the essential elements of a cause of action are present. (Underscoring and words in bracket added.)

Likewise well-taken are the following complementary excerpts from the CA’s equally assailed Resolution of December 7, 200427 denying petitioner’s motion for reconsideration:

Further, We conclude that despite glaring defects in the allegations in the complaint as well as the actionable document attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the legal provisions which were brought to its attention by herein [respondents] in the their pleadings. In our evaluation of [petitioner’s] complaint, the latter alleged inter alia to have contributed immovable properties to the alleged partnership but the actionable document is not a public document and there was no inventory of immovable properties signed by the parties. Both the allegations in the complaint and the actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right which could be violated by [respondents]. (Words in bracket added.)

Under the second assigned error, it is petitioner’s posture that Annex "A-1", assuming its inefficacy or nullity as a partnership document, nevertheless created demandable rights in his favor. As petitioner succinctly puts it in this petition:

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article 1307).

44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create rights and obligations of the parties and which rights and obligations may be enforceable and demandable. Just because the relationship created by the agreement cannot be specifically labeled or pigeonholed into a category of nominate contract does not mean it is void or unenforceable.

Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA after he experienced a reversal of fortune thereat - as an afterthought. The appellate court, however, cannot really be faulted for not yielding to petitioner’s dubious stratagem of altering his theory of joint venture/partnership to an innominate contract. For, at bottom, the appellate court’s certiorari jurisdiction was circumscribed by what was alleged to have been the order/s issued by the trial court in grave abuse of discretion. As respondent Yang pointedly observed,28 since the parties’ basic position had been well-defined, that of petitioner being that the actionable document established a partnership/joint venture, it is on those positions that the appellate court exercised its certiorari jurisdiction. Petitioner’s act of changing his original theory is an impermissible practice and constitutes, as the CA aptly declared, an admission of the untenability of such theory in the first place.

[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now contended that the actionable instrument may be considered an innominate contract. xxx Verily, this now changes [petitioner’s] theory of the case which is not only prohibited by the Rules but also is an implied admission that the very theory he himself … has adopted, filed and prosecuted before the respondent court is erroneous.

Be that as it may . …. We hold that this new theory contravenes [petitioner’s] theory of the actionable document being a partnership document. If anything, it is so obvious we do have to test the sufficiency of the cause of action on the basis of partnership law xxx.29 (Emphasis in the original; Words in bracket added).

But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected innominate contract, petitioner’s complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot be over-emphasized that petitioner points to Eduardo as the author of Annex "A-1". Withal, even on this consideration alone, petitioner’s claim against Yang is doomed from the very start.

As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as vesting petitioner with a right to demand from respondent Eduardo the observance of a determinate conduct, reads:

xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office everytime I am away. I want you to run it the way I am trying to run it because I will be alone and I will depend entirely to you, My sons will not be ready to help me yet until about maybe 15/20 years from now.Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he indeed wrote Annex "A-1", is a promise which is not to be performed within one year from "contract" execution on June 22, 1973. Accordingly, the agreement embodied in Annex "A-1" is covered by the Statute of Frauds andergo unenforceable for non-compliance therewith.30 By force of the statute of frauds, an agreement that by its terms is not to be performed within a year from the making thereof shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing and subscribed by the party charged. Corollarily, no action can be proved unless the requirement exacted by the statute of frauds is complied with.31

Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family businesses supposedly promised by Eduardo to give in the near future. Any suggestion that the stated amount or the equity component of the promise was intended to go to a common fund would be to read something not written in Annex "A-1". Thus, even this angle alone argues against the very idea of a partnership, the creation of which requires two or more contracting minds mutually agreeing to contribute money, property or industry to a common fund with the intention of dividing the profits between or among themselves.32

In sum then, the Court rules, as did the CA, that petitioner’s complaint for specific performance anchored on an actionable document of partnership which is legally inexistent or void or, at best, unenforceable does not state a cause of action as against respondent Eduardo and the corporate defendants. And if no of action can successfully be maintained against respondent Eduardo because no valid partnership existed between him and petitioner, the Court cannot see its way clear on how the same action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, or could not have had any form of business relationship with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as his partner. In fact, attendant circumstances would indicate the contrary. Consider:

1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was "for the continuation of their family business and common family funds which were theretofore being mainly managed by Eduardo." 33 But Yang denies kinship with the Litonjua family and petitioner has not disputed the disclaimer.

2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with Eduardo and what his share in the businesses will be. No allegation is made whatsoever about what Yang contributed, if any, let alone his proportional share in the profits. But such allegation cannot, however, be made because, as aptly observed by the CA, the actionable document did not contain such provision, let alone mention the name of Yang. How, indeed, could a person be considered a partner when the document purporting to establish the partnership contract did not even mention his name.

3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business partners in the [respondent] corporations," while "Bobby is his and Eduardo’s partner in their Odeon Theater investment’ (par. 2.03). This means that the partnership between petitioner and Eduardo came first; Yang became their partner in their Odeon Theater investment thereafter. Several paragraphs later, however, petitioner would contradict himself by alleging that his "investment and that of Eduardo and Yang in the Odeon theater business has expanded through a reinvestment of profit income and direct investments in several corporation including but not limited to [six] corporate respondents" This simply means that the "Odeon Theatre business" came before the corporate respondents. Significantly enough, petitioner refers to the corporate respondents as "progeny" of the Odeon Theatre business.34

Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence he sourced his right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured and formulated the legal situation in the following wise:

[Respondent] Yang, … is impleaded because, as alleged in the complaint, he is a "partner" of [Eduardo] and the [petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits and direct investments in several corporations, thus:

xxx xxx xxx

Clearly, [petitioner’s] claim against … Yang arose from his alleged partnership with petitioner and the …respondent. However, there was NO allegation in the complaint which directly alleged how the supposed contractual relation was created between [petitioner] and …Yang. More importantly, however, the foregoing ruling of this Court that the purported partnership between [Eduardo] is void and legally inexistent directly affects said claim against …Yang. Since [petitioner] is trying to establish his claim against … Yang by linking him to the legally inexistent partnership . . . such attempt had become futile because there was NOTHING that would contractually connect [petitioner] and … Yang. To establish a valid cause of action, the complaint should have a statement of fact upon which to connect [respondent] Yang to the alleged partnership between [petitioner] and respondent [Eduardo], including their alleged investment in the Odeon Theater. A statement of facts on those matters is pivotal to the complaint as they would constitute the ultimate facts necessary to establish the elements of a cause of action against … Yang. 35

Pressing its point, the CA later stated in its resolution denying petitioner’s motion for reconsideration the following:

xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is controlling. Suffice it to state, We have not ignored the actionable document … As a matter of fact, We emphasized in our decision … that insofar as [Yang] is concerned, he is not even mentioned in the said actionable document. We are therefore puzzled how a person not mentioned in a document purporting to establish a partnership could be considered a partner.36 (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as peremptorily determined by the CA, has been discussed at length earlier and need not detain us long. Suffice it to say that after the CA has ruled that the alleged partnership is inexistent, petitioner took a different tack. Thus, from a joint venture/partnership theory which he adopted and consistently pursued in his complaint, petitioner embraced the innominate contract theory. Illustrative of this shift is petitioner’s statement in par. #8 of his motion for reconsideration of the CA’s decision combined with what he said in par. # 43 of this petition, as follows:

8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal matter. What is determinative for purposes of sufficiency of the complainant’s allegations, is whether the actionable document bears out an actionable contract – be it a partnership, a joint venture or whatever or some innominate contract … It may be noted that one kind of innominate contract is what is known as du ut facias (I give that you may do).37

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article 1307).38

Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due process; hence, the proscription against a party shifting from one theory at the trial court to a new and different theory in the appellate court.39 On the same rationale, an issue which was neither averred in the complaint cannot be raised for the first time on appeal.40 It is not difficult, therefore, to agree with the CA when it made short shrift of petitioner’s innominate contract theory on the basis of the foregoing basic reasons.

Petitioner’s protestation that his act of introducing the concept of innominate contract was not a case of changing theories but of supporting his pleaded cause of action – that of the existence of a partnership - by another legal perspective/argument, strikes the Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his motion for reconsideration of the CA’s decision virtually relegates partnership as a fall-back theory. Two paragraphs later, in the same notion, petitioner faults the appellate court for reading, with myopic eyes, the actionable document solely as establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on whether or not to pursue the original cause of action or altogether abandoning the same, thus:

12. Incidentally, assuming that the actionable document created a partnership between [respondent] Eduardo, Sr. and [petitioner], no immovables were contributed to this partnership. xxx

14. All told, the Decision takes off from a false premise that the actionable document attached to the complaint does not establish a contractual relationship between [petitioner] and … Eduardo, Sr. and Roberto T Yang simply because his document does not create a partnership or a joint venture. This is … a myopic reading of the actionable document.

Per the Court’s own count, petitioner used in his complaint the mixed words "joint venture/partnership" nineteen (19) times and the term "partner" four (4) times. He made reference to the "law of joint venture/partnership [being applicable] to the business relationship … between [him], Eduardo and Bobby [Yang]" and to his "rights in all specific properties of their joint venture/partnership". Given this consideration, petitioner’s right of action against respondents Eduardo and Yang doubtless pivots on the existence of the partnership between the three of them, as purportedly evidenced by the undated and unsigned Annex "A-1". A void Annex "A-1", as an actionable document of partnership, would strip petitioner of a cause of action under the premises. A complaint for delivery and accounting of partnership property based on such void or legally non-existent actionable document is dismissible for failure to state of action. So, in gist, said the Court of Appeals. The Court agrees.

WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court of AppealsAFFIRMED.

Cost against the petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-68118 October 29, 1985

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and sisters, petitioners vs.COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

Demosthenes B. Gadioma for petitioners.

AQUINO, J.:

This case is about the income tax liability of four brothers and sisters who sold two parcels of land which they had acquired from their father.

On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children, the petitioners, to enable them to build their residences. The company sold the two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots.

In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City Securities Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income tax on one-half thereof or of P16,792.

In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to individual income tax on their shares thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56.

Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full (not a mere capital gain of which ½ is taxable) and required them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest.

Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of P134,336, in addition to the tax on capital gains already paid by them.

The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).

The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented. Hence, the instant appeal.

We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves.

To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality should be obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction.

Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeñas says:

Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?

El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedad presupone necesariamente la convencion, mentras que la comunidad puede existir y existe ordinariamente sin ela; y por razon del fin objecto, en que el objeto de la sociedad es obtener lucro, mientras que el de la indivision es solo mantener en su integridad la cosa comun y favorecer su conservacion.

Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestro Derecho positive se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre comunidad de bienes y contrato de sociedad, la moderna orientacion de la doctrina cientifica señala como nota fundamental de diferenciacion aparte del origen de fuente de que surgen, no siempre uniforme, la finalidad perseguida por los interesados: lucro comun partible en la sociedad, y mera conservacion y aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture.*

Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts to purchase a two-peso sweepstakes ticket with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15 persons were held liable for income tax as an unregistered partnership.

The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oña vs.

** This view is supported by the following rulings of respondent Commissioner:

Co-owership distinguished from partnership.—We find that the case at bar is fundamentally similar to the De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in questionpro-indiviso from their deceased parents; they did not contribute or invest additional ' capital to increase or expand the inherited properties; they merely continued dedicating the property to the use to which it had been put by their forebears; they individually reported in their tax returns their corresponding shares in the income and expenses of the 'hacienda', and they continued for many years the status of co-ownership in order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to continue the existing contractual relations with the Central Azucarera de Bais for milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963).

All co-ownerships are not deemed unregistered pratnership.—Co-Ownership who own properties which produce income should not automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in Arañas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirs used the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves, it was held that they were taxable as an unregistered partnership.

It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son purchased a lot and building, entrusted the administration of the building to an administrator and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought four pieces of real property which they leased to various tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an unregistered partnership.

In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to the petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It might have already prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs.

SO ORDERED.

Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.

Concepcion, Jr., is on leave.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners, vs.THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

De la Cuesta, De las Alas and Callanta Law Offices for petitioners.

The Solicitor General for respondents

GANCAYCO, J.:

The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the issue in this petition.

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.

Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax amnesties way back in 1974.

In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code 1 that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency income tax assessed.

Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045. In due course, the respondent court by a majority decision of March 30, 1987, 2 affirmed the decision and action taken by respondent commissioner with costs against petitioners.

It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in fact formed by petitioners which like a corporation was subject to corporate income tax distinct from that imposed on the partners.

In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances of this case, although there might in fact be a co-ownership between the petitioners, there was no adequate basis for the conclusion that they thereby formed an unregistered partnership which made "hem liable for corporate income tax under the Tax Code.

Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent court:

A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING EVIDENCE IN OPPOSITION THERETO RESTS UPON THE PETITIONERS.

B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID DOWN BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.

C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.

D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)

The petition is meritorious.

The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4

In the said case, petitioners borrowed a sum of money from their father which together with their own personal funds they used in buying several real properties. They appointed their brother to manage their properties with full power to lease, collect, rent, issue receipts, etc. They had the real properties rented or leased to various tenants for several years and they gained net profits from the rental income. Thus, the Collector of Internal Revenue demanded the payment of income tax on a corporation, among others, from them.

In resolving the issue, this Court held as follows:

The issue in this case is whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as well as to the residence tax for corporations and the real estate dealers' fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the terms corporation and partnership as used in sections 24 and 84 of said Code, the pertinent parts of which read:

Sec. 24. Rate of the tax on corporations.—There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, no matter how created or organized but not including duly registered general co-partnerships (companies collectives), a tax upon such income equal to the sum of the following: ...

Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participation), associations or insurance companies, but does not include duly registered general co-partnerships (companies colectivas).

Article 1767 of the Civil Code of the Philippines provides:

By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves, because:

1. Said common fund was not something they found already in existence. It was not a property inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in order to establish said common fund.

2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed, on April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and transcations undertaken, as well as the brief interregnum between each, particularly the last three purchases, is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired by petitioners in February, 1943. In other words, one cannot but perceive a character of habituality peculiar to business transactions engaged in for purposes of gain.

3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of petitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there has been any change in the utilization thereof.

4. Since August, 1945, the properties have been under the management of one person, namely, Simeon Evangelists, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have been handled as if the same belonged to a corporation or business enterprise operated for profit.

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelists became the manager.

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its continued existence. They did not even try to offer an explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances were present in the cases cited by petitioners herein, and, hence, those cases are not in point. 5

In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof.

In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the purpose was not limited to the conservation or preservation of the common fund or even the properties acquired by them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present.

In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It was only 1968 when they sold the two (2) parcels of land after which they did not make any additional or new purchase. The remaining three (3) parcels were sold by them in 1970. The transactions were isolated. The character of habituality peculiar to business transactions for the purpose of gain was not present.

In Evangelista, the properties were leased out to tenants for several years. The business was under the management of one of the partners. Such condition existed for over fifteen (15) years. None of the circumstances are present in the case at bar. The co-ownership started only in 1965 and ended in 1970.

Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:

I wish however to make the following observation Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;

From the above it appears that the fact that those who agree to form a co- ownership share or do not share any profits made by the use of the property held in common does not convert their venture into a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. This only means that, aside from the circumstance of profit, the presence of other elements constituting partnership is necessary, such as the clear intent to form a partnership, the existence of a juridical personality different from that of the individual partners, and the freedom to transfer or assign any interest in the property by one with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit in the absence of other circumstances showing a contrary intention cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself which the proceeds derived. (Elements of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an agreement to share the profits and losses on the sale of land create a partnership; the parties are only tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in common, and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiffs commission, no partnership existed as between the three parties, whatever their relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally participating in both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party to make contract, manage the business, and dispose of the whole property.-Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)

The common ownership of property does not itself create a partnership between the owners, though they may use it for the purpose of making gains; and they may, without becoming partners, agree among themselves as to the management, and use of such property and the application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App. 14.) 6

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership p. 7 However, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom.

WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and another decision is hereby rendered relieving petitioners of the corporate income tax liability in this case, without pronouncement as to costs.

SO ORDERED.

Cruz, Griño-Aquino and Medialdea, JJ., concur.

Narvasa, J., took no part.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 148187             April 16, 2008

PHILEX MINING CORPORATION, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondent.

D E C I S I O N

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of Appeals in CA-G.R. SP No. 49385, which affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April 3, 2001 Resolution3 denying the motion for reconsideration.

The facts of the case are as follows:

On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement4 with Baguio Gold Mining Company ("Baguio Gold") for the former to manage and operate the latter’s mining claim, known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties’ agreement was denominated as "Power of Attorney" and provided for the following terms:

4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from time to time may be required by the MANAGERS within the said 3-year period, for use in the MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for internal audit purposes, as the owner’s account in the Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino PROJECT, shall be added to such owner’s account.

5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto. Nino PROJECT, in accordance with the following arrangements:

(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto. Nino PROJECT as a special fund to be known as the MANAGERS’ account.

(b) The total of the MANAGERS’ account shall not exceed P11,000,000.00, except with prior approval of the PRINCIPAL; provided, however, that if the compensation of the MANAGERS as herein provided cannot be paid in cash from the Sto. Nino PROJECT, the amount not so paid in cash shall be added to the MANAGERS’ account.

(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until termination of this Agency.

(d) The MANAGERS’ account shall not accrue interest. Since it is the desire of the PRINCIPAL to extend to the MANAGERS the benefit of subsequent appreciation of property, upon a projected termination of this Agency, the ratio which the MANAGERS’ account has to the owner’s account will be determined, and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims, shall be transferred to the MANAGERS, except that such transferred assets shall not include mine development, roads, buildings, and similar property which will be valueless, or of slight value, to the MANAGERS. The MANAGERS can, on the other hand, require at their option that property originally transferred by them to the Sto. Nino PROJECT be re-transferred to them. Until such assets are transferred to the MANAGERS, this Agency shall remain subsisting.

x x x x

12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto. Nino PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on their compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECT after deduction therefrom of the MANAGERS’ compensation.

x x x x

16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future, may incur other obligations in favor of the MANAGERS. This Power of Attorney has been executed as security for the payment and satisfaction of all such obligations of the PRINCIPAL in favor of the MANAGERS and as a means to fulfill the same. Therefore, this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS’ account. After all obligations of the PRINCIPAL in favor of the MANAGERS have been paid and satisfied in

full, this Agency shall be revocable by the PRINCIPAL upon 36-month notice to the MANAGERS.

17. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may withdraw from this Agency by giving 6-month notice to the PRINCIPAL. The MANAGERS shall not in any manner be held liable to the PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative in case of the MANAGERS’ withdrawal.

x x x x5

In the course of managing and operating the project, Philex Mining made advances of cash and property in accordance with paragraph 5 of the agreement. However, the mine suffered continuing losses over the years which resulted to petitioner’s withdrawal as manager of the mine on January 28, 1982 and in the eventual cessation of mine operations on February 20, 1982.6

Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in Payment"7 wherein Baguio Gold admitted an indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the same in three segments by first assigning Baguio Gold’s tangible assets to petitioner, transferring to the latter Baguio Gold’s equitable title in its Philodrill assets and finally settling the remaining liability through properties that Baguio Gold may acquire in the future.

On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in Payment"8 where the parties determined that Baguio Gold’s indebtedness to petitioner actually amounted to P259,137,245.00, which sum included liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor. These liabilities pertained to long-term loans amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT & SA and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two segments by first assigning its tangible assets for P127,838,051.00 and then transferring its equitable title in its Philodrill assets for P16,302,426.00. The parties then ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner in the amount of P114,996,768.00.

Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of Baguio Gold by charging P112,136,000.00 to allowances and reserves that were set up in 1981 and P2,860,768.00 to the 1982 operations.

In its 1982 annual income tax return, petitioner deducted from its gross income the amount of P112,136,000.00 as "loss on settlement of receivables from Baguio Gold against reserves and allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed the amount as deduction for bad debt and assessed petitioner a deficiency income tax of P62,811,161.39.

Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad debt deduction were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was ascertained to be worthless; and (c) it was charged off within the taxable year when it was determined to be worthless.

Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio Gold. The bad debt deduction represented advances made by petitioner which, pursuant to the management contract, formed part of Baguio Gold’s "pecuniary obligations" to petitioner. It also included payments made by petitioner as guarantor of Baguio Gold’s long-term loans which legally entitled petitioner to be subrogated to the rights of the original creditor.

Petitioner also asserted that due to Baguio Gold’s irreversible losses, it became evident that it would not be able to recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be considered worthless, petitioner claimed that it was neither required to institute a judicial action for collection against the debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is enough that a taxpayer exerted diligent efforts to enforce collection and exhausted all reasonable means to collect.

On October 28, 1994, the BIR denied petitioner’s protest for lack of legal and factual basis. It held that the alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for bankruptcy; and that the deduction did not consist of a valid and subsisting debt considering that, under the management contract, petitioner was to be paid fifty percent (50%) of the project’s net profit.10

Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:

WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the amount of P62,811,161.39 is hereby AFFIRMED.

ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest due computed from February 10, 1995, which is the date after the 20-day grace period given by the respondent within which petitioner has to pay the deficiency amount x x x up to actual date of payment.

SO ORDERED.11

The CTA rejected petitioner’s assertion that the advances it made for the Sto. Nino mine were in the nature of a loan. It instead characterized the advances as petitioner’s investment in a partnership with Baguio Gold for the development and exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney" executed by petitioner and Baguio Gold was actually a partnership agreement. Since the advanced amount partook of the nature of an investment, it could not be deducted as a bad debt from petitioner’s gross income.

The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio Gold could not be allowed as a bad debt deduction. At the time the payments were made, Baguio Gold was not in default since its loans were not yet due and demandable. What petitioner did was to pre-pay the loans as evidenced by the notice sent by Bank of America showing that it was merely demanding payment of the installment and interests due. Moreover, Citibank imposed and collected a "pre-termination penalty" for the pre-payment.

The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion for reconsideration,13petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:

I.

The Court of Appeals erred in construing that the advances made by Philex in the management of the Sto. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment rather than a loan.

II.

The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to form a partnership.

III.

The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding the Compromise Agreement and the Amended Compromise Agreement when it construed the nature of the advances made by Philex.

IV.

The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts write-off.14

Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should not only rely on the "Power of Attorney", but also on the subsequent "Compromise with Dation in Payment" and "Amended Compromise with Dation in Payment" that the parties executed in 1982. These documents, allegedly evinced the parties’ intent to treat the advances and payments as a loan and establish a creditor-debtor relationship between them.

The petition lacks merit.

The lower courts correctly held that the "Power of Attorney" is the instrument that is material in determining the true nature of the business relationship between petitioner and Baguio Gold. Before resort may be had to the two compromise agreements, the parties’ contractual intent must first be discovered from the expressed language of the primary contract under which the parties’ business relations were founded. It should be noted that the compromise agreements were mere collateral documents executed by the parties pursuant to the termination of their business relationship created under the "Power of Attorney". On the other hand, it is the latter which established the juridical relation of the parties and defined the parameters of their dealings with one another.

The execution of the two compromise agreements can hardly be considered as a subsequent or contemporaneous act that is reflective of the parties’ true intent. The compromise agreements were executed eleven years after the "Power of Attorney" and merely laid out a plan or procedure by which petitioner could recover the advances and payments it made under the "Power of Attorney". The parties entered into the compromise agreements as a consequence of the dissolution of their business relationship. It did not define that relationship or indicate its real character.

An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended by the parties. Under a contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.15 While a corporation, like petitioner, cannot generally enter into a contract of partnership unless authorized by law or its charter, it has been held that it may enter into a joint venture which is akin to a particular partnership:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally understood to mean an organization formed for some temporary purpose. x x x It is in fact hardly distinguishable from the partnership, since their elements are similar – community of interest in the business, sharing of profits and losses, and a mutual right of control. x x x The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. x x x This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. x x x It would seem therefore that under Philippine law, a joint venture is a form of partnership and should be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. x x x (Citations omitted) 16

Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended to create a partnership and establish a common fund for the purpose. They also had a

joint interest in the profits of the business as shown by a 50-50 sharing in the income of the mine.

Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, property and industry to the common fund known as the Sto. Niño mine.17 In this regard, we note that there is a substantive equivalence in the respective contributions of the parties to the development and operation of the mine. Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to contribute equally to the joint venture assets under their respective accounts. Baguio Gold would contribute P11M under its owner’s account plus any of its income that is left in the project, in addition to its actual mining claim. Meanwhile, petitioner’s contribution would consist of its expertise in the management and operation of mines, as well as the manager’s account which is comprised of P11M in funds and property and petitioner’s "compensation" as manager that cannot be paid in cash.

However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold because it did not "bind" itself to contribute money or property to the project; that under paragraph 5 of the agreement, it was only optional for petitioner to transfer funds or property to the Sto. Niño project "(w)henever the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the STO. NIÑO MINE."18

The wording of the parties’ agreement as to petitioner’s contribution to the common fund does not detract from the fact that petitioner transferred its funds and property to the project as specified in paragraph 5, thus rendering effective the other stipulations of the contract, particularly paragraph 5(c) which prohibits petitioner from withdrawing the advances until termination of the parties’ business relations. As can be seen, petitioner became bound by its contributions once the transfers were made. The contributions acquired an obligatory nature as soon as petitioner had chosen to exercise its option under paragraph 5.

There is no merit to petitioner’s claim that the prohibition in paragraph 5(c) against withdrawal of advances should not be taken as an indication that it had entered into a partnership with Baguio Gold; that the stipulation only showed that what the parties entered into was actually a contract of agency coupled with an interest which is not revocable at will and not a partnership.

In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon it, or the mutual interest of both principal and agent.19 In this case, the non-revocation or non-withdrawal under paragraph 5(c) applies to the advances made by petitioner who is supposedly the agent and not the principal under the contract. Thus, it cannot be inferred from the stipulation that the parties’ relation under the agreement is one of agency coupled with an interest and not a partnership.

Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was one of agency and not a partnership. Although the said provision states that "this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS’ account," it does not necessarily follow that the parties

entered into an agency contract coupled with an interest that cannot be withdrawn by Baguio Gold.

It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor of petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship between petitioner and Baguio Gold, in which the former was to manage and operate the latter’s mine through the parties’ mutual contribution of material resources and industry. The essence of an agency, even one that is coupled with interest, is the agent’s ability to represent his principal and bring about business relations between the latter and third persons.20 Where representation for and in behalf of the principal is merely incidental or necessary for the proper discharge of one’s paramount undertaking under a contract, the latter may not necessarily be a contract of agency, but some other agreement depending on the ultimate undertaking of the parties.21

In this case, the totality of the circumstances and the stipulations in the parties’ agreement indubitably lead to the conclusion that a partnership was formed between petitioner and Baguio Gold.

First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by petitioner under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties’ business relations, "the ratio which the MANAGER’S account has to the owner’s account will be determined, and the corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims" shall be transferred to petitioner.22As pointed out by the Court of Tax Appeals, petitioner was merely entitled to a proportionate return of the mine’s assets upon dissolution of the parties’ business relations. There was nothing in the agreement that would require Baguio Gold to make payments of the advances to petitioner as would be recognized as an item of obligation or "accounts payable" for Baguio Gold.

Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto. Niño mine upon termination, a provision that is more consistent with a partnership than a creditor-debtor relationship. It should be pointed out that in a contract of loan, a person who receives a loan or money or any fungible thing acquires ownership thereof and is bound to pay the creditor an equal amount of the same kind and quality.23 In this case, however, there was no stipulation for Baguio Gold to actually repay petitioner the cash and property that it had advanced, but only the return of an amount pegged at a ratio which the manager’s account had to the owner’s account.

In this connection, we find no contractual basis for the execution of the two compromise agreements in which Baguio Gold recognized a debt in favor of petitioner, which supposedly arose from the termination of their business relations over the Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner would only be entitled to the return of a proportionate share of the mine assets to be computed at a ratio that the manager’s account had to the owner’s account. Except to provide a basis for claiming the advances as a bad debt deduction, there is no reason for Baguio Gold to hold itself liable to petitioner under the compromise agreements, for any amount over and above the proportion agreed upon in the "Power of Attorney".

Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of millions of pesos to another corporation with neither security, or collateral, nor a specific deed evidencing the terms and conditions of such loans. The parties also did not provide a specific maturity date for the advances to become due and demandable, and the manner of payment was unclear. All these point to the inevitable conclusion that the advances were not loans but capital contributions to a partnership.

The strongest indication that petitioner was a partner in the Sto Niño mine is the fact that it would receive 50% of the net profits as "compensation" under paragraph 12 of the agreement. The entirety of the parties’ contractual stipulations simply leads to no other conclusion than that petitioner’s "compensation" is actually its share in the income of the joint venture.

Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits of a business is prima facie evidence that he is a partner in the business." Petitioner asserts, however, that no such inference can be drawn against it since its share in the profits of the Sto Niño project was in the nature of compensation or "wages of an employee", under the exception provided in Article 1769 (4) (b).24

On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will be paid "wages" pursuant to an employer-employee relationship. To begin with, petitioner was the manager of the project and had put substantial sums into the venture in order to ensure its viability and profitability. By pegging its compensation to profits, petitioner also stood not to be remunerated in case the mine had no income. It is hard to believe that petitioner would take the risk of not being paid at all for its services, if it were truly just an ordinary employee.

Consequently, we find that petitioner’s "compensation" under paragraph 12 of the agreement actually constitutes its share in the net profits of the partnership. Indeed, petitioner would not be entitled to an equal share in the income of the mine if it were just an employee of Baguio Gold.25 It is not surprising that petitioner was to receive a 50% share in the net profits, considering that the "Power of Attorney" also provided for an almost equal contribution of the parties to the St. Nino mine. The "compensation" agreed upon only serves to reinforce the notion that the parties’ relations were indeed of partners and not employer-employee.

All told, the lower courts did not err in treating petitioner’s advances as investments in a partnership known as the Sto. Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch as the latter was under no unconditional obligation to return the same to the former under the "Power of Attorney". As for the amounts that petitioner paid as guarantor to Baguio Gold’s creditors, we find no reason to depart from the tax court’s factual finding that Baguio Gold’s debts were not yet due and demandable at the time that petitioner paid the same. Verily, petitioner pre-paid Baguio Gold’s outstanding loans to its bank creditors and this conclusion is supported by the evidence on record.26

In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for income tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must prove by convincing evidence that he is entitled to the deduction claimed.27 In this case, petitioner failed to substantiate its assertion that the advances were subsisting debts of Baguio Gold that could be deducted from its gross income. Consequently, it could not claim the advances as a valid bad debt deduction.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982 income in the amount of P62,811,161.31, with 20% delinquency interest computed from February 10, 1995, which is the due date given for the payment of the deficiency income tax, up to the actual date of payment.

SO ORDERED.

CONSUELO YNARES-SANTIAGO

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 143340       August 15, 2001

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs.LAMBERTO T. CHUA, respondent.

GONZAGA-REYES, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision1 of the Court of Appeals dated January 31, 2000 in the case entitled "Lamberto T. Chua vs. Lilibeth Sunga Chan and Cecilia Sunga" and of the Resolution dated May 23, 2000 denying the motion for reconsideration of herein petitioners Lilibeth Sunga and Cecilia Sunga (hereafter collectively referred to as petitioners).

The pertinent facts of this case are as follows:

On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga (hereafter Jacinto), for "Winding

Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment" with the Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business convenience, respondent and Jacinto allegedly agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly delivered his initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as his counterpart contribution, with the intention that the profits would be equally divided between them. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy (hereafter Josephine), a sister of the wife respondent, Erlinda Sy. As compensation, Jacinto would receive a manager's fee or remuneration of 10% of the gross profit and Josephine would receive 10% of the net profits, in addition to her wages and other remuneration from the business.

Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation went quite and was profitable. Respondent claimed that he could attest to success of their business because of the volume of orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto furnished respondent with the merchandise inventories, balance sheets and net worth of Shellite from 1977 to 1989, respondent however suspected that the amount indicated in these documents were understated and undervalued by Jacinto and Josephine for their own selfish reasons and for tax avoidance.

Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his daughter, petitioner Lilibeth, took over the operations, control, custody, disposition and management of Shellite without respondent's consent. Despite respondent's repeated demands upon petitioners for accounting, inventory, appraisal, winding up and restitution of his net shares in the partnership, petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting to her own use and advantage its properties.

On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis and reasons to evade respondent's demands, she disbursed out of the partnership funds the amount of P200,000.00 and partially paid the same to respondent. Petitioner Lilibeth allegedly informed respondent that the P200,000.00 represented partial payment of the latter's share in the partnership, with a promise that the former would make the complete inventory and winding up of the properties of the business establishment. Despite such commitment, petitioners allegedly failed to comply with their duty to account, and continued to benefit from the assets and income of Shellite to the damage and prejudice of respondent.

On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and Exchange Commission (SEC) in Manila, not the Regional Trial Court in Zamboanga del Norte had jurisdiction over the action. Respondent opposed the motion to dismiss.

On January 12, 1993, the trial court finding the complaint sufficient in from and substance denied the motion to dismiss.

On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims, contending that they are not liable for partnership shares, unreceived income/profits, interests, damages and attorney's fees, that respondent does not have a cause of action against them, and that the trial court has no jurisdiction over the nature of the action, the SEC being the agency that has original and exclusive jurisdiction over the case. As counterclaim, petitioner sought attorney's fees and expenses of litigation.

On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim for winding up of partnership affairs, accounting and recovery of shares in partnership affairs, accounting and recovery of shares in partnership assets/properties should be dismissed and prosecuted against the estate of deceased Jacinto in a probate or intestate proceeding.

On August 16, 1993, the trial denied the second motion to dismiss for lack of merit.

On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to dismiss.

On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial Conference.

On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.

On November 15, 1994, the Court of Appeals denied the petition for lack of merit.

On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, "as petitioners failed to show that a reversible error was committed by the appellate court."2

On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was remanded to the trial court on April 26, 1995.

On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the case of January 17, 1996. Respondent presented his evidence while petitioners were considered to have waived their right to present evidence for their failure to attend the scheduled date for reception of evidence despite notice.

On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive of the Decision reads:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows:

(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of the properties, assets, income and profits of the Shellite Gas Appliance Center Since the time of death of Jacinto L. Sunga, from whom they continued the business operations including all businesses derived from Shellite Gas Appliance Center, submit an inventory, and appraisal of all these properties, assets, income, profits etc. to the Court and to plaintiff for approval or disapproval;

(2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits they misapplied and converted to their own use and advantage the legally pertain to the plaintiff and account for the properties mentioned in pars. A and B on pages 4-5 of this petition as basis;

(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and interest of the plaintiff in the partnership of the listed properties, assets and good will (sic) in schedules A, B and C, on pages 4-5 of the petition;

(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from 1988 to May 30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00 per month, with legal rate of interest until fully paid;

(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law, after delivering to the plaintiff all the ½ interest, shares, participation and equity in the partnership, or the value thereof in money or money's worth, if the properties are not physically divisible;

(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and exemplary damages; and,

(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney's (sic) and P25,000.00 as litigation expenses.

NO special pronouncements as to COSTS.

SO ORDERED."3

On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to the Court of Appeals.

On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the Decision reads:

"WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all respects."4

On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.

Hence, this petition wherein petitioner relies upon following grounds:

"1. The Court of Appeals erred in making a legal conclusion that there existed a partnership between respondent Lamberto T. Chua and the late Jacinto L. Sunga upon the latter'' invitation and offer and that upon his death the partnership assets and business were taken over by petitioners.

2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription did not apply in the instant case.

3. The Court of Appeals erred in making the legal conclusion that there was competent and credible evidence to warrant the finding of a partnership, and assuming arguendo that indeed there was a partnership, the finding of highly exaggerated amounts or values in the partnership assets and profits."5

Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a partnership existed between respondent and Jacinto from 1977 until Jacinto's death. In the absence of any written document to show such partnership between respondent and Jacinto, petitioners argues that these courts were proscribes from hearing the testimonies of respondent and his witness, Josephine, to prove the alleged partnership three years after Jacinto's death. To support this argument, petitioners invoke the "Dead Man's Statute' or "Survivorship Rule" under Section 23, Rule 130 of the Rules of Court that provides:

"SEC. 23. Disqualification by reason of death or insanity of adverse party. – Parties or assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an executor or administrator or other representative of a deceased person, or against a person of unsound mind, upon a claim or demand against the estate of such deceased person, or against such person of unsound mind, cannot testify as to any matter of fact occurring before the death of such deceased person or before such person became of unsound mind."

Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego, Josephine, should not have been admitted to prove certain claims against a deceased person (Jacinto), now represented by petitioners.

We are not persuaded.

A partnership may be constituted in any form, except where immovable property of real rights are contributed thereto, in which case a public instrument shall necessary.6 Hence, based on the intention of the parties, as gathered from the facts and ascertained from their language and conduct, a verbal contract of partnership may arise.7 The essential profits that must be proven to that a partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in the profits.8 Understandably so, in view of the absence of the written contract of partnership between respondent and Jacinto, respondent resorted to the introduction of documentary and testimonial evidence to prove said partnership. The crucial issue to settle then is to whether or not the "Dead Man's Statute" applies to this case so as to render inadmissible respondent's testimony and that of his witness, Josephine.

The "Dead Man's Statute" provides that if one party to the alleged transaction is precluded from testifying by death, insanity, or other mental disabilities, the surviving party is not entitled to the undue advantage of giving his own uncontradicted and unexplained account of the transaction.9 But before this rule can be successfully invoked to bar the introduction of testimonial evidence, it is necessary that:

"1. The witness is a party or assignor of a party to case or persons in whose behalf a case in prosecuted.

2. The action is against an executor or administrator or other representative of a deceased person or a person of unsound mind;

3. The subject-matter of the action is a claim or demand against the estate of such deceased person or against person of unsound mind;

4. His testimony refers to any matter of fact of which occurred before the death of such deceased person or before such person became of unsound mind."10

Two reasons forestall the application of the "Dead Man's Statute" to this case.

First, petitioners filed a compulsory counterclaim11 against respondents in their answer before the trial court, and with the filing of their counterclaim, petitioners themselves effectively removed this case from the ambit of the "Dead Man's Statute".12 Well entrenched is the rule that when it is the executor or administrator or representatives of the estates that sets up the counterclaim, the plaintiff, herein respondent, may testify to occurrences before the death of the deceased to defeat the counterclaim.13 Moreover, as defendant in the counterclaim, respondent is not disqualified from testifying as to matters of facts occurring before the death of the deceased, said action not having been brought against but by the estate or representatives of the deceased.14

Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for the simple reason that she is not "a party or assignor of a party to a case or persons in whose behalf a case is prosecuted." Records show that respondent offered the testimony of Josephine to establish the

existence of the partnership between respondent and Jacinto. Petitioners' insistence that Josephine is the alter ego of respondent does not make her an assignor because the term "assignor" of a party means "assignor of a cause of action which has arisen, and not the assignor of a right assigned before any cause of action has arisen."15 Plainly then, Josephine is merely a witness of respondent, the latter being the party plaintiff.

We are not convinced by petitioners' allegation that Josephine's testimony lacks probative value because she was allegedly coerced coerced by respondent, her brother-in-law, to testify in his favor, Josephine merely declared in court that she was requested by respondent to testify and that if she were not requested to do so she would not have testified. We fail to see how we can conclude from this candid admission that Josephine's testimony is involuntary when she did not in any way categorically say that she was forced to be a witness of respondent.

Also, the fact that Josephine is the sister of the wife of respondent does not diminish the value of her testimony since relationship per se, without more, does not affect the credibility of witnesses.16

Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim cannot prevail over the factual findings of the trial court and the Court of Appeals that a partnership was established between respondent and Jacinto. Based not only on the testimonial evidence, but the documentary evidence as well, the trial court and the Court of Appeals considered the evidence for respondent as sufficient to prove the formation of partnership, albeit an informal one.

Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial precedents, a factual matter like the finding of the existence of a partnership between respondent and Jacinto cannot be inquired into by this Court on review.17 This Court can no longer be tasked to go over the proofs presented by the parties and analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence of one party or the other.18 It must be also pointed out that petitioners failed to attend the presentation of evidence of respondent. Petitioners cannot now turn to this Court to question the admissibility and authenticity of the documentary evidence of respondent when petitioners failed to object to the admissibility of the evidence at the time that such evidence was offered.19

With regard to petitioners' insistence that laches and/or prescription should have extinguished respondent's claim, we agree with the trial court and the Court of Appeals that the action for accounting filed by respondents three (3) years after Jacinto's death was well within the prescribed period. The Civil Code provides that an action to enforce an oral contract prescribes in six (6) years20 while the right to demand an accounting for a partner's interest as against the person continuing the business accrues at the date of dissolution, in the absence of any contrary agreement.21 Considering that the death of a partner results in the dissolution of the partnership22, in this case, it was Jacinto's death that respondent as the surviving partner had the right to an account of his interest as against petitioners. It bears stressing that while Jacinto's death dissolved the partnership, the dissolution did not immediately terminate the partnership. The Civil Code23 expressly provides that upon dissolution, the partnership continues and its legal

personality is retained until the complete winding up of its business, culminating in its termination.24

In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto, petitioners maintain that said partnership that had initial capital of P200,000.00 should have been registered with the Securities and Exchange Commission (SEC) since registration is mandated by the Civil Code, True, Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00 or more must register with the SEC, however, this registration requirement is not mandatory. Article 1768 of the Civil Code25 explicitly provides that the partnership retains its juridical personality even if it fails to register. The failure to register the contract of partnership does not invalidate the same as among the partners, so long as the contract has the essential requisites, because the main purpose of registration is to give notice to third parties, and it can be assumed that the members themselves knew of the contents of their contract.26 In the case at bar, non-compliance with this directory provision of the law will not invalidate the partnership considering that the totality of the evidence proves that respondent and Jacinto indeed forged the partnership in question.

WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED.

SO ORDERED.1âwphi1.nêt

Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.

TERESITA J. LEONARDO-DE CASTRO

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 178782               September 21, 2011

JOSEFINA P. REALUBIT, Petitioner, vs.PROSENCIO D. JASO and EDEN G. JASO, Respondents.

D E C I S I O N

PEREZ, J.:

The validity as well as the consequences of an assignment of rights in a joint venture are at issue in this petition for review filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure,1 assailing the 30 April 2007 Decision2rendered by the Court of Appeals’ (CA) then Twelfth Division in CA-G.R. CV No. 73861,3 the dispositive portion of which states:

WHEREFORE, the Decision appealed from is SET ASIDE and we order the dissolution of the joint venture between defendant-appellant Josefina Realubit and Francis Eric Amaury Biondo and the subsequent conduct of accounting, liquidation of assets and division of shares of the joint venture business.

Let a copy hereof and the records of the case be remanded to the trial court for appropriate proceedings.4

The Facts

On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint Venture Agreement with Francis Eric Amaury Biondo (Biondo), a French national, for the operation of an ice manufacturing business. With Josefina as the industrial partner and Biondo as the capitalist partner, the parties agreed that they would each receive 40% of the net profit, with the remaining 20% to be used for the payment of the ice making machine which was purchased for the business.5 For and in consideration of the sum of P500,000.00, however, Biondo subsequently executed a Deed of Assignment dated 27 June 1997, transferring all his rights and interests in the business in favor of respondent Eden Jaso (Eden), the wife of respondent Prosencio Jaso.6 With Biondo’s eventual departure from the country, the Spouses Jaso caused their lawyer to send Josefina a letter dated 19 February 1998, apprising her of their acquisition of said Frenchman’s share in the business and formally demanding an accounting and inventory thereof as well as the remittance of their portion of its profits.7

Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso commenced the instant suit with the filing of their 3 August 1998 Complaint against Josefina, her husband, Ike Realubit (Ike), and their alleged dummies, for specific performance, accounting, examination, audit and inventory of assets and properties, dissolution of the joint venture, appointment of a receiver and damages. Docketed as Civil Case No. 98-0331 before respondent Branch 257 of the Regional Trial Court (RTC) of Parañaque City, said complaint alleged, among other matters, that the Spouses Realubit had no gainful occupation or business prior to their joint venture with Biondo; that with the income of the business which earned not less than P3,000.00 per day, they were, however, able to acquire the two-storey building as well as the land on which the joint venture’s ice plant stands, another building which they used as their office and/or residence and six (6) delivery vans; and, that aside from appropriating for themselves the income of the business, the Spouses Realubit have fraudulently concealed the funds and assets thereof thru their relatives, associates or dummies.8

Served with summons, the Spouses Realubit filed their Answer dated 21 October 1998, specifically denying the material allegations of the foregoing complaint. Claiming that they have

been engaged in the tube ice trading business under a single proprietorship even before their dealings with Biondo, the Spouses Realubit, in turn, averred that their said business partner had left the country in May 1997 and could not have executed the Deed of Assignment which bears a signature markedly different from that which he affixed on their Joint Venture Agreement; that they refused the Spouses Jaso’s demand in view of the dubious circumstances surrounding their acquisition of Biondo’s share in the business which was established at Don Antonio Heights, Commonwealth Avenue, Quezon City; that said business had already stopped operations on 13 January 1996 when its plant shut down after its power supply was disconnected by MERALCO for non-payment of utility bills; and, that it was their own tube ice trading business which had been moved to 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City that the Spouses Jaso mistook for the ice manufacturing business established in partnership with Biondo.9

The issues thus joined and the mandatory pre-trial conference subsequently terminated, the RTC went on to try the case on its merits and, thereafter, to render its Decision dated 17 September 2001, discounting the existence of sufficient evidence from which the income, assets and the supposed dissolution of the joint venture can be adequately reckoned. Upon the finding, however, that the Spouses Jaso had been nevertheless subrogated to Biondo’s rights in the business in view of their valid acquisition of the latter’s share as capitalist partner,10 the RTC disposed of the case in the following wise:

WHEREFORE, defendants are ordered to submit to plaintiffs a complete accounting and inventory of the assets and liabilities of the joint venture from its inception to the present, to allow plaintiffs access to the books and accounting records of the joint venture, to deliver to plaintiffs their share in the profits, if any, and to pay the plaintiffs the amount of P20,000. for moral damages. The claims for exemplary damages and attorney’s fees are denied for lack of basis.11

On appeal before the CA, the foregoing decision was set aside in the herein assailed Decision dated 30 April 2007, upon the following findings and conclusions: (a) the Spouses Jaso validly acquired Biondo’s share in the business which had been transferred to and continued its operations at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City and not dissolved as claimed by the Spouses Realubit; (b) absent showing of Josefina’s knowledge and consent to the transfer of Biondo’s share, Eden cannot be considered as a partner in the business, pursuant to Article 1813 of the Civil Code of the Philippines; (c) while entitled to Biondo’s share in the profits of the business, Eden cannot, however, interfere with the management of the partnership, require information or account of its transactions and inspect its books; (d) the partnership should first be dissolved before Eden can seek an accounting of its transactions and demand Biondo’s share in the business; and, (e) the evidence adduced before the RTC do not support the award of moral damages in favor of the Spouses Jaso.12

The Spouses Realubit’s motion for reconsideration of the foregoing decision was denied for lack of merit in the CA’s 28 June 2007 Resolution,13 hence, this petition.

The Issues

The Spouses Realubit urge the reversal of the assailed decision upon the negative of the following issues, to wit:

A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE JOINT VENTURE.

B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS PARTNER IN THE JOINT VENTURE TO RENDER [A]N ACCOUNTING TO ONE WHO IS NOT A PARTNER IN SAID JOINT VENTURE.

C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN THE JOINT VENTURE AND IN THE SEPARATE ICE BUSINESS OF PETITIONER[S].14

The Court’s Ruling

We find the petition bereft of merit.

The Spouses Realubit argue that, in upholding its validity, both the RTC and the CA inordinately gave premium to the notarization of the 27 June 1997 Deed of Assignment executed by Biondo in favor of the Spouses Jaso. Calling attention to the latter’s failure to present before the RTC said assignor or, at the very least, the witnesses to said document, the Spouses Realubit maintain that the testimony of Rolando Diaz, the Notary Public before whom the same was acknowledged, did not suffice to establish its authenticity and/or validity. They insist that notarization did not automatically and conclusively confer validity on said deed, since it is still entirely possible that Biondo did not execute said deed or, for that matter, appear before said notary public.15 The dearth of merit in the Spouses Realubit’s position is, however, immediately evident from the settled rule that documents acknowledged before notaries public are public documents which are admissible in evidence without necessity of preliminary proof as to their authenticity and due execution.16

It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo executed in favor of Eden not only enjoys a presumption of regularity17 but is also considered prima facie evidence of the facts therein stated.18A party assailing the authenticity and due execution of a notarized document is, consequently, required to present evidence that is clear, convincing and more than merely preponderant.19 In view of the Spouses Realubit’s failure to discharge this onus, we find that both the RTC and the CA correctly upheld the authenticity and validity of said Deed of Assignment upon the combined strength of the above-discussed disputable presumptions and the testimonies elicited from Eden20 and Notary Public Rolando Diaz.21 As for the Spouses’ Realubit’s bare assertion that Biondo’s signature on the same document appears to be forged, suffice it to say that, like fraud,22 forgery is never presumed and must likewise be proved by clear and convincing evidence by the party alleging the same.23Aside from not being borne out by a comparison of Biondo’s signatures on the Joint Venture Agreement24 and the Deed of Assignment,25 said forgery is, moreover debunked by Biondo’s duly authenticated certification

dated 17 November 1998, confirming the transfer of his interest in the business in favor of Eden.26

Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a particular partnership or one which "has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation."27 The rule is settled that joint ventures are governed by the law on partnerships28 which are, in turn, based on mutual agency or delectus personae.29 Insofar as a partner’s conveyance of the entirety of his interest in the partnership is concerned, Article 1813 of the Civil Code provides as follows:

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contracts the profits to which the assigning partners would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.

In the case of a dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and may require an account from the date only of the last account agreed to by all the partners.

From the foregoing provision, it is evident that "(t)he transfer by a partner of his partnership interest does not make the assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management of the partnership business or to receive anything except the assignee’s profits. The assignment does not purport to transfer an interest in the partnership, but only a future contingent right to a portion of the ultimate residue as the assignor may become entitled to receive by virtue of his proportionate interest in the capital."30 Since a partner’s interest in the partnership includes his share in the profits,31 we find that the CA committed no reversible error in ruling that the Spouses Jaso are entitled to Biondo’s share in the profits, despite Juanita’s lack of consent to the assignment of said Frenchman’s interest in the joint venture. Although Eden did not, moreover, become a partner as a consequence of the assignment and/or acquire the right to require an accounting of the partnership business, the CA correctly granted her prayer for dissolution of the joint venture conformably with the right granted to the purchaser of a partner’s interest under Article 1831 of the Civil Code.32 1âwphi1

Considering that they involve questions of fact, neither are we inclined to hospitably entertain the Spouses Realubit’s insistence on the supposed fact that Josefina’s joint venture with Biondo had already been dissolved and that the ice manufacturing business at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City was merely a continuation of the same business they previously operated under a single proprietorship. It is well-entrenched doctrine that questions of fact are not proper subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of appeal is confined to questions of law.33 Upon the principle that this Court is not a trier of facts, we are not duty bound to examine the evidence introduced by the parties below to

determine if the trial and the appellate courts correctly assessed and evaluated the evidence on record.34 Absent showing that the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts, the Court will limit itself to reviewing only errors of law.35

Based on the evidence on record, moreover, both the RTC36 and the CA37 ruled out the dissolution of the joint venture and concluded that the ice manufacturing business at the aforesaid address was the same one established by Juanita and Biondo. As a rule, findings of fact of the CA are binding and conclusive upon this Court,38 and will not be reviewed or disturbed on appeal39 unless the case falls under any of the following recognized exceptions: (1) when the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the CA, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the respondents; and, (10) when the findings of fact of the CA are premised on the supposed absence of evidence and contradicted by the evidence on record.40 Unfortunately for the Spouses Realubit’s cause, not one of the foregoing exceptions applies to the case.

WHEREFORE, the petition is DENIED for lack of merit and the assailed CA Decision dated 30 April 2007 is, accordingly, AFFIRMED in toto.

SO ORDERED.

JOSE PORTUGAL PEREZ

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 175885               February 13, 2009

ZENAIDA G. MENDOZA, Petitioner, vs.ENGR. EDUARDO PAULE, ENGR. ALEXANDER COLOMA and NATIONAL IRRIGATION ADMINISTRATION (NIA MUÑOZ, NUEVA ECIJA), Respondents.

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G.R. No. 176271               February 13, 2009

MANUEL DELA CRUZ Petitioner, vs.ENGR. EDUARDO M. PAULE, ENGR. ALEXANDER COLOMA and NATIONAL IRRIGATION ADMINISTRATION (NIA MUÑOZ, NUEVA ECIJA), Respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

These consolidated petitions assail the August 28, 2006 Decision1 of the Court of Appeals in CA-G.R. CV No. 80819 dismissing the complaint in Civil Case No. 18-SD (2000),2 and its December 11, 2006 Resolution3 denying the herein petitioners’ motion for reconsideration.

Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M. Paule Construction and Trading (EMPCT). On May 24, 1999, PAULE executed a special power of attorney (SPA) authorizing Zenaida G. Mendoza (MENDOZA) to participate in the pre-qualification and bidding of a National Irrigation Administration (NIA) project and to represent him in all transactions related thereto, to wit:

1. To represent E.M. PAULE CONSTRUCTION & TRADING of which I (PAULE) am the General Manager in all my business transactions with National Irrigation Authority, Muñoz, Nueva Ecija.

2. To participate in the bidding, to secure bid bonds and other documents pre-requisite in the bidding of Casicnan Multi-Purpose Irrigation and Power Plant (CMIPPL 04-99), National Irrigation Authority, Muñoz, Nueva Ecija.

3. To receive and collect payment in check in behalf of E.M. PAULE CONSTRUCTION & TRADING.

4. To do and perform such acts and things that may be necessary and/or required to make the herein authority effective.4

On September 29, 1999, EMPCT, through MENDOZA, participated in the bidding of the NIA-Casecnan Multi-Purpose Irrigation and Power Project (NIA-CMIPP) and was awarded Packages A-10 and B-11 of the NIA-CMIPP Schedule A. On November 16, 1999, MENDOZA received the Notice of Award which was signed by Engineer Alexander M. Coloma (COLOMA), then Acting Project Manager for the NIA-CMIPP. Packages A-10 and B-11 involved the construction of a road system, canal structures and drainage box culverts with a project cost of P5,613,591.69.

When Manuel de la Cruz (CRUZ) learned that MENDOZA is in need of heavy equipment for use in the NIA project, he met up with MENDOZA in Bayuga, Muñoz, Nueva Ecija, in an apartment where the latter was holding office under an EMPCT signboard. A series of meetings followed in said EMPCT office among CRUZ, MENDOZA and PAULE.

On December 2 and 20, 1999, MENDOZA and CRUZ signed two Job Orders/Agreements5 for the lease of the latter’s heavy equipment (dump trucks for hauling purposes) to EMPCT.

On April 27, 2000, PAULE revoked6 the SPA he previously issued in favor of MENDOZA; consequently, NIA refused to make payment to MENDOZA on her billings. CRUZ, therefore, could not be paid for the rent of the equipment. Upon advice of MENDOZA, CRUZ addressed his demands for payment of lease rentals directly to NIA but the latter refused to acknowledge the same and informed CRUZ that it would be remitting payment only to EMPCT as the winning contractor for the project.

In a letter dated April 5, 2000, CRUZ demanded from MENDOZA and/or EMPCT payment of the outstanding rentals which amounted to P726,000.00 as of March 31, 2000.

On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with Branch 37 of the Regional Trial Court of Nueva Ecija, for collection of sum of money with damages and a prayer for the issuance of a writ of preliminary injunction against PAULE, COLOMA and the NIA. PAULE in turn filed a third-party complaint against MENDOZA, who filed her answer thereto, with a cross-claim against PAULE.

MENDOZA alleged in her cross-claim that because of PAULE’s "whimsical revocation" of the SPA, she was barred from collecting payments from NIA, thus resulting in her inability to fund her checks which she had issued to suppliers of materials, equipment and labor for the project. She claimed that estafa and B.P. Blg. 22 cases were filed against her; that she could no longer finance her children’s education; that she was evicted from her home; that her vehicle was foreclosed upon; and that her reputation was destroyed, thus entitling her to actual and moral damages in the respective amounts of P3 million and P1 million.

Meanwhile, on August 23, 2000, PAULE again constituted MENDOZA as his attorney-in-fact –

1. To represent me (PAULE), in my capacity as General Manager of the E.M. PAULE CONSTRUCTION AND TRADING, in all meetings, conferences and transactions exclusively for the construction of the projects known as Package A-10 of Schedule A and Package No. B-11 Schedule B, which are 38.61% and 63.18% finished as of June 21, 2000, per attached Accomplishment Reports x x x;

2. To implement, execute, administer and supervise the said projects in whatever stage they are in as of to date, to collect checks and other payments due on said projects and act as the Project Manager for E.M. PAULE CONSTRUCTION AND TRADING;

3. To do and perform such acts and things that may be necessary and required to make the herein power and authority effective.7

At the pre-trial conference, the other parties were declared as in default and CRUZ was allowed to present his evidence ex parte. Among the witnesses he presented was MENDOZA, who was impleaded as defendant in PAULE’s third-party complaint.

On March 6, 2003, MENDOZA filed a motion to declare third-party plaintiff PAULE non-suited with prayer that she be allowed to present her evidence ex parte.

However, without resolving MENDOZA’s motion to declare PAULE non-suited, and without granting her the opportunity to present her evidence ex parte, the trial court rendered its decision dated August 7, 2003, the dispositive portion of which states, as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff as follows:

1. Ordering defendant Paule to pay the plaintiff the sum of P726,000.00 by way of actual damages or compensation for the services rendered by him;

2. Ordering defendant Paule to pay plaintiff the sum of P500,000.00 by way of moral damages;

3. Ordering defendant Paule to pay plaintiff the sum of P50,000.00 by way of reasonable attorney’s fees;

4. Ordering defendant Paule to pay the costs of suit; and

5. Ordering defendant National Irrigation Administration (NIA) to withhold the balance still due from it to defendant Paule/E.M. Paule Construction and Trading under NIA-CMIPP Contract Package A-10 and to pay plaintiff therefrom to the extent of defendant Paule’s liability herein adjudged.

SO ORDERED.8

In holding PAULE liable, the trial court found that MENDOZA was duly constituted as EMPCT’s agent for purposes of the NIA project and that MENDOZA validly contracted with CRUZ for the rental of heavy equipment that was to be used therefor. It found unavailing PAULE’s assertion that MENDOZA merely borrowed and used his contractor’s license in exchange for a consideration of 3% of the aggregate amount of the project. The trial court held that through the SPAs he executed, PAULE clothed MENDOZA with apparent authority and held her out to the public as his agent; as principal, PAULE must comply with the obligations which MENDOZA contracted within the scope of her authority and for his benefit. Furthermore, PAULE knew of the transactions which MENDOZA entered into since at various times when she and CRUZ met at the

EMPCT office, PAULE was present and offered no objections. The trial court declared that it would be unfair to allow PAULE to enrich himself and disown his acts at the expense of CRUZ.

PAULE and MENDOZA both appealed the trial court’s decision to the Court of Appeals.

PAULE claimed that he did not receive a copy of the order of default; that it was improper for MENDOZA, as third-party defendant, to have taken the stand as plaintiff CRUZ’s witness; and that the trial court erred in finding that an agency was created between him and MENDOZA, and that he was liable as principal thereunder.

On the other hand, MENDOZA argued that the trial court erred in deciding the case without affording her the opportunity to present evidence on her cross-claim against PAULE; that, as a result, her cross-claim against PAULE was not resolved, leaving her unable to collect the amounts of P3,018,864.04, P500,000.00, and P839,450.88 which allegedly represent the unpaid costs of the project and the amount PAULE received in excess of payments made by NIA.

On August 28, 2006, the Court of Appeals rendered the assailed Decision which dismissed CRUZ’s complaint, as well as MENDOZA’s appeal. The appellate court held that the SPAs issued in MENDOZA’s favor did not grant the latter the authority to enter into contract with CRUZ for hauling services; the SPAs limit MENDOZA’s authority to only represent EMPCT in its business transactions with NIA, to participate in the bidding of the project, to receive and collect payment in behalf of EMPCT, and to perform such acts as may be necessary and/or required to make the said authority effective. Thus, the engagement of CRUZ’s hauling services was done beyond the scope of MENDOZA’s authority.

As for CRUZ, the Court of Appeals held that he knew the limits of MENDOZA’s authority under the SPAs yet he still transacted with her. Citing Manila Memorial Park Cemetery, Inc. v. Linsangan,9 the appellate court declared that the principal (PAULE) may not be bound by the acts of the agent (MENDOZA) where the third person (CRUZ) transacting with the agent knew that the latter was acting beyond the scope of her power or authority under the agency.

With respect to MENDOZA’s appeal, the Court of Appeals held that when the trial court rendered judgment, not only did it rule on the plaintiff’s complaint; in effect, it resolved the third-party complaint as well;10 that the trial court correctly dismissed the cross-claim and did not unduly ignore or disregard it; that MENDOZA may not claim, on appeal, the amounts of P3,018,864.04, P500,000.00, and P839,450.88 which allegedly represent the unpaid costs of the project and the amount PAULE received in excess of payments made by NIA, as these are not covered by her cross-claim in the court a quo, which seeks reimbursement only of the amounts of P3 million and P1 million, respectively, for actual damages (debts to suppliers, laborers, lessors of heavy equipment, lost personal property) and moral damages she claims she suffered as a result of PAULE’s revocation of the SPAs; and that the revocation of the SPAs is a prerogative that is allowed to PAULE under Article 192011 of the Civil Code.

CRUZ and MENDOZA’s motions for reconsideration were denied; hence, these consolidated petitions:

G.R. No. 175885 (MENDOZA PETITION)

a) The Court of Appeals erred in sustaining the trial court’s failure to resolve her motion praying that PAULE be declared non-suited on his third-party complaint, as well as her motion seeking that she be allowed to present evidence ex parte on her cross-claim;

b) The Court of Appeals erred when it sanctioned the trial court’s failure to resolve her cross-claim against PAULE; and,

c) The Court of Appeals erred in its application of Article 1920 of the Civil Code, and in adjudging that MENDOZA had no right to claim actual damages from PAULE for debts incurred on account of the SPAs issued to her.

G.R. No. 176271 (CRUZ PETITION)

CRUZ argues that the decision of the Court of Appeals is contrary to the provisions of law on agency, and conflicts with the Resolution of the Court in G.R. No. 173275, which affirmed the

Court of Appeals’ decision in CA-G.R. CV No. 81175, finding the existence of an agency relation and where PAULE was declared as MENDOZA’s principal under the subject SPAs and, thus, liable

for obligations (unpaid construction materials, fuel and heavy equipment rentals) incurred by the latter for the purpose of implementing and carrying out the NIA project awarded to EMPCT.

CRUZ argues that MENDOZA was acting within the scope of her authority when she hired his services as hauler of debris because the NIA project (both Packages A-10 and B-11 of the NIA-CMIPP) consisted of construction of canal structures, which involved the clearing and disposal of waste, acts that are necessary and incidental to PAULE’s obligation under the NIA project; and that the decision in a civil case involving the same SPAs, where PAULE was found liable as MENDOZA’s principal already became final and executory; that in Civil Case No. 90-SD filed by MENDOZA against PAULE,12 the latter was adjudged liable to the former for unpaid rentals of heavy equipment and for construction materials which MENDOZA obtained for use in the subject NIA project. On September 15, 2003, judgment was rendered in said civil case against PAULE, to wit:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff (MENDOZA) and against the defendant (PAULE) as follows:

1. Ordering defendant Paule to pay plaintiff the sum of P138,304.00 representing the obligation incurred by the plaintiff with LGH Construction;

2. Ordering defendant Paule to pay plaintiff the sum of P200,000.00 representing the balance of the obligation incurred by the plaintiff with Artemio Alejandrino;

3. Ordering defendant Paule to pay plaintiff the sum of P520,000.00 by way of moral damages, and further sum of P100,000.00 by way of exemplary damages;

4. Ordering defendant Paule to pay plaintiff the sum of P25,000.00 as for attorney’s fees; and

5. To pay the cost of suit.13

PAULE appealed14 the above decision, but it was dismissed by the Court of Appeals in a Decision15 which reads, in part:

As to the finding of the trial court that the principle of agency is applicable in this case, this Court agrees therewith. It must be emphasized that appellant (PAULE) authorized appellee (MENDOZA) to perform any and all acts necessary to make the business transaction of EMPCT with NIA effective. Needless to state, said business transaction pertained to the construction of canal structures which necessitated the utilization of construction materials and equipments.1avvphi1 Having given said authority, appellant cannot be allowed to turn its back on the transactions entered into by appellee in behalf of EMPCT.

The amount of moral damages and attorney’s fees awarded by the trial court being justifiable and commensurate to the damage suffered by appellee, this Court shall not disturb the same. It is well-settled that the award of damages as well as attorney’s fees lies upon the discretion of the court in the context of the facts and circumstances of each case.

WHEREFORE, the appeal is DISMISSED and the appealed Decision is AFFIRMED.

SO ORDERED.16

PAULE filed a petition to this Court docketed as G.R. No. 173275 but it was denied with finality on September 13, 2006.

MENDOZA, for her part, claims that she has a right to be heard on her cause of action as stated in her cross-claim against PAULE; that the trial court’s failure to resolve the cross-claim was a violation of her constitutional right to be apprised of the facts or the law on which the trial court’s decision is based; that PAULE may not revoke her appointment as attorney-in-fact for and in behalf of EMPCT because, as manager of their partnership in the NIA project, she was obligated to collect from NIA the funds to be used for the payment of suppliers and contractors with whom she had earlier contracted for labor, materials and equipment.

PAULE, on the other hand, argues in his Comment that MENDOZA’s authority under the SPAs was for the limited purpose of securing the NIA project; that MENDOZA was not authorized to contract with other parties with regard to the works and services required for the project, such as CRUZ’s hauling services; that MENDOZA acted beyond her authority in contracting with CRUZ, and PAULE, as principal, should not be made civilly liable to CRUZ under the SPAs; and that

MENDOZA has no cause of action against him for actual and moral damages since the latter exceeded her authority under the agency.

We grant the consolidated petitions.

Records show that PAULE (or, more appropriately, EMPCT) and MENDOZA had entered into a partnership in regard to the NIA project. PAULE‘s contribution thereto is his contractor’s license and expertise, while MENDOZA would provide and secure the needed funds for labor, materials and services; deal with the suppliers and sub-contractors; and in general and together with PAULE, oversee the effective implementation of the project. For this, PAULE would receive as his share three per cent (3%) of the project cost while the rest of the profits shall go to MENDOZA. PAULE admits to this arrangement in all his pleadings.17

Although the SPAs limit MENDOZA’s authority to such acts as representing EMPCT in its business transactions with NIA, participating in the bidding of the project, receiving and collecting payment in behalf of EMPCT, and performing other acts in furtherance thereof, the evidence shows that when MENDOZA and CRUZ met and discussed (at the EMPCT office in Bayuga, Muñoz, Nueva Ecija) the lease of the latter’s heavy equipment for use in the project, PAULE was present and interposed no objection to MENDOZA’s actuations. In his pleadings, PAULE does not even deny this. Quite the contrary, MENDOZA’s actions were in accord with what she and PAULE originally agreed upon, as to division of labor and delineation of functions within their partnership. Under the Civil Code, every partner is an agent of the partnership for the purpose of its business;18 each one may separately execute all acts of administration, unless a specification of their respective duties has been agreed upon, or else it is stipulated that any one of them shall not act without the consent of all the others.19 At any rate, PAULE does not have any valid cause for opposition because his only role in the partnership is to provide his contractor’s license and expertise, while the sourcing of funds, materials, labor and equipment has been relegated to MENDOZA.

Moreover, it does not speak well for PAULE that he reinstated MENDOZA as his attorney-in-fact, this time with broader powers to implement, execute, administer and supervise the NIA project, to collect checks and other payments due on said project, and act as the Project Manager for EMPCT, even after CRUZ has already filed his complaint. Despite knowledge that he was already being sued on the SPAs, he proceeded to execute another in MENDOZA’s favor, and even granted her broader powers of administration than in those being sued upon. If he truly believed that MENDOZA exceeded her authority with respect to the initial SPA, then he would not have issued another SPA. If he thought that his trust had been violated, then he should not have executed another SPA in favor of MENDOZA, much less grant her broader authority.

Given the present factual milieu, CRUZ has a cause of action against PAULE and MENDOZA. Thus, the Court of Appeals erred in dismissing CRUZ’s complaint on a finding of exceeded agency. Besides, that PAULE could be held liable under the SPAs for transactions entered into by MENDOZA with laborers, suppliers of materials and services for use in the NIA project, has been settled with finality in G.R. No. 173275. What has been adjudged in said case as regards the SPAs should be made to apply to the instant case. Although the said case involves different parties and

transactions, it finally disposed of the matter regarding the SPAs – specifically their effect as among PAULE, MENDOZA and third parties with whom MENDOZA had contracted with by virtue of the SPAs – a disposition that should apply to CRUZ as well. If a particular point or question is in issue in the second action, and the judgment will depend on the determination of that particular point or question, a former judgment between the same parties or their privies will be final and conclusive in the second if that same point or question was in issue and adjudicated in the first suit. Identity of cause of action is not required but merely identity of issues.20

There was no valid reason for PAULE to revoke MENDOZA’s SPAs. Since MENDOZA took care of the funding and sourcing of labor, materials and equipment for the project, it is only logical that she controls the finances, which means that the SPAs issued to her were necessary for the proper performance of her role in the partnership, and to discharge the obligations she had already contracted prior to revocation. Without the SPAs, she could not collect from NIA, because as far as it is concerned, EMPCT – and not the PAULE-MENDOZA partnership – is the entity it had contracted with. Without these payments from NIA, there would be no source of funds to complete the project and to pay off obligations incurred. As MENDOZA correctly argues, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable.21

PAULE’s revocation of the SPAs was done in evident bad faith. Admitting all throughout that his only entitlement in the partnership with MENDOZA is his 3% royalty for the use of his contractor’s license, he knew that the rest of the amounts collected from NIA was owing to MENDOZA and suppliers of materials and services, as well as the laborers. Yet, he deliberately revoked MENDOZA’s authority such that the latter could no longer collect from NIA the amounts necessary to proceed with the project and settle outstanding obligations.lawphil.net

From the way he conducted himself, PAULE committed a willful and deliberate breach of his contractual duty to his partner and those with whom the partnership had contracted. Thus, PAULE should be made liable for moral damages.

Bad faith does not simply connote bad judgment or negligence; it imputes a dishonest purpose or some moral obliquity and conscious doing of a wrong; a breach of a sworn duty through some motive or intent or ill-will; it partakes of the nature of fraud (Spiegel v. Beacon Participation, 8 NE 2nd Series, 895, 1007). It contemplates a state of mind affirmatively operating with furtive design or some motive of self-interest or ill will for ulterior purposes (Air France v. Carrascoso, 18 SCRA 155, 166-167). Evident bad faith connotes a manifest deliberate intent on the part of the accused to do wrong or cause damage.22

Moreover, PAULE should be made civilly liable for abandoning the partnership, leaving MENDOZA to fend for her own, and for unduly revoking her authority to collect payments from NIA, payments which were necessary for the settlement of obligations contracted for and already owing to laborers and suppliers of materials and equipment like CRUZ, not to mention the agreed profits to be derived from the venture that are owing to MENDOZA by reason of their partnership agreement. Thus, the trial court erred in disregarding and dismissing MENDOZA’s

cross-claim – which is properly a counterclaim, since it is a claim made by her as defendant in a third-party complaint – against PAULE, just as the appellate court erred in sustaining it on the justification that PAULE’s revocation of the SPAs was within the bounds of his discretion under Article 1920 of the Civil Code.

Where the defendant has interposed a counterclaim (whether compulsory or permissive) or is seeking affirmative relief by a cross-complaint, the plaintiff cannot dismiss the action so as to affect the right of the defendant in his counterclaim or prayer for affirmative relief. The reason for that exception is clear. When the answer sets up an independent action against the plaintiff, it then becomes an action by the defendant against the plaintiff, and, of course, the plaintiff has no right to ask for a dismissal of the defendant’s action. The present rule embodied in Sections 2 and 3 of Rule 17 of the 1997 Rules of Civil Procedure ordains a more equitable disposition of the counterclaims by ensuring that any judgment thereon is based on the merit of the counterclaim itself and not on the survival of the main complaint. Certainly, if the counterclaim is palpably without merit or suffers jurisdictional flaws which stand independent of the complaint, the trial court is not precluded from dismissing it under the amended rules, provided that the judgment or order dismissing the counterclaim is premised on those defects. At the same time, if the counterclaim is justified, the amended rules now unequivocally protect such counterclaim from peremptory dismissal by reason of the dismissal of the complaint.23

Notwithstanding the immutable character of PAULE’s liability to MENDOZA, however, the exact amount thereof is yet to be determined by the trial court, after receiving evidence for and in behalf of MENDOZA on her counterclaim, which must be considered pending and unresolved.

WHEREFORE, the petitions are GRANTED. The August 28, 2006 Decision of the Court of Appeals in CA-G.R. CV No. 80819 dismissing the complaint in Civil Case No. 18-SD (2000) and its December 11, 2006 Resolution denying the motion for reconsideration are REVERSED and SET ASIDE. The August 7, 2003 Decision of the Regional Trial Court of Nueva Ecija, Branch 37 in Civil Case No. 18-SD (2000) finding PAULE liable is REINSTATED, with the MODIFICATION that the trial court is ORDERED to receive evidence on the counterclaim of petitioner Zenaida G. Mendoza.

SO ORDERED.

CONSUELO YNARES-SANTIAGO

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 126334      November 23, 2001

EMILIO EMNACE, petitioner, vs.COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO, VICENTE WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO and VINCENT TABANAO, respondents.

YNARES-SANTIAGO, J.:

Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986, they decided to dissolve their partnership and executed an agreement of partition and distribution of the partnership properties among them, consequent to Jacinto Divinagracia's withdrawal from the partnership.1 Among the assets to be distributed were five (5) fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Niño and Talisay, Negros Occidental, and cash deposits in the local branches of the Bank of the Philippine Islands and Prudential Bank.

Throughout the existence of the partnership, and even after Vicente Tabanao's untimely demise in 1994, petitioner failed to submit to Tabanao's heirs any statement of assets and liabilities of the partnership, and to render an accounting of the partnership's finances. Petitioner also reneged on his promise to turn over to Tabanao's heirs the deceased's 1/3 share in the total assets of the partnership, amounting to P30,000,000.00, or the sum of P10,000,000.00, despite formal demand for payment thereof.2

Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action for accounting, payment of shares, division of assets and damages.3 In their complaint, respondents prayed as follows:

1. Defendant be ordered to render the proper accounting of all the assets and liabilities of the partnership at bar; and

2. After due notice and hearing defendant be ordered to pay/remit/deliver/surrender/yield to the plaintiffs the following:

A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s), fishing vessels, trucks, motor vehicles, and other forms and substance of treasures which belong and/or should belong, had accrued and/or must accrue to the partnership;

B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;

C. Attorney's fees equivalent to Thirty Percent (30%) of the entire share/amount/award which the Honorable Court may resolve the plaintiffs as entitled to plus P1,000.00 for every appearance in court.4

Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of jurisdiction over the nature of the action or suit, and lack of capacity of the estate of Tabanao to sue.5 On August 30, 1994, the trial court denied the motion to dismiss. It held that venue was properly laid because, while realties were involved, the action was directed against a particular person on the basis of his personal liability; hence, the action is not only a personal action but also an action in personam. As regards petitioner's argument of lack of jurisdiction over the action because the prescribed docket fee was not paid considering the huge amount involved in the claim, the trial court noted that a request for accounting was made in order that the exact value of the partnership may be ascertained and, thus, the correct docket fee may be paid. Finally, the trial court held that the heirs of Tabanao had aright to sue in their own names, in view of the provision of Article 777 of the Civil Code, which states that the rights to the succession are transmitted from the moment of the death of the decedent.6

The following day, respondents filed an amended complaint,7 incorporating the additional prayer that petitioner be ordered to "sell all (the partnership's) assets and thereafter pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding share in the proceeds thereof. In due time, petitioner filed a manifestation and motion to dismiss,8arguing that the trial court did not acquire jurisdiction over the case due to the plaintiffs' failure to pay the proper docket fees. Further, in a supplement to his motion to dismiss,9 petitioner also raised prescription as an additional ground warranting the outright dismissal of the complaint.

On June 15, 1995, the trial court issued an Order,10 denying the motion to dismiss inasmuch as the grounds raised therein were basically the same as the earlier motion to dismiss which has been denied. Anent the issue of prescription, the trial court ruled that prescription begins to run only upon the dissolution of the partnership when the final accounting is done. Hence, prescription has not set in the absence of a final accounting. Moreover, an action based on a written contract prescribes in ten years from the time the right of action accrues.

Petitioner filed a petition for certiorari before the Court of Appeals,11 raising the following issues:

I.       Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in taking cognizance of a case despite the failure to pay the required docket fee;

II.      Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in insisting to try the case which involve (sic) a parcel of land situated outside of its territorial jurisdiction;

III.     Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in allowing the estate of the deceased to appear as party plaintiff, when there is no intestate case and filed by one who was never appointed by the court as administratrix of the estates; and

IV.     Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in not dismissing the case on the ground of prescription.

On August 8, 1996, the Court of Appeals rendered the assailed decision,12 dismissing the petition for certiorari, upon a finding that no grave abuse of discretion amounting to lack or excess of jurisdiction was committed by the trial court in issuing the questioned orders denying petitioner's motions to dismiss.

Not satisfied, petitioner filed the instant petition for review, raising the same issues resolved by the Court of Appeals, namely:

I.       Failure to pay the proper docket fee;

II.      Parcel of land subject of the case pending before the trial court is outside the said court's territorial jurisdiction;

III.     Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and

IV.     Prescription of the plaintiff heirs' cause of action.

It can be readily seen that respondents' primary and ultimate objective in instituting the action below was to recover the decedent's 1/3 share in the partnership' s assets. While they ask for an accounting of the partnership' s assets and finances, what they are actually asking is for the trial court to compel petitioner to pay and turn over their share, or the equivalent value thereof, from the proceeds of the sale of the partnership assets. They also assert that until and unless a proper accounting is done, the exact value of the partnership' s assets, as well as their corresponding share therein, cannot be ascertained. Consequently, they feel justified in not having paid the commensurate docket fee as required by the Rules of Court.1âwphi1.nêt

We do not agree. The trial court does not have to employ guesswork in ascertaining the estimated value of the partnership's assets, for respondents themselves voluntarily pegged the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is one which is really not beyond pecuniary estimation, but rather partakes of the nature of a simple collection case where the value of the subject assets or amount demanded is pecuniarily determinable.13 While it is true that the exact value of the partnership's total assets cannot be shown with certainty at the time of filing, respondents can and must ascertain, through informed and practical estimation, the amount they expect to collect from the partnership, particularly from petitioner, in order to determine the proper amount of docket and other fees.14 It is thus imperative for respondents to pay the corresponding docket fees in order that the trial court may acquire jurisdiction over the action.15

Nevertheless, unlike in the case of Manchester Development Corp. v. Court of Appeals,16 where there was clearly an effort to defraud the government in avoiding to pay the correct docket fees, we see no attempt to cheat the courts on the part of respondents. In fact, the lower courts have

noted their expressed desire to remit to the court "any payable balance or lien on whatever award which the Honorable Court may grant them in this case should there be any deficiency in the payment of the docket fees to be computed by the Clerk of Court."17 There is evident willingness to pay, and the fact that the docket fee paid so far is inadequate is not an indication that they are trying to avoid paying the required amount, but may simply be due to an inability to pay at the time of filing. This consideration may have moved the trial court and the Court of Appeals to declare that the unpaid docket fees shall be considered a lien on the judgment award.

Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning the non-payment of the proper legal fees and in allowing the same to become a lien on the monetary or property judgment that may be rendered in favor of respondents. There is merit in petitioner's assertion. The third paragraph of Section 16, Rule 141 of the Rules of Court states that:

The legal fees shall be a lien on the monetary or property judgment in favor of the pauper-litigant.

Respondents cannot invoke the above provision in their favor because it specifically applies to pauper-litigants. Nowhere in the records does it appear that respondents are litigating as paupers, and as such are exempted from the payment of court fees.18

The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court, which defines the two kinds of claims as: (1) those which are immediately ascertainable; and (2) those which cannot be immediately ascertained as to the exact amount. This second class of claims, where the exact amount still has to be finally determined by the courts based on evidence presented, falls squarely under the third paragraph of said Section 5(a), which provides:

In case the value of the property or estate or the sum claimed is less or more in accordance with the appraisal of the court, the difference of fee shall be refunded or paid as the case may be.   (Underscoring ours)

In Pilipinas Shell Petroleum Corporation v. Court of Appeals,19 this Court pronounced that the above-quoted provision "clearly contemplates an Initial payment of the filing fees corresponding to the estimated amount of the claim subject to adjustment as to what later may be proved."20 Moreover, we reiterated therein the principle that the payment of filing fees cannot be made contingent or dependent on the result of the case. Thus, an initial payment of the docket fees based on an estimated amount must be paid simultaneous with the filing of the complaint. Otherwise, the court would stand to lose the filing fees should the judgment later turn out to be adverse to any claim of the respondent heirs.

The matter of payment of docket fees is not a mere triviality. These fees are necessary to defray court expenses in the handling of cases. Consequently, in order to avoid tremendous losses to the judiciary, and to the government as well, the payment of docket fees cannot be made dependent on the outcome of the case, except when the claimant is a pauper-litigant.

Applied to the instant case, respondents have a specific claim - 1/3 of the value of all the partnership assets - but they did not allege a specific amount. They did, however, estimate the partnership's total assets to be worth Thirty Million Pesos (P30,000,000.00), in a letter21 addressed to petitioner. Respondents cannot now say that they are unable to make an estimate, for the said letter and the admissions therein form part of the records of this case. They cannot avoid paying the initial docket fees by conveniently omitting the said amount in their amended complaint. This estimate can be made the basis for the initial docket fees that respondents should pay. Even if it were later established that the amount proved was less or more than the amount alleged or estimated, Rule 141, Section 5(a) of the Rules of Court specifically provides that the court may refund the 'excess or exact additional fees should the initial payment be insufficient. It is clear that it is only the difference between the amount finally awarded and the fees paid upon filing of this complaint that is subject to adjustment and which may be subjected to alien.

In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,22 this Court held that when the specific claim "has been left for the determination by the court, the additional filing fee therefor shall constitute a lien on the judgment and it shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee." Clearly, the rules and jurisprudence contemplate the initial payment of filing and docket fees based on the estimated claims of the plaintiff, and it is only when there is a deficiency that a lien may be constituted on the judgment award until such additional fee is collected.

Based on the foregoing, the trial court erred in not dismissing the complaint outright despite their failure to pay the proper docket fees. Nevertheless, as in other procedural rules, it may be liberally construed in certain cases if only to secure a just and speedy disposition of an action. While the rule is that the payment of the docket fee in the proper amount should be adhered to, there are certain exceptions which must be strictly construed.23

In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine, allowing the plaintiff to pay the proper docket fees within a reasonable time before the expiration of the applicable prescriptive or reglementary period.24

In the recent case of National Steel Corp. v. Court of Appeals,25 this Court held that:

The court acquires jurisdiction over the action if the filing of the initiatory pleading is accompanied by the payment of the requisite fees, or, if the fees are not paid at the time of the filing of the pleading, as of the time of full payment of the fees within such reasonable time as the court may grant, unless, of course, prescription has set in the meantime.

It does not follow, however, that the trial court should have dismissed the complaint for failure of private respondent to pay the correct amount of docket fees. Although the payment of the proper docket fees is a jurisdictional requirement, the trial court may allow the plaintiff in an action to pay the same within a reasonable time before the

expiration of the applicable prescriptive or reglementary period. If the plaintiff fails to comply within this requirement, the defendant should timely raise the issue of jurisdiction or else he would be considered in estoppel. In the latter case, the balance between the appropriate docket fees and the amount actually paid by the plaintiff will be considered a lien or any award he may obtain in his favor. (Underscoring ours)

Accordingly, the trial court in the case at bar should determine the proper docket fee based on the estimated amount that respondents seek to collect from petitioner, and direct them to pay the same within a reasonable time, provided the applicable prescriptive or reglementary period has not yet expired, Failure to comply therewith, and upon motion by petitioner, the immediate dismissal of the complaint shall issue on jurisdictional grounds.

On the matter of improper venue, we find no error on the part of the trial court and the Court of Appeals in holding that the case below is a personal action which, under the Rules, may be commenced and tried where the defendant resides or may be found, or where the plaintiffs reside, at the election of the latter.26

Petitioner, however, insists that venue was improperly laid since the action is a real action involving a parcel of land that is located outside the territorial jurisdiction of the court a quo. This contention is not well-taken. The records indubitably show that respondents are asking that the assets of the partnership be accounted for, sold and distributed according to the agreement of the partners. The fact that two of the assets of the partnership are parcels of land does not materially change the nature of the action. It is an action in personam because it is an action against a person, namely, petitioner, on the basis of his personal liability. It is not an action in rem where the action is against the thing itself instead of against the person.27 Furthermore, there is no showing that the parcels of land involved in this case are being disputed. In fact, it is only incidental that part of the assets of the partnership under liquidation happen to be parcels of land.

The time-tested case of Claridades v. Mercader, et al.,28 settled this issue thus:

The fact that plaintiff prays for the sale of the assets of the partnership, including the fishpond in question, did not change the nature or character of the action, such sale being merely a necessary incident of the liquidation of the partnership, which should precede and/or is part of its process of dissolution.

The action filed by respondents not only seeks redress against petitioner. It also seeks the enforcement of, and petitioner's compliance with, the contract that the partners executed to formalize the partnership's dissolution, as well as to implement the liquidation and partition of the partnership's assets. Clearly, it is a personal action that, in effect, claims a debt from petitioner and seeks the performance of a personal duty on his part.29 In fine, respondents' complaint seeking the liquidation and partition of the assets of the partnership with damages is a personal action which may be filed in the proper court where any of the parties reside.30 Besides,

venue has nothing to do with jurisdiction for venue touches more upon the substance or merits of the case.31 As it is, venue in this case was properly laid and the trial court correctly ruled so.

On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no legal capacity to sue since she was never appointed as administratrix or executrix of his estate. Petitioner's objection in this regard is misplaced. The surviving spouse does not need to be appointed as executrix or administratrix of the estate before she can file the action. She and her children are complainants in their own right as successors of Vicente Tabanao. From the very moment of Vicente Tabanao' s death, his rights insofar as the partnership was concerned were transmitted to his heirs, for rights to the succession are transmitted from the moment of death of the decedent.32

Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were transmitted to respondents by operation of law, more particularly by succession, which is a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance of a person are transmitted.33 Moreover, respondents became owners of their respective hereditary shares from the moment Vicente Tabanao died.34

A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix or administratrix, is not necessary for any of the heirs to acquire legal capacity to sue. As successors who stepped into the shoes of their decedent upon his death, they can commence any action originally pertaining to the decedent.35 From the moment of his death, his rights as a partner and to demand fulfillment of petitioner's obligations as outlined in their dissolution agreement were transmitted to respondents. They, therefore, had the capacity to sue and seek the court's intervention to compel petitioner to fulfill his obligations.

Finally, petitioner contends that the trial court should have dismissed the complaint on the ground of prescription, arguing that respondents' action prescribed four (4) years after it accrued in 1986. The trial court and the Court of Appeals gave scant consideration to petitioner's hollow arguments, and rightly so.

The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3) termination.36 The partnership, although dissolved, continues to exist and its legal personality is retained, at which time it completes the winding up of its affairs, including the partitioning and distribution of the net partnership assets to the partners.37 For as long as the partnership exists, any of the partners may demand an accounting of the partnership's business. Prescription of the said right starts to run only upon the dissolution of the partnership when the final accounting is done.38

Contrary to petitioner's protestations that respondents' right to inquire into the business affairs of the partnership accrued in 1986, prescribing four (4) years thereafter, prescription had not even begun to run in the absence of a final accounting. Article 1842 of the Civil Code provides:

The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary.

Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the above-cited provision states that the right to demand an accounting accrues at the date of dissolution in the absence of any agreement to the contrary. When a final accounting is made, it is only then that prescription begins to run. In the case at bar, no final accounting has been made, and that is precisely what respondents are seeking in their action before the trial court, since petitioner has failed or refused to render an accounting of the partnership's business and assets. Hence, the said action is not barred by prescription.

In fine, the trial court neither erred nor abused its discretion when it denied petitioner's motions to dismiss. Likewise, the Court of Appeals did not commit reversible error in upholding the trial court's orders. Precious time has been lost just to settle this preliminary issue, with petitioner resurrecting the very same arguments from the trial court all the way up to the Supreme Court. The litigation of the merits and substantial issues of this controversy is now long overdue and must proceed without further delay.

WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit, and the case isREMANDED to the Regional Trial Court of Cadiz City, Branch 60, which is ORDERED to determine the proper docket fee based on the estimated amount that plaintiffs therein seek to collect, and direct said plaintiffs to pay the same within a reasonable time, provided the applicable prescriptive or reglementary period has not yet expired. Thereafter, the trial court is ORDERED to conduct the appropriate proceedings in Civil Case No. 416-C.

Costs against petitioner.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Puno, Kapunan, Pardo, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 159810             October 9, 2006

ESTATE OF EDWARD MILLER GRIMM, represented by RAMON J. QUISUMBING and RANDY GLEAVE LAWYER, as Judicial Administrators, petitioners, vs.

ESTATE OF CHARLES PARSONS and PATRICK C. PARSONS, G-P AND COMPANY and MANILA GOLF & COUNTRY CLUB, INC., respondents.

D E C I S I O N

GARCIA, J.:

Because legal and situational ambiguities often lead to disagreements even between or amongst the most agreeable of persons, it behooves all concerned to put their financial affairs and proprietary interests in order before they depart for the great beyond. Leaving legal loose ends hanging or allowing clouds to remain on property titles when one can do something about them before the proverbial thief in the night suddenly comes calling only opens the door to bruising legal fights and similar distracting inconveniences. So it was here.

In this petition for review under Rule 45 of the Rules of Court, the Estate of Edward Miller Grimm, represented by its judicial administrators, assails and seeks to set aside the Decision1 dated September 8, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 69990, reversing an earlier decision of the Regional Trial Court (RTC) of Makati City in its Civil Case No. 92-2452.

At the core of the controversy is a stock certificate of the Manila Golf & Country Club, Inc. ("MGCC" or the "Club", for short) covered by Membership Certificate (MC) No. 1088 for 100 units, the playing rights over which the Rizal Commercial Banking Corporation (RCBC), the court-appointed receiver, had, in the meantime, leased out. The Club issued MC No. 1088 to replace MC No. 590. Asserting clashing ownership claims over MC No.1088, albeit recorded in the name of Charles Parsons ("Parsons", hereinafter) are petitioner Estate of Edward Miller Grimm and respondent G-P and Company ("G-P & Co.", hereinafter).

Parsons and Edward Miller Grimm (Grimm), together with Conrado Y. Simon (Simon), formed in 1952 a partnership for the stated purpose of engaging in the import/export and real estate business. Per SEC Certificate #3305,2 the partnership was registered under the name G - P and Company.

Before September 1964, Parsons and Grimm each owned proprietary membership share in MGCC,3 as evidenced by MC No. 374 for 100 units in the name of Parsons, and MC No. 590, also for 100 units, in the name of Grimm. Per records, the Club issued MC No. 590 to Grimm on May 25, 1960.4

After Grimm's demise on November 27, 1977, Parsons and Simon continued with the partnership under the same name, G – P and Company, as reflected in Articles of Partnership dated December 14, 1977.5 The articles of the partnership would later undergo another amendment to admit Parsons' son, Patrick, in the partnership.6After Parsons died on May 12, 1988, Amended Articles of Partnership of G-P and Company was executed onSeptember 23, 1988 by and among Parsons' heirs, namely, Patrick, Michael, Peter and Jose, all surnamed

Parsons, albeit the amendment appeared to have been registered with the SEC only on March 18, 1993. 7

The herein legal dispute started when brothers Patrick and Jose, both surnamed Parsons, responding to a letter8from the Estate of Grimm, rejected the existence of a trust arrangement between their father and Grimm involving MC No. 1088. Thus spurned, the Estate of Grimm filed on August 31, 1992 before the RTC of Makati City, a suit for recovery of MC No. 1088 with damages against the Estate of Parsons, Patrick Parsons and MGCC. In its complaint,9 docketed as Civil Case No. 92-2452 and eventually raffled to Branch 135 of the court, the Estate of Grimm, represented by its judicial administrator, Ramon J. Quisumbing, alleged, among other things, the following:

1. That on September 7, 1964, Grimm transferred MC No. 590 in trust to Parsons; on the same day, MGCC cancelled MC No. 590 and issued MC No. 1088 in the name of Parsons;

2. That in separate letters dated February 28, 1968 addressed to MGCC, both Grimm and Parsons stated that the transfer of MC No. 590 was temporary. Enclosed in that Parsons' letter was MC No. 1088 which he was turning over for safekeeping to the Club, thru E.C. Von Kauffmann and Romeo Alhambra, then MGCC honorary secretary and assistant manager, respectively;

3. That on June 9, 1978, or after Mr. Kauffman' death and Mr. Alhambra's resignation, MGCC turned over the possession of MC No. 1088 to Parsons;

4. That in 1977, Grimm died; after a protracted proceedings, his estate was finally settled in 1988, the year Parsons also died;

5. That Patrick and Jose Parsons had, when reminded of the trust arrangement between their late father and Grimm, denied the existence of a trust over the Club share and refused to return the same; and

6. That MGCC had refused, despite demands, to cancel MC No. 1088 and issue a new certificate in the name of the Estate of Grimm.

Attached to the complaint were the demand letters and other communications which, to the Estate of Grimm, document the Grimm-Parsons trust arrangement.

In his Answer with counterclaim,10 Patrick Parsons averred that his father was, with respect to MC No. 1088, a mere trustee of the true owner thereof, G-P & Co., and alleged, by way of affirmative defense, that the claim set forth in the complaint is unenforceable, barred inter alia by the dead man's statute, prescription or had been waived or abandoned.

Herein respondent G-P & Co., echoing Patrick Parsons' allegation respecting the ownership of MC No. 1088, moved to intervene and to implead Far East Bank & Trust Co. (FEBTC), as transfer agent of MGCC, as defendant-in-intervention. Attached to its motion was its COMPLAINT In Intervention11 therein alleging (a) that on September 1, 1964, Parsons executed a Letter of Trust, infra, in which he acknowledged the beneficial ownership of G-P & Co. over MC No. 374 and MC No.1088; (b) that Parsons, as required by the partnership, endorsed both certificates in blank; and (c) that G-P & Co. carried said certificates amongst its assets in its books of accounts and financial statements and paid the monthly dues of both certificates to the Club when its membership privileges were not temporarily assigned to others. In the same complaint-in-intervention, G-P & Co. cited certain tax incidents as reasons why the transfer of MC No. 374 and MC No. 1088 from Parsons to the intervenor-partnership cannot as yet be accomplished.

After the usual reply and answer to counterclaims had been filed, the Estate of Grimm filed an amended complaint to include Randy Gleave Lawyer, the other judicial co-administrator, as representative of the Estate. On April 28, 1993, the trial court admitted the amended complaint.

After a lengthy trial, the trial court rendered its May 29, 2000 judgment12 finding for the Estate of Grimm, as plaintiff a quo, disposing as follows:

1. Ordering defendants ESTATE OF CHARLES PARSONS and PATRICK C. PARSONS:

1.1 to turn over [MC] No. 1088 to plaintiff ESTATE OF EDWARD MILLER GRIMM;

1.2 jointly and severally to pay damages to plaintiff ESTATE …in the amount of P400,000.00 per annum from September 8, 1989 to November 12, 1998, with legal interest thereon from the date of this Decision until fully paid;

1.3 Jointly and severally, to pay plaintiff ESTATE … attorney's fees in the amount of P1,000,000.00 and the costs;

2. Ordering defendant [MGCC] and defendant-in-intervention [FEBTC] to cancel [MC] No. 1088 and to issue a new Membership Certificate in lieu thereof in the name of plaintiff ESTATE ….

3. Ordering Receiver RIZAL COMMERCIAL BANKING CORPORATION to turn over to plaintiff ESTATE … all income derived from the lease of the playing rights of [MC] No. 1088, less Receiver's fees and charges.

4. Ordering the dismissal of the counterclaim of the defendants … [Parsons]; and

5. Ordering the dismissal of the complaint-in-intervention and the supplemental counterclaim of intervenor G - P AND COMPANY.

SO ORDERED. (Words in bracket added.)

In gist, the trial court predicated its ruling on the postulate that the temporary transfer of Grimm's original share in MGCC - covered by MC No. 590 whence MC No. 1088 descended – to Parsons, created a trust relationship between the two.

Therefrom, only herein respondents G-P & Co., Patrick Parsons and the Parsons Estate appealed to the CA, albeit MGCC would, in its brief, reiterate its readiness to issue the corresponding replacement certificate to whosoever is finally adjudged owner of MC No. 1088.

On September 8, 2003, in CA-G.R.CV No. 69990, the appellate court rendered its herein assailed Decision,13disposing as follows:

WHEREFORE, the Decision of the lower court dated May 29, 2000 is hereby REVERSED and SET ASIDE, and another one rendered:

1. Dismissing the complaint filed by … Estate of Edward Miller Grimm for lack of merit;

2. Ordering … Manila Golf and Country Club, Inc., and defendant-in-intervention Far East Bank & Trust Company, as transfer agent, to immediately effect the reconveyance of [MC] No. 1088 to Intervenor-appellant G-P and Company;

3. Ordering Rizal Commercial Banking Corporation, as receiver, to immediately turn over to intervenor-appellant G-P and Company all income derived from the lease of the playing rights of said Membership Certificate, less receiver's fees;

4. Ordering [the] … Estate of Edward Miller Grimm to pay appellants the amount of P800,000.00 as attorney's fees;

5. Ordering … Estate of Edward Miller Grimm to pay appellants the costs of suit.

SO ORDERED. (Words in bracket added.)

Hence, this petition for review on the lone submission that the CA erred in finding that respondent G-P & Co. is the beneficial owner of MC No. 1088.

In their comment to the petition, the respondents urge the outright dismissal thereof on the ground that it raises only purely factual and evidentiary issues which are beyond the office of an appeal by certiorari. As argued further, the factual findings of the CA are conclusive on the parties.

It should be made clear right off that respondent Patrick Parsons, in his individual capacity, and the Estate of Parsons (collectively, the Parsons) are not claiming beneficial ownership over MC

No. 1088. The same goes for respondent MGCC which went to state on record that "[T]he ownership of [MC] No. 1088 (previously No. 590) does not belong to the Club and it does not stand to gain … from the determination of its real owner."14

We GRANT the petition.

The respondents' formulation of the grounds for the dismissal of the instant petition is a statement of the general rule. A resolution of the petition would doubtless entail a review of the facts and evidentiary matters against which the appealed decision is cast, a procedure which is ordinarily outside the province of the Court and the office of a certiorari review under Rule 45 of the Rules of Court. For, the rule of long standing is that the Court will not set aside the factual determinations of the CA lightly nor will it embark in the evaluation of evidence adduced during trial. This rule, however, admits of several exceptions. Among these are when the factual conclusions of the CA are manifestly erroneous; are contrary to those of the trial court; when the judgment of the CA is based on misapprehension of facts or overlooked certain relevant facts not disputed by the parties which, if properly considered, would justify a different conclusion.15 Decidedly, this case falls within the recognized exceptions to the rule on the finality of factual findings or conclusions of the CA.

The principal issue tendered in this case turns on who between petitioner Estate of Grimm and respondent G.P. & Co. beneficially owns MC No. 1088. Corollary thereto - owing to the presentation by respondents of a LETTER OF TRUST that Parsons allegedly executed in favor of G-P and Company with respect to MC No. 1088 - is the question of whether or not the transfer of MC No. 590 effected on September 7, 1964 by Grimm in favor of Parsons resulted, as the petitioner would have it, in the formation of a trust relation between the two. Thus formed, the trust relationship would preclude the trustee from disposing of the trust property, save when repudiation of the trust had effectively supervened.

The trial court found the September 7, 1964 Grimm- to- Parsons certificate transfer to be only temporary and without valuable consideration to accommodate a third person and thus adjudged Grimm to be the real owner of MC No. 590, as later replaced by MC No. 1088. According to the trial court, such transfer created a trust, with Parsons, as trustee, and Grimm, as the beneficial owner of the share thus transferred, adding that Parsons, as mere trustee, is without right to transfer the replacement certificate to G-P & Co.

On the other hand, the CA, while eschewing the alternative affirmative defenses interposed below by respondents, nonetheless ruled for respondent G–P & Co. Citing Article 1448 of the Civil Code,16 the appellate court held that respondent G–P & Co. pertains the beneficial ownership of MC No. 1088, an implied trust in its favor having been created when MC No. 590 and MC No. 374 were acquired for and placed in the names of Grimm and Parsons, respectively, albeit the partnership paid for the price therefor. To the appellate court, the fact that these certificates were carried, as of December 31, 1974, November 27, 1977 and December 31, 1978 in the books17 of G-P & Co. as investment assets only proves one thing: the company paid the acquisition costs for the membership certificates. If Grimm was the real owner of said share, he

should have, according to the appellate court, objected to its inclusion in the partnership assets during his lifetime. Completing its ratiocination, the CA wrote:

xxx. A trust, which derives its strength from the confidence one reposes on another especially between the partners and the company, does not lose that character simply because of what appears in a legal document. The transfer therefore of Grimm's [MC] No. 590 on September 7, 1964 in favor of Charles Parsons resulted merely in the change of the person of trustee but not of the beneficial owner, the G-P and Company.

The CA's ruling does not commend itself for acceptance. As it were, the assailed decision started on the wrong foot and thus had to limp all along to arrive at a strained and erroneous conclusion. We shall explain.

A party in whose favor a legal presumption exists may rely on and invoke such legal presumption to establish a fact in issue. He need not introduce evidence to prove that fact. For, a presumption is prima facie proof of the fact presumed and to the party against whom it operates rests the burden of overthrowing by substantial and credible evidence the presumption.18 Under the law on evidence, it is presumed that "there was sufficient consideration for a contract."19

Inasmuch as Grimm's name appeared on MC No. 590 as registered owner thereof, he is deemed to have paid sufficient consideration for it. The onus of proving otherwise would fall on respondents G-P & Co. and/or the Parsons. Without so much of an explanation, however, the CA minimized the value of MC No. 590 as arguably the best evidence of ownership. Corollarily, the appellate court devalued the rule on legal presumption and faulted petitioner Estate of Grimm for not presenting evidence to prove that Grimm paid for his original acquisition of MC No. 590. Wrote the CA:

Contrary to the findings of the lower court, [petitioner] failed to establish [its] right over the said shares. xxx Not a single evidence of proof of payment for the said shares was ever presented by the [petitioner] to establish ownership. (Words in bracket added.)20

Ironically, while the CA held it against the petitioner for failing to adduce proof of payment by Grimm for his MC No. 590, it nonetheless proceeded to declare respondent G-P & Co. to be the beneficial owner of said certificate even if it, too, had not presented proof for such payment. Respondent G-P & Co., in its complaint-in-intervention (should have been answer-in-intervention), did not allege paying for MC No. 590. Surely, payment cannot be validly deduced, as the CA did, from the bare fact of such membership certificate being listed in the books of respondent G -P & Co. as partnership investment assets. For one, the self-serving book entries in question are, as correctly dismissed by the trial court, not evidentiary of ownership. Else, anyone can lay a claim, or worse, acquire ownership over a share of stock by the simple expedience of listing, without more, the same in the partnership or corporate books. The sheer absurdity of the notion need no belaboring.

For another, what appears or what respondent company uniformly entered as investments are: "Manila Golf & Country Club, Inc. 2 shares." No reference was made whatsoever in the books or financial statements about MC No. 590, (MC. No. 1088) and MC. No. 374. In the absence of the number reference or other similar identifying details, the CA's categorical conclusion that one of the "2 shares" referred to is MC No. 1088 is at best speculative. This observation becomes all the more valid given that Michael Parsons had in his name two (2) Club share certificates. Exhibit "X-4," a September 21, 1964 letter from Parsons to Mr. Kaufmann made specific reference to Michael's shares:

Under the circumstance, please disregard … the previous letter which Michael wrote in connection with the shares in his name ….

In the case of the two shares in the name of Michael, please leave the two in his name . . . .

As matter now stands, in summary, I shall retain my shares in my name and continue playing under such shares; Michael will retain two shares … assigning one to Mr. Stoner; and Pete Grimm will assign his playing rights to Mr. Daikichi Yoshida.21

And for a significant third, respondent G-P & Co. is not the same G-P & Co. that Parsons, Grimm and Simon organized in 1952, the former being an entity that came into existence only on September 23, 1988. It is thus well-nigh impossible for respondent company to have participated in a transaction that occurred years before it acquired juridical personality. In the concrete, it is not physically possible for respondent G-P & Co. to have paid the price for the purchase of Grimm's MC No. 590, the same having been acquired in 1960 or some 28 years before the respondent company was established by the execution of the Articles of Partnership on September 23, 1988. The trial court depicted the incongruity of the situation in the following fashion:

Intervenor [respondent G-P & Co.] is not the same partnership originally formed by Grimm, Parsons and Simon. When Grimm died on November 27, 1977, the original partnership was dissolved. The death of a partner causes dissolution of a partnership [Article 1829, Civil Code]. A new partnership was formed with Parsons and Simon as partners. Besides this new partnership formed after the death of Grimm, there were five (5) others formed [Exhibit DD, EE, FF, GG, HH and II] carrying the name, G-P and Company. 22(Words in bracket in the original)

Independent of the cited Article 1829 of the Civil Code on the matter of partnership dissolution, however, it bears to state that Parsons and Simon executed on December 13, 1977 a joint affidavit23 wherein they declared the dissolution of the original 3-man G-P & Co., owing to the death of Grimm. The registration on December 14, 1977 of a new Articles of Partnership of G-P & Co. followed the execution by Parsons and Simon of said affidavit. 24

It may be, as respondents rationalize, that the succeeding G-P & Co. partnerships merely continued with the business started by the original G-P & Co.25 This element of continuity, assuming to be true, does not, however, detract from the fact that the partnerships of the same name formed after Grimm's demise are entities altogether different and with personalities distinct from the original partnership.

This brings us to the next issue of whether or not the transfer to Parsons of MC No. 590, as replaced by MC No. 1088, partook of the nature of a trust transaction.

Trust is the legal relationship between one having an equitable ownership in property and another person owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter.26 Trust relations between parties may be express, as when the trust is created by the intention of the trustor.27 An express trust is created by the direct and positive acts of the parties, by some writing or deed or by words evidencing an intention to create a trust; the use of the word trust is not required or essential to its constitution, it being sufficient that a trust is clearly intended.28 Implied trust comes into existence by operation of law, either through implication of an intention to create a trust as a matter of law or through the imposition of the trust irrespective of, and even contrary to any such intention.29

Judging from their documented acts immediately before and subsequent to the actual transfer on September 7, 1964 of MC No. 590, Parsons, as transferee, and Grimm, as transferor, indubitably contemplated a trust arrangement. Consider:

There can be no quibbling, owing to the letter exchanges between the Club, in particular its Honorary Secretary E. C. Von Kauffman, and Parsons, that the reason Grimm transferred his MC No. 590 to Parsons was because of the latter's wish to accommodate one Daikichi Yoshida. Earlier, Parsons recommended to Club management the approval of Mr. Yoshida's "Application For Waiting List Eligible To [Club] Proprietary Membership."30 In a letter of August 10, 196431 to the MGCC's Board of Directors, Parsons endorsed the application of Yoshida as Club member. While the Club's response does not appear in its files, it is quite apparent that Parsons addressed a letter to Kauffman requesting that Yoshida be taken in as a Company assignee. In his reply-letter32 of August 29, 1964, Kauffman explained why he cannot, under Club rules, favorably act on Parsons' specific request, but suggested a viable solution, as follows:

Reference to your letter dated August 25th, there is a hitch … of assigning the playing rights to Mr. Daikichi Yoshida, as a company assignee.

xxx xxx xxx

The only solution that I see is that you transfer Pete Grimm's 100 units to your name and leave the other 100 units in your name, then you may assign the playing rights of one of the certificates for 100 units to Mr. Yoshida. Mr. Yoshida was approved by the Board but not as a Company assignee. (Emphasis added.)

Parsons' response to Kauffman's August 29, 1964 letter partly reads as follows:

Thank you for your letter of the 29th ….

Under the circumstances, please disregard the previous letter which I wrote with reference to Pete Grimm's and my shares ….

xxx xxx xxx

As matter now stands, in summary, I shall retain in my name and continue playing under such shares …. And Pete Grimm will assign his playing rights to Mr. Daikichi Yoshida.

The conclusion easily deductible from the foregoing exchanges is that, given existing Club restrictions, the simplest way to accommodate and qualify Yoshida for Club membership was for Grimm to transfer his 100-unit share to Parsons who will then assign the playing rights of that share to Yoshida.33 The RTC aptly described the relevant factual situation, viz.:

With these exchanges between Parsons and Kauffman …, it is apparent that since the shares held by Parsons and Grimm are individual shares and not company shares, their shares may not be assigned …. The proposal of Parsons that "Pete Grimm will assign his playing rights to … Yoshida" was rejected by Kauffman in his letter dated September 5, 1964 [Exhibit X-5 / 27] that "Pete Grimm's assignment to him (Yoshida) cannot be made as the rules are that only members who holds (sic) 200 units may assign 100 units to an individual." A letter of the same date … [Exhibit X-6 / 28] was sent by Kauffman to Mr. Yoshida informing him of his election to the Club apologizing for the delay …. Kauffman wrote further " … Mr. Charles Parsons has made arrangement for to play (sic) as assignee of extra membership which he now holds."

The election of Yoshida as assignee of a proprietary member and the resignation of Grimm were approved by the Club's Board… on August 27, 1964. Kauffman and Parsons were still discussing the ways … Mr Yoshida can be accommodated … as of September 5, 1964, but the resignation of Grimm and election of Yoshida was already approved … more than a week before. 34 (Words in bracket in the original; Underscoring added.)

Even on the above factual perspective alone, it is not difficult to characterize, as did the trial court, the certificate transfer from Grimm to Parsons, as temporary, there being no evidence whatsoever that the transfer was for value. Such transfer was doubtless meant only to accommodate Yoshida whose stay in the country was obviously temporary. As it were, Yoshida's application35 for Club membership juxtaposed with the August 10, 1964 endorsement- letter36 of Parsons, yielded the information that he (Yoshida) is the manager of the Manila Liaison Office of Mitsubishi Shoji Kaisha desiring to acquire Company membership in the name of his employer Mitsubishi to enable future representatives to avail themselves of Club facilities. Since Club membership did not seem possible at the time, Yoshida had to come in as an assignee of a proprietary member.

Other compelling evidence attest to the temporary nature of the transfer in question. The trial court cited two in its Decision. Wrote that court:

Even a witness for the (respondents) intervenor and the Parsons, Celso Jamias, Chief Accountant of G-P and Company, confirmed that the transfer of the share to Parsons was temporary. In a letter [Exhibit 7-GG] dated 10 August 1991 addressed to Atty. Patricia Cecilia B. Bisda, counsel for G-P and Company, Jamais wrote:

". . . please be informed that the accommodation for Mr. Yoshida to have playing rights has not bearing on the ownership of the share. The share of …Grimm (EMG) was transferred to Mr. Charles Parsons (CP) to accommodate Mr. Yoshida due to Manila Golf club requirements.

Atty. Patricia Cecilia B. Bisda …echoed the view of Jamias, in a letter [Exhibit Y] dated 30 August 1991 addressed to … (the) then General Manager of the Club: She wrote:

"Also, we would like to clarify …. That the accommodation of Mr. Yoshida to enjoy the playing rights has no bearing to the ownership of the shares. The share of Edward Grimm was transferred to Charles Parsons to accommodate D. Yoshida due to club requirements."37

Any lingering doubt, however, as to the temporary nature of the Grimm-to-Parsons transfer should, in our view, be put to rest by what MGCC records-file contained and the testimony of its former records custodian, Romeo Alhambra. In his affidavit of May 12, 1989,38 Alhambra stated that "[A]ccording to Club records, the transfer of [MC] # 580 was only temporary, and that Mr. Grimm was and, according to club records, is in fact the owner of [MC] # 1088" and that after the transfer, "Mr. Charles Parsons endorsed the share certificate and turned it over to … Kauffmann … for safekeeping." Forming parts of the same records were letters both dated February 28, 1968– the day the share certificate transfer was effected – separately submitted by Grimm and Parsons, to inform MGCC of the temporary nature of the transfer. In his letter, Grimm stated that MC No. 1088 "is still my property and I wish it recorded as such in the Club's file."39 Parsons' letter40 was just as simple as it was revealing, thus:

Reference to the transfer of [MC] #590 in the name of Mr. E.M. Grimm to my name, for which I now have the new Certification No. 1088 …, please be advised that this transfer was made on a temporary basis and that said new certificate is still the property of Mr. E.M. Grimm and I enclose the certificate duly endorsed by me for safekeeping.

At bottom then, documented events immediately before and after the February 28, 1968 share certificate conveyance in question veritably confirm the trust arrangement Parsons had or intended to have with Grimm andvice versa, vis-à-vis MC No. 1088. If, as herein respondent G-P & Co. posits at every turn, Parsons was its trustee, then the latter's act of endorsing MC No. 1088 in blank and then delivering the same to the Club for safekeeping instead of directly to the G-P & Co. was without sense.

The trial court correctly described the relationship that was formed between Grimm and Parsons, and the consequence of such relationship, as follows:

Since the transfer of Grimm's share to Parsons was temporary, a trust was created with Parsons as the trustee, and Grimm, the beneficial owner of the share. The duties of trustees have been said, in general terms, to be: "to protect and preserve the trust property, and to see to it that it is employed solely for the benefit of the cestui que trust." xxx Parsons as a mere trustee, it is not within his rights to transfer the share to G-P and Company (sic).

The Court has, to be sure, considered the Letter of Trust41 dated September 1, 1964 largely because, in respondents' own words, it "provides the answer to the question of who the real owner of MC #1088 is."42 In the Letter he purportedly signed, Parsons declared holding MC No. 374 and MC No. 1088 as "NOMINEE IN TRUST for and in behalf of G-P AND COMPANY … or its nominee." This piece of document is not, however, a winning card for the respondents. The trial court mentioned two compelling reasons why not, both reasons bearing on the due execution and genuineness of the document. Wrote the court:

This "LETTER OF TRUST" was purportedly signed by Parsons on September 1, 1964. But the transfer of [MC] No. 590 was recorded (and MC No. 1088 issued) only on September 7, 1964 in the Club's Proprietary Membership Card No. 144 [Exhibit 8]. With the testimony of Celso B. Jamias, a long time employee of G-P and Company, the doubt as to the genuineness of the signature of Parsons on the "LETTER OF TRUST" was brought to light. Jamias was cross-examined on the signatures of Parsons on several documents including the signature of the LETTER OF TRUST":

Q:         How about the signature appearing on Exhibit CC-1 …?

A:         This is Charles Parsons, sir.

Q:     -     You are familiar with the signature?

A:         Yes, sir.

Q:     -     I'm showing you Exhibit I which is a letter of trust dated September 1, 1964, comparing those signatures which you identified above the printed name C. Parsons there are, two signatures, the signatures you identified earlier and the one appearing on the letter of trust are similar in the sense that the "s" of Parsons is elevated and it slopes down, is that correct?

xxx xxx xxx

A:     -     Based on how I see, this doesn't seem to be the signature of Parsons, it looks like but it is not, sir. [TSN, May 4, 1999, pp 5-6]. (Words in parenthesis added.)

And lest it be overlooked, Parsons had previously acknowledged Grimm to be the owner of MC No. 1088, after his earlier repeated declarations that the transfer of the replaced MC No. 580 was temporary. Parsons was thus in contextually in estoppel to deny, thru the Letter of Trust aforementioned, hypothetically assuming its authenticity, Grimm's ownership of the replacement certificate.

Summing up, the Court finds the evidence adduced and admitted by the trial court more than adequately supporting a conclusion that MC No. 1088 was issued to and held by Parsons as the trustee thereof of Grimm or his estate. The fact that respondent G-P & Co. may have paid, starting 1992, as evidence discloses, the membership fees due on MC No. 1088 does not make Grimm less of a beneficial owner. Such payment, needless to stress, is not a mode of acquiring ownership.

Parenthetically, the CA is observed to have said that in the settlement of the estate of Parsons, MC No. 1088 was not included in the list of stocks owned by him. And from this inconsequential event, the appellate court would conclude that the estate administrator recognized Parsons to be a mere trustee of such certificate. While the decision does quite say so, the implication is that Parsons was the trustee of G -P & Co.

We cannot agree with this non-sequitur approach which, at bottom, clearly tends to lower the evidentiary bar for respondents. Needless to stress, it is not for the CA and all courts for that matter to compensate for a burden of proof not discharged or a quantum of evidence not met.

The Court cannot, for two reasons, also lend cogency to the CA's observation that the heirs of Grimm may have had waived, abandoned or denounced their rights to the trust property when, for P100,000.00, they executed aDeed of Acknowledgment of Satisfaction of Partnership Interests.43 Firstly, the deed, as a quitclaim instrument, did not mention any share certificate at all, which is only logical since MC No. 1088 was not a partnership asset in the first place. Secondly, the intention to waive a known right must be clear and unequivocal. In this case, the intent to renounce beneficial ownership of MC No. 1088 cannot reasonably be drawn from the tenor of the quitclaim document. For perspective, what the heirs of Grimm stated in the Deed of Acknowledgment is that the amount of P100,000.00 they received "represents the total liquidation and complete settlement … of the entire partnership interests pertaining to the late Edward Miller Grimm as partner in G-P AND COMPANY." If, to borrow from Thompson v. Court of Appeals,44 we apply the standard norm on how a waiver must be formulated, then clearly the general terms of the aforementioned deed merely indicate a clearance from general accountability, not specifically an abandonment of ownership of the disputed share. For:

xxx. Settled is the rule that a waiver to be valid and effective must, in the first place, be couched in clear and unequivocal terms which leave no doubt as to the intention of a party to give up a right or benefit which legally pertains to him. xxx A waiver may not be attributed to a person when the terms thereof do not explicitly and clearly evidence an intent to abandon a right vested in such person. If we apply the standard rule that waiver must be cast in clear and unequivocal terms, then clearly the general terms of the cited release and quitclaim indicates merely a clearance from general accountability, not specifically a waiver of Amcham's beneficial ownership of the disputed shares.45

In all, the facts and circumstances attendant militate against the CA's finding pointing to G-P & Co. as the beneficial owner of MC No. 1088. What the evidence adduced instead proved beyond cavil is that Grimm or his estate is such owner. We therefore reverse.

WHEREFORE, the herein assailed decision of the Court of Appeals is REVERSED and SET ASIDE, and the Decision of the Regional Trial Court of Makati City in Civil Case No. 92-2452 is REINSTATED.

Costs against the respondents.

SO ORDERED.

Puno, J., Chairperson, Sandoval-Gutierrez, Corona, and Azcuna, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 143307             April 26, 2006

LU DO AND LU YM CORPORATION, Complainant, vs.AZNAR BROTHERS REALTY CO., Respondent.

D E C I S I O N

YNARES-SANTIAGO, J.:

Assailed in this petition for review on certiorari is the May 24, 2000 Decision1 of the Court of Appeals in CA-G.R. SP No. 43642, which dismissed the petition filed by herein petitioner Lu Do and Lu Ym Corporation and sustained the January 9, 1997 Resolution2 of the Office of the President (OP) dismissing petitioner’s appeal from the November 22, 1995 Order3 of the Department of Environment and Natural Resources (DENR).

The issue to be resolved in this case is whether there exist supervening circumstances that would justify suspension of the enforcement of, or the quashal of the alias writ of execution issued to implement the September 18, 1986 Decision4 of the then Minister of Natural Resources in MNR Case No. 4096,5 which this Court sustained in a resolution dated July 20, 1994, in G.R. No. 116342 (hereafter referred to as the first Lu Do case).

The settled facts in the first Lu Do case show that an 8,485 square meter land located in Sawang, San Nicolas, Cebu City, was the subject of both an award of Foreshore Lease in favor of herein respondent Aznar Brothers Realty Company, a partnership engaged in buying and selling real properties and in livestock and agriculture business; and of the subsequent Miscellaneous Sales Application filed by petitioner, a manufacturer and exporter of coconut oil products.6 This controversy gave rise to an administrative case docketed before the Bureau of Lands as B.L. Conflict No. 45, D.L.O. Conflict No. 126.7

Meanwhile, on July 21, 1965, petitioner took possession of the coveted land. Since then and up to the present, it introduced improvements on the land, such as, bodega for copra, cylindrical tank for coconut oil and automotive shop. Petitioner’s occupation of the land was by virtue of a purported provisional permit alleged to have been issued by the Bureau of Lands. Such permit, however, was found to be inexistent in the records, hence, the improvements introduced by petitioner were held to have been made in bad faith.8

On July 21, 1974, the Director of Lands rendered a decision revoking the award in favor of respondent and directing the reauction of the subject land.9 Respondent filed a motion for reconsideration but was denied.

Respondent appealed to the Minister of Natural Resources. On September 18, 1986, the Minister acting through the Assistant Secretary for Legal Affairs, rendered a decision in MNR CASE No. 4096, reversing the decision of the Director of Lands; upholding the award of the land in favor of respondent; and ordering petitioner to remove the improvements on the land, otherwise, the same would be forfeited in favor of the government. The dispositive portion thereof, states:

WHEREFORE, the decision dated 21 June 1977 should be, as hereby it is, SET ASIDE, and the award of the area in question in favor of Aznar Brothers Realty Company shall continue to be given DUE COURSE. Lu Do and Lu Ym Corporation shall remove the improvements it has introduced in the area consisting of structures such as bodega, water tank, etc.; otherwise, the same shall be forfeited in favor of the government,

SO ORDERED.10

Petitioner elevated the case11 to the Court of Appeals which directly addressed respondent’s qualification as an awardee of a foreshore lease as well as the issue of who as between petitioner and respondent has a better right over the litigated land. Ruling in favor of respondent, the appellate tribunal dismissed the petition for lack of merit and for failure to state the material dates in the petition to show the timeliness of its filing.

A petition for review, docketed as G.R. No. L-115342 was filed by petitioner before this Court. On July 20, 1994, we issued a resolution dismissing the petition for: (a) failure to pay the correct amount of sherriff’s fees and clerk’s commission; and (b) failure to show that a reversible error was committed by the Court of Appeals. The decretal portion thereof provides:

ACCORDINGLY, the Court Resolved to DENY the petition for review on certiorari with prayer for a writ of preliminary injunction and/or temporary restraining order of the decision dated April 29, 1994 of the Court of appeals in CA G.R. Sp. No. 29944 for failure to comply with requirement no. one (1), as the payment of fees lacks P200.00 deposit for sheriff’s fee and P2.00 for clerk’s commission or a total of P202.00.

Besides, even if the petition complied with the aforesaid requirement, it would still be denied, as petitioners failed to show that a reversible error was committed by the appellate court.12

Said decision became final and executory on October 10, 1994.13

On February 13, 1995, petitioner filed with the Lands Management Bureau, the instant Motion to Suspend Enforcement of Decision, To Rebid Land in Dispute and/or To Quash Order of Execution.14 It contended that the improvements it introduced in the land since 1965, in the form of automotive shop, bodega for copra, cylindrical tank for coconut oil, increased to not less than P9,335,400.00, and it would be unfair for the government to forfeit said improvements in its favor. Petitioner further argued that the land in question should be rebidded in view of dissolution of respondent partnership by reason of the death of two of its partners; and because the questioned land is no longer a proper subject of a foreshore application, it, having ceased to be a foreshore land and having been transformed into an area suitable for industrial/commercial purposes.

The Director of the Lands Management Bureau referred15 petitioner’s Motion to Suspend Enforcement of Decision to the Secretary of the DENR which on November 22, 1995, held that said motion is a mere dilatory ploy and an attempt to relitigate settled issues. The dispositive portion thereof, reads:

WHEREFORE, in view of the foregoing considerations, the instant Motion is hereby DENIED. Let the entire records of the case be forwarded to the Regional Executive Director, DENR Region VII, for immediate execution of the 18 September 1986 Decision of this Office as affirmed by the Decision of the Court of Appeals dated 29 April 1994 and by the Resolution of the Supreme Court dated 20 July 1994.

SO ORDERED.16

A motion for reconsideration of the foregoing order was denied on February 27, 1996.17

On appeal, the Office of the President dismissed petitioner’s recourse for lack of merit.18 Its motion for reconsideration suffered the same fate.19

Unfazed, petitioner sought relief with the Court of Appeals. In addition to its arguments advanced in the Motion to Suspend Enforcement of Decision, petitioner averred that the award in favor of respondent should be revoked because it failed to commence introduction of improvements within six months from the date of the award, a requirement under Section 64 (d)

of Commonwealth Act No. 141 or the Public Land Act. It also argued that the June 21, 1974 Decision of the Director of Lands which was favorable to it and which revoked the award of the lease to respondent had already become final and executory because the former counsel of respondent failed to file an appeal memorandum within the reglementary period; hence, the Minister of Natural Resources can no longer reverse the same in its decision dated September 18, 1986.

On May 24, 2000, the Court of Appeals dismissed the petition for lack of merit. It held that the invalid service of the order to file memorandum on respondent’s former counsel prevented the June 21, 1974 decision of the Director of Lands from becoming final and executory. The reversal of said decision by the Minister of Natural Resources is therefore proper. The appellate court further ruled that the death of some of the partners of respondent did not dissolve the partnership because the award was transmitted to the deceased partners’ heirs; and that the conversion of the land into one suited for commercial purposes will not frustrate the award in favor of respondent because the same land was a foreshore land at the time it was awarded to the latter. The Court of Appeals also held that the failure of respondent to introduce improvements in the land will not warrant the revocation of the award because it was in fact petitioner who brought possessory instability over the land by questioning every facet of the award to respondent.

Hence, this petition raising the following arguments:

a. The court of appeals committed serious and reversible error of law and acted with grave abuse of discretion when it disregarded the fact that the decision of the director of lands dated June 21, 1974, which was favorable to petitioner and which revoked the award in favor of respondent aznar brothers realty company of the land in dispute, had already become final and executory.

b. The court of appeals committed serious and reversible error of law and acted with grave abuse of discretion when it failed to appreciate that the decision of the director of lands dated June 21, 1974 is correct.

c. In any case, The court of appeals committed serious and reversible error of law and acted with grave abuse of discretion in ruling that the decision dated September 18, 1986 of the minister of natural resources has become irrevocable and in thereby disregarding and ignoring facts and circumstances which supervened after the award in favor of respondent and which have an effect on said award.

d. The court of appeals committed serious and reversible error of law and acted with grave abuse of discretion when it disregarded and ignored the fact that the subject land had already been converted into land suited mainly for commercial and industrial purposes and may no longer be classified as foreshore land.

e. The court of appeals committed serious and reversible error of law and acted with grave abuse of discretion in not holding that the failure of respondent to introduce improvements on the subject property is fatal to its application.

f. The court of appeals committed serious and reversible error of law and acted with grave abuse of discretion in not holding that the death of two of the partners of respondent aznar brothers realty co. rendered impossible the giving of due course to the foreshore lease award in favor of respondent, and that in any case, respondent was not qualified to be an awardee of public land.

g. The court of appeals committed serious and reversible error of law and acted with grave abuse of discretion in not resolving the other issues, grounds, arguments raised by petitioner in its petition for review, and in relying instead on the decision of the minister of natural resources dated September 18, 1986, on the decision of the court in ca-g.r. SP no. 29944, and on the resolution of the executive secretary dated January 9, 1997.

h. The court of appeals committed serious and reversible error of law and acted with grave abuse of discretion in not resolving petitioner’s "motion to suspend enforcement of decision, to rebid land in dispute, and/or to quash order of execution (if any)" dated February 10, 1995.

i. The court of appeals committed serious and reversible error of law and acted with grave abuse of discretion when it disregarded and ignored the vast, substantial and valuable improvements introduced by petitioner on the land in dispute.

j. The court of appeals committed serious and reversible error of law and acted with grave abuse of discretion in not ruling that implementation of the decision of September 18, 1986 of the minister of natural resources will be most unfair and inequitable to petitioner.20

The petition is devoid of merit.

At the outset, it should be stressed that the arguments raised by petitioner cannot wheedle this Court to re-examine factual matters that had already become final and executory more than a decade ago. Under the doctrine of conclusiveness of judgment which is also known as "preclusion of issues" or "collateral estoppel," issues actually and directly resolved in a former suit cannot again be raised in any future case between the same parties involving a different cause of action.21 Once a judgment attains finality it becomes immutable and unalterable. It may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or by the highest court of the land.22 Hence, no amount of legal maneuvers could reinstate the Director of Lands’ July 21, 1974 Decision which is favorable to petitioner nor set aside the Minister of Natural Resources’ September 18, 1986 Decision which upheld the respondent’s right and qualifications to lease the

contested land. In a resolution dated July 20, 1994, we categorically held that the Court of Appeals committed no reversible error in dismissing the recourse filed by petitioner questioning the September 18, 1986 Decision of the Minister of Natural Resources. This resolution of the Court is an adjudication both on the technical issues and on the substantial issues raised, particularly on the qualification of respondent and on the validity of the award in its favor.23 Thus, only the supervening events that would allegedly justify the suspension of the execution of the September 18, 1986 Decision of the Minister of Natural Resources will be addressed here.

Petitioner claims that the following material changes in the circumstances since the time the award was given to respondent, justify the suspension of the execution of the decision, to wit: (1) the death of two of respondent’s partners; (2) the substantial improvements introduced by petitioner on the land; (3) the failure of respondent to commence introduction of improvements within six months from the date of the award; and (4) the conversion of the subject property from foreshore land to commercial/industrial land.

In ruling that the death of two partners of respondent did not disqualify the latter from being an awardee of a foreshore lease, the Court of Appeals correctly cited the case of Eusebio v. Sociedad Agricola de Balarin.24 The issue in the said case was whether Sociedad Agricola de Balarin, a partnership, became extinct by reason of the death of all the partners, making the heirs of the deceased partners without legal personality to pursue the Sales Application previously filed by the said deceased partners before the Bureau of Lands. Holding that the death of the partners did not automatically forfeit the rights they acquired over the land and that their heirs and the new association established by them should be considered subrogated in the place of the original partners, the Court explained that:

There is no question that, under the Civil Code of 1889 then in force, the death of any one of the partners dissolved the old partnership (Art. 1700, old Civil Code; Bearneza vs. Dequilla, 43 Phil. 237), the case not being one where there are surviving partners continuing the partnership with the heirs of deceased partners. Hence, technically, the old Sociedad Agricola de Balarin organized by Lacalle and registered in 1923 and the new partnership of the same name and registered in 1955 are separate and distinct juridical persons.

But the dissolution of the original Sociedad Agricola de Balarin did not automatically entail the forfeiture of the rights it had acquired in the lots in dispute, through its improvements and occupancy, continued without interruption by the heirs of the original partners. The heirs remained in possession until 1943 when, as a consequence of war operations and later due to bloody encounters between government forces and the dissident bands, they had to vacate and stay out until 1951, when the area was declared once more safe for reoccupation and settlement. It is but equitable, as declared in the decision of the Director of Lands and of the Secretary of Agriculture, that the heirs of the original partners, as well as the new association established by them, should be considered subrogated in place of the original partners, as well as the new association established by them, should be considered subrogated in place of the original "Sociedad Agricola de Balarin", and allowed to continue with the sales application despite the distinct personality of the heir[s’] new association despite the distinct personality of the heirs'

new partnership. Under section 105 of the Public Land Act, the heirs-at- law of a natural person, who dies before the final grant, are subrogated to his rights and obligations, and entitled to have issued to them the patent or final concession upon proof of compliance with the requirements of the law. There is no cogent reason why the provisions of this section should not be made to apply in favor of the heirs of the partners of the original Sociedad Agricola, since a partnership is, in the ultimate analysis, but a collectivity of natural persons banded together for a common purpose; provided, of course, the aforementioned heirs cleave to the original ends of the association, as they have done in this case.25

Contrary to the claim of petitioner, said doctrine is applicable in the instant case because despite the death of two26 of respondent’s partners, the seven surviving partners continued the operations and businesses of the partnership.27 If in Eusebio v. Sociedad Agricola de Balarin, where all the partners died, the Court did not forfeit the acquired rights of the heirs over the cotroverted land, with more reason that we should not forfeit the award in favor of respondent which was survived by seven partners who continued the operations of the partnership, pursued their lease application and defended their right against petitioner.

Neither will the improvements introduced on the land forestall the execution of the Minister of Natural Resources’ September 18, 1986 Decision. That petitioner was in bad faith in introducing said improvements is a matter already settled in the first Lu Do case. In the said controversy, we sustained the findings of the Court of Appeals and of the then Minister of Natural Resources that petitioner had no authority to occupy the land because the alleged provisional permit issued by the Bureau of Lands does not exist in the records. The introduction of improvements on the land was therefore held to have been made in bad faith.28 Under the doctrine of immutability of judgments, this conclusion can no longer be reviewed in the present suit.29 Besides, the right to lease the land is subject of a pending case and any improvement introduced thereon, if not removed, is at the risk of being forfeited in favor of the government. Petitioner should be made to bear the outcome of this case which turned out to be adverse to it.

Moreover, even granting that petitioner truly has a provisional permit to use and occupy the land, forfeiture of the permanent improvements introduced thereon is still proper. Under Section 38 of the Public Land Act, at the expiration of the lease, all buildings and other permanent improvements made by the lessee shall become the property of the government. Leases of public lands run for a period of 25 years, renewable once for another period of not to exceed 25 years. Thus, -

SEC. 38. Leases shall run for a period of not more than twenty-five years, but may be renewed once for another period of not to exceed twenty-five years, in case the lessee shall have made important improvements which, in the discretion of the Secretary of [the Department of Environment and Natural resources], justify a renewal. Upon final expiration of the lease, all buildings and other permanent improvements made by the lessee, his heirs, executors, administrators, successors, or assigns shall become the property of the Government, and the land together with the said improvements shall be disposed of in accordance with the provisions of Chapter five of this Act.

In the instant case, the purported temporary or provisional permit of petitioner enabled it to use the subject land since 1965 up to the present, or for more than 40 years. It was able to occupy the land for a period equivalent to a full term of a lease, and for almost the entire duration of the maximum period allowed for a renewal thereof. Petitioner cannot therefore pretend that the September 18, 1986 Decision of the Minister of Natural Resources ordering it to remove the improvements on the land, is greatly disadvantageous to it. Petitioner is in fact placed in a better position because it was allowed to remove its improvements, unlike legitimate awardees of the right to lease a public land whose improvements become government property at the expiration of the lease. Hence, the motion to suspend the execution of the decision based on the existence of said improvements, the value of which was not even substantiated, is utterly without basis.

Then too, the alleged failure of respondent to satisfy the requirement of Section 64 (d) of the Public Land Act, will not frustrate the execution of the final decision in the first Lu Do case. Section 64 (d), provides:

(d) The lessee shall construct permanent improvements appropriate for the purpose for which the lease is granted, shall commence the construction thereof within six months from the date of the award of the right to lease the land, and shall complete the said construction within eighteen months from said date.

Petitioner attempts to impress upon this Court that the failure to comply with the aforecited condition unqualifiedly revokes the award. This, however, is not the tenor of this condition considering that the government may even waive rescission on this ground. This is clear from the last paragraph of Section 64 of the Public Land Act which states:

The violation of one or any of the conditions specified in the contract shall give rise to the rescission of said contract. The Secretary of Agriculture and Natural Resources [now the Secretary of the DENR] may, however, subject to such conditions as he may prescribe, waive the rescission arising from a violation of the conditions of subsection (d), or extend the time within which the construction of the improvements shall be commenced and completed.

Furthermore, respondent cannot be made to suffer any adverse consequence of the failure to introduce improvements because it never had a real opportunity to take possession of the land which, since 1965 up to the present, is under the control and possession of petitioner who successfully evaded the execution of the September 18, 1986 Decision of the Minister of Natural Resources. Said judgment had been the subject of several alias writs of execution but to no avail. In fact, there is a pending ejectment suit filed by respondent against petitioner to enable it to legally recover possession of the subject land.30

In the same vein, there is no merit in the contention of petitioner that the questioned foreshore lease should be revoked because the land is no longer a foreshore land having been converted by it (petitioner) to a commercial/industrial land. Indeed, the Court of Appeals correctly held that since the said land was a foreshore land at the time the application was filed, the right to lease the same should still be awarded to respondent. To forfeit the right of respondent would be the

height of injustice as it would reward petitioner for successfully stalling the enforcement of a final and executory decision.

Even assuming that there exist supervening circumstances authorizing the revocation of the award in favor of respondent, the petition is still dismissible considering that petitioner has no legal personality to file an action for such revocation or for the rebidding of the contested land.

In actions where the ultimate relief sought is the reversion of the land to the government, it is the latter which has the legal personality to file the suit. The rationale is that since the land subject of the action originated from a grant by the government, its cancellation is a matter between the grantor and the grantee.31 By parity of reasoning, in actions to revoke an award in favor of a grantee which would result in the reversion of the possessory right over the land to the government and not the disposition thereof to any private person or entity, the proper party is the government who gave the grantee the right to occupy the land.

In the instant case, the final and executory resolution of the Court which sustained the award of the grant to lease the contested land in favor of respondent effectively obliterated any right which petitioner might have had as an applicant of a grant over the land. As far as any suit to disqualify or revoke the award to respondent is concerned, petitioner is a stranger with no legal personality to maintain such action. This is because the revocation of the award will not vest any right on petitioner.

Under Section 2, Rule 3 of the Rules of Court, every action must be prosecuted or defended in the name of the real party-in-interest, or one who stands to be benefited or injured by the judgment in the suit. Real interest means present and substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate consequential interest.32 Thus, mere applicants of sales patents over a public land or lessees hoping to be given the right to purchase the same were held not proper parties to institute a case for cancellation of the grantee’s award or title.33

Here, the suit filed by petitioner should be dismissed for lack of the requisite real interest. For one, the only interest it has is the hope that it would emerge as the highest bidder in the sought reauction of the questioned land. For another, it has no right to insist on the reauction of subject land which remains to be part of the public domain and which the government, in the exercise of its discretion, may reclassify and/or dispose of by modes other than by sale or lease to private individuals or entities.

And even granting that petitioner is a legitimate holder of a temporary permit to occupy the land, said permit will not vest him legal personality to seek the revocation of respondent’s award. Being merely temporary, its permit may be revoked at any time by the Secretary of the DENR. Section 68 of the Public land Act reads:

SEC. 68. The Secretary of Agriculture and Natural Resources [now the Secretary of the DENR] may grant to qualified persons temporary permission, upon payment of a reasonable charge, for

the use of any portion of the lands covered by this chapter for any lawful private purpose, subject to the revocation at any time when, in his judgment, the public interest shall require it.

In seeking the cancellation of respondent’s award, even as a holder of a temporary permit to occupy the land, petitioner’s interest is also based on a mere expectancy. That is, a hope that should said award be cancelled, the DENR Secretary would refrain from exercising his/her judgment to revoke the temporary permit. Indeed, this contingent interest will not vest legal personality on petitioner to challenge the award in favor of respondent.

WHEREFORE, the instant petition is DENIED and the May 24, 2000 Decision of the Court of Appeals in CA-G.R. No. SP No. 43642 is AFFIRMED. Let the records of the case be remanded to the Regional Executive Director, DENR, Region VII for the execution of the September 18, 1986 Decision of the Minister of Natural Resources in MNR CASE No. 4096.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 152262               February 15, 2012

FELIMON MANGUIOB, Petitioner, vs.JUDGE PAUL T. ARCANGEL, RTC, BRANCH 12, DAVAO CITY and ALEJANDRA VELASCO, Respondents.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari1 seeking to modify the August 31, 2001 Decision2 and January 25, 2002 Resolution3 of the Court of Appeals in CA-G.R. CV No. 64147, which affirmed with modification the March 5, 1999 Decision4 of the Regional Trial Court (RTC) of Davao City, Branch 12 in Civil Case No. 23,313-94.

On May 3, 1994, Felimon Manguiob (Manguiob) and Alejandra Velasco (Velasco) entered into a partnership under the name of "Baculin Enterprises," for the purchase and sale of agricultural and forest products, and the operation of a general merchandise store at Baculin, Baganga, Davao Oriental.5 Velasco provided the capital requirements of the partnership, including the warehouse

and the store needed for the business, while Manguiob, being the industrial partner, managed the partnership's operations.6

On September 14, 1994, the partnership ceased to operate and was considered dissolved for all intents and purposes.7

On December 12, 1994, Velasco filed a Complaint8 for Sum of Money, Accounting, and Damages against Manguiob, before the RTC, Branch 12 of Davao City. Velasco alleged that while Baculin Enterprises appeared to have flourished on record, the actual cash on hand, which was mostly with Manguiob, did not reflect such financial profitability. Thus, Velasco decided to dissolve the partnership, as allowed in their Articles of Partnership,9 and had the records of the partnership audited. Velasco claimed that her fears were confirmed when the audit report showed that Baculin Enterprises made a net profit of at least P 252,673.50 from May 1994 to September 14, 1994. According to Velasco, she was entitled to 60% of this, amounting to P 151,604.10, while Manguiob was entitled to 40%, equivalent to P 101,069.40. Velasco also asked that Manguiob return the amount of P203,156.30, representing the balance of her P 320,000.00 capital investment, as Manguiob returned only the amount of P 116,843.20 to her. Velasco averred that Manguiob not only refused to return the above amounts, but also refused to make an accounting of his management of Baculin Enterprises. Velasco further alleged that Manguiob, in bad faith, had used the partnership funds to start his own buy and sell business even before their partnership was dissolved. Because of this, Velasco prayed for the trial court to direct Manguiob to do the following:

1. To pay plaintiff the amount of P 354,760.00 as plaintiff's contribution and share in the profits of the partnership;

2. To pay plaintiff the amount of 10% a month of P 354,760.00 as unrealized profit of the partnership;

3. To account for the money of the partnership used for the personal business of the defendant;

4. To pay plaintiff the amount of P 25,000.00 as attorney's fees. 10

Velasco likewise prayed for the trial court to grant her such other relief as may be warranted by the circumstances.11

Manguiob, in his Answer,12 denied having received P 320,000.00 from Velasco and alleged that she only infused the sum of P 200,000.00 into their partnership. He contended that he did not have possession of the partnership's cash, and that it was Velasco who had received the proceeds of the deliveries he made to Interco Davao as shown by the various receipts13 attached to his Answer. Manguiob also averred that if the records of Baculin Enterprises had already been audited, then that audit was not based on the records he had submitted to Velasco. Manguiob further claimed that it was not then known if the partnership had gained profit, that there was no

basis for the return of Velasco's capital investment, and that the amount of P 116,843.20 was not part of Velasco's capital investment but was the total amount of the remittances he made to Velasco from the proceeds of his deliveries. Manguiob said Velasco's monetary claim had no basis especially since she was practically in control of the partnership's finances.14

On October 18, 1995, Velasco and Manguiob jointly submitted to the RTC a "Partial Stipulation of Facts and Statement of the Issues,"15 with the pertinent section quoted as follows:

The Facts

1. That, the plaintiff and defendant established a Partnership on May 3, 1994 to engage in the Buy and Sell of Agricultural products and operation of a General Merchandise Store at Baculin, Baganga, Davao Oriental, and for which purpose the parties executed an Articles of Partnership, a copy of which is attached to the complaint as Annex "A" thereof;

2. That, the partnership has ceased to operate and [for] all intents and purposes considered dissolved as of September 14, 1994;

3. That, as per records submitted by the defendant, from May 8, 1994 to September 9, 1994 the amount of copra purchased is P 1,261,418.45 as shown in the statement, a copy of which is hereto attached or Annex "A" hereof;

4. That, from May 31, 1994 up to September 10, 1994, the total copra sales amounted to P 1,430,904.40, net of hauling expenses, as shown in the statement attached hereto and marked as Annex "B" hereof;

5. That, from May 1994 to September 14, 1994 the total sales of General Merchandise as per records of defendant is P 930,640.50 as shown in the statement hereto attached as Annex "C" hereof;

The Issues

1. How much was the capital contribution of plaintiff in the Partnership?

2. How much of the proceeds from the sales of copra from May 31, 1994 to August 24, 1994 were returned by plaintiff to defendant[?]

3. How much net profit, if any, was realized by the Partnership during its operation from May 1994 up to September 14, 1994[?]

4. Are the parties entitled to their respective claims for [damages][?]

On March 5, 1999, the RTC rendered its Decision, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to pay to the former the sum of P 498,245.52, as the principal account; plus interest thereon at the rate of 12% per annum from September 15, 1994 until the full account is paid, the sum of P25,000.00 as attorney's fees and the costs of suit.

The other claims of the parties are hereby denied.16

The RTC found that the capital contributed by Velasco to the partnership was P 400,000.00, as established by clear, convincing, and competent evidence.17 Anent the second issue, the RTC averred that while Velasco may have received the proceeds of the sales of copra from May 31, 1994 to August 24, 1994, such proceeds were returned to Manguiob to be used in the purchase of more copra and other merchandise for their business, as evidenced by receipts18 signed by Manguiob or his wife. Thus, the RTC said that "except for the proceeds of the sales of copra on September 10, 1994, in the amount of P 116,954.40, all the proceeds of the sales of copra were either retained by, or returned to, [Manguiob]."19 As for the net profit earned by the partnership, the RTC proclaimed that it was P 191,999.98, as declared by Manguiob's own accountant. Thus, the RTC ruled that Velasco was entitled to the amount of P 498,245.52 representing her capital contribution less the proceeds from the copra sales made on September 10, 1994, which she retained, plus her 60% share in the net profit.20

Manguiob appealed this decision to the Court of Appeals, assigning the following errors:

I. THAT THE LOWER COURT GRAVELY ERRED IN ORDERING DEFENDANT TO PAY PLAINTIFF THE SUM OF P 498,245.52 AS THE PROCEEDS OF COPRA SALES WHICH THE PLAINTIFF HAD TAKEN FROM DEFENDANT AMOUNTED TO P 453,859.10 AND THAT THE NET INCOME OF THE PARTNERSHIP OF THE PLAINTIFF AND DEFENDANT AMOUNTED TO P 191,999.88 TO WHICH PLAINTIFF'S SHARE IS 60% AND THE SHARE OF THE DEFENDANT FROM SAID NET INCOME IS 40% AND, FURTHERMORE, THE TOTAL ASSETS IN THE POSSESSION OF THE PLAINTIFF AT THE CLOSURE OF THE BUSINESS OF PLAINTIFF AND DEFENDANT, THE BACULIN MARKETING AS OF SEPTEMBER 14, 1994 AND AVAILABLE FOR DISTRIBUTION, AMOUNTED TO P 215,559.06;

II. THAT THE LOWER COURT GRAVELY ERRED IN ORDERING DEFENDANT TO PAY PLAINTIFF THE INTEREST ON THE ALLEGED PRINCIPAL ACCOUNT OF P 498,245.52 AT THE RATE OF 12% PER ANNUM FROM SEPTEMBER 15, 1994 UNTIL THE FULL ACCOUNT IS PAID, AS THERE IS NO WRITTEN STIPULATION AS TO THE PAYMENT OF INTEREST IN ACCORDANCE WITH ARTICLE 1956 OF THE NEW CIVIL CODE OF THE PHILIPPINES; AND

III. THAT THE LOWER COURT GRAVELY ERRED IN ORDERING DEFENDANT TO PAY PLAINTIFF THE [AMOUNT] OF P 25,000.00 AS ATTORNEY'S FEES, AS NO RIGHT TO

SUCH FEE ACCRUE IN THE CASE AT BAR IN ACCORDANCE WITH ART. 2208 OF THE NEW CIVIL CODE OF THE PHILIPPINES.21

On August 31, 2001, the Court of Appeals modified the RTC's decision with respect to the amount due Velasco, the rate of interest imposable, and the award of attorney's fees, to wit:

IN THE LIGHT OF ALL THE FOREGOING, the Decision appealed from is AFFIRMED with the following modifications:

(1) The Appellant is obliged to pay to Appellee the amount of P 401,640.97 with interest thereon at the rate of 6% per annum computed from the time the Court a quo's Decision and, an interest at the rate of 12 per annum from the time of the finality of this Decision up to the time that the obligation of the Appellant to pay Appellee is paid in full:

(2) The award of attorney's fees is deleted.22

The Court of Appeals, after analyzing the records, concluded that while Velasco withheld the total net amount of P113,558.95, Manguiob received and retained a total of P 432,067.05, inclusive of the P 400,000.00 capital infused by Velasco. The Court of Appeals agreed with the findings of the RTC that the partnership generated a profit of P191,999.98, and from this, held that Velasco was entitled to 60% or P 115,199.92, according to her agreement with Manguiob. The Court of Appeals said that since Velasco retained P 113,558.95 out of the P 115,199.92 due her, Manguiob should only remit to her the difference of P 1,640.97, in addition to her P 400,000.00 capital investment.23

On October 11, 2001, Manguiob moved24 for the Court of Appeals to reconsider its Decision. This, however, was denied in a Resolution dated January 25, 2002, to wit:

After due consideration of the "Motion for Reconsideration" of the Appellant and the "Comment" thereon of the Appellee, We find said motion barren of merit and hereby deny the same.25

Manguiob is now positing the following assignment of errors:

(1)

THE HONORABLE 13th DIVISION OF THE COURT OF APPEALS GRAVELY AND SERIOUSLY ERRED IN NOT CORRECTLY CONSIDERING IN THE ASSAILED DECISION, THE NON-CASH ASSETS OF BACULIN ( MARKETING ) ENTERPRISE AS OF SEPTEMBER 14, 1994 AND THE JOINT VALUATION IN THE AMOUNT OF P 215,559.06 PLACED ON THE SAID NON-CASH ASSETS BY THE CERTIFIED PUBLIC ACCOUNTANTS OF THE PETITIONER AND THE PRIVATE RESPONDENT WHICH WERE DETERMINED BY BOTH ACCOUNTANTS IN COMPLIANCE WITH ORDERS OF THE HONORABLE COURT A QUO, THE REGIONAL TRIAL COURT, 11th JUDICIAL REGION, BRANCH 12, DAVAO CITY.

(2)

THE HONORABLE 13th DIVISION OF THE COURT OF APPEALS SERIOUSLY ERRED IN NOT CONSIDERING THE NON-CASH ASSETS OF BACULIN ( MARKETING ) ENTERPRISE VALUED AT P215,559.06 WHICH HAS BEEN IN THE CUSTODY AND CONTROL OF THE PRIVATE RESPONDENT SINCE SEPTEMBER 14, 1994 AS RETAINED BY THE PRIVATE RESPONDENT HERSELF.26

Manguiob says he does not wish to further challenge the Court of Appeals' computation, but asks that the value of the non-cash assets, as determined by the parties' accountants, pursuant to the RTC's orders,27 be deducted from the amount he is obligated to return to Velasco, to wit:

Obligation of the petitioner perCourt of Appeals Decision P 401,640.97

Less: Non Cash assets in the custodyand control of Alejandra Velasco P 215,559.06

Obligations to be paid by the petitioner toprivate respondent as sought by this petition P 186,081.91

28

Velasco, in her Comment,29 says that this petition is without merit and should be dismissed. She avers that while Manguiob claims that he is before us on a question of law, i.e., the construction or interpretation of the documentary evidence submitted before the RTC, he is in fact referring to matters of fact, which he was unable to establish with competent proof during the trial of the case. Velasco further argues that the rulings of the lower courts are with respect to her capital contribution and no evidence was presented to prove the existence of any asset aside from the partnership's net income of P 191,999.98.

Discussion

The crux of the present controversy boils down to the role of the value of the non-cash assets in the determination of how much Manguiob should return to Velasco.

Both the RTC and the Court of Appeals found that a partnership had indeed existed between Manguiob and Velasco, and that it was dissolved, upon Velasco's option, on September 14, 1994. The lower courts ordered Manguiob to return to Velasco her capital contribution of P 400,000.00, as established during the trial and evidenced by receipts signed by Manguiob or his wife; and the amount of P 115,199.92, representing her 60% share in the net profits, based on the income statement prepared by the parties' accountants, to wit:

BACULIN MARKETINGAMENDED INCOME STATEMENT

For the Period May 8, 1994 toSeptember 14, 1994

Exh. "B"

-----------------

Sales:

Copra (Net of Hauling), Sch. 4 P 1,430,904.40

General Merchandise, Sch. 7 930,640.50

Charcoal - --------------------

T o t a l P 2,361,544.90

Less: Cost of Sales:Purchases:

Copra, Sch. 2 P 1,261,418.45

Gen. Mdse., Sch. 5 880,243.08

Charcoal 21,143.60-----------------

Total Goods Available 2,162,805.13

Less: Inventory, end

Gen. Mdse. P 41,120.71

Charcoal 21,143.60-----------------

62,264.31-----------------

2,100,540.82-----------------

Gross Profit P 261,004.08

Less: Operating Expenses: (see sch. 5)

Subsistence P 9,083.00

Miscellaneous 13,503.50

Truck repairs 21,894.20

Freight & other expenses 7,332.50

Salaries and wages 12,550.00

Inauguration expenses 4,641.00-----------------

69,004.02-----------------

Net Income, to capital P 191,999.88===============

30

Aside from the foregoing, the parties' accountants also submitted to the RTC a list of the non-cash assets of the partnership as of September 14, 1994, its date of dissolution:

BACULIN MARKETINGLIST OF NON-CASH ASSETS

(F. Manguiob's Report)

Sch. 8

Particulars Amount

Accounts Receivable P 88,340.50

Inventories:

General Mdse. P 41,120.71

Charcoal 21,143.60 62,264.31-----------------

Refundable deposit 30,265.00

Bodega equipment and facilities 34,689.25-----------------

Total P 215,559.06===========

31

Neither party questions the figures jointly prepared by their respective accountants. Manguiob, nonetheless, insists that the value of the non-cash assets, as determined by their accountants, should be deducted from the amount he was adjudged to pay Velasco. The lower courts, however, did not rule on how these non-cash assets should be distributed between Velasco and Manguiob.

The issue raised by Manguiob is clearly a question of fact, which not only requires a review of the evidence already presented, but a reception of new evidence as well. A perusal of the records of the case shows that no evidence was introduced or received for the purpose of ascertaining the actual status of the non-cash assets despite the parties' admission of their existence, and their conformity to the values assigned to them by their accountants. A proper resolution on the distribution of the non-cash assets obviously necessitates, inter alia, a determination of the proceeds or whereabouts of these non-cash assets.

This issue, unfortunately, is factual matter, which is beyond the province of a Rule 45 petition, as expressed under the version of Section 1, Rule 45 in force at the time Manguiob filed this petition to wit:

Section 1. Filing of petition with Supreme Court. - A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth.32

The distinction between a question of law and one of fact has long been settled. In Binay v. Odeña33 we said:

A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can determine the issue raised without

reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.34

Thus, since this Court is required to review and evaluate the evidence on record, and even receive new evidence to decide the issue of whether the value of the non-cash assets should be deducted from what Manguiob was adjudged to pay Velasco, the issue then is definitely one of fact, 35 and one that is impermissible, as this Court is not a trier of facts.

Furthermore, records show that this issue was not even submitted by the parties during the trial of the case despite their conflicting allegations on these assets' condition. In Keng Hua Paper Products Co., Inc. v. Court of Appeals36 this Court held:

[A]n issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. Questions raised on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal.37

It is settled that issues not raised timely in the proceedings before the trial court cannot be considered on review or appeal as to do so would be to trample on the basic rules of fair play, justice, and due process.38

However, this Court noticed that while both lower courts agreed on the values and figures the parties' accountants submitted to the RTC, they differed in the amount supposedly retained by Velasco, and thus eventually deducted from the capital investment Manguiob was ordered to return to her. This Court is inclined to agree with the RTC's computation, except for the total amount, which is erroneously higher by P 100,000.00, to wit:

60% of P 191,999.88 is P 115,199.92

Capital Contribution ---- P 400,000.00

Total ---- P 515,199.92

Less Money in Plaintiff'shands for sale of copraon September 10, 1994 ---- P 116,954.40

Net amount due to ---- P 498,245.52 39

Plaintiff

The above values and figures, save for the erroneous total, were amply supported by the evidence on record. Moreover, Velasco herself, on several occasions, admitted that she retained the amount of P 116,954.40, contrary to the Court of Appeals' finding that she only withheld the amount of P 113,558.95.40

Exhibit C, Velasco's own documentary evidence which she verified and signed, showed that she had retained the amount of P 116,954.40.

There is likewise an admission in Velasco's memorandum submitted to the RTC that she had in her possession the amount of P 116,954.40.

Thus, using the same figures that were definitely determined during the trial, the amount due Velasco, from her capital contribution and share in the net profits should be computed as follows:

P 400,000.00 Velasco's capital contribution

+ P 115,199.92 Velasco's 60% share in the net income

- P 116,954.40 the proceeds of the sales of copra on September 10, 1994, which Velasco retained (P56,362.40 + P 60,592.00)

= P 398,245.52 Amount due Velasco

As for the unchallenged rulings of the Court of Appeals, including the deletion of the award of attorney's fees, we find no reason to disturb the same.1âwphi1

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 64147 is hereby AFFIRMED with the MODIFICATION that petitioner is obliged to pay private respondent the amount of P 398,245.52 representing the balance of the latter's capital contribution plus her 60% share in the net profits of Baculin Enterprises.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs.HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA,respondents.

VITUG, J.:

The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.

The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate court in its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC records show that there were several subsequent amendments to the articles of partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:

I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.

"I trust that the accountants will be instructed to make the proper liquidation of my participation in the firm."

On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

"Further to my letter to you today, I would like to have a meeting with all of you with regard to the mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would like to have this resolved soon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:

"The partnership has ceased to be mutually satisfactory because of the working conditions of our employees including the assistant attorneys. All my efforts to ameliorate the below subsistence level of the pay scale of our employees have been thwarted by the other partners. Not only have they refused to give meaningful increases to the employees, even attorneys, are dressed down publicly in a loud voice in a manner that deprived them of their self-respect. The result of such policies is the formation of the union, including the assistant attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits, rent or interest attributable to the use of his right in the assets of the dissolved partnership;

"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence, checks and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the partnership in the amount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in such amounts as maybe proven during the trial and which the Commission may deem just and equitable under the premises but in no case less than ten (10%) per cent of the value of the shares of petitioner or P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and exemplary damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and equitable under the premises."

On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing partner in the partnership interest." 1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby REMANDED to the Hearing Officer for determination of the respective rights and obligations of the parties. 2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or participation in the partnership which could be computed and paid in the manner stipulated in the partnership agreement; (d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the partnership assets were in any such danger of being lost, removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the partnership regardless of his good or bad faith; and

3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of the partnership so that he can get a physical partition of partnership was not made in bad faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The "DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners."

The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative of any individual, firm and corporation engaged in commercial, industrial or other lawful businesses and occupations; to counsel and advise such persons and entities with respect to their legal and other affairs; and to appear for and represent their principals and client in all courts of justice and government departments and offices in the Philippines, and elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or definable period of completion. 3

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership  4 but that it can result in a liability for damages. 5

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.  9

The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code; 10 however, an agreement of the partners, like any other contract, is binding among them and normally takes precedence to the extent applicable over the Code's general provisions. We here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and paid in accordance with the existing agreements and his

partnership participation shall revert to the Senior Partners for allocation as the Senior Partners may determine; provided, however, that with respect to the two (2) floors of office condominium which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time of such death or retirement shall be determined by two (2) independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased partner, as the case may be. In the event of any disagreement between the said appraisers a third appraiser will be appointed by them whose decision shall be final. The share of the retiring or deceased partner in the aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation above mentioned which shall be paid monthly within the first ten (10) days of every month in installments of not less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it.

On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will. 12Indeed, for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

Feliciano, Romero, Melo and Francisco, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 144214             July 14, 2003

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE, petitioners, vs.DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C. RAMIREZ,respondents.

PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the latter's dissolution, liquidation and winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision1 and the July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision disposed as follows:

"WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED and in lieu thereof a new decision is rendered ordering the [petitioners] jointly and severally to pay and reimburse to [respondents] the amount of P253,114.00. No pronouncement as to costs."4

Reconsideration was denied in the impugned Resolution.

The Facts

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of P750,000 for the operation of a restaurant and catering business under the name "Aquarius Food House and Catering Services."5 Villareal was appointed general manager and Carmelito Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5, 1984. His capital contribution of P250,000 was paid by his parents, Respondents Cesar and Carmelita Ramirez.6

After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000 was refunded to him in cash by agreement of the partners.7

In the same month, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because of increased rental. The restaurant furniture and equipment were deposited in the respondents' house for storage.8

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in continuing their partnership or in reopening the restaurant, and that they were accepting the latter's offer to return their capital contribution.9

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the deterioration of the restaurant furniture and equipment stored in their house. She also reiterated the request for the return of their one-third share in the equity of the partnership. The repeated oral and written requests were, however, left unheeded.10

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that respondents had been paid, upon the turnover to them of furniture and equipment worth over P400,000; and that the latter had no right to demand a return of their equity because their share, together with the rest of the capital of the partnership, had been spent as a result of irreversible business losses.12

In their Reply, respondents alleged that they did not know of any loan encumbrance on the restaurant. According to them, if such allegation were true, then the loans incurred by petitioners should be regarded as purely personal and, as such, not chargeable to the partnership. The former further averred that they had not received any regular report or accounting from the latter, who had solely managed the business. Respondents also alleged that they expected the equipment and the furniture stored in their house to be removed by petitioners as soon as the latter found a better location for the restaurant.13

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture and Equipment14 on July 8, 1988. The furniture and the equipment stored in their house were inventoried and appraised at P29,000.15 The display freezer was sold for P5,000 and the proceeds were paid to them.16

After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership, which could be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant. Hence, the trial court, in its July 21, 1992 Decision, held there liable as follows:18

"WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners] ordering the [petitioners] to pay jointly and severally the following:

(a) Actual damages in the amount of P250,000.00

(b) Attorney's fee in the amount of P30,000.00

(c) Costs of suit."

The CA Ruling

The CA held that, although respondents had no right to demand the return of their capital contribution, the partnership was nonetheless dissolved when petitioners lost interest in continuing the restaurant business with them. Because petitioners never gave a proper accounting of the partnership accounts for liquidation purposes, and because no sufficient evidence was presented to show financial losses, the CA. computed their liability as follows:

"Consequently, since what has been proven is only the outstanding obligation of the partnership in the amount of P240,658.00, although contracted by the partnership before [respondents'] have joined the partnership but in accordance with Article 1826 of the New Civil Code, they are liable which must have to be deducted from the remaining capitalization of the said partnership which is in the amount of P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the share of [respondents], this amount of P759,342.00 must be divided into three (3) shares or in the amount of P253,114.00 for each share and which is the only amount which [petitioner] will return to [respondents'] representing the contribution to the partnership minus the outstanding debt thereof."19

Hence, this Petition.20

Issues

In their Memorandum,21 petitioners submit the following issues for our consideration:

"9.1. Whether the Honorable Court of Appeals' decision ordering the distribution of the capital contribution, instead of the net capital after the dissolution and liquidation of a partnership, thereby treating the capital contribution like a loan, is in accordance with law and jurisprudence;

"9.2. Whether the Honorable Court of Appeals' decision ordering the petitioners to jointly and severally pay and reimburse the amount of [P]253,114.00 is supported by the evidence on record; and

"9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to costs."22

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the latter's share in the partnership; (2) whether the CA's computation of P253,114 as respondents' share is correct; and (3) whether the CA was likewise correct in not assessing costs.

This Court's Ruling

The Petition has merit.

First Issue:Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved on March 1, 1987. They found that the dissolution took place when respondents informed petitioners of the intention to discontinue it because of the former's dissatisfaction with, and loss of trust in, the latter's management of the partnership affairs. These findings were amply supported by the evidence on record. Respondents consequently demanded from petitioners the return of their one-third equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of their equity share. Except as managers of the partnership, petitioners did not personally hold its equity or assets. "The partnership has a juridical personality separate and distinct from that of each of the partners."23 Since the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund the equity of the retiring partners.24

Second Issue:What Must Be Returned?

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be compensated.25 After all the creditors have been paid, whatever is left of the partnership assets becomes available for the payment of the partners' shares.

Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third share in the partnership cannot be determined until all the partnership assets will have been liquidated — in other words, sold and converted to cash — and all partnership creditors, if any, paid. The CA's computation of the amount to be refunded to respondents as their share was thus erroneous.

First, it seems that the appellate court was under the misapprehension that the total capital contribution was equivalent to the gross assets to be distributed to the partners at the time of the dissolution of the partnership. We cannot sustain the underlying idea that the capital contribution at the beginning of the partnership remains intact, unimpaired and available for distribution or return to the partners. Such idea is speculative, conjectural and totally without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of the business. In the present case, the financial statements presented before the trial court showed that the business had made meager profits.26 However, notable therefrom is the omission of any provision for the depreciation27 of the furniture and the equipment. The amortization of the goodwill28 (initially valued at P500,000) is not reflected either. Properly taking these non-cash items into account will show that the partnership was actually sustaining substantial losses, which consequently decreased the capital of the partnership. Both the trial and the appellate courts in fact recognized the decrease of the partnership assets to almost nil, but the latter failed to recognize the consequent corresponding decrease of the capital.

Second, the CA's finding that the partnership had an outstanding obligation in the amount of P240,658 was not supported by evidence. We sustain the contrary finding of the RTC, which had rejected the contention that the obligation belonged to the partnership for the following reason:

"x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The balance sheet (Exh. '4') does not reveal the total loan. The Agreement (Exh. 'A') par. 6 shows an outstanding obligation of P240,055.00 which the partnership owes to different creditors, while the Certification issued by Mercator Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former being the nominal party defendant in the instant case, who obtained a loan of P355,000.00 on Oct. 1983, when the original partnership was not yet formed."

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the partnership to Jesus Jose when he withdrew from the partnership.

Because of the above-mentioned transactions, the partnership capital was actually reduced. When petitioners and respondents ventured into business together, they should have prepared for the fact that their investment would either grow or shrink. In the present case, the investment of respondents substantially dwindled. The original amount of P250,000 which they had invested could no longer be returned to them, because one third of the partnership properties at the time of dissolution did not amount to that much.

It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish or disastrous contracts they have entered into with all the required formalities and with full awareness of what they were doing. Courts have no power to relieve them from obligations they have voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise investments.29

Petitioners further argue that respondents acted negligently by permitting the partnership assets in their custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have liquidated these sole tangible assets of the partnership and considered the proceeds as payment of their net capital. Hence, petitioners argue that the turnover of the

remaining partnership assets to respondents was precisely the manner of liquidating the partnership and fully settling the latter's share in the partnership.

We disagree. The delivery of the store furniture and equipment to private respondents was for the purpose of storage. They were unaware that the restaurant would no longer be reopened by petitioners. Hence, the former cannot be faulted for not disposing of the stored items to recover their capital investment.

Third Issue:Costs

Section 1, Rule 142, provides:

"SECTION 1. Costs ordinarily follow results of suit. — Unless otherwise provided in these rules, costs shall be allowed to the prevailing party as a matter of course, but the court shall have power, for special reasons, to adjudge that either party shall pay the costs of an action, or that the same be divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines unless otherwise provided by law."

Although, as a rule, costs are adjudged against the losing party, courts have discretion, "for special reasons," to decree otherwise. When a lower court is reversed, the higher court normally does not award costs, because the losing party relied on the lower court's judgment which is presumed to have been issued in good faith, even if found later on to be erroneous. Unless shown to be patently capricious, the award shall not be disturbed by a reviewing tribunal.

WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE. This disposition is without prejudice to proper proceedings for the accounting, the liquidation and the distribution of the remaining partnership assets, if any. No pronouncement as to costs.

SO ORDERED.

Puno, Corona and Carpio-Morales, JJ ., concur.Sandoval-Gutierrez, J ., on official leave.

AGENCY

Republic of the PhilippinesSUPREME COURTManila

SECOND DIVISION

G.R. No. 141485               June 30, 2005

PABLITO MURAO and NELIO HUERTAZUELA, petitioners,. vs.PEOPLE OF THE PHILIPPINES, respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, petitioners pray for the reversal of the Decision of the Court of Appeals in CA-G.R. CR No. 21134, dated 31 May 1999,1 affirming with modification the Judgment of the Regional Trial Court (RTC) of Puerto Princesa City, Palawan, in Criminal Case No. 11943, dated 05 May 1997,2 finding petitioners guilty beyond reasonable doubt of the crime of estafa under Article 315(1)(b) of the Revised Penal Code.

Petitioner Pablito Murao is the sole owner of Lorna Murao Industrial Commercial Enterprises (LMICE), a company engaged in the business of selling and refilling fire extinguishers, with branches in Palawan, Naga, Legaspi, Mindoro, Aurora, Quezon, Isabela, and Laguna. Petitioner Nelio Huertazuela is the Branch Manager of LMICE in Puerto Princesa City, Palawan.3

On 01 September 1994, petitioner Murao and private complainant Chito Federico entered into a Dealership Agreement for the marketing, distribution, and refilling of fire extinguishers within Puerto Princesa City.4 According to the Dealership Agreement, private complainant Federico, as a dealer for LMICE, could obtain fire extinguishers from LMICE at a 50% discount, provided that he sets up his own sales force, acquires and issues his own sales invoice, and posts a bond with LMICE as security for the credit line extended to him by LMICE. Failing to comply with the conditions under the said Dealership Agreement, private complainant Federico, nonetheless, was still allowed to act as a part-time sales agent for LMICE entitled to a percentage commission from the sales of fire extinguishers.5

The amount of private complainant Federico’s commission as sales agent for LMICE was under contention. Private complainant Federico claimed that he was entitled to a commission equivalent to 50% of the gross sales he had made on behalf of LMICE,6 while petitioners maintained that he should receive only 30% of the net sales. Petitioners even contended that as company policy, part-time sales agents were entitled to a commission of only 25% of the net sales, but since private complainant Federico helped in establishing the LMICE branch office in Puerto Princesa City, he was to receive the same commission as the full-time sales agents of LMICE, which was 30% of the net sales.7

Private complainant Federico’s first successful transaction as sales agent of LMICE involved two fire extinguishers sold to Landbank of the Philippines (Landbank), Puerto Princesa City Branch, for the price of P7,200.00. Landbank issued a check, dated 08 November 1993, pay to the order

of "L.M. Industrial Comm’l. Enterprises c/o Chito Federico," for the amount of P5,936.40,8 after deducting from the original sales price the 15% discount granted by private complainant Federico to Landbank and the 3% withholding tax. Private complainant Federico encashed the check at Landbank and remitted only P2,436.40 to LMICE, while he kept P3,500.00 for himself as his commission from the sale.9

Petitioners alleged that it was contrary to the standard operating procedure of LMICE that private complainant Federico was named payee of the Landbank check on behalf of LMICE, and that private complainant Federico was not authorized to encash the said check. Despite the supposed irregularities committed by private complainant Federico in the collection of the payment from Landbank and in the premature withholding of his commission from the said payment, petitioners forgave private complainant Federico because the latter promised to make-up for his misdeeds in the next transaction.10

Private complainant Federico, on behalf of LMICE, subsequently facilitated a transaction with the City Government of Puerto Princesa for the refill of 202 fire extinguishers. Because of the considerable cost, the City Government of Puerto Princesa requested that the transaction be split into two purchase orders, and the City Government of Puerto Princesa shall pay for each of the purchase orders separately.11 Pursuant to the two purchase orders, LMICE refilled and delivered all 202 fire extinguishers to the City Government of Puerto Princesa: 154 units on 06 January 1994, 43 more units on 12 January 1994, and the last five units on 13 January 1994.12

The subject of this Petition is limited to the first purchase order, Purchase Order No. GSO-856, dated 03 January 1994, for the refill of 99 fire extinguishers, with a total cost of P309,000.00.13 On 16 June 1994, the City Government of Puerto Princesa issued Check No. 611437 to LMICE to pay for Purchase Order No. GSO-856, in the amount of P300,572.73, net of the 3% withholding tax.14 Within the same day, petitioner Huertazuela claimed Check No. 611437 from the City Government of Puerto Princesa and deposited it under the current account of LMICE with PCIBank.15

On 17 June 1994, private complainant Federico went to see petitioner Huertazuela at the LMICE branch office in Puerto Princesa City to demand for the amount of P154,500.00 as his commission from the payment of Purchase Order No. GSO-856 by the City Government of Puerto Princesa. Petitioner Huertazuela, however, refused to pay private complainant Federico his commission since the two of them could not agree on the proper amount thereof.16

Also on 17 June 1994, private complainant Federico went to the police station to file an Affidavit-Complaint for estafa against petitioners.17 Petitioners submitted their Joint Counter-Affidavit on 12 July 1994.18 The City Prosecution Office of Puerto Princesa City issued a Resolution, dated 15 August 1994, finding that a prima faciecase for estafa existed against the petitioners and recommending the filing of an information for estafa against both of them.19

The Information, docketed as Criminal Case No. 11943 and raffled to the RTC of Puerto Princesa City, Palawan, Branch 52, reads as follows –

I N F O R M A T I O N

The undersigned accuses PABLITO MURAO and NELIO C. HUERTAZUELA of the crime of ESTAFA, committed as follows:

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

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

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

1. With unfaithfulness or abuse of confidence, namely:

(a) …

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

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

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

1. That money, goods or other personal property be received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same;

2. That there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt;

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

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

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

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

…

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

…

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

a. Sales Commission equivalent to

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

with legal interest thereon from

June 17, 1994 until fully paid;

b. Attorney’s fees ---------------------------- P 30,0000.00.21

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

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

When the Court of Appeals, in its Resolution, dated 19 January 2000,23 denied their Motion for Reconsideration, petitioners filed the present Petition for Review24 before this Court, raising the following errors allegedly committed by the Court of Appeals in its Decision, dated 31 May 1999 –

I

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

II

WITH DUE RESPECT, THE HONORABLE COURT ERRED WHEN IT UPHOLD (sic) PRIVATE COMPLAINANT’S CLAIM THAT HE IS ENTITLED TO A FIFTY (50%) PERCENT COMMISSION WITHOUT EVIDENCE TO SUPPORT SUCH CLAIM.

This Court finds the instant Petition impressed with merit. Absent herein are two essential elements of the crime of estafa by misappropriation or conversion under Article 315(1)(b) of the Revised Penal Code, namely: (1) That money, goods or other personal property be received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same; and (2) That there be a misappropriation or conversion of such money or property by the offender.

The findings of the RTC and the Court of Appeals that petitioners committed estafa rest on the erroneous belief that private complainant Federico, due to his right to commission, already owned 50% of the amount paid by the City Government of Puerto Princesa to LMICE by virtue of Check No. 611437, so that the collection and deposit of the said check by petitioners under the account of LMICE constituted misappropriation or conversion of private complainant Federico’s commission.

However, his right to a commission does not make private complainant Federico a joint owner of the money paid to LMICE by the City Government of Puerto Princesa, but merely establishes the relation of agent and principal.25 It is unequivocal that an agency existed between LMICE and private complainant Federico. Article 1868 of the Civil Code defines agency as a special contract whereby "a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter." Although private complainant Federico never had the opportunity to operate as a dealer for LMICE under the terms of the Dealership Agreement, he was allowed to act as a sales agent for LMICE. He can negotiate for and on behalf of LMICE for the refill and delivery of fire extinguishers, which he, in fact, did on two occasions – with Landbank and with the City Government of Puerto Princesa. Unlike the Dealership Agreement, however, the agreement that private complainant Federico may act as sales agent of LMICE was based on an oral agreement.26

As a sales agent, private complainant Federico entered into negotiations with prospective clients for and on behalf of his principal, LMICE. When negotiations for the sale or refill of fire extinguishers were successful, private complainant Federico prepared the necessary documentation. Purchase orders, invoices, and receipts were all in the name of LMICE. It was LMICE who had the primary duty of picking up the empty fire extinguishers, filling them up, and delivering the refilled tanks to the clients, even though private complainant Federico personally helped in hauling and carrying the fire extinguishers during pick-up from and delivery to clients.

All profits made and any advantage gained by an agent in the execution of his agency should belong to the principal.27 In the instant case, whether the transactions negotiated by the sales

agent were for the sale of brand new fire extinguishers or for the refill of empty tanks, evidently, the business belonged to LMICE. Consequently, payments made by clients for the fire extinguishers pertained to LMICE. When petitioner Huertazuela, as the Branch Manager of LMICE in Puerto Princesa City, with the permission of petitioner Murao, the sole proprietor of LMICE, personally picked up Check No. 611437 from the City Government of Puerto Princesa, and deposited the same under the Current Account of LMICE with PCIBank, he was merely collecting what rightfully belonged to LMICE. Indeed, Check No. 611437 named LMICE as the lone payee. Private complainant Federico may claim commission, allegedly equivalent to 50% of the payment received by LMICE from the City Government of Puerto Princesa, based on his right to just compensation under his agency contract with LMICE,28 but not as the automatic owner of the 50% portion of the said payment.

Since LMICE is the lawful owner of the entire proceeds of the check payment from the City Government of Puerto Princesa, then the petitioners who collected the payment on behalf of LMICE did not receive the same or any part thereof in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same to private complainant Federico, thus, the RTC correctly found that no fiduciary relationship existed between petitioners and private complainant Federico. A fiduciary relationship between the complainant and the accused is an essential element of estafa by misappropriation or conversion, without which the accused could not have committed estafa.29

The RTC used the case of Manahan, Jr. v. Court of Appeals 30  to support its position that even in the absence of a fiduciary relationship, the petitioners still had the civil obligation to return and deliver to private complainant Federico his commission. The RTC failed to discern the substantial differences in the factual background of theManahan case from the present Petition. The Manahan case involved the lease of a dump truck. Although a contract of lease may not be fiduciary in character, the lessee clearly had the civil obligation to return the truck to the lessor at the end of the lease period; and failure of the lessee to return the truck as provided for in the contract may constitute estafa. The phrase "or any other obligation involving the duty to make delivery of, or to return the same" refers to contracts of bailment, such as, contract of lease of personal property, contract of deposit, and commodatum, wherein juridical possession of the thing was transferred to the lessee, depositary or borrower, and wherein the latter is obligated to return the same thing.31

In contrast, the current Petition concerns an agency contract whereby the principal already received payment from the client but refused to give the sales agent, who negotiated the sale, his commission. As has been established by this Court in the foregoing paragraphs, LMICE had a right to the full amount paid by the City Government of Puerto Princesa. Since LMICE, through petitioners, directly collected the payment, then it was already in possession of the amount, and no transfer of juridical possession thereof was involved herein. Given that private complainant Federico could not claim ownership over the said payment or any portion thereof, LMICE had

nothing at all to deliver and return to him. The obligation of LMICE to pay private complainant Federico his commission does not arise from any duty to deliver or return the money to its supposed owner, but rather from the duty of a principal to give just compensation to its agent for the services rendered by the latter.

Furthermore, the Court of Appeals, in its Decision, dated 31 May 1999, defined the words "convert" and "misappropriate" in the following manner –

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

Based on the very same definition, this Court finds that petitioners did not convert nor misappropriate the proceeds from Check No. 611437 because the same belonged to LMICE, and was not "another’s property." Petitioners collected the said check from the City Government of Puerto Princesa and deposited the same under the Current Account of LMICE with PCIBank. Since the money was already with its owner, LMICE, it could not be said that the same had been converted or misappropriated for one could not very well fraudulently appropriate to himself money that is his own.33

Although petitioners’ refusal to pay private complainant Federico his commission caused prejudice or damage to the latter, said act does not constitute a crime, particularly estafa by conversion or misappropriation punishable under Article 315(1)(b) of the Revised Penal Code. Without the essential elements for the commission thereof, petitioners cannot be deemed to have committed the crime.

While petitioners may have no criminal liability, petitioners themselves admit their civil liability to the private complainant Federico for the latter’s commission from the sale, whether it be 30% of the net sales or 50% of the gross sales. However, this Court is precluded from making a determination and an award of the civil liability for the reason that the said civil liability of petitioners to pay private complainant Federico his commission arises from a violation of the agency contract and not from a criminal act.34 It would be improper and unwarranted for this Court to impose in a criminal action the civil liability arising from a civil contract, which should have been the subject of a separate and independent civil action.35

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CR No. 21134, dated 31 May 1999, affirming with modification the Judgment of the RTC of Puerto Princesa City, Palawan, in Criminal Case No. 11943, dated 05 May 1997, finding petitioners guilty beyond reasonable

doubt of estafa by conversion or misappropriation under Article 315(1)(b) of the Revised Penal Code, and awarding the amount of P154,500.00 as sales commission to private complainant Federico, is hereby REVERSED and SET ASIDE. A new Judgment is hereby entered ACQUITTING petitioners based on the foregoing findings of this Court that their actions did not constitute the crime of estafa by conversion or misappropriation under Article 315(1)(b) of the Revised Penal Code. The cash bonds posted by the petitioners for their provisional liberty are hereby ordered RELEASED and the amounts thereof RETURNED to the petitioners, subject to the usual accounting and auditing procedures.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Republic of the PhilippinesSUPREME COURTManila

SECOND DIVISION

G.R. No. 85302 March 31, 1989

BICOL SAVINGS AND LOAN ASSOCIATION, petitioner, vs.HON. COURT OF APPEALS, CORAZON DE JESUS, LYDIA DE JESUS, NELIA DE JESUS, JOSE DE JESUS, AND PABLO DE JESUS, respondents.

Contreras & Associates for petitioner.

Reynaldo A. Feliciano for private respondents.

MELENCIO-HERRERA, J.:

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

Juan de Jesus was the owner of a parcel of land, containing an area of 6,870 sq. ms., more or less, situated in Naga City. On 31 March 1976, he executed a Special Power of Attorney in favor of his son, Jose de Jesus, "To negotiate, mortgage my real property in any bank either private or public

entity preferably in the Bicol Savings Bank, Naga City, in any amount that may be agreed upon between the bank and my attorney-in-fact." (CA Decision, p. 44, Rollo)

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

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

Juan de Jesus died in the meantime on a date that does not appear of record.

By reason of his failure to pay the loan obligation even during his lifetime, petitioner bank caused the mortgage to be extrajudicially foreclosed on 16 November 1978. In the subsequent public auction, the mortgaged property was sold to the bank as the highest bidder to whom a Provisional Certificate of Sale was issued.

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

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

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

were guilty of laches by failing to act until 31 January 1983 when they filed the instant Complaint.

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

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

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

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

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

We find the foregoing provision inapplicable herein.

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

The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. That power survives the death of the mortgagor (Perez vs. PNB, supra). In fact, the right of the mortgagee bank to extrajudicially foreclose the mortgage after the death of the mortgagor Juan de Jesus, acting through his attorney-in-fact, Jose

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

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

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

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

SO ORDERED.

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

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION 

G.R. No. 122544 January 28, 1999

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs.COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.

G.R. No. 124741 January 28, 1999

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and Jose A. DIZON, JR., petitioners, vs.COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS LINES, INC.,respondents.

MARTINEZ, J.:

Two consolidated petitions were filed before us seeking to set aside and annul the decisions and resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed with procedural intricacies which finally found its way to this Court.

G.R. No. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of Lease with Option to Buy with petitioners 1 (lessors) involving a 1,755.80 square meter parcel of land situated at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of the lease was for one (1) year commencing from May 16, 1974 up to May 15, 1975. During this period, private respondent was granted an option to purchase for the amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00.

For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982, the City Court rendered judgment 2 ordering private respondent to vacate the leased premises and to pay the sum of P624,000.00 representing rentals in arrears and/or as damages in the form of reasonable compensation for the use and occupation of the premises during the period of illegal detainer from June 1976 to November 1982 at the monthly rental of P8,000.00, less payments made, plus 12% interest per annum from November 18, 1976, the date of filing of the complaint, until fully paid, the sum of P8,000.00 a month starting December 1982, until private respondent fully vacates the premises, and to pay P20,000.00 as and by way of attorney's fees.

Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining the enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City Court.

On September 26, 1984, the then Intermidiate Appellate Court 3 (now Court of Appeals) rendered a decision 4 stating that:

. . ., the alleged question of whether petitioner was granted an extension of the option to buy the property; whether such option, if any, extended the lease or whether petitioner actually paid the alleged P300,000.00 to Fidela Dizon, as representative of private respondents in consideration of the option and, whether petitioner thereafter offered to pay the balance of the supposed purchase price, are all merely incidental and do not remove the unlawful detainer case from the jurisdiction or respondent court. In consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above matters may be raised and decided in the unlawful detainer suit as, to rule otherwise, would be a violation of the principle prohibiting multiplicity of suits. (Original Records, pp. 38-39).

The motion for reconsideration was denied. On review, this Court dismissed the petition in a resolution dated June 19, 1985 and likewise denied private respondent's subsequent motion for reconsideration in a resolution dated September 9, 1985. 5

On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with prayer for the issuance of a restraining order pending hearing on the prayer for a writ of preliminary injunction. It sought to compel the execution of a deed of sale pursuant to the option to purchase and the receipt of the partial payment, and to fix the period to pay the balance. In an Order dated October 25, 1985, the trial court denied the issuance of a writ of preliminary injunction on the ground that the decision of the then City Court for the ejectment of the private respondent, having been affirmed by the then Intermediate Appellate Court and the Supreme Court, has become final and executory.

Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from Judgment with injunction and damages. In its decision 6 dated May 12, 1986, the trial court dismissed the complaint for annulment on the ground of res judicata, and the writ of preliminary injunction previously issued was dissolved. It also ordered private respondent to pay P3,000.00 as attorney's fees. As a consequence of private respondent's motion for reconsideration, the preliminary injunction was reinstated, thereby restraining the execution of the City Court's judgment on the ejectment case.

The two cases were the after consolidated before the RTC of Quezon City, Branch 77. On April 28, 1989, a decision 7 was rendered dismissing private respondent's complaint in Civil Case No. Q-

45541 (specific performance case) and denying its motion for reconsideration in Civil Case No. 46487 (annulment of the ejectment case). The motion for reconsideration of said decision was likewise denied.

On appeal, 8 respondent Court of Appeals rendered a decision 9 upholding the jurisdiction of the City Court of Quezon City in the ejectment case. It also concluded that there was a perfected contract of sale between the parties on the leased premises and that pursuant to the option to buy agreement, private respondent had acquired the rights of a vendee in a contract of sale. It opined that the payment by private respondent of P300,000.00 on June 20, 1975 as partial payment for the leased property, which petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was the operative act that gave rise to a perfected contract of sale, and that for failure of petitioners to deny receipt thereof, private respondent can therefore assume that Alice A. Dizon, acting as agent of petitioners, was authorized by them to receive the money in their behalf. The Court of Appeals went further by stating that in fact, what was entered into was a "conditional contract of sale" wherein ownership over the leased property shall not pass to the private respondent until it has fully paid the purchase price. Since private respondent did not consign to the court the balance of the purchase price and continued to occupy the subject premises, it had the obligation to pay the amount of P1,700.00 in monthly rentals until full payment of the purchase price. The dispositive portion of said decision reads:

WHEREFORE, the appealed decision in Case No. 46387 is AFFIRMED. The appealed decision in Case No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The defendants-appellees are ordered to execute the deed of absolute sale of the property in question, free from any lien or encumbrance whatsoever, in favor of the plaintiff-appellant, and to deliver to the latter the said deed of sale, as well as the owner's duplicate of the certificate of title to said property upon payment of the balance of the purchase price by the plaintiff-appellant. The plaintiff-appellant is ordered to pay P1,700.00 per month from June 1976, plus 6% interest per annum, until payment of the balance of the purchase price, as previously agreed upon by the parties.

SO ORDERED.

Upon denial of the motion for partil reconsideration (Civil Case No. Q-45541) by respondent Court of Appeals, 10petitioners elevated the case via petition for certiorari questioning the authority of Alice A. Dizon as agent of petitioners in receiving private respondent's partial payment amounting to P300,000.00 pursuant to the Contract of Lease with Option to Buy. Petitioner also assail the propriety of private respondent's exercise of the option when it tendered the said amount on June 20, 1975 which purportedly resulted in a perfected contract of sale.

G.R. No. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No. 38-29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch 38, for execution of the judgment 11 dated November 22, 1982 which was granted in a resolution dated June 29, 1992. Private respondent filed a motion to reconsider said resolution which was denied.

Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction and/or restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution dated September 16, 1992 on the ground that the same was a refiled case previously dismissed for lack of merit. On November 26, 1992, entry of judgment was issued by this Court.

On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil Case No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court ordered the issuance of a third alias writ of execution. In denying private respondent's motion for reconsideration, it ordered the immediate implementation of the third writ of execution without delay.

On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City, Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining order (SP. PROC. No. 93-18722) challenging the enforceability and validity of the MTC judgment as well as the order for its execution.

On January 11, 1994, RTC of Quezon City, Branch 104 issued anorder 12 granting the issuance of a writ of preliminary injunction upon private respondent's' posting of an injunction bond of P50,000.00.

Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners filed a petition 13for certiorari and prohibition with a prayer for a temporary restraining order and/or preliminary injunction with the Court of Appeals. In its decision, 14 the Court of Appeals dismissed the petition and ruled that:

The avowed purpose of this petition is to enjoin the public respondent from restraining the ejectment of the private respondent. To grant the petition would be to allow the ejectment of the private respondent. We cannot do that now in view of the decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject private respondent has been demonstrated to be without basis in the said civil case. The petitioners have been shown, after all, to have no right to eject private respondents.

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

SO ORDERED. 15

Petitioners' motion for reconsideration was denied in a resolution 16 by the Court of Appeals stating that:

This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiff-appellant (private respondent herein) acquired the rights of a vendee in a contract of sale, in effect, recognizing the right of the private respondent to possess the subject premises. Considering said decision, we should not allow ejectment; to do so would disturb the status quo of the parties since the petitioners are not in possession of the subject property. It would be unfair and unjust to deprive the private respondent of its possession of the subject property after its rights have been established in a subsequent ruling.

WHEREFORE, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED. 17

Hence, this instant petition.

We find both petitions impressed with merit.

First. Petitioners have established a right to evict private respondent from the subject premises for non-payment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1) year (May 16, 1974 to May 15, 1975) during which the private respondent was given an option to purchase said property at P3,000.00 square meter. After the expiration thereof, the lease was for P3,000.00 per month.

Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and private respondent. However, since the rent was paid on a monthly basis, the period of lease is considered to be from month to month in accordance with Article 1687 of the New Civil Code. 18 Where the rentals are paid monthly, the lease, even if verbal may be deemed to be on a monthly basis, expiring at the end of every month pursuant to Article 1687, in relation to Article 1673 of the Civil Code. 19 In such case, a demand to vacate is not even necessary for judicial action after the expiration of every month. 20

When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the petitioners had a cause of action to institute an ejectment suit against the former with the then City Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by private respondent of a suit with the Regional Trial Court for specific performance to enforce the option to purchase did not divest the then City Court of its jurisdiction to take cognizance over the ejectment case. Of note is the fact that the decision of the City Court was affirmed by both the Intermediate Appellate Court and this Court.

Second. Having failed to exercise the option within the stipulated one-year period, private respondent cannot enforce its option to purchase anymore. Moreover, even

assuming arguendo that the right to exercise the option still subsists at the time private respondent tendered the amount on June 20, 1975, the suit for specific performance to enforce the option to purchase was filed only on October 7, 1985 or more than ten (10) years after accrual of the cause of action as provided under Article 1144 of the New Civil Code. 21

In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease expired without the private respondent, as lessee, purchasing the property but remained in possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the New Civil Code 22 are only those terms which are germane to the lessee's right of continued enjoyment of the property leased. 23 Therefore, an implied new lease does not ipso facto carry with it any implied revival of private respondent's option to purchase (as lessee thereof) the leased premises. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Private respondent's right to exercise the option to purchase expired with the termination of the original contract of lease for one year. The rationale of this Court is that:

This is a reasonable construction of the provision, which is based on the presumption that when the lessor allows the lessee to continue enjoying possession of the property for fifteen days after the expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to the rent which is customarily paid — in this case up to the end of the month because the rent was paid monthly. Necessarily, if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such possession, such as the amount of rental, the date when it must be paid, the care of the property, the responsibility for repairs, etc. But no such presumption may be indulged in with respect to special agreements which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease. 24

Third. There was no perfected contract of sale between petitioners and private respondent. Private respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee thereof. Private respondent further contended that petitioners' filing of the ejectment case against it based on the contract of lease with option to buy holds petitioners in estoppel to question the authority of petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as partial payment of the purchase price constituted a valid exercise of the option to buy.

Under Article 1475 of the New Civil Code, "the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts." Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent. It bears stressing that the absence of any of these essential

elements negates the existence of a perfected contract of sale. Sale is a consensual contract and he who alleges it must show its existence by competent proof. 25

In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute a perfected contract of sale pursuant to the contract of lease with option to buy. There was no valid consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners' alleged agent, and private respondent. The basis for agency is representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 26 As provided in Article 1868 of the New Civil Code, 27there was no showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf with regard to her transaction with private respondent. The most prudent thing private respondent should have done was to ascertain the extent of the authority of Alice A. Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis of a supposed agency.

In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in dealing with an agent:

Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authority will not be any excuse. Persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it.

For the long years that private respondent was able to thwart the execution of the ejectment suit rendered in favor of petitioners, we now write finis to this controversy and shun further delay so as to ensure that this case would really attain finality.

WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29, 1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals are hereby REVERSED and SET ASIDE.

Let the records of this case be remanded to the trial court for immediate execution of the judgment dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then Intermediate Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this Court.

However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which they received through Alice A. Dizon on June 20, 1975.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur.

Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. 179909               January 25, 2010

FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS) AND ROLANDO BORJA, DEPUTY SHERIFF, Petitioners, vs.SPS. ERNESTO AND LEONOR C. CAYETANO, Respondents.

D E C I S I O N

VILLARAMA, JR., J.:

This is a petition for review1 under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of the December 8, 2006 Decision2 of the Court of Appeals in CA-G.R. CV No. 76382 which affirmed the May 24, 2002 Decision3 of the Regional Trial Court (RTC) of Naga City, Branch 61 and dismissed petitioner Far East Bank and Trust Company’s appeal. The appellate court likewise denied its motion for reconsideration in a Resolution4 dated September 6, 2007.

The undisputed facts of the case are summarized as follows:

Respondent Leonor C. Cayetano (Cayetano) executed a special power of attorney in favor of her daughter Teresita C. Tabing (Tabing) authorizing her to contract a loan from petitioner in an amount not more than three hundred thousand pesos (P300,000.00) and to mortgage her two (2) lots located in Barangay Carolina, Naga City with Transfer Certificate of Title Nos. 12304 and 11621.5 For the approval of the loan, Cayetano also executed an affidavit of non-tenancy.6 Petitioner loaned Tabing one hundred thousand pesos (P100,000.00) secured by two (2) promissory notes and a real estate mortgage over Cayetano’s two (2) properties.7 The mortgage document was signed by Tabing and her husband as mortgagors in their individual capacities, without stating that Tabing was executing the mortgage contract for and in behalf of the owner (Cayetano).8

Petitioner foreclosed the mortgage for failure of the respondents and the spouses Tabing to pay the loan. A notice of public auction sale, to be conducted on September 18, 1991,9 was sent to respondents. The latter’s lawyer responded with a letter10 to petitioner requesting that the public auction be postponed. Respondents’ letter went unheeded and the public auction was held as scheduled wherein the subject properties were sold to petitioner for one hundred sixty thousand pesos (P160,000.00).11 Subsequently, petitioner consolidated its title and obtained new titles in its name after the redemption period lapsed without respondents taking any action.

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

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

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

Hence, the present petition.

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

The issue is not novel. The RTC and the Court of Appeals are both correct in holding that our decision in The Philippine Sugar Estates Development Co., Ltd., Inc. v. Poizat, et al.17 (Poizat Case), as reiterated in the case of Rural Bank of Bombon (Camarines Sur), Inc. v. Court of

Appeals18 (Bombon Case), finds application in the instant case. The factual circumstances of said cases are similar to the case at bar, where an authorized agent executed a real estate mortgage on the principal’s property in her own name without indicating that she was acting on behalf of the principal.

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

It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has not acted in the name of the principal. Neither is it ordinarily sufficient that in the mortgage the agent describes himself as acting by virtue of a power of attorney, if in fact the agent has acted in his own name and has set his own hand and seal to the mortgage. This is especially true where the agent himself is a party to the instrument. However clearly the body of the mortgage may show and intend that it shall be the act of the principal, yet, unless in fact it is executed by the agent for and on behalf of his principal and as the act and deed of the principal, it is not valid as to the principal. [EMPHASIS SUPPLIED]

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

In Bombon, respondent Ederlinda M. Gallardo (Gallardo) authorized Rufino S. Aquino (Aquino) to contract a loan from any bank and secure it with mortgage on her property. Gallardo also delivered her owner’s copy of Transfer Certificate of Title to Aquino. Aquino obtained a loan from petitioner bank and executed a deed of real estate mortgage without indicating that he was acting in behalf of Gallardo. At the beginning of the mortgage deed, it was mentioned that the mortgage was executed by Aquino, attorney-in-fact of Gallardo, together with a description of his legal capacity to contract. Gallardo and her husband filed a complaint for annulment of mortgage

against the petitioner and Aquino and one (1) of the grounds raised was that the mortgagor in the deed was Aquino instead of Gallardo. The trial court ordered the suspension of the foreclosure of the real estate mortgage until after the decision in the annulment case shall have become final and executory. The dismissal of the complaint for annulment of mortgage was appealed to the Court of Appeals which reversed the trial court and declared the mortgage contract void and unenforceable against Gallardo. Upon elevation to this Court, we held that "Aquino’s act of signing the Deed of Real Estate Mortgage in his name alone as mortgagor, without any indication that he was signing for and in behalf of the property owner, Ederlinda M. Gallardo, bound himself alone in his personal capacity as a debtor of the petitioner Bank and not as the agent or attorney-in-fact of Gallardo."19

In the fairly recent case of Gozun v. Mercado,20 respondent Mercado denied having authorized his sister-in-law (Lilian) to borrow money from petitioner who gave her "cash advance" of P253,000.00 allegedly for allowances of poll watchers. Petitioner sued respondent to collect on various sums due from the latter including the "cash advance" obtained by Lilian. The trial court found for the petitioner and ordered the respondent to pay all amounts being claimed by the petitioner. The Court of Appeals reversed the trial court’s decision and dismissed the complaint for lack of cause of action. When the case reached this Court, petitioner argued that respondent had informed him that he had authorized Lilian to obtain the loan and hence, following Macke v. Camps which held that one who clothes another with apparent authority as his agent, and holds him out to the public as such, respondent cannot be permitted to deny the authority. We sustained the Court of Appeals’ ruling on the matter and held that respondent was not liable for the "cash advance" given by petitioner to Lilian who signed the receipt in her name alone, without indicating therein that she was acting for and in behalf of respondent. She thus bound herself in her personal capacity and not as an agent of respondent or anyone for that matter.21

Notwithstanding the nullity of the real estate mortgage executed by Tabing and her husband, we find that the equity principle of laches is applicable in the instant case. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it.22 Its essential elements are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; (2) delay in asserting complainant’s right after he had knowledge of the defendant’s conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant.231avvphi1

There is no absolute rule on what constitutes laches. It is a creation of equity and applied not really to penalize neglect or sleeping upon one’s rights but rather to avoid recognizing a right when to do so would result in a clearly inequitable situation. The question of laches, we said, is

addressed to the sound discretion of the court and each case must be decided according to its particular circumstances.24 Verily, in a number of cases, it had been held that laches, the essence of which is the neglect to assert a right over a long period of time, may prevent recovery of a titled property.25

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

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

The complaint for annulment of mortgage and extrajudicial foreclosure with damages and cancellation of titles filed by respondents is hereby DISMISSED.

No costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.Associate Justice

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 149429             October 9, 2006

HADJI MAHMUD L. JAMMANG and ALMA SHIPPING LINES, INC., petitioners, vs.TAKAHASHI TRADING CO., LTD., and SINOTRANS SHANDONG COMPANY, respondents.

D E C I S I O N

AZCUNA, J.:

This is a petition for review on certiorari1 which seeks to set aside the decision and resolution of the Court of Appeals (CA) promulgated on May 16, 2001 and August 9, 2001, respectively, in CA-G.R. CV No. 64197 entitled "Takahashi Trading Co., Ltd. and Sinotrans Shandong Company v. Hadji Mahmud I. Jammang and Alma Shipping Lines, Inc."

The CA affirmed in toto the entire decision of the Regional Trial Court (RTC) of Pasig City, Branch 167, in Civil Case No. 65340, which ruled in favor of herein respondent Sinotrans Shandong Company which filed an action for the collection of a sum of money against petitioner Jammang pursuant to the provisions of their supplemental agreement.

Petitioner Hadji Mahmud I. Jammang is a trader and the owner of the MV Queen Alma, a vessel engaged in the shipment of barter goods from Singapore to Jolo, Philippines. He is also the general manager of co-petitioner Alma Shipping Lines, Inc. (Alma), a duly-organized and existing domestic corporation.

Respondent Takahashi Trading Co., Ltd. (Takahashi) is a foreign corporation duly licensed to transact business in the Philippines, while co-respondent Sinotrans Shandong Company (Sinotrans) is a foreign corporation organized and existing under the laws of the People’s Republic of China.

The facts of the case are as follows:2

Petitioner Jammang has been engaged in the trading business for over fifteen years, and is a pioneer in the establishment of trade relations between Zamboanga City and nearby Asian countries such as Taiwan, Malaysia and Indonesia. As stated earlier, Jammang is also the general manager of Alma Shipping Lines, being the owner and operator of the MV Queen Alma.

Sometime in October of 1993, Hiroaki Takahashi, the president of respondent Takahashi, introduced Jammang to Sinotrans because the latter was scouting for a supplier of Chinese goods for his buyers in Labuan, Malaysia. Sinotrans agreed to supply said respondent with Chinese goods on the condition that the latter will act as a sales agent of petitioner Sinotrans. It was agreed that Jammang shall turn over the proceeds of the sale, less mark-up, and return unsold goods, if any, to Sinotrans. On the other hand, Jammang and Takahashi agreed to split equally whatever profit may be derived from the sale of Sinotrans’ goods.

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

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

The goods were subsequently transshipped to Zamboanga City with Jammang as consignee. Initially, he made a partial turnover of the proceeds of the sale in the amount of US$230,000. After that, however, no further remittance was made.

To address the situation, the parties executed a Supplemental Agreement (Exhibit "G") on July 27, 1994, stipulating the following:

This Agreement is entered into between ALMA SHIPPING LINES, INC. and SHANDONG CO., CHINA, on July 27, 1994 at Alba Mall, Tetuan, Zamboanga City.

Whereas, the amount of goods received by Alma Shipping Lines, Inc. from SINOTRANS SHANDONG CO. CHINA is 696,337 USD.

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

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

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

Whereas, the remaining stocks in the amount of 185,000 USD [will] be sold continuously and if possible, [Alma Shipping Lines, Inc. will] try to dispose them up to October 31, 1994….

Notwithstanding the agreement, Jammang was able to remit only the amount of US$15,000.

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

Consequently, respondents filed with the RTC of Pasig City a complaint for a sum of money and damages with an application for a writ of preliminary attachment against Jammang.

Finding merit in the application for a writ of preliminary attachment, the RTC granted the same in an order dated January 26, 1996.

Respondents offered in evidence several documents to support the testimony of their lone witness, Lui Xiao Bo, a resident of China and the Import Export Manager of Sinotrans.

He declared that since only the amount of US$230,000 was remitted by Jammang as partial payment, he inspected the remaining inventory which the former showed to him. To his estimate, the value of the same was only US$180,000. Petitioner Jammang insisted, however, that he had collectibles amounting to US$246,000, and a US$100,000 worth of stocks left at BCC Warehouse.

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

On his part, petitioner Jammang insisted that as a barter trader, he neither bought nor sold the goods but merely facilitated the sale. Neither was he an agent of respondents. His signing of the supplemental agreement was only for record purposes, and the business development report was likewise signed by him in order to convince Sinotrans that it is profitable to send goods to the Philippines.3

As to the claim of Takahashi about his purported share in the profits, petitioner Jammang stated that no such profit was realized on account of the poor quality of the goods which cannot be sold at higher prices.

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

On April 22, 1999, declaring that petitioner Jammang is bound by the provisions of the supplemental agreement, the RTC rendered its decision in favor of respondents, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Sinotrans Shandong Company and against the defendant Hadji Mahmud I. Jammang, ordering the latter to pay the former, as follows:

a) The amount of US$266,000.00, as the principal obligation, plus legal interest thereon per annum until full payment, to be paid in Philippine Currency at the exchange rate fixed by the Bangko Sentral at the time of payment (Pan American World Airways v. Intermediate Appellate Court, G.R. No. 44445, 31 August 1987);

b) To pay 10% of the principal obligation, as and for reasonable attorney’s fees;

c) To account for the remaining stocks valued at US$185,000.00 and, if sold, to remit the proceeds of the sale; and,

d) To pay the costs.

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

SO ORDERED.5

Petitioners appealed the RTC decision to the CA. On May 16, 2001, the CA affirmed the assailed decision, thus:

WHEREFORE, premises considered, the present appeal is hereby DISMISSED and the appealed Decision in Civil Case No. 65340 is hereby AFFIRMED in its entirety.

Double costs against the defendants-appellants.

SO ORDERED.6

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

Petitioners contend that:

I.

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

A. A CORPORATION HAS A PERSONALITY SEPARATE AND DISTINCT FROM ITS STOCKHOLDERS;

B. THE DOCTRINE OF SEPARATE CORPORATE IDENTITY APPLIES TO OFFICERS OF CORPORATIONS; AND,

C. JAMMANG, WHO IS NOT A STOCKHOLDER OR EVEN AN OFFICER BUT A MERE GENERAL MANAGER, CANNOT BE HELD LIABLE FOR ANY OBLIGATION CONTRACTED BY ALMA AS A CORPORATE ENTITY.

II

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH THE LAW ON AGENCY AND SETTLED JURISPRUDENCE CONSIDERING THAT:

A. IT HELD THAT JAMMANG WAS AN AGENT OF SINOTRANS DESPITE THE LACK OF A SPECIAL POWER OF ATTORNEY AUTHORIZING HIM TO SELL THE GOODS OF THE LATTER; AND,

B. EVEN ASSUMING ARGUENDO THAT JAMMANG WAS AN AGENT OF SINOTRANS, THE COURT OF APPEALS SERIOUSLY ERRED IN ITS INTERPRETATION AND APPLICATION OF THE LAW ON AGENCY, IN THAT:

1. AN AGENT IS NEVER LIABLE TO REMIT TO HIS PRINCIPAL THE PROCEEDS OF THE GOODS DELIVERED TO HIM FOR SALE UNLESS HE RECEIVED THE SAME; AND,

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

III

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

A. THE LONE WITNESS FOR THE RESPONDENTS DID NOT TESTIFY BEFORE THE JUDGE HANDLING THE CASE BUT BEFORE A MERE RESEARCHER WHO IS NOT A MEMBER OF THE BAR;

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

C. THE ENTIRE RECORDS OF THE CASE, EVEN THE VERY DECISION OF THE TRIAL COURT, SHOWED THAT THE RESPONDENTS MISERABLY FAILED TO PROVE BY PREPONDERANT EVIDENCE THAT THEY WERE ENTITLED TO THEIR CLAIMS AND THE AMOUNT SO ADJUDGED.

IV

THE COURT OF APPEALS ERRED IN NOT HOLDING THE RESPONDENTS LIABLE TO THE PETITIONERS FOR ACTUAL, MORAL AND EXEMPLARY DAMAGES, AS WELL AS FOR ATTORNEY’S FEES AND FOR EXPENSES OF LITIGATION.

Petitioners argue as follows:

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

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

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

The RTC judge was not able to observe the demeanor of respondent’s witness, Liu Xiao Bo, because it was only the legal researcher, Petronilo Jalandoni, who was not a member of the Bar, who presided in the proceedings and received the testimony of the witness.

No evidence was presented to prove that US$266,000 was due and owing from petitioner.

Respondents should reimburse petitioner for actual, moral and exemplary damages, as well as for attorney’s fees and litigation expenses.

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

The dispute really turns on factual questions.

As the Court of Appeals stated in its decision:

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

withdrew some of the goods at the warehouse, the same does not sufficiently prove the existence of agent-principal relationship between him and plaintiffs-appellees, as in fact it only goes to show that he did so to assist appellant Jammang in disposing of the goods. This conclusion is buttressed by the fact that the buyers had issued promissory notes for the payment of the goods bought by them in the name of appellant Jammang and not of Palis.

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

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

valued at US$185,000 and to pay 10% of the principal obligation of US$266,000 as reasonable attorney’s fees, pursuant to Art. 2208 (2) of the Civil Code.

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

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

WHEREFORE, the petition is DENIED. No costs.

SO ORDERED.

Puno, J., Chairperson, Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners, vs.ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.

D E C I S I O N

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as the Resolution2 of the CA denying the motion for reconsideration thereof.

The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were conducted on eight parcels of land with a total area of 47,233 square meters. The properties, located in Mandaluyong City, Metro Manila, were covered by

Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of Belgium.3 Jack Glanville, an Australian citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of ESAC. Both had their offices in Belgium.

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

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

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

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

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

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

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

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

May 22, 1987

Mr. L.G. MarquezL.G. Marquez, Inc.334 Makati Stock Exchange Bldg.6767 Ayala AvenueMakati, Metro ManilaPhilippines

Dear Sir:

Re: Land of Eternit Corporation

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

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

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

x x x

Yours sincerely,

(Sgd.)C.F. DELSAUX

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

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

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

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

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

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

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

The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also dismissed for lack of merit.13

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

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the real estate broker in the instant case needed a written authority from appellee corporation and/or that said broker had no such written authority; and (2) the lower court committed grave error of law in holding that appellee corporation is not legally bound for specific performance and/or damages in the absence of an enabling resolution of the board of directors."15 They averred that Marquez acted merely as a broker or go-between and not as agent

of the corporation; hence, it was not necessary for him to be empowered as such by any written authority. They further claimed that an agency by estoppel was created when the corporation clothed Marquez with apparent authority to negotiate for the sale of the properties. However, since it was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the corporation was obliged to consummate.

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

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

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

In the instant petition for review, petitioners aver that

I

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

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance was made known to them through real estate broker Marquez.

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

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

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

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

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

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;

4. The GOOD FAITH of Petitioners in believing Eternit’s offer to sell the properties as evidenced by the Petitioners’ ACCEPTANCE of the counter-offer;

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

6. Glanville’s telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND SELL";

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

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

Dear Sir,

Re: Land of Eternit Corporation

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

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

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

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19

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

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

Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux

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

The petition has no merit.

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

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether testimonial and documentary. There are, however, recognized exceptions where the Court may delve into and resolve factual issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported by the evidence on record and the law.

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

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides:

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

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

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

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the limitations prescribed by law and the Constitution, as follows:

SEC. 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power and capacity:

x x x x

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of a lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders or members, and as such, may not be sold without express authority from the board of directors.27 Physical acts, like the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of sale covering such property, can be performed by the corporation only by officers or agents duly authorized for the

purpose by corporate by-laws or by specific acts of the board of directors.28 Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such director, are not binding on the corporation.29

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

By the contract of agency, a person binds himself to render some service or to do something in representation on behalf of another, with the consent or authority of the latter.32 Consent of both

principal and agent is necessary to create an agency. The principal must intend that the agent shall act for him; the agent must intend to accept the authority and act on it, and the intention of

the parties must find expression either in words or conduct between them.33

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

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

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for Asia,38 the Board of Directors of respondent ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC.40 As such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the property forP27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed petitioners’ offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of

respondent ESAC to petitioners’ offer. However, as admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC.41 When Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the entire management or Board of Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance.

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

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

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

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

purchaser who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell.47

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

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

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

SO ORDERED.

ROMEO J. CALLEJO, SR.Associate Justice

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 171052             January 28, 2008

PHILIPPINE HEALTH-CARE PROVIDERS, INC. (MAXICARE), petitioner, vs.CARMELA ESTRADA/CARA HEALTH SERVICES, respondent.

D E C I S I O N

NACHURA, J.:

This petition for review on certiorari assails the Decision1 dated June 16, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 66040 which affirmed in toto the Decision2 dated October 8, 1999 of the Regional Trial Court (RTC), Branch 135, of Makati City in an action for breach of contract and damages filed by respondent Carmela Estrada, sole proprietor of Cara Health Services, against Philippine Health-Care Providers, Inc. (Maxicare).

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

[Maxicare] is a domestic corporation engaged in selling health insurance plans whose Chairman Dr. Roberto K. Macasaet, Chief Operating Officer Virgilio del Valle, and Sales/Marketing Manager Josephine Cabrera were impleaded as defendants-appellants.

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

Commission

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

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

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

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

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

On March 24, 1992, plaintiff-appellee [Estrada], through counsel, demanded from [Maxicare] that it be paid commissions for the MERALCO account and nine (9) other accounts. In reply, [Maxicare], through counsel, denied [Estrada’s] claims for commission for the MERALCO and other accounts because [Maxicare] directly negotiated with MERALCO and the other accounts(,) and that no agent was given the go signal to intervene in the negotiations for the terms and conditions and the signing of the service agreement with MERALCO and the other accounts so that if ever [Maxicare] was indebted to [Estrada], it was only for P1,555.00 andP43.l2 as commissions on the accounts of Overseas Freighters Co. and Mr. Enrique Acosta, respectively.

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

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

After trial, the RTC found Maxicare liable for breach of contract and ordered it to pay Estrada actual damages in the amount equivalent to 10% of P20,169,335.00, representing her commission for the total premiums paid by Meralco to Maxicare from the year 1991 to 1996, plus legal interest computed from the filing of the complaint on March 18, 1993, and attorney’s fees in the amount of P100,000.00.

On appeal, the CA affirmed in toto the RTC’s decision. In ruling for Estrada, both the trial and appellate courts held that Estrada was the "efficient procuring cause" in the execution of the service agreement between Meralco and Maxicare consistent with our ruling in Manotok Brothers, Inc. v. Court of Appeals.4

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

1. Whether the Court of Appeals committed serious error in affirming Estrada’s entitlement to commissions for the execution of the service agreement between Meralco and Maxicare.

2. Corollarily, whether Estrada is entitled to commissions for the two (2) consecutive renewals of the service agreement effective on December 1, 19925 and December 1, 1995.6

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

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

Maxicare urges us that both the RTC and CA failed to take into account the stipulations contained in the February 19, 1991 letter agreement authorizing the payment of commissions only upon satisfaction of twin conditions, i.e., collection and contemporaneous remittance of premium dues by Estrada to Maxicare. Allegedly, the lower courts disregarded Estrada’s admission that the

negotiations with Meralco failed. Thus, the flawed application of the "efficient procuring cause" doctrine enunciated in Manotok Brothers, Inc. v. Court of Appeals,9 and the erroneous conclusion upholding Estrada’s entitlement to commissions on contracts completed without her participation.

We are not persuaded.

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

There is no dispute as to the role that plaintiff-appellee [Estrada] played in selling [Maxicare’s] health insurance plan to Meralco. Plaintiff-appellee [Estrada’s] efforts consisted in being the first to offer the Maxicare plan to Meralco, using her connections with some of Meralco Executives, inviting said executives to dinner meetings, making submissions and representations regarding the health plan, sending follow-up letters, etc.

These efforts were recognized by Meralco as shown by the certification issued by its Manpower Planning and Research Staff Head Ruben A. Sapitula on September 5, 1991, to wit:

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

x x x x

This Court finds that plaintiff-appellee [Estrada’s] efforts were instrumental in introducing the Meralco account to [Maxicare] in regard to the latter’s Maxicare health insurance plans. Plaintiff-appellee [Estrada] was the efficient "intervening cause" in bringing about the service agreement with Meralco. As pointed out by the trial court in its October 8, 1999 Decision, to wit:

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

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

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

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

First. Maxicare’s contention that Estrada may only claim commissions from membership dues which she has collected and remitted to Maxicare as expressly provided for in the letter-agreement does not convince us. It is readily apparent that Maxicare is attempting to evade payment of the commission which rightfully belongs to Estrada as the broker who brought the parties together. In fact, Maxicare’s former Chairman Roberto K. Macasaet testified that Maxicare had been trying to land the Meralco account for two (2) years prior to Estrada’s entry in 1990.12 Even without that admission, we note that Meralco’s Assistant Vice-President, Donatila San Juan, in a letter13 dated January 21, 1992 to then Maxicare President Pedro R. Sen, categorically acknowledged Estrada’s efforts relative to the sale of Maxicare health plans to Meralco, thus:

Sometime in 1989, Meralco received a proposal from Philippine Health-Care Providers, Inc. (Maxicare) through the initiative and efforts of Ms. Carmela Estrada, who introduced Maxicare to Meralco. Prior to this time, we did not know that Maxicare is a major health care provider in the country. We have since negotiated and signed up with Maxicare to provide a health maintenance plan for dependents of Meralco executives, effective December 1, 1991 to November 30, 1992.

At the very least, Estrada penetrated the Meralco market, initially closed to Maxicare, and laid the groundwork for a business relationship. The only reason Estrada was not able to participate in the collection and remittance of premium dues to Maxicare was because she was prevented from doing so by the acts of Maxicare, its officers, and employees.

In Tan v. Gullas,14 we had occasion to define a broker and distinguish it from an agent, thus:

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

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

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

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

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

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

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

For instance, if a party invokes an "admission" by an adverse party, but cites the admission "out of context," then the one making the admission may show that he made no "such" admission, or that his admission was taken out of context.

This may be interpreted as to mean "not in the sense in which the admission is made to appear." That is the reason for the modifier "such."21

In this case, the letter, although part of Estrada’s Complaint, is not, ipso facto, an admission of the statements contained therein, especially since the bone of contention relates to Estrada’s entitlement to commissions for the sale of health plans she claims to have brokered. It is more than obvious from the entirety of the records that Estrada has unequivocally and consistently

declared that her involvement as broker is the proximate cause which consummated the sale between Meralco and Maxicare.

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

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

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

We, therefore, ADMONISH Maxicare’s counsel, and, in turn, remind every member of the Bar that the practice of law carries with it responsibilities which are not to be trifled with. Maxicare’s counsel ought to be reacquainted with Canon 1024 of the Code of Professional Responsibility, specifically, Rule 10.02, to wit:

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

Third. Finally, we likewise affirm the uniform ruling of the RTC and CA that Estrada is entitled to 10% of the total amount of premiums paid25 by Meralco to Maxicare as of May 1996. Maxicare’s argument that assuming Estrada is entitled to commissions, such entitlement only covers the initial year of the service agreement and should not include the premiums paid for the succeeding renewals thereof, fails to impress. Considering that we have sustained the lower courts’ factual finding of Estrada’s close, proximate and causal connection to the sale of health plans, we are not wont to disturb Estrada’s complete entitlement to commission for the total premiums paid until May 1996 in the amount of P20,169,335.00.

WHEREFORE, premises considered and finding no reversible error committed by the Court of Appeals, the petition is hereby DENIED. Costs against the petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 150678             February 18, 2005

BIENVENIDO R. MEDRANO and IBAAN RURAL BANK, petitioners, vs.COURT OF APPEALS, PACITA G. BORBON, JOSEFINA E. ANTONIO and ESTELA A. FLOR, respondents.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review of the Decision1 of the Court of Appeals (CA) affirming in toto the Decision2 of the Regional Trial Court (RTC) of Makati City, Branch 135, in Civil Case No. 15664 which awarded to the respondents their 5% broker’s commission.

The facts are as follows:

Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank, a bank owned by the Medrano family. In 1986, Mr. Medrano asked Mrs. Estela Flor, a cousin-in-law, to look for a buyer of a foreclosed asset of the bank,3a 17-hectare mango plantation priced at P2,200,000.00, located in Ibaan, Batangas.4

Mr. Dominador Lee, a businessman from Makati City, was a client of respondent Mrs. Pacita G. Borbon, a licensed real estate broker. The two met through a previous transaction where Lee responded to an ad in a newspaper put up by Borbon for an 8-hectare property in Lubo, Batangas, planted with atis trees. Lee expressed that he preferred a land with mango trees instead. Borbon promised to get back to him as soon as she would be able to find a property according to his specifications.

Borbon relayed to her business associates and friends that she had a ready buyer for a mango orchard. Flor then advised her that her cousin-in-law owned a mango plantation which was up for sale. She told Flor to confer with Medrano and to give them a written authority to negotiate the sale of the property.5 Thus, on September 3, 1986, Medrano issued the Letter of Authority, as follows:

Mrs. Pacita G. Borbon & Miss Josefina E. AntonioCampos Rueda BuildingTindalo, Makati, M.M.

Mrs. Estela A. Flor & Miss Maria Yumi S. Karasig23 Mabini StreetQuezon City, M.M.

Dear Mesdames:

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

Location : Barrio Tulay-na-Patpat, Ibaan, Batangas

Lot Area : 17 hectares (more or less) perattached Appendix "A"

Improvements : 720 all fruit-bearing mango trees(carabao variety) and other trees

Price : P 2,200,000.00

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

Very truly yours,

(Sgd.)B.R. MedranoOwner

* Subject to price sale.6

The respondents arranged for an ocular inspection of the property together with Lee which never materialized – the first time was due to inclement weather; the next time, no car was available for the tripping to Batangas.7 Lee then called up Borbon and told her that he was on his way to Lipa City to inspect another property, and might as well also take a look at the property Borbon was offering. Since Lee was in a hurry, the respondents could no longer accompany him at the time. Thus, he asked for the exact address of the property and the directions on how to reach the lot in Ibaan from Lipa City. Thereupon, Lee was instructed to get in touch with Medrano’s daughter and also an officer of the bank, Mrs. Teresa Ganzon, regarding the property.81ªvvphi1.nét

Two days after the visit, respondent Josefina Antonio called Lee to inquire about the result of his ocular inspection. Lee told her that the mango trees "looked sick" so he was bringing an

agriculturist to the property. Three weeks thereafter, Antonio called Lee again to make a follow-up of the latter’s visit to Ibaan. Lee informed her that he already purchased the property and had made a down payment of P1,000,000.00. The remaining balance of P1,200,000.00 was to be paid upon the approval of the incorporation papers of the corporation he was organizing by the Securities and Exchange Commission. According to Antonio, Lee asked her if they had already received their commission. She answered "no," and Lee expressed surprise over this.9

A Deed of Sale was eventually executed on November 6, 1986 between the bank, represented by its President/General Manager Teresa M. Ganzon (as Vendor) and KGB Farms, Inc., represented by Dominador Lee (as Vendee), for the purchase price of P1,200,000.00.10 Since the sale of the property was consummated, the respondents asked from the petitioners their commission, or 5% of the purchase price. The petitioners refused to pay and offered a measly sum of P5,000.00 each.11 Hence, the respondents were constrained to file an action against herein petitioners.

The petitioners alleged that Medrano issued the letter of authority in favor of all the respondents, upon the representation of Flor that she had a prospective buyer. Flor was the only person known to Medrano, and he had never met Borbon and Antonio. Medrano had asked that the name of their prospective buyer be immediately registered so as to avoid confusion later on, but Flor failed to do so. Furthermore, the other officers of the bank had never met nor dealt with the respondents in connection with the sale of the property. Ganzon also asked Lee if he had an agent and the latter replied that he had none. The petitioners also denied that the purchase price of the property was P2,200,000.00 and alleged that the property only cost P1,200,000.00. The petitioners further contended that the letter of authority signed by Medrano was not binding or enforceable against the bank because the latter had a personality separate and distinct from that of Medrano. Medrano, on the other hand, denied liability, considering that he was not the registered owner of the property, but the bank. The petitioners, likewise, filed a counterclaim as they were constrained to hire the services of counsel and suffered damages.12

After the case was submitted for decision, Medrano died, but no substitution of party was made at this time.13

The trial court resolved the case based on the following common issues:

1. Whether or not the letter of authority is binding and enforceable against the defendant Bank only or both defendants; and

2. Whether or not the plaintiffs are entitled to any commission for the sale of the subject property.14

On September 21, 1994, the trial court rendered a Decision in favor of the respondents. The petitioners were ordered to pay, jointly and severally, the 5% broker’s commission to herein respondents. The trial court found that the letter of authority was valid and binding as against Medrano and the Ibaan Rural bank. Medrano signed the said letter for and in behalf of the bank, and as owner of the property, promising to pay the respondents a 5% commission for their

efforts in looking for a purchaser of the property. He is, therefore, estopped from denying liability on the basis of the letter of authority he issued in favor of the respondents. The trial court further stated that the sale of the property could not have been possible without the representation and intervention of the respondents. As such, they are entitled to the broker’s commission of 5% of the selling price of P1,200,000.00 as evidenced by the deed of sale.15 The fallo of the decision reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants, for the latter, jointly and severally:

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

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

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

4. To pay the costs of the proceedings.16

Unable to agree with the RTC decision, petitioner Ibaan Rural Bank filed its notice of appeal.17

On October 10, 1994, the heirs of Bienvenido Medrano filed a Motion for Reconsideration18 praying that the late Bienvenido Medrano be substituted by his heirs. They further prayed that the trial court’s decision as far as Medrano was concerned be set aside and dismissed considering his demise. The trial court denied the motion for reconsideration.19 Hence, the heirs of Medrano also filed their notice of appeal.20

On appeal, the petitioners reiterated their stance that the letter of authority was not binding and enforceable, as the same was signed by Medrano, who was not actually the owner of the property. They refused to give the respondents any commission, since the latter did not perform any act to consummate the sale. The petitioners pointed out that the respondents (1) did not verify the real owner of the property; (2) never saw the property in question; (3) never got in touch with the registered owner of the property; and (4) neither did they perform any act of assisting their buyer in having the property inspected and verified.21 The petitioners further raised the trial court’s error in not dismissing the case against Bienvenido Medrano considering his death.

On May 3, 2001, the CA promulgated the assailed decision affirming the finding of the trial court that the letter of authority was valid and binding. Applying the principle of agency, the appellate court ruled that Bienvenido Medrano constituted the respondents as his agents, granting them authority to represent and act on behalf of the former in the sale of the 17-hectare mango plantation. The CA also ruled that the trial court did not err in finding that the respondents were

the procuring cause of the sale. Suffice it to state that were it not for the respondents, Lee would not have known that there was a mango orchard offered for sale.1awphi1.nét

The CA further ruled that an action for a sum of money continues even after the death of the defendant, and shall remain as a money claim against the estate of the deceased.

Undaunted by the CA’s unfavorable decision, the petitioners filed the instant petition, raising eight (8) assignments of errors, to wit:

I. THE COURT OF APPEALS ERRED WHEN IT FOUND THE PRIVATE RESPONDENTS TO BE THE PROCURING CAUSE OF THE SALE;

II. THE COURT OF APPEALS ERRED IN GIVING CREDENCE TO THE LETTER-AUTHORITY OF PETITIONER MR. MEDRANO;

III. THE COURT OF APPEALS MADE A MISTAKE WHEN IT CORRECTLY RECOGNIZED THE EXTENT OF THE PRIVATE RESPONDENTS’ OBLIGATION AND AUTHORITY CONTAINED IN MEDRANO’S LETTER-AUTHORITY AND YET ERRONEOUSLY GRANTED THE PRIVATE-RESPONDENTS’ DEMAND, NOTWITHSTANDING THE NON-PERFORMANCE OF THEIR OBLIGATION THEREUNDER;

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

V. THE COURT OF APPEALS ERRED IN PLACING THE BURDEN OF PROOF UPON THE DEFENDANTS-PETITIONERS;

VI. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION WITH EVIDENCE AND INSTEAD RELIED ON INFERENCE;

VII. THE COURT OF APPEALS FAILED TO SUBSTANTIATE ITS CONCLUSION WITH EVIDENCE AND MERELY RELIED ON SPECULATION AND SURMISE;

VIII. THE COURT OF APPEALS MISAPPRECIATED THE FACTS PRESENTED BEFORE IT, AND CONSEQUENTLY FAILED TO CONSIDER REASONABLY THE TWO (2) BASIC ARGUMENTS OF THE PETITIONERS.22

The petition is denied.

The records disclose that respondent Pacita Borbon is a licensed real estate broker23 and respondents Josefina Antonio and Estela A. Flor are her associates.24 A broker is generally defined as one who is engaged, for others, on a commission, negotiating contracts relative to property with the custody of which he has no concern; the negotiator between other parties,

never acting in his own name but in the name of those who employed him; he is strictly a middleman and for some purposes the agent of both parties. A broker is one whose occupation is to bring parties together, in matters of trade, commerce or navigation.25 For the respondents’ participation in finding a buyer for the petitioners’ property, the petitioners refuse to pay them commission, asserting that they are not the efficient procuring cause of the sale, and that the letter of authority signed by petitioner Medrano is not binding against the petitioners.

"Procuring cause" is meant to be the proximate cause.26 The term "procuring cause," in describing a broker’s activity, refers to a cause originating a series of events which, without break in their continuity, result in accomplishment of prime objective of the employment of the broker – producing a purchaser ready, willing and able to buy real estate on the owner’s terms.27 A broker will be regarded as the "procuring cause" of a sale, so as to be entitled to commission, if his efforts are the foundation on which the negotiations resulting in a sale are begun.28 The broker must be the efficient agent or the procuring cause of the sale. The means employed by him and his efforts must result in the sale. He must find the purchaser, and the sale must proceed from his efforts acting as broker.29

Indeed, the evidence on record shows that the respondents were instrumental in the sale of the property to Lee. Without their intervention, no sale could have been consummated. They were the ones who set the sale of the subject land in motion.30 Upon being informed by Flor that Medrano was selling his mango orchard, Borbon lost no time in informing Lee that they had found a property according to his specifications. An ocular inspection of the property together with Lee was immediately planned; unfortunately, it never pushed through for reasons beyond the respondents’ control. Since Lee was in a hurry to see the property, he asked the respondents the exact address and the directions on how to reach Ibaan, Batangas. The respondents thereupon instructed him to look for Teresa Ganzon, an officer of the Ibaan Rural Bank and the person to talk to regarding the property. While the letter-authority issued in favor of the respondents was non-exclusive, no evidence was adduced to show that there were other persons, aside from the respondents, who informed Lee about the property for sale. Ganzon testified that no advertisement was made announcing the sale of the lot, nor did she give any authority to other brokers/agents to sell the subject property.31 The fact that it was Lee who personally called Borbon and asked for directions prove that it was only through the respondents that Lee learned about the property for sale.32Significantly, too, Ms. Teresa Ganzon testified that there were no other persons other than the respondents who inquired from her about the sale of the property to Lee.33 It can thus be readily inferred that the respondents were the only ones who knew about the property for sale and were responsible in leading a buyer to its consummation. All these circumstances lead us to the inescapable conclusion that the respondents were the procuring cause of the sale. When there is a close, proximate and causal connection between the broker’s efforts and the principal’s sale of his property, the broker is entitled to a commission.34

The petitioners insist that the respondents are not entitled to any commission since they did not actually perform any acts of "negotiation" as required in the letter-authority. They refuse to pay the commission since according to them, the respondents’ participation in the transaction was not apparent, if not nil. The respondents did not even look at the property themselves; did not

introduce the buyer to the seller; did not hold any conferences with the buyer, nor take part in concluding the sale. For the non-compliance of this obligation "to negotiate," the petitioners argue, the respondents are not entitled to any commission.

We find the argument specious.l^vvphi1.net The letter of authority must be read as a whole and not in its truncated parts. Certainly, it was not the intention of Medrano to expect the respondents to do just that (to negotiate) when he issued the letter of authority. The clear intention is to reward the respondents for procuring a buyer for the property. Before negotiating a sale, a broker must first and foremost bring in a prospective buyer. It has been held that a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made.35 The essential feature of a broker’s conventional employment is merely to procure a purchaser for a property ready, able, and willing to buy at the price and on the terms mutually agreed upon by the owner and the purchaser. And it is not a prerequisite to the right to compensation that the broker conduct the negotiations between the parties after they have been brought into contact with each other through his efforts.36 The case ofMacondray v. Sellner37 is quite instructive:

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

Notably, there are cases where the right of the brokers to recover commissions were upheld where they actually took no part in the negotiations, never saw the customer, and even some in which they did nothing except advertise the property, as long as it can be shown that they were the efficient cause of the sale.38

In the case at bar, the role of the respondents in the transaction is undisputed. Whether or not they participated in the negotiations of the sale is of no moment. Armed with an authority to procure a purchaser and with a license to act as broker, we see no reason why the respondents can not recover compensation for their efforts when, in fact, they are the procuring cause of the sale.39

Anent the validity of the letter-authority signed by Medrano, we find no reversible error with the findings of the appellate and trial courts that the petitioners are liable thereunder. Such factual findings deserve this Court’s respect in the absence of any cogent reason to reverse the same. Medrano’s obligation to pay the respondents commission for their labor and effort in finding a purchaser or a buyer for the described parcel of land is unquestionable. In the absence of fraud, irregularity or illegality in its execution, such letter-authority serves as a contract, and is considered as the law between the parties. As such, Medrano can not renege on the promise to pay commission on the flimsy excuse that he is not the registered owner of the property. The

evidence shows that he comported himself to be the owner of the property. His testimony is quite telling:

Q Mr. Medrano, do you know any of the plaintiffs in this case, Pacita Borbon, Josefina Antonio, and Stella (sic) F. Flor?

WITNESS

A I know only Stella (sic) F. Flor. The rest, I do not know them. I have never met them, up to now.

Q How about the co-defendant Ibaan Rural Bank?

A I know co-defendant Ibaan Rural Bank, having been the founder and at one time or another, I have served several capacities from President to Chairman of the Board.

Q Are you familiar with a certain parcel of land located at Barrio Tulay na Patpat, Ibaan, Batangas, with an area of 17 hectares?

A Yes, Sir. I used to own that property but later on mortgaged it to Ibaan Rural Bank.

Q And what, if any, [did] the bank do to your property after you have mortgaged the same to it?

A After many demands for payment or redemption of my mortgage, which I failed to do so, the Ibaan Rural Bank sold it.

Q After it was foreclosed?

A Yes, Sir.

Q Do you recall having made any transaction with plaintiff Stella (sic) F. Flor regarding the property?

A Yes, Sir. Since she is the first cousin of my wife, I remember [that] she came to my office once and requested for a letter of authority which I issued [in] September 1986, I think, and I gave her the letter of authority.40

As to the liability of the bank, we quote with favor the disquisition of the respondent court, to wit:

Further, the appellants cannot use the flimsy excuse (only to evade liability) that "(w)hat Mr. Medrano represented to the plaintiffs-appellees, without the knowledge or consent of the

defendant Bank, did not bind the Bank. Res inter alios acta alteri nocere non debet." (page 8 of the Appellant’s Brief; page 35 of the Rollo). While it may be true that technically the Ibaan Rural Bank did not authorize Bienvenido R. Medrano to sell the land under litigation or that the latter was no longer an officer of the said bank, still, these circumstances do not convince this Court fully well to absolve the bank. Note that, as former President of the said bank, it is improbable that he (Bienvenido R. Medrano) was completely oblivious of the developments therein. By reason of his past association with the officers of the said bank (who are, in fact, his relatives), it is unbelievable that Bienvenido R. Medrano could simply have issued the said letter of authority without the knowledge of the said officers. Granting por aguendothat Bienvenido R. Medrano did not act on behalf of the bank, however, We doubt that he had no financial and/or material interest in the said sale – a fact that could not possibly have eluded Our attention.41

From all the foregoing, there can be no other conclusion than the respondents are indeed the procuring cause of the sale. If not for the respondents, Lee would not have known about the mango plantation being sold by the petitioners. The sale was consummated. The bank had profited from such transaction. It would certainly be iniquitous if the respondents would not be rewarded their commission pursuant to the letter of authority.

WHEREFORE, the petition is DENIED due course. The Decision of the Court of Appeals is AFFIRMED.

SO ORDERED.

Puno, (Chairman), Tinga, and Chico-Nazario, JJ., concur.Austria-Martinez, J., no part.

Republic of the PhilippinesSUPREME COURT

THIRD DIVISION

G.R. No. 141525 September 2, 2005

CARLOS SANCHEZ, Petitioners, vs.MEDICARD PHILIPPINES, INC., DR. NICANOR MONTOYA and CARLOS EJERCITO, Respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

This petition for review on certiorari seeks to reverse the Decision1 of the Court of Appeals dated February 24, 1999 and its Resolution dated January 12, 2000 in CA-G.R. CV No. 47681.

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

Sometime in 1987, Medicard Philippines, Inc. (Medicard), respondent, appointed petitioner as its special corporate agent. As such agent, Medicard gave him a commission based on the "cash brought in."

In September, 1988, through petitioner’s efforts, Medicard and United Laboratories Group of Companies (Unilab) executed a Health Care Program Contract. Under this contract, Unilab shall pay Medicard a fixed monthly premium for the health insurance of its personnel. Unilab paid Medicard P4,148,005.00 representing the premium for one (1) year. Medicard then handed petitioner 18% of said amount or P746,640.90 representing his commission.

Again, through petitioner’s initiative, the agency contract between Medicard and Unilab was renewed for another year, or from October 1, 1989 to September 30, 1990, incorporating therein the increase of premium fromP4,148,005.00 to P7,456,896.00. Medicard paid petitioner P1,342,241.00 as his commission.

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

In a letter dated October 3, 1990, Unilab, through Carlos Ejercito, another respondent, confirmed its decision not to renew the health program contract with Medicard.

Meanwhile, in order not to prejudice its personnel by the termination of their health insurance, Unilab, through respondent Ejercito, negotiated with Dr. Montoya and other officers of Medicard, to discuss ways in order to continue the insurance coverage of those personnel.

Under the new scheme, Unilab shall pay Medicard only the amount corresponding to the actual hospitalization expenses incurred by each personnel plus 15% service fee for using Medicard facilities, which amount shall not be less than P780,000.00.

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

In a letter dated March 15, 1991, petitioner demanded from Medicard payment of P338,000.00 as his commission plus damages, but the latter refused to heed his demand.

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

After hearing, the RTC rendered its Decision dismissing petitioner’s complaint and respondents’ counterclaim.

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

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

Hence, the instant petition for review on certiorari.

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

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

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

It may be recalled that through petitioner’s efforts, Medicard was able to enter into a one-year Health Care Program Contract with Unilab. As a result, Medicard paid petitioner his commission. Again, through his efforts, the contract was renewed and once more, he received his commission. Before the expiration of the renewed contract, Medicard, through petitioner, proposed an increase in premium, but Unilab rejected this proposal. Medicard then requested petitioner to reduce his commission should the contract be renewed on its third year, but he was obstinate.

Meantime, on October 3, 1990, Unilab informed Medicard it was no longer renewing the Health Care Program contract.

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

It is clear that since petitioner refused to reduce his commission, Medicard directly negotiated with Unilab, thus revoking its agency contract with petitioner. We hold that such revocation is authorized by Article 1924 of the Civil Code which provides:

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

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

WHEREFORE, the petition is DENIED. The challenged Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 47681 are AFFIRMED IN TOTO. Costs against petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Baguio City

SECOND DIVISION

G.R. No. 165133               April 19, 2010

SPOUSES JOSELINA ALCANTARA AND ANTONIO ALCANTARA, and SPOUSES JOSEFINO RUBI AND ANNIE DISTOR- RUBI, Petitioners, 

vs.BRIGIDA L. NIDO, as attorney-in-fact of REVELEN N. SRIVASTAVA, Respondent.

R E S O L U T I O N

CARPIO, J.:

The Case

Spouses Antonio and Joselina Alcantara and Spouses Josefino and Annie Rubi (petitioners) filed this Petition for Review1 assailing the Court of Appeals’ (appellate court) Decision2 dated 10 June 2004 as well as the Resolution3 dated 17 August 2004 in CA-G.R. CV No. 78215. In the assailed decision, the appellate court reversed the 17 June 2002 Decision4 of Branch 69 of the Regional Trial Court of Binangonan, Rizal (RTC) by dismissing the case for recovery of possession with damages and preliminary injunction filed by Brigida L. Nido (respondent), in her capacity as administrator and attorney-in-fact of Revelen N. Srivastava (Revelen).

The Facts

Revelen, who is respondent’s daughter and of legal age, is the owner of an unregistered land with an area of 1,939 square meters located in Cardona, Rizal. Sometime in March 1984, respondent accepted the offer of petitioners to purchase a 200-square meter portion of Revelen’s lot (lot) at P200 per square meter. Petitioners paid P3,000 as downpayment and the balance was payable on installment. Petitioners constructed their houses in 1985. In 1986, with respondent’s consent, petitioners occupied an additional 150 square meters of the lot. By 1987, petitioners had already paid P17,5005 before petitioners defaulted on their installment payments.

On 11 May 1994, respondent, acting as administrator and attorney-in-fact of Revelen, filed a complaint for recovery of possession with damages and prayer for preliminary injunction against petitioners with the RTC.

The RTC’s Ruling

The RTC stated that based on the evidence presented, Revelen owns the lot and respondent was verbally authorized to sell 200 square meters to petitioners. The RTC ruled that since respondent’s authority to sell the land was not in writing, the sale was void under Article 18746 of the Civil Code.7 The RTC ruled that rescission is the proper remedy.8

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

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

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

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

3. Ordering the defendants to pay plaintiff the sum of P20,000.00 as attorney’s fees, plus P15,000.00 as actual litigation expenses, plus the costs of suit.

SO ORDERED.9

The Appellate Court’s Ruling

On 5 January 2004, petitioners appealed the trial court’s Decision to the appellate court. In its decision dated 10 June 2004, the appellate court reversed the RTC decision and dismissed the civil case.10

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

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

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

Accordingly, Sec. 33 of Batas Pambansa 129 was amended by Republic Act No. 7691 giving the Municipal Trial Court the exclusive original jurisdiction over all civil actions involving title to, or possession of, real property, or any interest therein where the assessed value of the property or

interest therein does not exceed P20,000 or, in civil actions in Metro Manila, where such assessed value does not exceed P50,000, exclusive of interest, damages of whatever kind, attorney’s fees, litigation expenses and costs.

At bench, the complaint alleges that the whole 1,939- square meter lot of Revelen N. Srivastava is covered by Tax Declaration No. 09-0742 (Exh. "B", p. 100, Records) which gives its assessed value of the whole lot of P4,890.00. Such assessed value falls within the exclusive original prerogative or jurisdiction of the first level court and, therefore, the Regional Trial Court a quo has no jurisdiction to try and decided the same.131avvphi1

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

Aggrieved by the appellate court’s Decision, petitioners elevated the case before this Court.

Issues

Petitioners raise the following arguments:

1. The appellate court gravely erred in ruling that the contract entered into by respondent, in representation of her daughter, and former defendant Eduardo Rubi (deceased), is void; and

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

Ruling of the Court

We deny the petition.

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

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

Sale of Land through an Agent

Articles 1874 and 1878 of the Civil Code provide:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.

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

x x x

(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

x x x

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

A special power of attorney is also necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired for a valuable consideration. Without an authority in writing, respondent cannot validly sell the lot to petitioners. Hence, any "sale" in favor of the petitioners is void.

Our ruling in Dizon v. Court of Appeals21 is instructive:

When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. Thus the authority of an agent to execute a contract for the sale of real estate must be conferred in writing and must give him specific authority, either to conduct the general business of the principal or to execute a binding contract containing terms and conditions which are in the contract he did execute. A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable

language. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document.

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

1. consent of the contracting parties;

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

3. cause of the obligation which is established.

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

General Power of Attorney

On 25 March 1994, Revelen executed a General Power of Attorney constituting respondent as her attorney-in-fact and authorizing her to enter into any and all contracts and agreements on Revelen’s behalf. The General Power of Attorney was notarized by Larry A. Reid, Notary Public in California, U.S.A.

Unfortunately, the General Power of Attorney presented as "Exhibit C"22 in the RTC cannot also be the basis of respondent’s written authority to sell the lot.

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

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

In Teoco v. Metropolitan Bank and Trust Company,23 quoting Lopez v. Court of Appeals,24 we explained:

From the foregoing provision, when the special power of attorney is executed and acknowledged before a notary public or other competent official in a foreign country, it cannot be admitted in evidence unless it is certified as such in accordance with the foregoing provision of the rules by a secretary of embassy or legation, consul general, consul, vice consul, or consular agent or by any

officer in the foreign service of the Philippines stationed in the foreign country in which the record is kept of said public document and authenticated by the seal of his office. A city judge-notary who notarized the document, as in this case, cannot issue such certification.25

Since the General Power of Attorney was executed and acknowledged in the United States of America, it cannot be admitted in evidence unless it is certified as such in accordance with the Rules of Court by an officer in the foreign service of the Philippines stationed in the United States of America. Hence, this document has no probative value.

Specific Performance

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

Jurisdiction of the RTC

Section 33 of Batas Pambansa Bilang 129,27 as amended by Republic Act No. 7691 provides:

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

x x x

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

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

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

Assessed value is understood to be "the worth or value of property established by taxing authorities on the basis of which the tax rate is applied. Commonly, however, it does not represent the true or market value of the property."

The appellate court correctly ruled that even if the complaint filed with the RTC involves a question of ownership, the MTC still has jurisdiction because the assessed value of the whole lot as stated in Tax Declaration No. 09-0742 is P4,890.29 The MTC cannot be deprived of jurisdiction over an ejectment case based merely on the assertion of ownership over the litigated property, and the underlying reason for this rule is to prevent any party from trifling with the summary nature of an ejectment suit.30

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

WHEREFORE, we DENY the petition. We AFFIRM the Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 78215.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 188288               January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners, vs.CONTINENTAL AIRLINES, INC.,

D E C I S I O N

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision1 of the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586

entitled "Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc.," the dispositive portion of which states:

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding US$800.00 or its peso equivalent at the time of payment, plus legal rate of interest from 21 July 1997 until fully paid, [P]100,000.00 as moral damages, [P]50,000.00 as exemplary damages, [P]40,000.00 as attorney’s fees and costs of suit to plaintiffs-appellees is hereby REVERSED and SET ASIDE.

Defendant-appellant’s counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED.2

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

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

Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully booked and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00 per passenger and would mean traveling by night, Fernando opted to request for a refund. Mager, however, denied his request as the subject tickets are non-refundable and the only option that Continental Airlines can offer is the re-issuance of new tickets within one (1) year from the date the subject tickets were issued. Fernando decided to reserve two (2) seats with Frontier Air.

As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats available and he can travel on Amtrak anytime and any day he pleased. Fernando then purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her that she had misled them into buying the Continental Airlines tickets by misrepresenting that Amtrak was already fully booked. Fernando reiterated his demand for a refund but Mager was firm in her position that the subject tickets are non-refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a refund and alleging that Mager had deluded them into purchasing the subject tickets.3

In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had been referred to the Customer Refund Services of Continental Airlines at Houston, Texas.4

In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and advised him that he may take the subject tickets to any Continental ticketing location for the re-issuance of new tickets within two (2) years from the date they were issued. Continental Micronesia informed Fernando that the subject tickets may be used as a form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee.5

On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to have the subject tickets replaced by a single round trip ticket to Los Angeles, California under his name. Therein, Fernando was informed that Lourdes’ ticket was non-transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay what will not be covered by the value of his San Diego to Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer wished to have them replaced. In addition to the dubious circumstances under which the subject tickets were issued, Fernando claimed that CAI’s act of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to use Lourdes’ ticket, breached its undertaking under its March 24, 1998 letter.6

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to refund the money they used in the purchase of the subject tickets with legal interest from July 21, 1997 and to payP1,000,000.00 as moral damages, P500,000.00 as exemplary damages and P250,000.00 as attorney’s fees.7

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

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

According to CAI, one of the conditions attached to their contract of carriage is the non-transferability and non-refundability of the subject tickets.

The RTC’s Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria are entitled to a refund in view of Mager’s misrepresentation in obtaining their consent in the purchase of the subject tickets.9The relevant portion of the April 3, 2006 Decision states:

Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in presenting to plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to travel via AMTRAK, but defendant’s agent misled him into purchasing Continental Airlines tickets instead on the fraudulent misrepresentation that Amtrak was fully booked. In fact, defendant Airline did not specifically denied (sic) this allegation.

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

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent, hence, bound by her bad faith and misrepresentation. As far as the RTC is concerned, there is no issue as to whether Mager was CAI’s agent in view of CAI’s implied recognition of her status as such in its March 24, 1998 letter.

The act of a travel agent or agency being involved here, the following are the pertinent New Civil Code provisions on agency:

Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

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

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

As its very name implies, a travel agency binds itself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. This court takes judicial notice of the common services rendered by travel agencies that represent themselves as such, specifically the reservation and booking of local and foreign tours as well as the issuance of airline tickets for a commission or fee.

The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21, 1997 were no different from those offered in any other travel agency. Defendant airline impliedly if not expressly acknowledged its principal-agent relationship with Ms. Mager by its offer in the letter dated March 24, 1998 – an obvious attempt to assuage plaintiffs spouses’ hurt feelings.11

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the subject tickets within two (2) years from their date of issue when it charged Fernando with the amount of US$1,867.40 for a round trip ticket to Los Angeles and when it refused to allow Fernando to use Lourdes’ ticket. Specifically:

Tickets may be reissued for up to two years from the original date of issue. When defendant airline still charged plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00 for the unused tickets when the same were presented within two (2) years from date of issue, defendant airline exhibited callous treatment of passengers.12

The Appellate Court’s Ruling

On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held liable for Mager’s act in the absence of any proof that a principal-agent relationship existed between CAI and Holiday Travel. According to the CA, Spouses Viloria, who have the burden of proof to establish the fact of agency, failed to present evidence demonstrating that Holiday Travel is CAI’s agent. Furthermore, contrary to Spouses Viloria’s claim, the contractual relationship between Holiday Travel and CAI is not an agency but that of a sale.

Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing agent of Holiday Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this premise, they contend that Continental Airlines should be held liable for the acts of Mager. The trial court held the same view.

We do not agree. By the contract of agency, a person binds him/herself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. The elements of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for him/herself; and (4) the agent acts within the scope of his/her authority. As the basis of agency is representation, there must be, on the part of the principal, an actual intention to appoint, an intention naturally inferable from the principal’s words or actions. In the same manner, there must be an intention on the part of the agent to

accept the appointment and act upon it. Absent such mutual intent, there is generally no agency. It is likewise a settled rule that persons dealing with an assumed agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. Agency is never presumed, neither is it created by the mere use of the word in a trade or business name. We have perused the evidence and documents so far presented. We find nothing except bare allegations of plaintiffs-appellees that Mager/Holiday Travel was acting in behalf of Continental Airlines. From all sides of legal prism, the transaction in issue was simply a contract of sale, wherein Holiday Travel buys airline tickets from Continental Airlines and then, through its employees, Mager included, sells it at a premium to clients.13

The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was clearly printed on the face of the subject tickets, which constitute their contract with CAI. Therefore, the grant of their prayer for a refund would violate the proscription against impairment of contracts.

Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the higher amount of US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is no compulsion for CAI to charge the lower amount of US$856.00, which Spouses Viloria claim to be the fee charged by other airlines. The matter of fixing the prices for its services is CAI’s prerogative, which Spouses Viloria cannot intervene. In particular:

It is within the respective rights of persons owning and/or operating business entities to peg the premium of the services and items which they provide at a price which they deem fit, no matter how expensive or exhorbitant said price may seem vis-à-vis those of the competing companies. The Spouses Viloria may not intervene with the business judgment of Continental Airlines.14

The Petitioners’ Case

In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the latter’s reversal of the RTC’s April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses Viloria claim that CAI acted in bad faith when it required them to pay a higher amount for a round trip ticket to Los Angeles considering CAI’s undertaking to re-issue new tickets to them within the period stated in their March 24, 1998 letter. CAI likewise acted in bad faith when it disallowed Fernando to use Lourdes’ ticket to purchase a round trip to Los Angeles given that there is nothing in Lourdes’ ticket indicating that it is non-transferable. As a common carrier, it is CAI’s duty to inform its passengers of the terms and conditions of their contract and passengers cannot be bound by such terms and conditions which they are not made aware of. Also, the subject contract of carriage is a contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably, the petitioners are no longer questioning the validity of the subject contracts and limited its claim for a refund on CAI’s alleged breach of its undertaking in its March 24, 1998 letter.

The Respondent’s Case

In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its willingness to issue new tickets to them and to credit the value of the subject tickets against the value of the new ticket Fernando requested. CAI argued that Spouses Viloria’s sole basis to claim that the price at which CAI was willing to issue the new tickets is unconscionable is a piece of hearsay evidence – an advertisement appearing on a newspaper stating that airfares from Manila to Los Angeles or San Francisco cost US$818.00.15 Also, the advertisement pertains to airfares in September 2000 and not to airfares prevailing in June 1999, the time when Fernando asked CAI to apply the value of the subject tickets for the purchase of a new one.16 CAI likewise argued that it did not undertake to protect Spouses Viloria from any changes or fluctuations in the prices of airline tickets and its only obligation was to apply the value of the subject tickets to the purchase of the newly issued tickets.

With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the subject tickets and that the terms and conditions that are printed on them are ambiguous, CAI denies any ambiguity and alleged that its representative informed Fernando that the subject tickets are non-transferable when he applied for the issuance of a new ticket. On the other hand, the word "non-refundable" clearly appears on the face of the subject tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-agency relationship exists between them. As an independent contractor, Holiday Travel was without capacity to bind CAI.

Issues

To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether Spouses Viloria have the right to the reliefs they prayed for, this Court deems it necessary to resolve the following issues:

a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts of Holiday Travel’s agents and employees such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can the representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the consent of Spouse Viloria in the purchase of the subject tickets?

d. Is CAI justified in insisting that the subject tickets are non-transferable and non-refundable?

e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by Fernando?

f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of the subject tickets in the purchase of new ones when it refused to allow Fernando to use Lourdes’ ticket and in charging a higher price for a round trip ticket to Los Angeles?

This Court’s Ruling

I. A principal-agent relationship exists between CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would require this Court to review and re-examine the evidence presented by the parties below, this Court takes exception to the general rule that the CA’s findings of fact are conclusive upon Us and our jurisdiction is limited to the review of questions of law. It is well-settled to the point of being axiomatic that this Court is authorized to resolve questions of fact if confronted with contrasting factual findings of the trial court and appellate court and if the findings of the CA are contradicted by the evidence on record.17

According to the CA, agency is never presumed and that he who alleges that it exists has the burden of proof. Spouses Viloria, on whose shoulders such burden rests, presented evidence that fell short of indubitably demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that Holiday Travel is one of its agents. Furthermore, in erroneously characterizing the contractual relationship between CAI and Holiday Travel as a contract of sale, the CA failed to apply the fundamental civil law principles governing agency and differentiating it from sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an agency and spelled out the essential elements thereof:

Out of the above given principles, sprung the creation and acceptance of the relationship of agencywhereby one party, called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority.1avvphi1

Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself."19

Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second elements are present as CAI does not deny that it concluded an agreement with Holiday

Travel, whereby Holiday Travel would enter into contracts of carriage with third persons on CAI’s behalf. The third element is also present as it is undisputed that Holiday Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth element is also present considering that CAI has not made any allegation that Holiday Travel exceeded the authority that was granted to it. In fact, CAI consistently maintains the validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager was not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to enter into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March 24, 1998 letters, where it impliedly recognized the validity of the contracts entered into by Holiday Travel with Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not deny that Holiday Travel is its authorized agent.

Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave Holiday Travel the power and authority to conclude contracts of carriage on its behalf. As clearly extant from the records, CAI recognized the validity of the contracts of carriage that Holiday Travel entered into with Spouses Viloria and considered itself bound with Spouses Viloria by the terms and conditions thereof; and this constitutes an unequivocal testament to Holiday Travel’s authority to act as its agent. This Court cannot therefore allow CAI to take an altogether different position and deny that Holiday Travel is its agent without condoning or giving imprimatur to whatever damage or prejudice that may result from such denial or retraction to Spouses Viloria, who relied on good faith on CAI’s acts in recognition of Holiday Travel’s authority. Estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall an innocent party due to its injurious reliance, the failure to apply it in this case would result in gross travesty of justice.20 Estoppel bars CAI from making such denial.

As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority."

Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar that the CA had branded the contractual relationship between CAI and Holiday Travel as one of sale. The distinctions between a sale and an agency are not difficult to discern and this Court, as early as 1970, had already formulated the guidelines that would aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue v. Constantino,21 this Court extrapolated that the primordial differentiating consideration between the two (2) contracts is the transfer of ownership or title over the property subject of the contract. In an agency, the principal retains ownership and control over the property and the agent merely acts on the principal’s behalf and under his instructions in furtherance of the objectives for which the agency was established. On the other hand, the contract is clearly a sale if the parties intended that the delivery of the property will effect a relinquishment of title, control and ownership in such a way that the recipient may do with the property as he pleases.

Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's

control, the relationship between the company and the dealer is one of agency, tested under the following criterion:

"The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on Sales, 1." (Salisbury v. Brooks, 94 SE 117, 118-119)22

As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is a sale is certainly confounding, considering that CAI is the one bound by the contracts of carriage embodied by the tickets being sold by Holiday Travel on its behalf. It is undisputed that CAI and not Holiday Travel who is the party to the contracts of carriage executed by Holiday Travel with third persons who desire to travel via Continental Airlines, and this conclusively indicates the existence of a principal-agent relationship. That the principal is bound by all the obligations contracted by the agent within the scope of the authority granted to him is clearly provided under Article 1910 of the Civil Code and this constitutes the very notion of agency.

II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agent’s employees if it has been established by preponderance of evidence that the principal was also at fault or negligent or that the principal exercise control and supervision over them.

Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for the fault or negligence of Holiday Travel’s employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23 CAI argues that it cannot be held liable for the actions of the employee of its ticketing agent in the absence of an employer-employee relationship.

An examination of this Court’s pronouncements in China Air Lines will reveal that an airline company is not completely exonerated from any liability for the tort committed by its agent’s employees. A prior determination of the nature of the passenger’s cause of action is necessary. If the passenger’s cause of action against the airline company is premised on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline company’s agent, there must be an independent showing that the airline company was at fault or negligent or has contributed to the negligence or tortuous conduct committed by the employee of its agent. The mere fact that the employee of the airline company’s agent has committed a tort is not sufficient to hold the airline company liable. There is novinculum juris between the airline company and its agent’s employees and the contractual relationship between the airline company and its agent does not operate to create a juridical tie between the airline company and its agent’s employees. Article

2180 of the Civil Code does not make the principal vicariously liable for the tort committed by its agent’s employees and the principal-agency relationship per se does not make the principal a party to such tort; hence, the need to prove the principal’s own fault or negligence.

On the other hand, if the passenger’s cause of action for damages against the airline company is based on contractual breach or culpa contractual, it is not necessary that there be evidence of the airline company’s fault or negligence. As this Court previously stated in China Air Lines and reiterated in Air France vs. Gillego,24 "in an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance by the carrier."

Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing contractual relationship between them. Therefore, it was incumbent upon Spouses Viloria to prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAI’s alleged liability can be substantiated. Apart from their claim that CAI must be held liable for Mager’s supposed fraud because Holiday Travel is CAI’s agent, Spouses Viloria did not present evidence that CAI was a party or had contributed to Mager’s complained act either by instructing or authorizing Holiday Travel and Mager to issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and conditions of the subject contracts, which Mager entered into with them on CAI’s behalf, in order to deny Spouses Viloria’s request for a refund or Fernando’s use of Lourdes’ ticket for the re-issuance of a new one, and simultaneously claim that they are not bound by Mager’s supposed misrepresentation for purposes of avoiding Spouses Viloria’s claim for damages and maintaining the validity of the subject contracts. It may likewise be argued that CAI cannot deny liability as it benefited from Mager’s acts, which were performed in compliance with Holiday Travel’s obligations as CAI’s agent.

However, a person’s vicarious liability is anchored on his possession of control, whether absolute or limited, on the tortfeasor. Without such control, there is nothing which could justify extending the liability to a person other than the one who committed the tort. As this Court explained in Cangco v. Manila Railroad Co.:25

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for the legislature to elect — and our Legislature has so elected — to limit such liability to cases in which the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral culpability, so as to include responsibility for the negligence of those persons whose acts or omissions are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code has elected to limit extra-contractual liability — with

certain well-defined exceptions — to cases in which moral culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to exercise due care in one's own acts, or in having failed to exercise due care in the selection and control of one's agent or servants, or in the control of persons who, by reasons of their status, occupy a position of dependency with respect to the person made liable for their conduct.26 (emphasis supplied)

It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by preponderant evidence. The existence of control or supervision cannot be presumed and CAI is under no obligation to prove its denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that:

In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment relationship. The defendant is under no obligation to prove the negative averment. This Court said:

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

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

III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are not entitled to a refund. Mager’s statement cannot be considered a causal fraud that would justify the annulment of the subject contracts that would oblige CAI to indemnify Spouses Viloria and return the money they paid for the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four (4) years from the time of the discovery of the fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same Code to restore to each other the things subject matter of the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to the subject contracts was supposedly secured by Mager through fraudulent means, it is plainly apparent that their demand for a refund is tantamount to seeking for an annulment of the subject contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine whether Mager’s alleged misrepresentation constitutes causal fraud. Similar to the dispute on the

existence of an agency, whether fraud attended the execution of a contract is factual in nature and this Court, as discussed above, may scrutinize the records if the findings of the CA are contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract.30 InSamson v. Court of Appeals,31 causal fraud was defined as "a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other."32

Also, fraud must be serious and its existence must be established by clear and convincing evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere preponderance of evidence is not adequate:

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

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

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

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

After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has not been satisfactorily established as causal in nature to warrant the annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and convincing evidence that Mager’s statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that she purposely informed them otherwise.

This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an Amtrak had assured him of the perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed out and as Fernando admitted, it was possible that during the intervening period of three (3) weeks from the time Fernando purchased the subject tickets to the time he

talked to said Amtrak employee, other passengers may have cancelled their bookings and reservations with Amtrak, making it possible for Amtrak to accommodate them. Indeed, the existence of fraud cannot be proved by mere speculations and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is presumed that "a person is innocent of crime or wrong" and that "private transactions have been fair and regular."35 Spouses Viloria failed to overcome this presumption.

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts.

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

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

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

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

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

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

However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2) inconsistent remedies. In resolution, all the elements to make the contract valid are present; in annulment, one of the essential elements to a formation of a contract, which is consent, is absent. In resolution, the defect is in the consummation stage of the contract when the parties are in the process of performing their respective obligations; in annulment, the defect is already present at the time of the negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under Article 1191, the Vilorias had impliedly admitted the

validity of the subject contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions.39

V. Contracts cannot be rescinded for a slight or casual breach.

CAI cannot insist on the non-transferability of the subject tickets.

Considering that the subject contracts are not annullable on the ground of vitiated consent, the next question is: "Do Spouses Viloria have the right to rescind the contract on the ground of CAI’s supposed breach of its undertaking to issue new tickets upon surrender of the subject tickets?"

Article 1191, as presently worded, states:

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

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

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

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

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

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

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

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject tickets for the purchase of a round trip ticket between Manila and Los Angeles that he was informed that he cannot use the ticket in Lourdes’ name as payment.

Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain reading of the provision printed on the subject tickets stating that "[t]o the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject to: (a) provisions contained in this ticket, x x x (iii) carrier’s conditions of carriage and related regulations which are made part hereof (and are available on application at the offices of carrier) x x x." As a common carrier whose business is imbued with public interest, the exercise of extraordinary diligence requires CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the terms and conditions governing their contract of carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of carriage to impute knowledge on its passengers of and demand compliance with a certain condition or undertaking that is not clearly stipulated. Since the prohibition on transferability is not written on the face of the subject tickets and CAI failed to inform Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes’ ticket as payment for Fernando’s purchase of a new ticket.

CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only a casual breach.

Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement.40 Whether a breach is substantial is largely determined by the attendant circumstances.41

While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the purchase of a new ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it cannot, however be considered substantial. The endorsability of the subject tickets is not an essential part of the underlying contracts and CAI’s failure to comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses Viloria’s surrender of the subject tickets. This Court takes note of CAI’s willingness to perform its principal obligation and this is to apply the price of the ticket in Fernando’s name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial payment as the case may be for the purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAI’s willingness to comply with its undertaking under its March 24, 1998 cannot be doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is non-transferable.

Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that their agreement failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to insist that a single round trip ticket between Manila and Los Angeles should be priced at around $856.00 and refuse to pay the difference between the price of the subject tickets and the amount fixed by CAI. The petitioners failed to allege, much

less prove, that CAI had obliged itself to issue to them tickets for any flight anywhere in the world upon their surrender of the subject tickets. In its March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets may be used as a form of payment toward the purchase of another Continental ticket"42 and there is nothing in it suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that the surrender of the subject tickets will be considered as full payment for any ticket that the petitioners intend to buy regardless of actual price and destination. The CA was correct in holding that it is CAI’s right and exclusive prerogative to fix the prices for its services and it may not be compelled to observe and maintain the prices of other airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not preclude CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an amount it deems proper and which does not provide Spouses Viloria an excuse not to pay such price, albeit subject to a reduction coming from the value of the subject tickets. It cannot be denied that Spouses Viloria had the concomitant obligation to pay whatever is not covered by the value of the subject tickets whether or not the subject tickets are transferable or not.1avvphi1

There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged with a higher rate. The only evidence the petitioners presented to prove that the price of a round trip ticket between Manila and Los Angeles at that time was only $856.00 is a newspaper advertisement for another airline company, which is inadmissible for being "hearsay evidence, twice removed." Newspaper clippings are hearsay if they were offered for the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court of Appeals,:44

[N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only inadmissible but without any probative value at all whether objected to or not, unless offered for a purpose other than proving the truth of the matter asserted. In this case, the news article is admissible only as evidence that such publication does exist with the tenor of the news therein stated.45 (citations omitted)

The records of this case demonstrate that both parties were equally in default; hence, none of them can seek judicial redress for the cancellation or resolution of the subject contracts and they are therefore bound to their respective obligations thereunder. As the 1st sentence of Article 1192 provides:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (emphasis supplied)

Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their refusal to pay the amount, which is not covered by the subject tickets. Moreover, the contract between them

remains, hence, CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:

Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. x x x.47

Another consideration that militates against the propriety of holding CAI liable for moral damages is the absence of a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence of bad faith and fraud and moral damages are generally not recoverable in culpa contractual except when bad faith had been proven.48 The award of exemplary damages is likewise not warranted. Apart from the requirement that the defendant acted in a wanton, oppressive and malevolent manner, the claimant must prove his entitlement to moral damages.49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

THIRD DIVISION

G.R. No. 156262 July 14, 2005

MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses ANASTACIO and MARY T. BUENAVENTURA, Petitioners, vs.HEIRS OF BARTOLOME RAMOS, Respondents.

D E C I S I O N

PANGANIBAN, J.:

Stripped of nonessentials, the present case involves the collection of a sum of money. Specifically, this case arose from the failure of petitioners to pay respondents’ predecessor-in-interest. This fact was shown by the non-encashment of checks issued by a third person, but indorsed by herein Petitioner Maria Tuazon in favor of the said predecessor. Under these circumstances, to enable respondents to collect on the indebtedness, the check drawer need not be impleaded in the Complaint. Thus, the suit is directed, not against the drawer, but against the debtor who indorsed the checks in payment of the obligation.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the July 31, 2002 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 46535. The decretal portion of the assailed Decision reads:

"WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED."

On the other hand, the affirmed Decision3 of Branch 34 of the Regional Trial Court (RTC) of Gapan, Nueva Ecija, disposed as follows:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay the plaintiffs, as follows:

"1. The sum of P1,750,050.00, with interests from the filing of the second amended complaint;

"2. The sum of P50,000.00, as attorney’s fees;

"3. The sum of P20,000.00, as moral damages

"4. And to pay the costs of suit.

x x x x x x x x x"4

The Facts

The facts are narrated by the CA as follows:

"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased

Bartolome] Ramos [predecessor-in-interest of respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment therefor, the spouses Tuazon issued x x x [several] Traders Royal Bank checks.

x x x x x x x x x

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

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

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

The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon. Those cases were later consolidated and amended to include Spouses Anastacio and Mary Buenaventura, with Alejandro Tuazon and Melecio Tuazon as additional defendants. Having

passed away before the pretrial, Bartolome Ramos was substituted by his heirs, herein respondents.

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

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

Ruling of the Court of Appeals

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

Hence, this Petition.6

Issues

Petitioners raise the following issues for our consideration:

"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents of the respondents.

"2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the petitioners despite x x x the failure of the respondents to include in their action Evangeline Santos, an indispensable party to the suit."7

The Court’s Ruling

The Petition is unmeritorious.

First Issue:

Agency

Well-entrenched is the rule that the Supreme Court’s role in a petition under Rule 45 is limited to reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial

court, especially when affirmed by the CA, are conclusive on the parties and this Court.8 Petitioners have not given us sufficient reasons to deviate from this rule.

In a contract of agency, one binds oneself to render some service or to do something in representation or on behalf of another, with the latter’s consent or authority.9 The following are the elements of agency: (1) the parties’consent, express or implied, to establish the relationship; (2) the object, which is the execution of a juridical act in relation to a third person; (3) the representation, by which the one who acts as an agent does so, not for oneself, but as a representative; (4) the limitation that the agent acts within the scope of his or her authority.10 As the basis of agency is representation, there must be, on the part of the principal, an actual intention to appoint, an intention naturally inferable from the principal’s words or actions. In the same manner, there must be an intention on the part of the agent to accept the appointment and act upon it. Absent such mutual intent, there is generally no agency.11

This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice buyers themselves; they were not mere agents of respondents in their rice dealership. The question of whether a contract is one of sale or of agency depends on the intention of the parties.12

The declarations of agents alone are generally insufficient to establish the fact or extent of their authority.13 The law makes no presumption of agency; proving its existence, nature and extent is incumbent upon the person alleging it.14 In the present case, petitioners raise the fact of agency as an affirmative defense, yet fail to prove its existence.

The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the amounts represented by the bounced checks, in a separate civil case that they sought to be consolidated with the current one. If, as they claim, they were mere agents of respondents, petitioners should have brought the suit against Santos for and on behalf of their alleged principal, in accordance with Section 2 of Rule 3 of the Rules on Civil Procedure.15 Their filing a suit against her in their own names negates their claim that they acted as mere agents in selling the rice obtained from Bartolome Ramos.

Second Issue:

Indispensable Party

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

We hold that respondents’ cause of action is clearly founded on petitioners’ failure to pay the purchase price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the questioned checks in favor of respondents, in accordance with Sections 31 and 63 of the

Negotiable Instruments Law.16 That Santos was the drawer of the checks is thus immaterial to the respondents’ cause of action.

As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be accepted or paid, or both, according to their tenor; and that in case they were dishonored, she would pay the corresponding amount.17 After an instrument is dishonored by nonpayment, indorsers cease to be merely secondarily liable; they become principal debtors whose liability becomes identical to that of the original obligor. The holder of a negotiable instrument need not even proceed against the maker before suing the indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is not an indispensable party in an action against Maria Tuazon, the indorser of the checks.

Indispensable parties are defined as "parties in interest without whom no final determination can be had."19 The instant case was originally one for the collection of the purchase price of the rice bought by Maria Tuazon from respondents’ predecessor. In this case, it is clear that there is no privity of contract between respondents and Santos. Hence, a final determination of the rights and interest of the parties may be made without any need to implead her.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioners.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 145817               October 19, 2011

URBAN BANK, INC, Petitioner, vs.MAGDALENO M. PEÑA, Respondent.

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G.R. No. 145822

DELFIN C. GONZALEZ, JR., BENJAMIN L. DE LEON, and ERIC L. LEE, Petitioners, vs.MAGDALENO M. PEÑA, Respondent.

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G.R. No. 162562

MAGDALENO M. PEÑA, Petitioner, vs.URBAN BANK, INC., TEODORO BORLONGAN, DELFIN C. GONZALEZ, JR., BENJAMIN L. DE LEON, P. SIERVO H. DIZON, ERIC L. LEE, BEN T. LIM, JR., CORAZON BEJASA, and ARTURO MANUEL, JR.,Respondents.

D E C I S I O N

SERENO, J.:

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

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

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

In the eyes of the trial court, the controlling finding is that Atty. Peña should be believed when he testified that in a telephone conversation, the president of Urban Bank, Teodoro Borlongan, a respondent herein, agreed to pay him for his services 10% of the value of the property then worth PhP240,000,000, or PhP24,000,000. Costs and other awards additionally amount to

PhP4,500,000, for a total award of PhP28,500,000 according to the trial court. To the Court of Appeals, such an award has no basis, as in fact, no contract of agency exists between Atty. Peña and Urban Bank. Hence, Atty. Peña should only be recompensed according to the principle of unjust enrichment, and that he should be awarded the amount of PhP3,000,000 only for his services and reimbursements of costs.

The disparity in the size of the award given by the trial court vis-à-vis that of the Court of Appeals (PhP28,500,000 v. PhP3,000,000) must be placed in the context of the service that Atty. Peña proved that he rendered for Urban Bank. As the records bear, Atty. Peña’s services consisted of causing the departure of unauthorized sub-tenants in twenty-three commercial establishments in an entertainment compound along Roxas Boulevard. It involved the filing of ejectment suits against them, Peña’s personal defense in the counter-suits filed against him, his settlement with them to the tune of PhP1,500,000, which he advanced from his own funds, and his retention of security guards and expenditure for other costs amounting to more or less PhP1,500,000. There is no claim by Atty. Peña of any service beyond those. He claims damages from the threats to his life and safety from the angry tenants, as well as a vexatious collection suit he had to face from a creditor-friend from whom he borrowed PhP3,000,000 to finance the expenses for the services he rendered Urban Bank.

At the time the award of PhP28,500,000 by the trial court came out in 1999, the net worth of Urban Bank was PhP2,219,781,104.2 While the bank would be closed by the Bangko Sentral ng Pilipinas (BSP) a year later for having unilaterally declared a bank holiday contrary to banking rules, there was no reason to believe that at the time such award came out it could not satisfy a judgment of PhP28,500,000, a sum that was only 1% of its net worth, and a miniscule 0.2% of its total assets of PhP11,933,383,630.3 In fact, no allegation of impending insolvency or attempt to abscond was ever raised by Atty. Peña and yet, the trial court granted execution pending appeal.

Interestingly, Peña had included as co-defendants with Urban Bank in the RTC case, several officers and board directors of Urban Bank. Not all board directors were sued, however. With respect to those included in the complaint, other than against Teodoro Borlongan, Corazon Bejasa, and Arturo Manuel, no evidence was ever offered as to their individual actions that gave rise to Atty. Peña’s cause of action – the execution of the agency contract and its breach – and yet, these officers and directors were made solidarily liable by the trial court with Urban Bank for the alleged breach of the alleged corporate contract of agency. Execution pending appeal was also granted against them for this solidary liability resulting in the levy and sale in execution pending appeal of not only corporate properties of Urban Bank but also personal properties of the individual bank officers and directors. It would have been interesting to find out what drove Atty. Peña to sue the bank officers and directors of Urban Bank and why he chose to sue only some, but not all of the board directors of Urban Bank, but there is nothing on the record with which this analysis can be pursued.

Before us are: (a) the Petitions of Urban Bank (G. R. No. 145817) and the De Leon Group (G R. No. 145822) questioning the propriety of the grant of execution pending appeal, and (b) the Petition of Atty. Peña (G. R. No. 162562) assailing the CA’s decision on the substantive merits of the case with respect to his claims of compensation based on an agency agreement.

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

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

1. What is the legal basis for an award in favor of Peña for the services he rendered to Urban Bank? Should it be a contract of agency the fee for which was orally agreed on as Peña claims? Should it be the application of the Civil Code provisions on unjust enrichment? Or is it to be based on something else or a combination of the legal findings of both the RTC and the CA? How much should the award be?

2. Are the officers and directors of Urban Bank liable in their personal capacities for the amount claimed by Peña?

3. What are the effects of our answers to questions (1) and (2), on the various results of the execution pending appeal that happened here?

Factual Background of the Controversy

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

Petitioner-respondent Atty. Magdaleno M. Peña (Peña)7 is a lawyer by profession and was formerly a stockholder, director and corporate secretary of Isabel Sugar Company, Inc. (ISCI).8

ISCI owned a parcel of land9 located in Pasay City (the Pasay property).10 In 1984, ISCI leased the Pasay property for a period of 10 years.11 Without its consent12 and in violation of the lease contract,13 the lessee subleased the land to several tenants, who in turn put up 23 establishments, mostly beer houses and night clubs, inside the compound.14 In 1994, a few months before the lease contract was to expire, ISCI informed the lessee15 and his tenants16 that the lease would no longer be renewed and that it intended to take over the Pasay property17 for the purpose of selling it.18

Two weeks before the lease over the Pasay property was to expire, ISCI and Urban Bank executed a Contract to Sell, whereby the latter would pay ISCI the amount of PhP241,612,000 in

installments for the Pasay property.19Both parties agreed that the final installment of PhP25,000,000 would be released by the bank upon ISCI’s delivery of full and actual possession of the land, free from any tenants.20 In the meantime, the amount of the final installment would be held by the bank in escrow. The escrow provision in the Contract to Sell, thus, reads:

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

ISCI then instructed Peña, who was its director and corporate secretary, to take over possession of the Pasay property22 against the tenants upon the expiration of the lease. ISCI’s president, Mr. Enrique G. Montilla III (Montilla), faxed a letter to Peña, confirming the latter’s engagement as the corporation’s agent to handle the eviction of the tenants from the Pasay property, to wit:23

MEMORANDUM

TO: Atty. Magdaleno M. Pena

Director

FROM: Enrique G. Montilla III

President

DATE: 26 November 1994

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

(sgd.) ENRIQUE G. MONTILLA IIIPresident24

On 29 November 1994, the day the lease contract was to expire, ISCI and Urban Bank executed a Deed of Absolute Sale25 over the Pasay property for the amount agreed upon in the Contract to Sell, but subject to the above escrow provision.26 The title to the land was eventually transferred to the name of Urban Bank on 05 December 1994.27

On 30 November 1994, the lessee duly surrendered possession of the Pasay property to ISCI,28 but the unauthorized sub-tenants refused to leave the area.29 Pursuant to his authority from ISCI, Peña had the gates of the property closed to keep the sub-tenants out.30 He also posted security guards at the property,31 services for which he advanced payments.32 Despite the closure of the gates and the posting of the guards, the sub-tenants would come back in the evening, force open the gates, and proceed to carry on with their businesses.33 On three separate occasions, the sub-tenants tried to break down the gates of the property, threw stones, and even threatened to return and inflict greater harm on those guarding it.34

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

In response to the letters of Ms. Ong, petitioner-respondent bank, through individual respondents Bejasa and Arturo E. Manuel – Senior Vice-President and Vice-President, respectively – advised Peña38 that the bank had noted the engagement of his services by ISCI and stressed that ISCI remained as the lawyer’s principal.39

To prevent the sub-tenants from further appropriating the Pasay property,40 petitioner-respondent Peña, as director and representative of ISCI, filed a complaint for injunction41 (the First Injunction Complaint) with the RTC-Pasay City.42 Acting on ISCI’s prayer for preliminary relief, the trial court favorably issued a temporary restraining order (TRO),43 which was duly implemented.44 At the time the First Injunction Complaint was filed, a new title to the Pasay property had already been issued in the name of Urban Bank.45

On 19 December 1994, when "information reached the judge that the Pasay property had already been transferred by ISCI to Urban Bank, the trial court recalled the TRO and issued a break-open order for the property. According to Peña, it was the first time that he was apprised of the sale of the land by ISCI and of the transfer of its title in favor of the bank."46 It is not clear from the records how such information reached the judge or what the break-open order was in response to.

On the same day that the TRO was recalled, petitioner-respondent Peña immediately contacted ISCI’s president, Mr. Montilla, who in turn confirmed the sale of the Pasay property to Urban Bank.47 Peña told Mr. Montilla that because of the break-open order of the RTC-Pasay City, he (Peña) would be recalling the security guards he had posted to secure the property. Mr. Montilla,

however, asked him to suspend the planned withdrawal of the posted guards, so that ISCI could get in touch with petitioner-respondent bank regarding the matter.48

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

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

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

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

This is to confirm the engagement of your services as the authorized representative of Urban Bank, specifically to hold and maintain possession of our abovecaptioned property [Pasay property] and to protect the same from former tenants, occupants or any other person who are threatening to return to the said property and/or interfere with your possession of the said property for and in our behalf.

You are likewise authorized to represent Urban Bank in any court action that you may institute to carry out the aforementioned duties, and to prevent any intruder, squatter or any other person not otherwise authorized in writing by Urban [B]ank from entering or staying in the premises.52 (Emphasis supplied)

On even date, ISCI sent Urban Bank a letter, which acknowledged ISCI’s engagement of Peña and commitment to pay for any expenses that may be incurred in the course of his services. ISCI’s letter reads:

This has reference to your property located along Roxas Boulevard, Pasay City [Pasay property] which you purchased from Isabela Sugar Company under a Deed of Absolute Sale executed on December 1, 1994.

In line with our warranties as the Seller of the said property and our undertaking to deliver to you the full and actual possession and control of said property, free from tenants, occupants or squatters and from any obstruction or impediment to the free use and occupancy of the property by Urban Bank, we have engaged the services of Atty. Magdaleno M. Peña to hold and maintain possession of the property and to prevent the former tenants or occupants from entering or returning to the premises. In view of the transfer of the ownership of the property to Urban Bank, it may be necessary for Urban Bank to appoint Atty. Peña likewise as its authorized representative for purposes of holding/maintaining continued possession of the said property and to represent Urban Bank in any court action that may be instituted for the abovementioned purposes.

It is understood that any attorney’s fees, cost of litigation and any other charges or expenses that may be incurred relative to the exercise by Atty. Peña of his abovementioned duties shall be for the account of Isabela Sugar Company and any loss or damage that may be incurred to third parties shall be answerable by Isabela Sugar Company.53 (Emphasis supplied)

The following narration of subsequent proceedings is uncontroverted.

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

Thereafter, petitioner-respondent Peña, now in representation of Urban Bank, filed a separate complaint56 (the Second Injunction Complaint) with the RTC-Makati City, to enjoin the tenants from entering the Pasay property.57Acting on Urban Bank’s preliminary prayer, the RTC-Makati City issued a TRO.58

While the Second Injunction Complaint was pending, Peña made efforts to settle the issue of possession of the Pasay property with the sub-tenants. During the negotiations, he was exposed to several civil and criminal cases they filed in connection with the task he had assumed for Urban Bank, and he received several threats against his life.59 The sub-tenants eventually agreed to stay off the property for a total consideration of PhP1,500,000.60Peña advanced the payment for the full and final settlement of their claims against Urban Bank.61

Peña claims to have borrowed PhP3,000,000 from one of his friends in order to maintain possession thereof on behalf of Urban Bank.62 According to him, although his creditor-friend granted him several extensions, he failed to pay his loan when it became due, and it later on became the subject of a separate collection suit for payment with interest and attorney’s fees.63 This collection suit became the basis for Atty. Peña’s request for discretionary execution pending appeal later on.

On 07 February 1995, within the four-month period allegedly agreed upon in the telephone conversation, Peña formally informed Urban Bank that it could already take possession of the Pasay property.64 There was however no mention of the compensation due and owed to him for the services he had rendered.

On 31 March 1995, the bank subsequently took actual possession of the property and installed its own guards at the premises.65

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

Proceedings on the Complaint for Compensation

On 28 January 1996, when Urban Bank refused to pay for his services in connection with the Pasay property, Peña filed a complaint67 for recovery of agent’s compensation and expenses,

damages and attorney’s fees in RTC-Bago City in the province of Negros Occidental.68 Interestingly, Peña sued only six out of the eleven members of the Board of the Directors of Urban Bank.69 No reason was given why the six directors were selected and the

others excluded from Peña’s complaint. In fact, as pointed out, Atty. Peña mistakenly impleaded as a defendant, Ben Y. Lim, Jr., who was never even a member of the Board of Directors of Urban

Bank; while, Ben T. Lim, Sr., father and namesake of Ben Y. Lim, Jr., who had been a director of the bank, already passed away in 1997.70

In response to the complaint of Atty. Peña, Urban Bank and individual bank officers and directors argued that it was ISCI, the original owners of the Pasay property, that had engaged the services of Peña in securing the premises; and, consequently, they could not be held liable for the expenses Peña had incurred.71

On 28 May 1999, the RTC-Bago City72 ruled in favor of Peña, after finding that an agency relationship had indeed been created between him and Urban Bank. The eight directors and bank officers were found to be solidarily liable with the bank for the payment of agency’s fees. The trial court thus ordered Urban Bank and all eight defendant bank directors and officers whom Peña sued to pay the total amount of PhP28,500,000 (excluding costs of suit):

WHEREFORE, premised from the foregoing, judgment is hereby rendered ordering defendants to pay plaintiff jointly and severally the following amounts:

1. P24,000,000 as compensation for plaintiff’s services plus the legal rate of interest from the time of demand until fully paid;

2. P3,000,000 as reimbursement of plaintiff’s expenses;

3. P1,000,000 as and for attorney’s fees;

4. P500,000 as exemplary damages;

5. Costs of suit.

SO ORDERED.73

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

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

In its Brief,77 Urban Bank78 assigned as errors the trial court’s reliance on the purported oral contract of agency and Peña’s claims for compensation during the controverted telephone conversation with Borlongan, which were allegedly incredible.

Meanwhile, Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee (the De Leon Group),79 the petitioners in the instant Petition docketed as G. R. No. 145822, argued that, even on the assumption that there had been an agency contract with the bank, the trial court committed reversible error in holding them – as bank directors – solidarily liable with the corporation.80

On the other hand, Teodoro Borlongan, Corazon M. Bejasa, Arturo Manuel, Jr., Ben Y. Lim, Jr., and P. Siervo H. Dizon (the Borlongan Group)81 reiterated similar arguments as those of the De Leon Group, adding that the claimed compensation of 10% of the purchase price of the Pasay property was not reasonable.82

Peña refuted all of their arguments83 and prayed that the trial court’s Decision be affirmed.84

Acting favorably on the appeal, the Court of Appeals85 annulled the Decision of the RTC-Bago City and ruled that no agency relationship had been created. Nevertheless, it ordered Urban Bank to reimburse Peña for his expenses and to give him reasonable compensation for his efforts in

clearing the Pasay property of tenants in the amount of PhP3,000,000, but absolved the bank directors and officers from solidary liability. The dispositive portion of the CA decision reads as follows:

WHEREFORE, in view of the foregoing considerations, the May 28, 2000 Decision [sic] and the October 19, 2000 [sic] Special Order of the RTC of Bago City, Branch 62,86 are hereby ANNULLED AND SET ASIDE. However, the plaintiff-appellee [Peña] in CA GR CV No. 65756 is awarded the amount of P3 Million as reimbursement for his expenses as well as reasonable compensation for his efforts in clearing Urban Bank’s property of unlawful occupants. The award of exemplary damages, attorney’s fees and costs of suit are deleted, the same not having been sufficiently proven. The petition for Indirect Contempt against all the respondents is DISMISSED for utter lack of merit. 87 (Emphasis supplied)

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

Execution Pending Appeal

On 07 June 1999, prior to the filing of the notice of appeal of Urban Bank and individual bank officers,90 Peña moved for execution pending appeal91 of the Decision rendered by the RTC-Bago City,92 which had awarded him a total of PhP28,500,000 in compensation and damages.93

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

In opposition to the motion, Urban Bank countered that the collection case was not a sufficient reason for allowing execution pending appeal.96

On 29 October 1999, the RTC-Bago City, through Judge Henry J. Trocino,97 favorably granted Peña’s motion and issued a Special Order authorizing execution pending appeal.98 In accordance with this Special Order, Atty. Josephine Mutia-Hagad, the clerk of court and ex officio sheriff, issued a Writ of Execution99 on the same day.100The Special Order and Writ of Execution were directed at the properties owned by Urban Bank as well as the properties of the eight individual bank directors and officers.

On 04 November 1999, affected by the trial court’s grant of execution pending appeal, Urban Bank101 filed a Rule 65 Petition with the CA to enjoin the Special Order and Writ of Execution issued by the trial court with a prayer for a TRO.102

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

On 12 January 2000, the CA eventually granted Urban Bank’s Rule 65 Petition, and the RTC’s Special Order and Writ of Execution, which permitted execution pending appeal, were annulled. The appellate court ruled:104

WHEREFORE, the instant petition is GRANTED. The Special Order and writ of execution, both dated October 29, 1999, are ANNULLED and SET ASIDE.

Respondents are directed to desist from further implementing the writ of execution and to lift the garnishment and levy made pursuant thereto. 105

On 02 February 2000, Peña moved for the reconsideration of the CA’s Decision;106 while petitioners filed their corresponding Comment/Opposition thereto.107

During the pendency of Peña’s Motion for Reconsideration, Urban Bank declared a bank holiday on 26 April 2000 and was placed under receivership of the Philippine Deposit Insurance Corporation (PDIC).108

In its Amended Decision dated 18 August 2000, the CA109 favorably granted Peña’s Motion for Reconsideration, and reversed its earlier Decision to allow execution pending appeal.110 The appellate court found that the bank holiday declared by the BSP after the promulgation of its earlier Decision, PDIC’s receivership of Urban Bank, and the imminent insolvency thereof constituted changes in the bank’s conditions that would justify execution pending appeal.111

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

On 19 October 2000, the Court of Appeals denied the motion for reconsideration for lack of merit and the other subsequent Supplemental Motions for Reconsideration for being filed out of time.116 The appellate court also ordered Peña to post an indemnity bond.117 The Amended Decision and the Resolution were the subjects of several Rule 45 Petitions filed by Urban Bank and individual petitioners (G. R. Nos. 145817, 145818 and 145822).

On the same day the CA denied its Motion for Reconsideration, the De Leon Group immediately moved for the stay of execution pending appeal upon the filing of a supersedeas bond.118

On 31 October 2000, the CA119 granted the stay of the execution upon the filing by the De Leon Group of a PhP40,000,000 bond in favor of Peña.120 Peña moved for the reconsideration of the stay order.121

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In its Resolution dated 08 December 2000,122 the appellate court denied Peña’s Motion for Reconsideration and a stay order over the execution pending appeal was issued in favor of the De Leon Group, after they had filed their supersedeas bond.123 The stay of execution pending appeal, however, excluded Urban Bank.124

On 08 December 2000, Peña posted his indemnity bond as required by the CA.125

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

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

On 14 September 2001, Urban Bank, trying to follow the lead of the De Leon Group, made a similar request with the Court of Appeals for approval of its own supersedeas bond,128 for the same amount of PhP40,000,000, and prayed that the execution of the RTC-Bago City’s Decision against it be stayed as well.129

Sometime in September and October 2001, Urban Bank began receiving notices of levy and garnishment over its properties. After it received Notice of the impending public execution sale of its shares in the Tagaytay Highlands International Golf Club,130 Urban Bank reiterated its request for the approval of the supersedeas bond with the Court of Appeals and the issuance of the corresponding stay order.131

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

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

Table of Levied, Garnished and/or Executed Properties Pending Appeal

Owner/ Defendant

Property Description

Estimated Value or Price at Public

Auction

Total Amount

Remarks

Urban Bank

Three Club Shares Tagaytay Highlands International Golf Club133

As of 06 December 1999, one share was selling at P1.6 Million.134

4,800,000

Three Club Shares in Makati Sports, Club, Inc. (MSCI) [Covered by Stock Certificate Nos. A-1893, A-2305 and B-762]135

As of 06 December 1999, MSCI Club Shares "A" and "B" were selling at PhP650,000 and PhP700,000, respectively.136

2,000,000137 Atty. Peña was one of the winning bidders in the auction sale together with his creditor friend, Roberto Ignacio, and Atty. Ramon Ereñeta.

85 Condominium Units in the Urban Bank Plaza, Makati City138

The highest bid price obtained for the condominium units was PhP1M at the time of the execution sale.139

85,000,000 Intervenor Unimega purchased the 10 condominium units in the auction sale for P1M each or a total of P10 M.140

A 155 sqm. condominium unit, Makati City (CCT No. 57697) 141

Estimates are based on report of Urban Bank142

12,400,000

A 12.5 sqm. condominium parking space (Parking Three, Unit P-46) in Makati City (CCT

500,000

No. 57698)143

A 64,677 sqm. land in Tagaytay City (TCT No. 20471)144

Value based on estimate of Urban Bank145

35,572,350

Teodoro Borlongan

One Club Share in Manila Polo Club (No. 3433)146

Borlongan’s club share was estimated to be valued at P1,000,000.147

1,000,000

Notice of Sale on Execution on Personal Property dated 25 August 2000148

One Club Share in Subic Bay Yacht Club149

One club share was estimated to be valued at P500,000.150

500,000

One Club Share in Baguio Country Club151

As of 06 December 1999, one share was selling at P870,000.152

870,000

One Club Share in MSCI153

As of 06 December 1999, MSCI Club Shares "A" and "B" were selling at PhP650,000 and PhP700,000 respectively.154

650,000

Real Property155 No estimate available on record.

Delfin C. Gonzales, Jr.

One Club Share in Manila Polo Club (No. 3818)156

Gonzales’ club share was estimated to be valued at P4,000,000.157

4,000,000

Notice of Sale on Execution on Personal Property dated 25 August 2000158

One Club Share in Baguio Country Club.159

Gonzales’ club share was estimated to be valued at

1,077,000

P1,077,000.160

One Club Share in Alabang Country Club (Member No. 550)161

Gonzales’ club share was estimated to be valued at P2,000,000.162

2,000,000

30,585 shares of stock in D. C. Gonzales, Jr., Inc.163

P20.00 per share164

611,700

40 Shares of stock in D. C. Gonzales, Jr., Inc.165

P50.00 per share166

2,000

Benjamin L. de Leon

One Club Share in Manila Polo Club (with Associate Membership) [No. 0597]167

De Leon’s Share was estimated at P4 M for the share and P1.05 M for the associate membership.168

5,050,000

Notice of Sale on Execution on Personal Property dated 25 August 2000169

One Club Share in MSCI (Stock Certificate No. A-175)170

De Leon’s share was estimated at P450,000.171

450,000

One Club Share in Baguio Country Club (5523)172

As of 06 December 1999, one share was selling at least P870,000.173

870,000

P. Siervo G. Dizon

No records available as to properties levied, garnished or executed pending appeal.

Eric L. LeeOne Club Share in Manila Polo Club (2038)174

Lee’s’ club share was estimated to be valued at P4,000,000.175

4,000,000

Notice of Sale on Execution on Personal Property dated 25 August

2000176

One Club Share in Manila Golf Club, Inc.177

Lee’s club share was estimated to be valued at P15,750,000.178

15,750,000

One Club Share in Sta. Elena Golf Club, Inc. (Class "A" Share) 179

Lee’s club share was estimated to be valued at P2,000,000.180

2,000,000

Two Club Shares in Tagaytay Highlands Int’l Golf Club, Inc. 181

Lee’s club shares were estimated to be valued at P1,000,000.182

1,000,000 Notice of Sale on Execution on Personal Property dated 25 August 2000183

One Club Share in Subic Yacht Club184

Lee’s club share was estimated to be valued at P500,000.185

500,000

60,757 Shares of stock in EQL Properties, Inc.186

P20.00 per share 1,214,140

40 Shares of stock in EQL Properties, Inc. 187

P50.00 per share 2,000

Cash garnished from BPI Account188

100,000

Ben T. Lim, Jr.

No records available as to properties levied, garnished or executed pending appeal.

Corazon Bejasa

Real Property189 No estimated value.

Arturo Manuel, Jr.,

Real Property190 No estimated value.

TOTAL VALUE 181,919,190

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

On 22 October 2001, Urban Bank, with respect to its pending Rule 45 Petition in this Court, moved for the approval of its PhP40,000,000 supersedeas bond192 and requested that the Court stay the execution pending appeal.193 Peña opposed the motion on the ground that it had already been rendered moot and academic by the sale of the properties of the bank.194

On 23 October 2002, or almost a year after some of the condominium units were sold in a public auction, EIB, as the successor of Urban Bank, expressed to the sheriff of RTC-Bago City an intent to redeem the said condominium units.195 Thus, EIB tendered three manager’s checks in the total amount of PhP22,108,800196 to redeem the properties that were previously under the name of Urban Bank.197 Although the trial court noted the bank’s Manifestation,198 the sheriff returned the EIB’s manager’s checks. Thus, on 29 October 2002, EIB, through a motion, was prompted to turn over the checks to the trial court itself.199

When Urban Bank supposedly failed to redeem the condominium units according to the sheriff,200 final Certificates of Sale were issued in favor of Unimega on 04 November 2002.201 Upon the latter’s motion, RTC-Bago City, in its Order dated 13 November 2002, ordered the Register of Deeds of Makati to transfer the Condominium Certificates of Title to the name of Unimega.202 It has not been shown, though, whether this Order was followed.

This Court, acting on Urban Bank’s earlier motion to approve its supersedeas bond, granted the same in its Resolution dated 19 November 2001.203 Peña moved for reconsideration of the approval,204 but his motion was subsequently denied by the Court.205

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

On 21 December 2000, Urban Bank,206 represented by its receiver, PDIC,207 filed a Rule 45 Petition with this Court (docketed as G. R. No. 145817) to assail the CA’s Amended Decision and Resolution granting execution pending appeal.208 In response, Peña moved for the denial of the petition on the grounds of lack merit, violation of the rule against forum shopping, and non-payment of docket fees, among others.209 In a separate Comment,210 Peña also argued that the

appellate court had committed no error when it considered the bank’s "imminent insolvency" as a good reason for upholding the validity of the execution pending appeal.

On the other hand, the Borlongan Group211 filed a separate Rule 45 Petition questioning the same Decision and Resolution, docketed as G. R. No. 145818.212 This Court initially denied their petition on the ground that it failed to sufficiently show that the CA committed reversible order.213 The Borlongan Group twice moved for the reconsideration of the denial of their petition; but the Court nonetheless denied both motions for lack of merit.214This denial of the petition in G. R. No. 145818 became final and executory, with the issuance of the Entry of Judgment.215

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

Despite the denial of the Rule 45 Petition in G. R. No. 145822 filed by the De Leon Group, the Court nonetheless ordered that the case be consolidated with Urban Bank’s own Rule 45 Petition in G. R. No. 145817.218 The Court subsequently gave due course to both of these petitions.219 In compliance with the Court’s Order,220 Urban Bank221 and the De Leon Group222 filed their respective Memoranda.

As detailed earlier, the Court granted and approved Urban Bank’s supersedeas bond and stayed the execution pending appeal.

Considering the favorable stay of execution pending appeal, EIB, as the new owner and successor of Urban Bank, immediately wrote to tell223 the corporate secretary of MSCI not to effect the cancellation or transfer of Urban Bank’s three MSCI stock certificates previously sold in a public auction. 224 In reply, MSCI explained that since there was no injunction or stay order, it had no other option but to comply with the trial court’s Order for the transfer. Eventually, however, it could not effect the transfer of one of the shares to Peña because a club share had already been previously registered in his name, and the club’s bylaws prohibited a natural person from owning more than one share.225 Meanwhile, one of the winning bidders in the public auction sale of the MSCI shares wrote to the latter to demand that the club share previously owned by Urban Bank be transferred to him.226

On 04 February 2002, considering the conflicting claims of Urban Bank (through EIB) and the winning bidders of the club shares, MSCI filed a Motion for Clarification of the Court’s Resolution staying the execution pending appeal.227

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

In its Resolution dated 13 November 2002, the Court explained that its earlier stay order prohibited the MSCI from transferring the shares, and that the one-year period for redemption of the bank’s properties was likewise suspended:

WHEREFORE, the Court hereby RESOLVES to clarify that as a consequence of its approval of the supersedeas bond, the running of the one-year period for petitioner Urban Bank to redeem the properties sold at the public auctions held on October 4, 11 and 25, 2001 as well as the consolidation of the titles in favor of the buyers, is SUSPENDED OR STAYED. MSCI is also prohibited from transferring petitioner Urban Bank’s MSCI club shares to the winning bidders in the execution sale held on October 11, 2001.229 (Emphasis supplied)

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

The Motion for Clarification filed by Urban Bank, the Court’s Resolution dated 13 November 2002 and Peña’s Omnibus Motion praying for the recall of the said Resolution became the subject of an administrative case (Administrative Case No. 6332), which was treated as a separate matter and later on de-consolidated with the instant Petitions.233 The Court had even called for an executive session234 in which Peña, among others, appeared and was questioned by the then members of the Court’s First Division, namely retired Chief Justice Hilario Davide, Justices Jose Vitug, Antonio Carpio and Adolfo Azcuna. Although the Petitions had earlier been assigned to Justice Carpio, he has since taken no part in the proceedings of this case and this resulted in the re-raffling of the Petitions. The transfer and unloading of the case by the subsequently assigned Justices as well as Peña’s numerous motions for inhibition and/or re-raffle has likewise cause considerable delay in the disposition of the instant Petitions and the Administrative Case.

Unimega, which was the winning bidder of some of the publicly executed condominium units of Urban Bank, moved to intervene in the case and to have the Court’s same Resolution suspending the one-year period of redemption of the properties be reconsidered.235 Unimega claimed that ownership of the bank’s titles to the 10 condominium units had already been transferred to the former at the time the Court issued the Resolution; and, thus, there was no more execution to be suspended or stayed. Only Urban Bank236 opposed the motion237 of intervenor Unimega on the ground that the latter was not a buyer in good faith, and that the purchase price was grossly disproportional to the fair market value of the condominium units.238

The Court eventually granted the Motion to Intervene considering that the intervenor’s title to the condominium units purchased at the public auction would be affected, favorably or otherwise, by the judgment of the Court in this case. However, it held in abeyance the resolution of intervenor’s Motion for Reconsideration, which might preempt the decision with respect to the propriety of execution pending appeal.239 Thereafter, the bank adopted its earlier Opposition

to the intervention as its answer to Unimega’s petition-in-intervention.240 Also in answer thereto, the De Leon Group adopted its earlier Manifestation and Comment.241

Intervenor Unimega then requested that a writ of possession be issued in its favor covering the 10 condominium units sold during the public auction.242 The Court required the parties to file their comments on the request.243The Lim244 and Borlongan Groups245 manifested separately that they would not be affected by a resolution of the request of intervenor Unimega, since the latter was not among the contending parties to the incident. Peña similarly interposed no objection to the issuance of the writ of possession.246 In contrast, Urban Bank opposed the application of Unimega on the ground that the latter was not entitled to possession of the levied properties, because the rules of extrajudicial foreclosure were not applicable to execution sales under Rule 39, and that intervenor was also not a buyer in good faith.247 In a similar vein, the De Leon Group opposed the application for a writ of possession, and further argued that the Court had already suspended the running of the one-year period of redemption in the execution sale.248 Accordingly, intervenor Unimega countered that the right of redemption of the levied properties had already expired without having been exercised by the judgment debtor.249

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

OUR RULING

I

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

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

In a contract of agency, agents bind themselves to render some service or to do something in representation or on behalf of the principal, with the consent or authority of the latter.250 The basis of the civil law relationship of agency is representation, 251 the elements of which include the following: (a) the relationship is established by the parties’ consent, express or implied; (b) the object is the execution of a juridical act in relation to a third person; (c) agents act as representatives and not for themselves; and (d) agents act within the scope of their authority.252

Whether or not an agency has been created is determined by the fact that one is representing and acting for another.253 The law makes no presumption of agency; proving its existence, nature and extent is incumbent upon the person alleging it.254

With respect to the status of Atty. Peña’s relationship with Urban Bank, the trial and the appellate courts made conflicting findings that shall be reconciled by the Court. On one end, the appellate court made a definitive ruling that no agency relationship existed at all between Peña and the bank, despite the services performed by Peña with respect to the Pasay property purchased by the bank. Although the Court of Appeals ruled against an award of agent’s compensation, it still saw fit to award Peña with Ph3,000,000 for expenses incurred for his efforts in clearing the Pasay property of tenants.255 On the other extreme, the trial court heavily relied on the sole telephone conversation between Peña and Urban Bank’s President to establish that the principal-agent relationship created between them included an agreement to pay Peña the huge amount of PhP24,000,000. In its defense, Urban Bank insisted that Peña was never an agent of the bank, but an agent of ISCI, since the latter, as seller of the Pasay property committed to transferring it free from tenants. Meanwhile, Peña argues on the basis of his successful and peaceful ejectment of the sub-tenants, who previously occupied the Pasay property.

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

The transactional history and context of the sale between ISCI and Urban Bank of the Pasay property, and Atty. Peña’s participation in the transfer of possession thereof to Urban Bank provide crucial linkages that establish the nature of the relationship between the lawyer and the landowner-bank.

The evidence reveals that at the time that the Contract to Sell was executed on 15 November 1994, and even when the Deed of Absolute Sale was executed two weeks later on 29 November 1994, as far as Urban Bank was concerned, Peña was nowhere in the picture. All discussions and correspondences were between the President and Corporate Secretary of Urban Bank, on one hand, and the President of ISCI, on the other. The title to the Pasay property was transferred to Urban Bank on 5 December 1994. Interestingly, Peña testifies that it was only on 19 December 1994 that he learned that the land had already been sold by ISCI to Urban Bank, notwithstanding the fact that Peña was a director of ISCI. Peña was not asked to render any service for Urban Bank, neither did he perform any service for Urban Bank at that point.

ISCI undertook in the Contract to Sell, to physically deliver the property to Urban Bank, within 60 days from 29 November 1994,256 under conditions of "full and actual possession and control ..., free from tenants, occupants, squatters or other structures or from any liens, encumbrances, easements or any other obstruction or impediment to the free use and occupancy by the buyer of the subject Property or its exercise of the rights to ownership over the subject Property...."257 To guarantee this undertaking, ISCI agreed to the escrow provision where PhP25,000,000 (which is

a little over 10% of the value of the Pasay property) would be withheld by Urban Bank from the total contract price until there is full compliance with this undertaking.

Apparently to ensure that ISCI is able to deliver the property physically clean to Urban Bank, it was ISCI’s president, Enrique Montilla who directed on 26 November 1994 one of its directors, Peña, to immediately recover and take possession of the property upon expiration of the contract of lease on 29 November 1994.258 Peña thus first came into the picture as a director of ISCI who was constituted as its agent to recover the Pasay property against the lessee as well as the sub-tenants who were occupying the property in violation of the lease agreement.259 He was able to obtain possession of the property from the lessee on the following day, but the unauthorized sub-tenants refused to vacate the property.

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

Atty. Magdaleno M. Peña, who has been assigned by Isabela Sugar Company, Inc., to take charge of inspecting the tenants would like to request an authority similar to this from the Bank, as new owners. Can you please issue something like this today as he needs this.260

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

Dear Mr. Borlongan, I would like to request for an authorization from Urban Bank as per attached immediately –as the tenants are questioning the authority of the people there who are helping us to take over possession of the property. (Emphasis supplied)261

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

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

Urban Bank thus chose to cooperate with ISCI without realizing the kind of trouble that it would reap in the process. In an apparent attempt to allow the efforts of ISCI to secure the property to succeed, it recognized Peña’s role in helping ISCI, but stopped short of granting him authority to act on its behalf. In response to the two written requests of ISCI, Urban Bank sent this letter to Peña on 15 December 1994:

This is to advise you that we have noted the engagement of your services by Isabela Sugar Company to recover possession of the Roxas Boulevard property formerly covered by TCT No. 5382, effective November 29, 1994. It is understood that your services have been contracted by and your principal remains to be the Isabela Sugar Company, which as seller of the property and under the terms of our Contract to Sell dated November 29, 1994, has committed to deliver the full and actual possession of the said property to the buyer, Urban Bank, within the stipulated period. 262 (Emphasis supplied)

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

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

"… when information reached the (Pasay City) judge that the Pasay property had already been transferred by ISCI to Urban Bank, the trial court recalled the TRO and issued a break-open order for the property. According to Peña, it was the first time that he was apprised of the sale of the land by ISCI and of the transfer of its title in favor of the bank."263

There is something contradictory between some of the trial court’s factual findings and Peña’s claim that it was only on 19 December 1994 that he first learned of the sale of the property to Urban Bank. It is difficult to believe Peña on this point considering: (1) that he was a board director of ISCI and a sale of this significant and valuable property of ISCI requires the approval of the board of directors of ISCI; and (2) that ISCI twice requested Urban Bank for authority to be issued in his favor (07 and 9 December 1994), 12 and 10 days before 19 December 1994, since it would be contrary to human experience for Peña not to have been informed by an officer of ISCI beforehand that a request for authority for him was being sent to Urban Bank.

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

First, Peña allegedly called up the president of ISCI, Montilla, who, according to Peña, confirmed to him that the Pasay property had indeed been sold to Urban Bank.

Second, Peña allegedly told Montilla that he (Peña) would be withdrawing his guards from the property because of the break-open order from the RTC-Pasay City.

Third, Montilla requested Peña to suspend the withdrawal of the guards while ISCI gets in touch with Urban Bank.

Fourth, apparently in view of Montilla’s efforts, Bejasa, an officer of Urban Bank called Peña and according to the latter, told him that Urban Bank would continue retaining his services and for him to please continue with his effort to secure the property.

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

Sixth, immediately after the conversation with Bejasa, Peña calls Borlongan and tells Borlongan that violence might erupt in the property because the Pasay City policemen, who were sympathetic to the tenants, were threatening to force their way through the property.

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

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

This Court concludes that the legal consequences described in statements (1) and (2) above indeed took place and that the facts support them. However, the evidence does not support Peña’s claim that Urban Bank agreed to "attorney’s fees and compensation" of 10% of the market value of the property.

Urban Bank’s letter dated 19 December 1994 confirmed in no uncertain terms Peña’s designation as its authorized representative to secure and maintain possession of the Pasay property against the tenants. Under the terms of the letter, petitioner-respondent bank confirmed his engagement (a) "to hold and maintain possession" of the Pasay property; (b) "to protect the same from former tenants, occupants or any other person who are threatening to return to the said property and/or interfere with your possession of the said property for and in

our behalf"; and (c) to represent the bank in any instituted court action intended to prevent any intruder from entering or staying in the premises.264

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

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

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

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

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

agent for the purpose of pursuing a shared goal so that the common objective of a transferor and a new transferee would be met.

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

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

First, the initial agency relationship between ISCI and Peña persisted. No proof was ever offered that the letter of 26 November 1994 of Mr. Montilla of ISCI to Peña, for the latter "to immediately recover and take possession of the property upon expiration of the contract of lease on 29 November 1994" was terminated. It is axiomatic that the appointment of a new agent for the same business or transaction revokes the previous agency from the day on which notice thereof was given to the former agent.271 If it is true that the agency relationship was to be borne by Urban Bank alone, Peña should have demonstrated that his previous agency relationship with ISCI is incompatible with his new relationship with Urban Bank, and was thus terminated.

Second, instead, what is on the record is that ISCI confirmed the continuation of this agency between Peña and itself and committed to pay for the services of Peña, in its letter to Urban Bank dated 19 December 1994 which reads:

In line with our warranties as the Seller of the said property and our undertaking to deliver to you the full and actual possession and control of said property, free from tenants, occupants or squatters and from any obstruction or impediment to the free use and occupancy of the property by Urban Bank, we have engaged the services of Atty. Magdaleno M. Peña to hold and maintain possession of the property and to prevent the former tenants or occupants from entering or returning to the premises. In view of the transfer of the ownership of the property to Urban Bank, it may be necessary for Urban Bank to appoint Atty. Peña likewise as its authorized representative for purposes of holding/maintaining continued possession of the said property and to represent Urban Bank in any court action that may be instituted for the abovementioned purposes.

It is understood that any attorney’s fees, cost of litigation and any other charges or expenses that may be incurred relative to the exercise by Atty. Peña of his abovementioned duties shall be for the account of Isabela Sugar Company and any loss or damage that may be incurred to third parties shall be answerable by Isabela Sugar Company.272 (Emphasis supplied)

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

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

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

Amount of Compensation

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

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

Agency is presumed to be for compensation.273 Unless the contrary intent is shown, a person who acts as an agent does so with the expectation of payment according to the agreement and to the services rendered or results effected.274 We find that the agency of Peña comprised of services ordinarily performed by a lawyer who is tasked with the job of ensuring clean possession by the owner of a property. We thus measure what he is entitled to for the legal services rendered.

A stipulation on a lawyer’s compensation in a written contract for professional services ordinarily controls the amount of fees that the contracting lawyer may be allowed to collect,

unless the court finds the amount to be unconscionable.275 In the absence of a written contract for professional services, the attorney’s fees are fixed on the basis of quantum meruit,276 i.e., the reasonable worth of the attorney’s services.277 When an agent performs services for a principal at the latter’s request, the law will normally imply a promise on the part of the principal to pay for the reasonable worth of those services.278 The intent of a principal to compensate the agent for services performed on behalf of the former will be inferred from the principal’s request for the agents.279

In this instance, no extra-ordinary skills employing advanced legal training nor sophisticated legal maneuvering were required to be employed in ejecting 23 sub-tenants who have no lease contract with the property owner, and whose only authority to enter the premises was unlawfully given by a former tenant whose own tenancy has clearly expired. The 23 sub-tenants operated beer houses and nightclubs, ordinary retail establishments for which no sophisticated structure prevented easy entry. After Peña succeeded in locking the gate of the compound, the sub-tenants would open the padlock and resume their businesses at night. Indeed, it appears that only security guards, chains and padlocks were needed to keep them out. It was only the alleged connivance of Pasay City policemen that Peña’s ability to retain the possession was rendered insecure. And how much did it take Peña to enter into a settlement agreement with them and make all these problems go away? By Peña’s own account, PhP1,500,000 only. That means that each tenant received an average of PhP65,217.40 only. Surely, the legal services of Peña cannot be much more than what the sub-tenants were willing to settle for in the first place. We therefore award him the equivalent amount of PhP1,500,000 for the legal and other related services he rendered to eject the illegally staying tenants of Urban Bank’s property.

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

We cannot also agree with the Decision penned by Judge Edgardo L. Catilo characterizing Pena’s 10% fee as believable because it is nearly congruent to the PhP25 Million retention money held in escrow for ISCI until a clean physical and legal turn-over of the property is effected:

We now come to the reasonableness of the compensation prayed for by the plaintiff which is 10% of the current market value which defendants claim to be preposterous and glaringly excessive. Plaintiff [Peña] testified that defendant Borlongan agreed to such an amount and this has not been denied by Ted Borlongan. The term "current market value of the property" is hereby interpreted by the court to mean the current market value of the property at the time the contract was entered into. To interpret it in accordance with the submission of the plaintiff that it is the current market value of the property at the time payment is made would be preposterous. The only evidence on record where the court can determine the market value of the property at the time the contract of agency was entered into between plaintiff and defendant

is the consideration stated in the sales agreement between Isabela Sugar Company, Inc. and Urban bank which is P241,612,000.00. Ten percent of this amount is a reasonable compensation of the services rendered by the plaintiff considering the "no cure, no pay" arrangement between the parties and the risks which plaintiff had to undertake.281

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

In any case, 10% of the purchase price of the Pasay property – a staggering PhP24,161,200 – is an unconscionable amount, which we find reason to reduce. Neither will the Court accede to the settlement offer of Peña to Urban Bank of at least PhP38,000,000 for alleged legal expenses incurred during the course of the proceedings,282 an amount that he has not substantiated at any time.

Lawyering is not a business; it is a profession in which duty to public service, not money, is the primary consideration.283 The principle of quantum meruit applies if lawyers are employed without a price agreed upon for their services, in which case they would be entitled to receive what they merit for their services, or as much as they have earned.284 In fixing a reasonable compensation for the services rendered by a lawyer on the basis of quantum meruit, one may consider factors such as the time spent and extent of services rendered; novelty and difficulty of the questions involved; importance of the subject matter; skill demanded; probability of losing other employment as a result of acceptance of the proffered case; customary charges for similar services; amount involved in the controversy and the resulting benefits for the client; certainty of compensation; character of employment; and professional standing of the lawyer.285

Hence, the Court affirms the appellate court’s award of PhP3,000,000 to Peña, for expenses incurred corresponding to the performance of his services. An additional award of PhP1,500,000 is granted to him for the services he performed as a lawyer in securing the rights of Urban Bank as owner of the Pasay property.

II

The corporate officers and directors of Urban Bank are not solidarily or personally liable with their properties for the corporate liability of Urban Bank to Atty. Peña.

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

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

Peña failed to allege and convincingly show that individual defendant bank directors and officers assented to patently unlawful acts of the bank, or that they were guilty of gross negligence or bad faith. Contrary to his claim, the Complaint290 in the lower court never alleged that individual defendants acquiesced to an unlawful act or were grossly negligent or acted in bad faith.291 Neither is there any specific allegation of gross negligence or action in bad faith that is attributable to the individual defendants in performance of their official duties.

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

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

In ruling for the solidary liability of the other bank directors, the decision of the trial court hinged solely on the purported admission of Arturo Manuel, Jr., that the transactions with Atty. Peña were approved by the Board of Directors:

In this case, plaintiff testified as to the personal participation of defendants Ted Borlongan and Corazon Bejasa in the subject transaction. On the other hand, with respect to the other defendants, it was the defendants themselves, through witness Arturo Manuel, Jr., who admitted that all the transactions involved in this case were approved by the board of directors. Thus, the court has sufficient basis to hold the directors jointly and severally liable with defendant Urban Bank, Inc.292 (Emphasis supplied)

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

The Court of Appeals correctly rejected the claim of personal liability against the individual petitioners when it held as follows:

The plaintiff-appellee’s complaint before the court a quo does not point to any particular act of either one or all of the defendants-appellants that will subject them to personal liability. His complaint merely asserts that defendant Borlongan and Atty. Bejasa acted for and in behalf of Urban Bank in securing his services in protecting the bank’s newly acquired property. Hence, We cannot allow the same.293

Peña had argued that individual defendant bank directors and officers should be held personally and solidarily liable with petitioner-respondent bank, since they failed to argue for limited corporate liability.294 The trial court subscribed to his reasoning and held that the failure to resort to the said defense constituted a waiver on the part of individual defendants.295 The Court is not persuaded.

As the complainant on the trial court level, Peña carried the burden of proving that the eight individual defendants performed specific acts that would make them personally liable for the obligations of the corporation. This he failed to do. He cannot capitalize on their alleged failure to offer a defense, when he had not discharged his responsibility of establishing their personal liabilities in the first place. This Court cannot sustain the individual liabilities of the bank officers when Peña, at the onset, has not persuasively demonstrated their assent to patently unlawful acts of the bank, or that they were guilty of gross negligence or bad faith, regardless of the

weaknesses of the defenses raised. This is too basic a requirement that this Court must demand sufficient proof before we can disregard the separate legal personality of the corporation from its offices.

Hence, only Urban Bank, not individual defendants, is liable to pay Peña’s compensation for services he rendered in securing possession of the Pasay property. Its liability in this case is, however, without prejudice to its possible claim against ISCI for reimbursement under their separate agreements.

III

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

Since the trial court’s main Decision awarding PhP28,500,000 in favor of Peña has been nullified above, the execution pending appeal attendant thereto, as a result, no longer has any leg to stand on and is thus completely vacated.

To recall, prior to the filing of Urban Bank of its notice of appeal in the main case,296 Peña moved on 07 June 1999 for execution pending appeal297 of the Decision,298 which had awarded him a total of PhP28,500,000 in compensation and damages.299 In supporting his prayer for discretionary execution, Peña cited no other reason than the pending separate civil action for collection filed against him by a creditor, who was demanding payment of a PhP3,000,000 loan.300 According to him, he had used the proceeds of the loan for securing the bank’s Pasay property.301 In opposition to the motion, Urban Bank countered that the collection case was not a sufficient reason for allowing execution pending appeal.302

Favorably acting on Peña’s motion, the RTC-Bago City, through Judge Henry J. Trocino,303 issued a Special Order authorizing execution pending appeal on the basis of Peña’s indebtedness to his creditor-friend.304 In accordance with this Special Order, Atty. Josephine Mutia-Hagad, the clerk of court and ex officio sheriff, expeditiously issued a Writ of Execution on the same day.305 The trial court’s Special Order and Writ of Execution were the subjects of a Rule 65 Petition filed by Urban Bank with the CA.306

Both the Special Order and Writ of Execution are nullified for two reasons:

(1) Since the Decision of the RTC-Bago City is completely vacated, all its issuances pursuant to the Decision, including the Special Order and the Writ of Execution are likewise vacated; and

(2) The Special Order authorizing execution pending appeal based on the collection suit filed against Atty. Peña had no basis under the Rules of Court, and the same infirmity thus afflicts the Writ of Execution issued pursuant thereto.

Since the Decision of the RTC-Bago City is vacated, all orders and writs pursuant thereto are likewise vacated.

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

Considering the unconscionable award given by the trial court and the unjustified imposition of solidary liability against the eight bank officers, the Court is vacating the Decision of the RTC-Bago City Decision. The trial court erroneously made solidarily liable Urban Bank’s directors and officers without even any allegations, much less proof, of any acts of bad faith, negligence or malice in the performance of their duties. In addition, the trial court mistakenly anchored its astounding award of damages amounting PhP28,500,000 on the basis of the mere account of Atty. Peña of a telephone conversation, without even considering the surrounding circumstances and the sheer disproportion to the legal services rendered to the bank.

A void judgment never acquires finality.307 In contemplation of law, that void decision is deemed non-existent.308Quod nullum est, nullum producit effectum.309 Hence, the validity of the execution pending appeal will ultimately hinge on the court’s findings with respect to the decision in which the execution is based.

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

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

In any case, the trial court’s grant of execution pending appeal lacks sufficient basis under the law and jurisprudence.

We rule that the pendency of a collection suit by a third party creditor which credit was obtained by the winning judgment creditor in another case, is not a sufficiently good reason to allow execution pending appeal as the Rules of Court provide. Execution pending appeal is an

extraordinary remedy allowed only when there are reasons to believe that the judgment debtor will not be able to satisfy the judgment debt if the appeals process will still have to be awaited. It requires proof of circumstances such as insolvency or attempts to escape, abscond or evade a just debt.

In Florendo v. Paramount Insurance, Corp.,312 the Court explained that the execution pending appeal is an exception to the general rule that execution issues as a matter of right, when a judgment has become final and executory:

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

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

In addressing this issue, the Court must stress that the execution of a judgment before its finality must be founded upon good reasons. The yardstick remains the presence or the absence of good reasons consisting of exceptional circumstances of such urgency as to outweigh the injury or damage that the losing party may suffer, should the appealed judgment be reversed later. Good reason imports a superior circumstance that will outweigh injury or damage to the adverse party. In the case at bar, petitioner failed to show "paramount and compelling reasons of urgency and justice." Petitioner cites as good reason merely the fact that "it is a small-time building contractor that could ill-afford the protracted delay in the reimbursement of the advances it made for the aforesaid increased costs of . . . construction of the [respondent's] buildings."

Petitioner's allegedly precarious financial condition, however, is not by itself a jurisprudentially compelling circumstance warranting immediate execution. The financial distress of a juridical entity is not comparable to a case involving a natural person — such as a very old and sickly one without any means of livelihood, an heir seeking an order for support and monthly allowance for subsistence, or one who dies.

Indeed, the alleged financial distress of a corporation does not outweigh the long standing general policy of enforcing only final and executory judgments. Certainly, a juridical entity like petitioner corporation has, other than extraordinary execution, alternative remedies like loans, advances, internal cash generation and the like to address its precarious financial condition. (Emphasis supplied)

In Philippine Bank of Communications v. Court of Appeals,314 the Court denied execution pending appeal to a juridical entity which allegedly was in financial distress and was facing civil and criminal suits with respect to the collection of a sum of money. It ruled that the financial distress of the prevailing party in a final judgment which was still pending appeal may not be likened to the situation of a natural person who is ill, of advanced age or dying as to justify execution pending appeal:

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

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

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

It has been established that the plaintiff secured the loan for the purpose of using the money to comply with the mandate of defendant bank to hold and maintain possession of the parcel of land in Pasay City and to prevent intruders and former tenants from occupying the said property. The purpose of the loan was very specific and the same was made known to defendant bank through defendant Teodoro Borlongan. The loan was not secured for some other purpose. Truth to tell, the plaintiff accomplished his mission in clearing the property of tenants, intruders and squatters, long before the deadline given him by the defendant bank. The plaintiff was assured by no less than the President of defendant bank of the availability of funds for his compensation and

reimbursement of his expenses. Had he been paid by defendant bank soon after he had fulfilled his obligation, he could have settled his loan obligation with his creditor.

Defendants were benefitted by the services rendered by the plaintiff. While plaintiff has complied with the undertaking, the defendants, however, failed to perform their obligation to the plaintiff.

The plaintiff stands to suffer greatly if the collection case against him is not addressed. Firstly, as shown in Exhibit "C", plaintiff’s total obligation with Roberto Ignacio as of May 1999 is PhP24,192,000.00. This amount, if left unpaid, will continue to increase due to interest charges being imposed by the creditor to the prejudice of plaintiff. Secondly, a preliminary attachment has already been issued and this would restrict the plaintiff from freely exercising his rights over his property during the pendency of the case.

In their opposition, defendants claim that plaintiff’s indebtedness is a ruse, however, defendants failed to adduce evidence to support its claim.

The court finds that the pendency of the case for collection of money against plaintiff is a good reason for immediate execution. 315

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

Peña’s purported difficulty in paying the loan proceeds used to perform his services does not outweigh the injury or damages that might result should Urban Bank obtain a reversal of the judgment, as it did in this case. Urban Bank even asserts that the collection suit filed against Peña was a mere ruse to provide justification for the execution pending appeal, no matter how flimsy.316 As quoted above, the trial court noted Atty. Peña’s total obligation to his creditor-friend as of May 1999 was already the incredible amount of PhP24,192,000.00, even when the Complaint dated 03 April 1999 itself, which spawned the collection suit included only a prayer for payment of PhP3,500,000 with attorney’s fees of PhP100,000.317 It seems absurd that Atty. Peña would agree to obtaining a loan from his own friend, when the Promissory Notes provided for a penalty of 5% interest per month or 60% per annum for delay in the payment.318 It sounds more like a creative justification of the immediate execution of the PhP28.5 Million judgment notwithstanding the appeal.

In fact, the Court of Appeals noted Atty. Peña’s admission of sufficient properties to answer for any liability arising from the collection suit arising from his creditor-friend. In initially denying the execution pending appeal, the appellate court held that:

On the other hand, private respondent’s claim that the only way he could pay his indebtedness to Roberto Ignacio is through the money that he expects to receive from petitioners in payment of his services is belied by his testimony at the hearing conducted by the trial court on the motion for execution pending appeal wherein petitioners were able to secure an admission from him that he has some assets which could be attached by Roberto Ignacio and that he would probably have other assets left even after the attachment.319

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

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

Moreover, at the time the Special Order of Judge Henry Trociño of the RTC-Bago City came out in 1999, Urban Bank had assets worth more than PhP11 Billion and had a net worth of more than PhP2 Billion. There was no reason then to believe that Urban Bank could not satisfy a judgment of PhP28,500,000, a sum that was only 1% of its net worth, and 1/5 of 1% of its total assets of PhP11,933,383,630.321 Urban Bank was even given a Solvency, Liquidity and Management Rating of 82.89 over 100 by no less than the BSP322 and reportedly had liquid assets amounting to PhP2,036,878.323 In fact, no allegation of impending insolvency or attempt to abscond was ever raised by Atty. Peña and yet, the trial court granted execution pending appeal.

Since the original order granting execution pending appeal was completely void for containing no justifiable reason, it follows that any affirmance of the same by the Court of Appeals is likewise void.

The Decision of the Court of Appeals in the case docketed as CA-G.R. SP No. 55667, finding a new reason for granting execution pending appeal, i.e., the receivership of Urban Bank, is likewise erroneous, notwithstanding this Court’s ruling in Lee v. Trocino.324 In accordance with the subsequent Resolution of the Court in abovementioned case of Lee v. Trocino,325 we directly resolve the issue of the insufficiency of the reasons that led to the grant of execution pending appeal.

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

In Flexo Manufacturing Corp. v. Columbus Food, Inc., and Pacific Meat Company, Inc.,326 both Columbus Food, Inc., (Columbus Food) and Pacific Meat Company, Inc., (Pacific Meat) were found by the trial court therein to be solidarily liable to Flexo Manufacturing, Inc., (Flexo Manufacturing) for the principal obligation of PhP2,957,270.00. The lower court also granted execution pending appeal on the basis of the insolvency of Columbus Food, even if Pacific Meat was not found to be insolvent. Affirming the reversal ordered by the Court of Appeals, this Court ruled that since there was another party who was solidarily liable to pay for the judgment debt, aside from the insolvent Columbus Food, there was no good reason to allow the execution pending appeal:

Regarding the state of insolvency of Columbus, the case of Philippine National Bank v. Puno, held:

"While this Court in several cases has held that insolvency of the judgment debtor or imminent danger thereof is a good reason for discretionary execution, otherwise to await a final and executory judgment may not only diminish but may nullify all chances for recovery on execution from said judgment debtor, We are constrained to rule otherwise in this particular case. In the aforecited cases, there was either only one defeated party or judgment debtor who was, however, insolvent or there were several such parties but all were insolvent, hence the aforesaid rationale for discretionary execution was present. In the case at bar, it is undisputed that, assuming MMIC is insolvent, its co-defendant PNB is not. It cannot, therefore, be plausibly assumed that the judgment might become illusory; if MMIC cannot satisfy the judgment, PNB will answer for it. It will be observed that, under the dispositive portion of the judgment hereinbefore quoted, the liability of PNB is either subsidiary or solidary.

Thus, when there are two or more defendants and one is not insolvent, the insolvency of a co-defendant is not a good reason to justify execution pending appeal if their liability under the judgment is either subsidiary or solidary. In this case, Pacific was adjudged to be solidarily liable with Columbus. Therefore, the latter is not the only party that may be answerable to Flexo. Its insolvency does not amount to a good reason to grant execution pending appeal. (Emphasis supplied)

Similarly, the trial court in this case found Urban Bank and all eight individual bank officers solidarily liable to Atty. Peña for the payment of the PhP28,500,000 award. Hence, had the judgment been upheld on appeal, Atty. Peña could have demanded payment from any of the nine defendants. Thus, it was a mistake for the Court of Appeals to have affirmed execution pending appeal based solely on the receivership of Urban Bank, when there were eight other individual defendants, who were solidarily liable but were not shown to have been insolvent. Since Urban Bank’s co-defendants were not found to have been insolvent, there was no good reason for the Court of Appeals to immediately order execution pending appeal, since Atty. Peña’s award could have been satisfied by the eight other defendants, especially when the de Leon Group filed its supersedeas bond.

It seems incongruous for Atty. Peña to be accorded the benefit of erroneously impleading several bank directors, who had no direct hand in the transaction, but at the same time, concentrating solely on Urban Bank’s inability to pay to justify execution pending appeal, regardless of the

financial capacity of its other co-defendants. Worse, he capitalized on the insolvency and/or receivership of Urban Bank to levy or garnish properties of the eight other individual defendants, who were never shown to have been incapable of paying the judgment debt in the first place. The disposition on the execution pending appeal may have been different had Atty. Peña filed suit against Urban Bank alone minus the bank officers and the same bank was found solely liable for the award and later on declared under receivership.

In addition, a judgment creditor of a bank, which has been ordered by the BSP to be subject of receivership, has to fall in line like every other creditor of the bank and file its claim under the proper procedures for banks that have been taken over by the PDIC. Under Section 30 of Republic Act No. 7653, otherwise known as the New Central Bank Act, which prevailed at that time, once a bank is under receivership, the receiver shall immediately gather and take charge of all the assets and liabilities of the bank and administer the same for the benefit of its creditors and all of the bank’s assets shall be considered as under custodial legis and exempt from any order of garnishment, levy, attachment or execution.327 In the Minute Resolution of the Monetary Board of the BSP, Urban Bank was not only prevented from doing business in the Philippines but its asset and affairs were placed under receivership as provided for under the same law.328 In fact, even Peña himself assured the PDIC, as receiver of Urban Bank, that he would not schedule or undertake execution sales of the bank’s assets for as long as the bank remains in receivership.329 Until the approval of the rehabilitation or the initiation of the liquidation proceedings, all creditors of the bank under receivership shall stand on equal footing with respect to demanding satisfaction of their debts, and cannot be extended preferred status by an execution pending appeal with respect to the bank’s assets:

… [t]o execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other creditors. After the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the depositors and creditors. After its insolvency, one creditor cannot obtain an advantage or preference over another by an attachment, execution or otherwise. Until there is an approved rehabilitation or the initiation of the liquidation proceedings, creditors of the bank stand on equal footing with respect to demanding satisfaction of their debts, and cannot be afforded special treatment by an execution pending appeal with respect to the bank’s assets.330 (Emphasis supplied)

Moreover, assuming that the CA was correct in finding a reason to justify the execution pending appeal because of the supervening event of Urban Bank’s closure, the assumption by the EIB of the liabilities of Urban Bank meant that any execution pending appeal can be granted only if EIB itself is shown to be unable to satisfy Peña’s judgment award of PhP28,500,000. That is not at all the case. In just one particular sale on execution herein, EIB offered to answer in cash for a substantial part of Peña’s claims, as evidenced by EIB’s capacity and willingness to redeem the executed properties (condominium units sold to intervenor Unimega) by tendering manager’s checks for more than PhP22 Million331 which is already 77.57% of Peña’s total award from the trial court.332 The fact that EIB’s offer to take over Urban Bank means it was able to satisfy the BSP’s concern that all legitimate liabilities of Urban Bank be duly discharged.

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

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

Irregularities in the Levy and Sale on Execution Pending Appeal

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

First, contrary to the general rules on execution, no opportunity was given to Urban Bank or the other co-defendants to pay the judgment debt in cash or certified check.336 Before proceeding on the levying and garnishing personal and real properties, demand must be made by the sheriff against the judgment debtors, Urban Bank and the eight other individual bank officers, for the immediate payment of the award subject of the execution pending appeal. It has not been shown whether Urban Bank and its officers and directors were afforded such an opportunity. Instead of garnishing personal properties of the bank, the sheriff inexplicably proceeded to levy substantial real properties of the bank and its officers at the onset.

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

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

Fourth, it was supremely disconcerting how Urban Bank, through its successor EIB, was unduly deprived of the opportunity to redeem the properties, even after presenting manager’s checks339 equal to the purchase price of the condominium units sold at the execution sale. No reason was offered by the trial court340 or the sheriff341 for rejecting the redemption price tendered by EIB in order to recover the properties executed and sold in public auction pending appeal.

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

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

The observation on the irregularities above-enumerated are made for the purpose of correcting the injustice that has been committed herein, by allowing the Court to pursue the question of who was responsible for such gross violation of the rules on execution, and for the Court to find measures to improve the safeguards against abuse of court processes. It is for this reason that the Office of the Court Administrator will be given a special task by the Court on this matter.

Judge Henry Trocino of RTC-Bago City, who issued the Special Order and had supervisory authority over the proceedings of the execution pending appeal, would have been included under such administrative investigation by the Office of the Court Administrator, were it not for his retirement from the judicial service.

The Court’s Suspension Order of Execution Pending Appeal

Acting on Atty. Peña’s Omnibus Motion dated 09 December 2002344 and Unimega’s Motion for Reconsideration dated 10 December 2002345 with respect to the Court’s Order dated 13 November 2002346 that clarified the earlier stay order against the execution pending appeal,347 the Court hereby denies both motions. The Court is fully correct in suspending the period for the running of the redemption period of the properties of Urban Bank and its officers and directors that were levied and subject of execution sale to satisfy the judgment debt in favor of Atty. Peña, the Court having conclusively determined that the supersedeas bond filed was sufficient and considering the subsequent finding that the said execution pending appeal lacks any sufficient ground for the grant thereof.

As to the theory of Atty. Peña that the actuations of Justice Carpio, the then ponente of this case, in drafting the questioned Order should positively impact his motion for reconsideration of the same, the Court finds this argument utterly devoid of merit.

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

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

Thirdly, his insinuation (which he denies) that Justice Carpio may have been bribed because the latter has a new Mercedes Benz349 is highly offensive and has no place where his points should have been confined to legal reasons and arguments.

Incidentally, Atty. Peña has voiced the fear in the Letter of Complaint filed in the Court’s Committee on Ethics and Ethical Standards,350 which he brought against the ponente of this Decision, that she will suppress material information regarding the issuance of the Order suspending the redemption period because of her close relationship to Justice Carpio. Contrary to this fear, this Decision is frontally disposing of this claim by stating that there is no basis to believe that the questioned Order was anything than the joint decision of the five members of the then First Division, and that his arguments in his motion to reconsider does not persuade this Court to vary in any form the questioned order. Moreover, our disposition of this case renders moot his motion to reconsider the order.

It must be emphasized that the prolonged resolution of the procedural issue in the Petitions in G. R. Nos. 145817 and 145822 on the execution pending appeal is due in no small part to the delays arising from Peña’s peculiar penchant for filing successive motions for inhibition and re-raffle.351 The Court cannot sanction Peña’s repeated requests for voluntary inhibition of members of the Court based on the sole ground of his own self-serving allegations of lack of faith and trust, and would like to reiterate, at this point, the policy of the Court not to tolerate acts of litigants who, for just about any conceivable reason, seek to disqualify a judge (or justice) for their own purpose, under a plea of bias, hostility, prejudice or prejudgment.352 The Court cannot allow the unnecessary and successive requests for inhibition, lest it opens the floodgates to forum-shopping where litigants look for a judge more friendly and sympathetic to their cause than previous ones.353

Restitution of the Bank’s Executed Properties

The Court is still confronted with the supervening acts related to the execution pending appeal and the reversal of the award of damages, which affect the rights of the parties as well as of the intervenors to the case, specifically, intervenor Unimega. In completely resolving the differing claims and performing its educational function, the Court shall briefly encapsulate and restate the operational rules governing execution pending appeal when there has been a reversal of the trial court’s Decision on the award of damages in order to guide the parties as well as the bench and bar in general. The necessity of making these detailed instructions is prompted by the most natural question an ordinary person with a sense of justice will ask after reading the facts: How can an obligation to pay for the services of a lawyer so that 23 unwanted tenants leave a corporation's property lead to the loss or the impairment of use of more than PhP181 Million worth of properties of that corporation and of its officers and directors? Obviously, this Court must undertake corrective actions swiftly.

The rule is that, where the executed judgment is reversed totally or partially, or annulled – on appeal or otherwise – the trial court may, on motion, issue such orders of restitution or reparation of damages as equity and justice may warrant under the circumstances.354 The Rules of Court precisely provides for restitution according to equity, in case the executed judgment is reversed on appeal.355 "In an execution pending appeal, funds are advanced by the losing party to the prevailing party with the implied obligation of the latter to repay the former, in case the appellate court cancels or reduces the monetary award."356

In disposing of the main case subject of these Petitions, the Court totally reversed the staggering amount of damages given by the trial court, and limited on a quantum meruit basis the agent’s compensation to PhP4,500,000 only. However, properties of Urban Bank and individual petitioners have been garnished and levied upon in the amount of supposedly more than PhP85,399,350.357

Applying the foregoing rules, petitioner-respondent bank is entitled to complete and full restitution of its levied properties, subject to the payment of the PhP4,500,000. Meanwhile, petitioners bank officers, all of whom have not been found individually or solidarily liable, are entitled to full restitution of all their properties levied upon and garnished, since they have been exonerated from corporate liability with respect to the bank’s agency relationship with Peña.

Considering the monetary award to Peña and the levy on and execution of some of its properties pending appeal, Urban Bank, now EIB, may satisfy the judgment in the main case and at the same time fully recover all the properties executed owing to the complete reversal of the trial court’s awarded damages. It must immediately and fully pay the judgment debt before the entire lot of levied properties, subject of the execution pending appeal, is restored to it.358

Due to the complete reversal of the trial court’s award for damages, which was the basis of the Special Order and Writ of Execution allowing execution pending appeal, intervenor Unimega and other bidders who participated in the public auction sales are liable to completely restore to petitioner-respondent bank all of the properties sold and purchased therein. Although execution pending appeal is sanctioned under the rules and jurisprudence, when the executed decision is reversed, the premature execution is considered to have lost its legal bases. The situation necessarily requires equitable restitution to the party prejudiced thereby.359 As a matter of principle, courts are authorized at any time to order the return of property erroneously ordered to be delivered to one party, if the order is found to have been issued without jurisdiction.360

As a purchaser of properties under an execution sale, with an appeal on the main case still pending, intervenor Unimega knew or was bound to know that its title to the properties, purchased in the premature public auction sale, was contingent on the outcome of the appeal and could possibly be reversed. Until the judgment on the main case on which the execution pending appeal hinges is rendered final and executory in favor of the prevailing judgment creditor, it is incumbent on the purchasers in the execution sale to preserve the levied properties. They shall be personally liable for their failure to do so, especially if the judgment is reversed, as in this case.361 In fact, if specific restitution becomes impracticable – such as when the properties pass on to innocent third parties – the losing party in the execution even becomes liable for the full value of the property at the time of its seizure, with interest. The Court has ruled:

When a judgment is executed pending appeal and subsequently overturned in the appellate court, the party who moved for immediate execution should, upon return of the case to the lower court, be required to make specific restitution of such property of the prevailing party as he or any person acting in his behalf may have acquired at the execution sale. If specific restitution becomes impracticable, the losing party in the execution becomes liable for the full value of the property at the time of its seizure, with interest.

While the trial court may have acted judiciously under the premises, its action resulted in grave injustice to the private respondents. It cannot be gainsaid that it is incumbent upon the plaintiffs in execution (Arandas) to return whatever they got by means of the judgment prior to its reversal. And if perchance some of the properties might have passed on to innocent third parties as happened in the case at bar, the Arandas are duty bound nonetheless to return the corresponding value of said properties as mandated by the Rules. (Emphasis supplied)362

In this case, the rights of intervenor Unimega to the 10 condominium units bought during the public auction sale under the Special Order are rendered nugatory by the reversal of the award of unconscionable damages by the trial court. It cannot claim to be an innocent third-party purchaser of the levied condominium units, since the execution sale was precisely made pending appeal. It cannot simply assume that whatever inaction or delay was incurred in the process of the appeal of the main Decision would automatically render the remedy dilatory in character.363 Whatever rights were acquired by intervenor Unimega from the execution sale under the trial court’s Special Orders are conditional on the final outcome of the appeal in the main case. Unlike in auction sales arising from final and executory judgments, both the judgment creditor and the third parties who participate in auction sales pending appeal are deemed to knowingly assume and voluntarily accept the risks of a possible reversal of the decision in the main case by the appellate court.

Therefore, intervenor Unimega is required to restore the condominium units to Urban Bank. Although the intervenor has caused the annotation of the sale and levied on the titles to those units, the titles have remained under the name of the bank, owing to the supersedeas bond it had filed and the Court’s own orders that timely suspended the transfer of the titles and further execution pending appeal.

The obligation to restore the properties to petitioner-respondent bank is, however, without prejudice to the concurrent right of intervenor Unimega to the return of the PhP10,000,000 the latter paid for the condominium units, which Peña received as judgment creditor in satisfaction of the trial court’s earlier Decision.364Consequently, intervenor’s earlier request for the issuance of a writ of possession365 over those units no longer has any leg to stand on. Not being entitled to a writ of possession under the present circumstances, Unimega’s ex parte petition is consequently denied.

Upon the reversal of the main Decision, the levied properties itself, subject of execution pending appeal must be returned to the judgment debtor, if those properties are still in the possession of the judgment creditor, plus compensation to the former for the deprivation and the use thereof.366 The obligation to return the property itself is likewise imposed on a third-party purchaser, like intervenor Unimega, in cases wherein it directly participated in the public auction sale, and the title to the executed property has not yet been transferred. The third-party purchaser shall, however, be entitled to reimbursement from the judgment creditor, with interest.

Considering the foregoing points, the Court adopts with modification the rules of restitution expounded by retired Justice Florenz D. Regalado in his seminal work on civil

procedure,367 which the appellate court itself cited earlier.368 In cases in which restitution of the prematurely executed property is no longer possible, compensation shall be made in favor of the judgment debtor in the following manner:

a. If the purchaser at the public auction is the judgment creditor, he must pay the full value of the property at the time of its seizure, with interest.

b. If the purchaser at the public auction is a third party, and title to the property has already been validly and timely transferred to the name of that party, the judgment creditor must pay the amount realized from the sheriff’s sale of that property, with interest.

c. If the judgment award is reduced on appeal, the judgment creditor must return to the judgment debtor only the excess received over and above that to which the former is entitled under the final judgment, with interest.

In summary, Urban Bank is entitled to complete restoration and return of the properties levied on execution considering the absolute reversal of the award of damages, upon the payment of the judgment debt herein amounting to PhP4,500,000, with interest as indicated in the dispositive portion. With respect to individual petitioners, they are entitled to the absolute restitution of their executed properties, except when restitution has become impossible, in which case Peña shall be liable for the full value of the property at the time of its seizure, with interest. Whether Urban Bank and the bank officers and directors are entitled to any claim for damages against Peña and his indemnity bond is best ventilated before the trial court, as prescribed under the procedural rules on execution pending appeal.

WHEREFORE, the Court DENIES Atty. Magdaleno Peña’s Petition for Review dated 23 April 2004 (G. R. No. 162562) and AFFIRMS WITH MODIFICATION the Court of Appeals’ Decision dated 06 November 2003 having correctly found that the Regional Trial Court of Bago City gravely abused its discretion in awarding unconscionable damages against Urban Bank, Inc., and its officers. The Decision of the Regional Trial Court of Bago City dated 28 May 1999 is hence VACATED.

Nevertheless, Urban Bank, Inc., is ORDERED to pay Atty. Peña the amount of PhP3,000,000 as reimbursement for his expenses and an additional PhP1,500,000 as compensation for his services, with interest at 6% per annum from 28 May 1999, without prejudice to the right of Urban Bank to invoke payment of this sum under a right of set-off against the amount of PhP25,000,000 that has been placed in escrow for the benefit of Isabela Sugar Company, Inc. The Complaint against the eight other individual petitioners, namely Teodoro Borlongan (+), Delfin C. Gonzales, Jr., Benjamin L. de Leon, P. Siervo G. Dizon, Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr., is hereby DISMISSED.

The Petitions for Review on Certiorari filed by petitioners Urban Bank (G. R. No. 145817) and Benjamin L. de Leon, Delfin Gonzalez, Jr., and Eric L. Lee (G. R. No. 145822) are hereby GRANTED under the following conditions:

a. Urban Bank, Teodoro Borlongan, Delfin C. Gonzalez, Jr., Benjamin L. de Leon, P. Siervo H. Dizon, Eric L. Lee, Ben Y. Lim, Jr., Corazon Bejasa, and Arturo Manuel, Jr., (respondent bank officers) shall be restored to full ownership and possession of all properties executed pending appeal;

b. If the property levied or garnished has been sold on execution pending appeal and Atty. Magdaleno Peña is the winning bidder or purchaser, he must fully restore the property to Urban Bank or respondent bank officers, and if actual restitution of the property is impossible, then he shall pay the full value of the property at the time of its seizure, with interest;

c. If the property levied or garnished has been sold to a third party purchaser at the public auction, and title to the property has not been validly and timely transferred to the name of the third party, the ownership and possession of the property shall be returned to Urban Bank or respondent bank officers, subject to the third party’s right to claim restitution for the purchase price paid at the execution sale against the judgment creditor;

d. If the purchaser at the public auction is a third party, and title to the property has already been validly and timely transferred to the name of that party, Atty. Peña must pay Urban Bank or respondent bank officers the amount realized from the sheriff’s sale of that property, with interest from the time the property was seized.

The Omnibus Motion dated 09 December 2002 filed by Atty. Peña and Motion for Reconsideration dated 10 December 2002 filed by Unimega with respect to the Court’s Order dated 13 November 2002 is hereby DENIED.

The Office of the Court Administrator is ordered to conduct an investigation into the possible administrative liabilities of Atty. Josephine Mutia-Hagad, the then RTC-Bago City’s Clerk of Court, and Allan D. Sillador, the then Deputy Sheriff of Bago City, for the irregularities attending the execution pending appeal in this case, including all judicial officers or sheriffs in the various places in which execution was implemented, and to submit a report thereon within 120 days from receipt of this Decision.

The Office of the Court Administrator is also directed to make recommendations for the prevention of abuses of judicial processes in relation to executions, especially those pending appeal, whether thru administrative circulars from this Court or thru a revision of the Rules of Court, within 30 days from submission of the report on administrative liabilities adverted to above. Let a copy of the Court’s Decision in this case be sent to the Office of the Court Administrator.

The Presiding Judge of RTC Bago City shall make a full report on all incidents related to the execution in this case, including all returns on the writ of execution herein.

Because so much suspicious circumstances have attended the execution in this case by the Regional Trial Court of Bago City, the proceedings with respect to any restitution due and owing under the circumstances shall be transferred to the Regional Trial Court in the National Capital Region, Makati City, a court with venue to hear cases involving Urban Bank/Export and Industry Bank whose headquarters is located in Makati City. The Executive Judge of the Regional Trial Court of Makati City is ordered to include the execution of the Decision and the proceedings for the restitution of the case in the next available raffle.

The Regional Trial Court of Makati City, to which the case shall be raffled, is hereby designated as the court that will fully implement the restorative directives of this Decision with respect to the execution of the final judgment, return of properties wrongfully executed, or the payment of the value of properties that can no longer be restored, in accordance with Section 5, Rule 39 of the Rules of Court. The parties are directed to address the implementation of this part of the Decision to the sala to which the case will be raffled.

No pronouncement as to costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 167552             April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner, vs.EDWIN CUIZON and ERWIN CUIZON, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated 10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.

The generative facts of the case are as follows:

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

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

1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is the lawful recipient;

3.) That the ASSIGNEE does hereby accept this assignment.7

Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as shown by Invoice No. 12034 dated 30 June 1995.8

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check Voucher No. 09339prepared by said power company and an official receipt dated 15 August 1995 issued by Impact Systems.10Alarmed by this development, petitioner made several demands upon respondents to pay their obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October 1996, petitioner’s counsel sent respondents a final demand letter wherein it was stated that as of 11 June 1996, respondents’ total obligations stood at P295,000.00 excluding interests and attorney’s fees.11 Because of respondents’ failure to abide by said final demand letter, petitioner instituted a complaint for sum of money, damages, with application for preliminary attachment against herein respondents before the Regional Trial Court of Cebu City.12

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

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioner’s allegations with respect to the sale transactions entered into by Impact Systems and petitioner between January and April 1995.15 He, however, disputed the total amount of Impact Systems’ indebtedness to petitioner which, according to him, amounted to only P220,000.00.16

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in this case. According to him, he was acting as mere agent of his principal, which was the Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. In support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioner’s Complaint stating –

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a single proprietorship business known as Impact Systems Sales ("Impact Systems" for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may be served summons and other processes of the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the Sales Manager of Impact Systems and is sued in this action in such capacity.17

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary Judgment. The trial court granted petitioner’s motion to declare respondent ERWIN in default "for his failure to answer within the prescribed period despite the opportunity granted"18 but it denied petitioner’s motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October 2001.19However, the conduct of the pre-trial conference was deferred pending the resolution by the trial court of the special and affirmative defenses raised by respondent EDWIN.20

After the filing of respondent EDWIN’s Memorandum21 in support of his special and affirmative defenses and petitioner’s opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court –

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

could not say that the subject contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment of P50,000.00 two days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant.23

Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the now assailed Decision of the Court of Appeals states:

WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.24

Petitioner’s motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17 March 2005. Hence, the present petition raising, as sole ground for its allowance, the following:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE PARTICIPATE IN THE PERPETUATION OF A FRAUD.25

To support its argument, petitioner points to Article 1897 of the New Civil Code which states:

Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers.

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWIN’s act of collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of respondents, petitioner insists that ERWIN’s action repudiated EDWIN’s power to sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner claims that he should be made personally liable for the obligations of his principal.26

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

In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in this case and it was proper for the trial court to have him dropped as a defendant. He

insists that he was a mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states that he was acting as a representative of Impact Systems in said transaction.

We do not find merit in the petition.

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

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

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

We disagree.

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

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of broad powers with which to conduct the business of the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of judgment and discretion in transactions and concerns which are incidental or appurtenant to the business entrusted to his care and management. In the absence of an agreement to the contrary, a managing agent may enter into any contracts that he deems reasonably necessary or requisite for the protection of the interests of his principal entrusted to his management. x x x.35

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it received, in full, the payment for Impact Systems’ indebtedness.36 We may very well assume that Impact Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,37 it still persisted in negotiating with petitioner which culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28 June 1995.38The significant amount of time spent on the negotiation for the sale of the sludge pump underscores Impact Systems’ perseverance to get hold of the said equipment. There is, therefore, no doubt in our mind that respondent EDWIN’s participation in the Deed of Assignment was "reasonably necessary" or was required in order for him to protect the business of his principal. Had he not acted in the way he did, the business of his principal would have been adversely affected and he would have violated his fiduciary relation with his principal.

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

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

WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No.

71397, affirming the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.

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

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 192085               February 22, 2012

CARIDAD SEGARRA SAZON, Petitioner, vs.LETECIA VASQUEZ-MENANCIO, represented by Attorney-in-Fact EDGAR S. SEGARRA, Respondent.

Villarama*

D E C I S I O N

SERENO, J.:

The present case stems from a Complaint for Recovery of Possession of Real Properties, Accounting and Injunction1 filed by Leticia Vasquez-Menancio (respondent) against Caridad S. Sazon (petitioner) in the Regional Trial Court (RTC) of Ligao City, Albay. The RTC ruled in favor of respondent, but reversed itself when petitioner filed a Motion for Reconsideration (MR). Respondent appealed the case to the Court of Appeals (CA), but it affirmed the first Decision of the RTC. She filed another MR, but the CA denied it for lack of merit.

The Case

Before us is a Petition for Review2 under Rule 45 of the Rules of Court, assailing the 26 November 2009 Decision3 of the appellate court in CA-GR CV No. 91570. The challenged Decision disposed as follows:

WHEREFORE, the appeal is DISMISSED. The Decision dated 31 July 2007 of the Regional Trial Court, Branch 13, Ligao City, in Civil Case No. T-1944 is AFFIRMED with MODIFICATION in that Caridad S. Sazon is ORDERED to pay Leticia Vasquez-Menancio the amount of P 908,112.62,

representing the unremitted fruits and income of the subject properties from 1979 to 1997. This is already net of administration expenses, allowance for compensation and proved real estate taxes paid. The Decision is affirmed in all other respects.

SO ORDERED.4

Antecedents

Respondent is a resident of the United States of America. Sometime in 1979, she entrusted the management, administration, care and preservation of her properties to petitioner. These properties are more specifically described as follows:

I. Residential lot, with an area of 573 sq. m., located in Zone III, Libon, Albay, declared under Tax No. 097-03-0066 in the sum of P 24,070.00

II. Residential lot, with an area of 299 sq. m., located in Zone III, Libon, Albay, declared under Tax No. 097-003-00115 in the sum of P 12,560.00

III. Residential lot, with an area of 873 sq. m., located in San Antonio St., Libon, Albay, declared under Tax No. 097-003-00068 in the sum of P 36,670.00

IV. Irrigated riceland, Cad. Lot No. 852, with an area of 3.1304 hectares, located at San Isidro, Libon, Albay, declared under Tax No. 07-039-235 in the sum of P 96,580.00

V. Irrigated riceland, with an area of 1.5652 hectares, located at Bololo Centro, Libon, Albay, declared under Tax No. 07-005-104 in the sum of P 48,290.00

VI. Irrigated riceland, with an area of .6720 hectares, located at Bololo Centro, Libon, Albay, declared under Tax No. 07-005-103 in the sum of P 29,730.00

VII. Irrigated riceland, with an area of .6380 hectares, located at Balagon Centro, Libon, Albay, declared under Tax No. 07-005-222 in the sum of P 19,680.00

VIII. Coconut land, with an area of ten (10) hectares, located at Macabugos, Libon, Albay, declared under Tax No. 07-023-85 in the sum of P 42,840.00

IX. Coconut land, with an area of 3.7102 hectares, located at Macabugos, Libon, Albay, declared under Tax No. 07-023-86 in the sum of P 15,740.005

The properties shall hereinafter be referred to individually as "Lot I," "Lot II" and so on for brevity.

Respondent avers that Lots I to IX are productive, and that petitioner as the administrator has collected and received all the fruits and income accruing therefrom. Petitioner, on the other hand, claims that several of the properties do not produce any fruit or generate any income at all,6 and that any supposed income derived from them is not sufficient to answer for all the expenses incurred to maintain them.7

According to respondent, petitioner never rendered a full accounting of the fruits and income derived from the properties, but has instead appropriated and in fact applied these for her own use and benefit. Denying this allegation, petitioner presented five letters—dated 21 January 1983, 12 March 1984, 15 September 1986, 2 December 1988, and one undated—which had been sent to respondent as proof of the accounting.8

Furthermore, petitioner denies receipt of any letter asking her to make an accounting or to remit the fruits collected from the properties. 9 She further avers that, since the start of her agency agreement with respondent, the latter never answered "any of the communications" petitioner had sought to initiate.10

As a result of the foregoing, respondent revoked, in writing, all the powers and authority of administration granted to petitioner effective March 1997. Thereafter, the former demanded that petitioner return and/or turn over the possession and administration of the properties.

Respondent claims that she made repeated verbal, and served written, demands upon petitioner, asking the latter to render an accounting and to remit the owner’s share of the fruits. Petitioner, however, continued to fail and to refuse to perform her obligation.11 In fact, she continues to hold on to the properties and the management and administration thereof. Further, she continues to collect, receive, and keep all the income generated by the properties.

Thus, on 30 October 1997, respondent filed her Complaint with Preliminary Injunction,12 praying that the RTC order petitioner to render an accounting and remit all the fruits and income the latter, as the administrator, received from the properties.

In her Answer with Counterclaim,13 petitioner alleges as follows:

2.a. Lot area of 573 sq.m.-is being leased by Salome S. Segarra which is duly covered by a Lease Contract executed during the effectivity of the Special Power of Attorney granted to the herein defendant. Furthermore, the said Lease Contract was entered into with the express consent, and without any objection on the part of the plaintiff since she was consulted prior to its execution; xxx,

2.b. Lot area of 299 sq. m. – This is included in the [L]ease [C]ontract above-mentioned.

2.c. Lot area of 873 sq. m. – This is likewise duly covered by a Lease Contract executed between the herein defendant as lessee and Ana C. Segarra when the latter was still the administrator of the properties of the plaintiff. The said Lease Contract was likewise

entered into with the express consent and without any objection on the part of the plaintiff since she was again consulted prior to its execution; xxx.

2.d. Lot area of 3.1304 hectares – this is administered as to 2/3 of the total land area but not as to the other 1/3 as the same is owned by the defendant’s mother Ana C. Segarra by virtue of a contract of sale from Mrs. Josefina Segarra, the co-owner of the plaintiff over the said land; xxx,

2.e. Lot area of 1.5652 hectares and .6720 hectares are not owned by the plaintiff but that of the mother of the herein defendant Ana C. Segarra by virtue of a Deed of Redemption, as in fact, they are in possession thereof as owners and not as administrator of the plaintiff; xxx,

2.f. Lot area of .6380 hectares – said land is presently possessed by the alleged administrator of the plaintiff yet the plaintiff still seeks the return of the same which constitutes an act that trifles with the administration of justice and further prove that this groundless case was filed with this court purely to harass the herein defendant;

2.g. Lot area of 10 hectares and Lot area of 3.7102 hectares – the herein defendant is no longer in possession of these lots as in fact, the fruits of these lands are not being turned over to the defendant ever since the plaintiff revoked the authority given to the defendant, xxx.14

In short, petitioner argues that respondent has no cause of action against her for the following reasons:15

1. The properties that cannot be returned because they are under valid lease agreements—Lots I-III—and those that have been transferred to a third party by virtue of contracts of sale with corresponding deeds of redemption—Lots V and VI—can no longer be given to respondent;16

2. Some properties are already in respondent’s possession—Lots IV and VII-IX.17

By way of compulsory counterclaim, petitioner is asking this Court to order respondent to return the one-third portion of Lot IV allegedly owned by petitioner’s mother and the fruits collected therefrom.18

During the pretrial conference held on 24 July 1998, the parties agreed that respondent already had possession over Lots IV, VII, VIII, and IX. They also agreed that all the income derived from Lots I to IX since 1979 were received by petitioner.19

In a Decision20 dated 31 July 2007, the RTC ruled in favor of respondents. The dispositive portion thereof reads:

WHEREFORE, the foregoing premises duly considered, judgment is hereby rendered in favor of plaintiff Leticia Vasquez-Menancio and against defendant Caridad S. Sazon, as follows:

a) ordering the defendant to turn over the possession, management and administration of all the properties enumerated in paragraph 2 of the complaint, except parcels 4, 7, 8 and 9 which were already under plaintiff’s possession since August, 1977, to the plaintiff, thru attorney-in-fact Edgar S. Segarra;

b) ordering the defendant to remit to the plaintiff the total sum of P 1,265,493.75 representing unremitted fruits and income of the subject properties, less the amount of P 150,000.00 by way of administration expenses incurred by defendant;

c) ordering the defendant to pay the plaintiff the sum of P 50,000.00 as moral damages;

d) ordering the defendant to reimburse the plaintiff the sum of P 20,000.00 as and for attorney’s fees, plus the sum of P 1,000.00 for every court appearance of counsel; and —

e) ordering the defendant to pay the costs of the suit.

On the other hand, plaintiff Leticia Vasquez-Menancio is hereby ordered to pay defendant Caridad S. Sazon the total sum of P 180,000.00, representing the latter’s compensation in administering the former’s properties based on quantum meruit.

SO ORDERED.21

Petitioner filed her MR on 20 August 2007 questioning the trial court’s Decision to rely on the computation made by respondent’s attorney-in-fact. These computations, reflected in paragraph (b) of the dispositive portion, were used by the RTC to determine the prices of palay, corn and copra at the time that petitioner administered the properties. Realizing, however, that it should have considered the Certifications issued by the National Food Authority (NFA) and the Philippine Coconut Authority (PCA) for that purpose, the RTC ruled in favor of respondent and partly reversed its 28 March 2008 Decision, the dispositive portion of which reads:

WHEREFORE, the foregoing premises duly considered, the Court resolves to set aside the Decision dated July 31, 2007. In lieu thereof, a new decision is hereby rendered as follows:

a) ordering the defendant Caridad S. Sazon to turn over the possession, management and administration of all the properties enumerated in paragraph 2 of the complaint, except parcels 4, 7, 8 and 9 which were already under plaintiff’s possession since August, 2007, to plaintiff Leticia Vasquez-Menancio, thru her attorney-in-fact Edgar S. Segarra;

b) ordering the defendant to render full, accurate and complete accounting of all the fruits and proceeds of the subject properties during the period of her administration; and

c) ordering the defendant to reimburse the plaintiff the sum of P 20,000.00, as and for attorney’s fees;

Costs against defendant.

SO ORDERED.22 (Emphasis supplied in the original)

Still aggrieved, petitioner raised the matter to the CA, but it dismissed her appeal. It affirmed the trial court’s 31 July 2007 Decision, except for the amount ordered to be remitted to respondent, which was reduced to P908,112.62. The MR filed by petitioner was also denied on 29 April 2010.23

Petitioner is now asking this Court to set aside the CA’s Decision.24

In questioning the Decision of the CA, petitioner first raises a procedural issue. She argues that the appellate court should not have affirmed the RTC Decision in this case, because when the trial court abandoned its original Decision, the latter impliedly admitted that it had "committed erroneous findings of facts."25 Respondent argues that the CA had the power to affirm the RTC’s second Decision—the Resolution on the MR—because the entire case was opened for review upon appeal.

We agree with respondent.

In Heirs of Carlos Alcaraz v. Republic of the Philippines,26 we reiterated the cardinal rule that when a case is appealed, the appellate court has the power the review the case in its entirety, to wit:

In any event, when petitioners interposed an appeal to the Court of Appeals, the appealed case was thereby thrown wide open for review by that court, which is thus necessarily empowered to come out with a judgment as it thinks would be a just determination of the controversy. Given this power, the appellate court has the authority to either affirm, reverse or modify the appealed decision of the trial court. To withhold from the appellate court its power to render an entirely new decision would violate its power of review and would, in effect, render it incapable of correcting patent errors committed by the lower courts.

Thus, we agree with respondent that the CA was free to affirm, reverse, or modify either the Decision or the Order of the RTC.

Next, petitioner avers that she cannot turn over possession of Lots I to III, because these are subject of valid lease agreements. None of the parties question the appellate court’s finding that the lease agreements covering Lots I-III should be respected. After all, when petitioner entered into these agreements, she acted within her authority as respondent’s agent.27

In this matter, we agree with the CA in its ruling that even though the lease agreements covering these lots should be respected, petitioner must turn over the administration of the leases to respondent’s attorney-in-fact.28 The reason is that respondent has already revoked the authority of petitioner as administrator. Hence, the latter no longer has the right to administer the properties or to receive the income they generate on respondent’s behalf.

With respect to the one-third portion of Lot IV, the parties also agree that the sale of one-third of this lot to petitioner’s mother should be respected by respondent.29 Lot IV has been in the latter’s possession since 1997. Since it is not controverted that one-third of this lot is now owned by petitioner’s mother, respondent should turn over possession of the corresponding one-third portion and remit all fruits collected therefrom since 1997.

Petitioner questions the factual findings of the appellate court. She claims that the CA erred in finding that "the reason why petitioner allegedly never rendered an accounting of income is because the respondent never demanded it."30 According to petitioner, she never claimed that this was the reason why she never rendered an accounting of income. In fact, she insists that she actually sent letters of accounting to respondent. Supposedly, she only said that respondent never demanded accounting from her to refute the claim of respondent that such demand letter was sent to her.

Petitioner insists, however, that Article 1891 of the Civil Code contains a few of the obligations owed by an agent to his principal, viz:

Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall be void.

It is evident that the reason behind the failure of petitioner to render an accounting to respondent is immaterial. What is important is that the former fulfill her duty to render an account of the relevant transactions she entered into as respondent’s agent.

Petitioner claims that in the course of her administration of the properties, the letters she sent to respondent should be considered as a fulfillment of her obligation, as respondent’s agent, to render an accounting of her administration.31 Both the RTC and the CA found these letters insufficient. We agree. Petitioner was the administrator of respondent’s properties for 18 years or from 1979 to 1997, and four letters within 18 years can hardly be considered as sufficient to keep the principal informed and updated of the condition and status of the latter’s properties.

As to Lots V and VI, petitioner avers that ownership thereof was transferred to her mother through a Deed of Redemption,32 viz:

Defendant averred that her mother owned parcels 5 and 6. She Identified a Deed of Redemption purporting to have transferred the property to her mother. When the deed was executed, plaintiff was in the United States but defendant’s mother notified her. She saw her mother putting 100-peso bills amounting to P 6,500.00 in a big brown envelope to pay for the lot. Her father Simeon Segarra who just came from the United States gave her the money.33

On this matter, the RTC found thus:

As regards parcels 5 and 6, the defendant averred that they were owned by her mother Ana Segarra because she was the one who redeemed the properties. But the evidence extant in the records disclosed that the said parcels of land were declared for taxation purposes in the name of plaintiff Leticia Vasquez-Menancio. In many cases, it has been repeatedly held that although tax declarations are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of an owner for no one in his right mind would be paying taxes for a property that is not under his actual or at least constructive possession. Hence, the fruits and profits of these properties shall still incur to the plaintiff.34

For its part, the CA held as follows:

To prove that one of Leticia’s properties now belongs to her mother, Ana Segarra, Sazon presented evidence showing that when Ana was still the administrator of Leticia’s properties, she redeemed Leticia’s property that was sold by Leticia’s father to vendee-a-retro, Loreto San Andres-Seda. However, the Deed of Redemption clearly shows that Ana redeemed the property only in her capacity as attorney-in-fact of Leticia, and not in her personal capacity.35

Factual findings of the trial court are accorded high respect and are generally not disturbed by appellate courts, unless found to be clearly arbitrary or baseless.36 This Court does not review the factual findings of an appellate court, unless these findings are "mistaken, absurd, speculative, conjectural, conflicting, tainted with grave abuse of discretion, or contrary to the findings culled by the trial court of origin."37

Although the pronouncement of the trial court is not identical to that of the CA, the declaration of one corroborates the findings of the other. We rule that the findings of the lower court and the CA regarding Lots V and VI should be respected. The mother of petitioner purchased both of these lots in her capacity as respondent’s attorney-in-fact, which explains why these lots were—for taxation purposes—declared in the name of respondent.

Petitioner bewails the appellate court’s supposed failure to rule on her claim that respondent promised to give the former a 20% commission for the sale of respondent’s properties in Las Piñas, Quiapo; and Fraternal, Sampaloc, Manila.38 We rule that petitioner failed to prove that this

agreement had been entered into. No other evidence, except for her testimony, was presented to prove that an agreement of this nature had been entered into between the parties.39

Finally, the crux of the present Petition is the determination of the value of all the fruits and proceeds collected from respondent’s properties from 1979 to 1997 and the total sum thereof.

Petitioner does not deny that she never remitted to respondent any of the fruits or income derived from the properties. Instead, petitioner claims that (1) the properties did not produce any fruit or generate any income at all;40 (2) any supposed income derived from the properties was not sufficient to answer for all the expenses incurred to maintain them;41 and (3) she was never compensated for the services she rendered as the administrator of respondent’s properties.

As previously mentioned, every agent is bound to deliver to the principal whatever the former may have received by virtue of the agency, even though that amount may not be owed to the principal.42

In determining the value of the fruits, the RTC—in its original Decision—relied on the computation submitted by respondent’s attorney-in-fact and ordered petitioner to remit to respondent the total sum of P 1,265,493.75, to wit:

At the outset, it may be stated that plaintiff’s attorney-in-fact Edgar S. Segarra, being a farmer himself and a resident of the area where the subject properties are located can best testify regarding the income thereof. In preparing a computation of income of his principal, plaintiff Leticia Vasquez-Menancio, he consulted people from the agrarian sector, as well as grains buyers. He also referred to the lease contracts entered into between the former administratrix and the tenants. Based on his computation, the amount which represented the fruits of the properties being administered by the defendant but were not remitted to the plaintiff totaled P 1,265,493.75 xxx, which amount to the mind of the Court, is not colossal but a reasonable claim, especially in this instance where the subject properties have been administered by defendant and her mother for more than (10) years.43

The computation is based on the alleged prevailing price of P 8.75 per kilo for palay and P 12 per kilo for copra. The trial court also ordered respondent to reimburse petitioner in the amount of P 150,000 representing the administrative expenses the latter incurred as the agent. Furthermore, petitioner was awarded P 180,000 as compensation for administering respondent’s properties. Lastly, petitioner was ordered to pay respondent attorney’s fees in the amount of P 20,000 plus P 1,000 for every appearance of counsel.

In the Order of the RTC reversing its Decision, it found that it should have considered the Certifications issued by the NFA and PCA with respect to the prevailing prices of palay, corn, and copra at the time of petitioner’s administration. These Certifications revealed that the prevailing prices from 1979 to 1997 were as follows: (1) from P 1.75 to P 8 per kilo for palay; (2) from P 1to P 6 per kilo for corn; and (3) from P 3.15 to P 10.77 per kilo for copra. The RTC found

that the parties failed to prove the exact quantity and quality of harvests for the period. Consequently, it ordered petitioner to "render full, accurate, and complete accounting of all the fruits and proceeds of the subject properties during the period of her administration."44

The CA affirmed the RTC’s original Decision and ordered petitioner to pay respondent the amount of P1,315,533.75—even though the trial court had ordered the return of only P 1,265,493.75—representing the total value of the fruits and rents derived from the properties from 1979 to 1997 less the P 150,000 administrative expenses, the P 180,000 compensation for administering the properties, and the P 77,221.13 real estate taxes paid by petitioner from 1979 to 1997.

We disagree with the appellate court’s finding with respect to the total value of fruits and rents earned by the properties from 1979 to 1997.

As found by the RTC, the following computation of the amounts owed by petitioner to respondent was submitted by the latter’s attorney-in-fact, Edgar S. Segarra:

Witness Edgar S. Segarra testified that the properties which were administered by defendant Caridad S. Sazon consisted of residential and agricultural lands. Caridad Sazon leased the residential lots to one Salome Segarra in the amount of 100 pesos a month since 1988. Another parcel of land was leased to defendant’s mother Ana Segarra in exchange for one sack or 46 kilograms of palay for a period of 20 years. A cornland which is being tenanted by Orlando Macalinao produced P 72,000.00. The computation was based on a 75/25 sharing plan multiplied by the price of corn at 6 pesos and again multiplied by 15 years, the number of years that the properties were being tenanted. Another riceland was tilled by the defendant’s husband. This 1.56 hectares Riceland produced 1,932 kilograms of rice per year and at P 8.75 a kilogram, for 14 years, the amount which was not remitted to the plaintiff amounted to P 836,670.00. Another property, located at Libon, Albay, containing an area of .6720 hectare and tilled by defendant’s husband produced harvest amounting to P 121,030.00. Further, a riceland with an area of .6380 hectare being farmed by the defendant’s daughter produced P 183,720.00. Two coconut lands, located at Macabugos, Libon, Albay, produced coconuts made into copras, thus bringing in profits of about P 705,600.00.

The foregoing amounts correspond to the years by which the properties were administered by the defendant, the number of crops they harvested, the sharing plan, and the prevailing price of the produce during the years of administration. He also asked the comprador (buyer of grains) about the prices and consulted employees of the department of Agrarian Reform regarding the sharing of the crops. The lease contracts affecting the properties were also considered. All these amounts were never remitted by the defendant to the owner-plaintiff. 45

Petitioner correctly posits that it was wrong for the CA to base the computation of unremitted fruits and rents solely on the evidence submitted by respondent’s attorney-in-fact, as this computation was obviously self-serving. Furthermore, the Certifications issued by the NFA and PCA should have been be given weight, as they are documentary evidence issued by government

offices mainly responsible for determining the buying/selling price of palay, corn, and other food and coconut products.

We shall review the findings of fact of the Court of Appeals in view of some inconsistencies with those of the trial court and the evidence on record.

This Court is convinced that the Certifications are genuine, authentic, valid, and issued in the proper exercise and regular performance of the issuing authority’s official duties. Under Section 3(m), Rule 131 of the Revised Rules of Court, there is a legal presumption that official duty has been regularly performed. No evidence was presented to rebut or dispute this presumption.

Petitioner claims that several of the properties did not produce any fruit or generate any income at all.46 However, the trial court found that not only was there evidence on record showing that the properties administered yielded agricultural produce and rents, but petitioner herself had testified that the properties increased when she served as administrator. In effect, she admitted that the properties indeed generated income.47

This Court is left with no other choice but to order both parties to present their evidence in support of their respective claims considering that no evidence was submitted to prove the quantity and quality of harvests for the relevant period. Neither the RTC nor the CA was able to explain or present a breakdown to show how it arrived at the supposed amount representing the total value of the fruits and rents derived from the properties.

The trial court correctly ordered petitioner to "render full, accurate, and complete accounting of all the fruits and proceeds of the subject properties during the period of her administration." However, it should have also ordered petitioner to present all her evidence regarding the alleged transportation expenses, attorney’s fees, docket fees, and other fees; 48 the total amount expended for the purchase of respondent’s Las Piñas property;49 and the total amount of real property taxes paid. These claimed expenses, if and when duly proven by sufficient evidence, should be deducted from the total income earned by the properties.

Both parties should be required to present their evidence to finally resolve the following issues: (1) the total amount of the income generated by Lots I to IX during the administration of petitioner; and (2) the total amount of expenses incurred by petitioner that should be borne by respondent as the owner of the properties, or the total deductibles in petitioner’s favor.

There is no doubt that petitioner is entitled to compensation for the services she rendered. Respondent does not deny that she never paid the former, since they had no agreement regarding the amount, the determination of which she left to petitioner.50

Petitioner now argues that since the expenses for the maintenance of the properties exceeded whatever income they generated, then whatever is left of the income should now belong to her as compensation.51 She says that the "admission of the respondent admitted during cross-examination that she expected petitioner to fix her own salary out of the remaining income, if

any, of the administered property" is enough reason to reverse and Decision and Resolution of the CA.52

The contention is not acceptable. Considering that neither of the parties was able to prove how much the properties earned, this Court cannot just agree with petitioner’s claim that whatever is left of this income, after the expenses have been deducted, should be considered as her salary. To begin with, she repeatedly claimed that all the income derived from these properties was insufficient to cover even just the expenses; thus, there is no "remaining income" left to speak of.

We have already ruled that petitioner should be compensated for the services she rendered. Since there was no exact amount agreed upon, and she failed to fix her own salary despite the authority given to her, the RTC correctly applied the doctrine of quantum meruit. With respect to this matter, the trial court found thus:

And where the payment is based on quantum meruit, the amount of recovery would only be the reasonable value of the thing or services rendered regardless of any agreement as to value. In the instant case, the amount of P1,000.00 per month for 15 years representing defendant’s compensation for administering plaintiff’s properties appears to be just, reasonable and fair.53

The doctrine of quantum meruit (as much as one deserves) prevents undue enrichment based on the equitable postulate that it is unjust for a person to retain benefit without paying for it.54 Being an equitable principle, it should only be applied if no express contract was entered into, and no specific statutory provision is applicable. Although petitioner was given the authority to set the amount of her salary, she failed to do so. Thus, she should at least be given what she merits for her services. We find no reason to reverse the finding of both the RTC and the CA that P 1,000 per month for 15 years is a just, reasonable, and fair compensation to petitioner for administering respondent’s properties. The lower court is ordered to add this amount to the deductibles that petitioner is able to prove or, if the deductibles exceed the monetary value of the income generated by the properties, to add this amount to whatever respondent ends up owing petitioner.

We delete the award of moral damages and attorney's fees in the absence of proof of bad faith and malice on the part of petitioner.

WHEREFORE, in view of the foregoing, the Petition is PARTLY GRANTED, as follows:

(1) Petitioner Caridad S. Sazon is ordered to TURN OVER the possession, management, and administration of Lots I, II, III, V, and VI to respondent Leticia Vasquez-Menancio through the latter’s attorney-in-fact, Edgar S. Segarra.

(2) Respondent is ordered to TURN OVER the possession, management, and administration of one-third of Lot IV to petitioner.

(3) The case is REMANDED to the Regional Trial Court of Ligao City, Albay, the court of origin, which is ordered to do the following:

(a) ORDER petitioner to render full, accurate, and complete accounting of all the fruits and proceeds earned by respondent’s properties during petitioner’s administration thereof;

(b) ORDER petitioner to submit a detailed list with a breakdown of all her claimed expenses, including but not limited to the following: maintenance expenses including transportation expenses, legal expenses, attorney’s fees, docket fees, etc; the total amount expended for the purchase of respondent’s Las Piñas property;55 and the total amount of real property taxes paid, all for the period 1979 to 1997;

(c) ORDER the parties to submit their evidence to prove the exact quantity and quality of the harvests or the fruits produced by the properties and all the expenses incurred in maintaining them from 1979 to 1997;

(d) DETERMINE the total amount earned by the properties by using as basis the declaration of the National Food Authority and the Philippine Coconut Authority with respect to the prevailing prices of palay, corn, and copra for the period 1979 to 1997; and

(e) SUBTRACT from the determined total amount the expenses proven by petitioner and the P180,000 serving as her compensation for administering the properties from 1979 to 1997.

COSTS against petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 130423             November 18, 2002

VIRGIE SERONA, petitioner, vs.HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

During the period from July 1992 to September 1992, Leonida Quilatan delivered pieces of jewelry to petitioner Virgie Serona to be sold on commission basis. By oral agreement of the parties, petitioner shall remit payment or return the pieces of jewelry if not sold to Quilatan, both within 30 days from receipt of the items.

Upon petitioner’s failure to pay on September 24, 1992, Quilatan required her to execute an acknowledgment receipt (Exhibit B) indicating their agreement and the total amount due, to wit:

Ako, si Virginia Serona, nakatira sa Mother Earth Subd., Las Pinas, ay kumuha ng mga alahas kay Gng. Leonida Quilatan na may kabuohang halaga na P567,750.00 para ipagbili para ako magkakomisyon at ibibigay ang benta kung mabibili o ibabalik sa kanya ang mga nasabing alahas kung hindi mabibili sa loob ng 30 araw.

Las Pinas, September 24, 1992.1

The receipt was signed by petitioner and a witness, Rufina G. Navarette.

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

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

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

CONTRARY TO LAW.5

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

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

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

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

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

WHEREFORE, in the light of the foregoing, the court finds the accused Virgie Serona guilty beyond reasonable doubt, and as the amount misappropriated is P424,750.00 the penalty provided under the first paragraph of Article 315 of the Revised Penal Code has to be imposed which shall be in the maximum period plus one (1) year for every additional P10,000.00.

Applying the Indeterminate Sentence Law, the said accused is hereby sentenced to suffer the penalty of imprisonment ranging from FOUR (4) YEARS and ONE (1) DAY of prision correccional as minimum to TEN (10) YEARS and ONE (1) DAY of prision mayor as maximum; to pay the sum of P424,750.00 as cost for the unreturned jewelries; to suffer the accessory penalties provided by law; and to pay the costs.

SO ORDERED.14

Petitioner appealed to the Court of Appeals, which affirmed the judgment of conviction but modified the penalty as follows:

WHEREFORE, the appealed decision finding the accused-appellant guilty beyond reasonable doubt of the crime of estafa is hereby AFFIRMED with the following MODIFICATION:

Considering that the amount involved is P424,750.00, the penalty should be imposed in its maximum period adding one (1) year for each additional P10,000.00 albeit the total penalty should not exceed Twenty (20) Years (Art. 315). Hence, accused-appellant is hereby SENTENCED to suffer the penalty of imprisonment ranging from Four (4) Years and One (1) Day of Prision Correccional as minimum to Twenty (20) Years of Reclusion Temporal.

SO ORDERED.15

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

I

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

II

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

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

We find merit in the petition.

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

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

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

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

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

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

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

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

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

Furthermore, in Lim v. Court of Appeals,26 the Court, citing Nepomuceno and the case of People v. Trinidad,27held that:

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

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

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

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

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 165411               June 18, 2009

WILMA TABANIAG, Petitioner, vs.PEOPLE OF THE PHILIPPINES, Respondent.

D E C I S I O N

PERALTA, J.:

For review before this Court is the February 27, 2004 Decision1 and September 22, 2004 Resolution2 of the Court of Appeals (CA) in CA-G.R. CR No. 24906, which affirmed the October 16, 2000 Decision3 of the Regional Trial Court (RTC), National Capital Judicial Region, Branch 268, Pasig City, finding Wilma Tabaniag (petitioner) guilty of the Crime of Estafa as defined and penalized under Article 315 of the Revised Penal Code, with modification as to the penalty.

The Information4 dated September 15, 1994, in Criminal Case No. 106995, reads as follows:

That on or about and during the month of January 1992, in the Municipality of Pasig, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and mutually helping and aiding each other, received in trust from one Dennis Espiritu assorted jewelries (sic) amounting to P509,940.00 under the express obligation on the part of the accused to sell the same and thereafter to remit the proceeds of the sale and/or return said jewelries (sic) if not sold to said complainant, but the accused once in possession of said jewelries (sic), far from complying with their aforesaid obligation, with unfaithfulness and abuse of confidence, did then and there willfully, unlawfully and feloniously misapply, misappropriate, and convert to their own personal use and benefit and despite demands to pay the proceeds of the sale and/or to return the said jewelries (sic) in the amount of P509,940.00, they failed and refused, to the damage and prejudice of the complainant in the aforementioned amount of P509,940.00.

CONTRARY TO LAW.5

When arraigned, petitioner pleaded "not guilty." Co-accused Melandia Olandia (Olandia) was dropped from the Information upon the request6 of complainant Dennis Espiritu (Dennis).7 Thereafter, trial ensued.

The prosecution presented two witnesses, namely: Dennis and his wife Ma. Victoria (Victoria) [complainants].

On March 5, 1997, the prosecution filed a Motion8 for the admittance of an Amended Information. The defense filed their Opposition9 to the said motion.

On August 27, 1997, the RTC issued an Order10 granting the motion of the prosecution. The RTC ruled that the amendments to the Information sought by the prosecution were merely amendments in form and thus allowable under the rules.

The Amended Information11 reads as follows:

On or about and during the month of February 1992, in the Municipality of Pasig, Metro Manila, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together, and mutually helping and aiding each other, received in trust from one Victoria Espiritu assorted jewelries (sic) amounting to P 155,252.50  under the express obligation on the part of the accused to sell the same and thereafter to remit the proceeds of the sale and/or return said jewelries (sic) if not sold to said complainant, but the accused once in possession of said jewelries (sic), far from complying with their aforesaid obligation, with unfaithfulness and abuse of confidence, did then and there willfully, unlawfully and feloniously misapply, misappropriate, and convert to their own personal use and benefit and despite demands to pay the proceeds of the sale and/or to return the said jewelries (sic) in the amount of P 155,252.50 , they failed and refused, to the damage and prejudice of the complainant in the aforementioned amount of P 155,252.50.

CONTRARY TO LAW.12

The defense presented two witnesses, namely: petitioner Tabaniag and Juan Tapang III (Tapang).

On October 16, 2000, the RTC found petitioner guilty of the crime of Estafa, the dispositive portion of which reads:

WHEREFORE, premises considered, the Court finds the accused WILMA TABANIAG guilty beyond reasonable doubt of the crime of Estafa as defined and penalized under Article 315 of the Revised Penal Code and hereby sentences her to suffer the penalty of imprisonment from ten (10) years and one (1) day of Prision Mayor in its maximum period to fourteen (14) years and eight (8) months of Reclusion Temporal in its minimum period and to indemnify the offended party in the amount of Sixty-Two Thousand Nine Hundred (P62,900.00). With costs.

SO ORDERED.13

The facts of the case as gleaned from the records are as follows:

Complainants, both doctors by profession, are engaged in part-time jewelry business.14 Petitioner, on the other hand, is an agent who sells the pieces of jewelry of complainants on commission basis. On February 7, 1992, petitioner received from Victoria several pieces of jewelry amounting to Php106,000.00 as evidenced by a trust receipt15 signed by petitioner. Later on February 16, 1992, petitioner again received several pieces of jewelry amounting to Php64,515.00 as evidenced by another trust receipt16 signed by petitioner.

After weeks passed, Victoria alleged that she made several verbal demands17 to petitioner to return the pieces of jewelry. Likewise, complainants filed a complaint18 at Barangay Kapitolyo, Pasig City, against Tabaniag, Jane Bisquera (Bisquera) and Olandia for estafa and violations of Batas Pambansa Bilang 22 (BP 22).

Petitioner, in her defense, alleged that she entrusted the pieces of jewelry to Bisquera who issued Security Bank Checks19 as payment. Petitioner claimed that Victoria knew that she was planning to sell the pieces of jewelry to Bisquera.20 Moreover, petitioner contends that she and Olandia delivered the said Security Bank checks to Victoria, who then deposited the same to her account. The checks issued by Bisquera bounced as the accounts were closed and thus Victoria asked petitioner to do something about it. Petitioner claimed that she filed cases forestafa and violation of BP 22 against Bisquera. Likewise, petitioner asked the court for the issuance of an aliaswarrant of arrest and a hold departure order against Bisquera.21

On cross-examination, however, petitioner admitted that the cases she filed against Bisquera did not involve the same checks which are the subject matter of the case at bar.22

On February 27, 2004, the CA affirmed with modification the RTC decision, the dispositive portion of which reads as follows:

WHEREFORE, the Decision finding accused-appellant Wilma Tabaniag guilty beyond reasonable doubt of the crime of estafa is AFFIRMED with the indeterminate penalty modified to four (4) years and two (2) months ofprision correccional, as minimum, to twelve (12) years of prision mayor, as the maximum, and with the award of indemnity in the amount of Php62,900.00, deleted.

SO ORDERED.23

The pertinent portions of the CA decision are hereunder reproduced, to wit:

Tabaniag entered into an agreement with Victoria Espiritu for the sale of jewelry. She obligated herself, among others, to deliver and account for the proceeds of all jewelry sold and to return all other items she could not sell. The jewelry could not be sold on installment. She abused the

confidence reposed upon her by misrepresenting herself to have sold the jewelry to a certain Bisquera and failing to remit the profit after demand to do so by Espiritu. Due to her failure to forward the returns from the sale of the jewelry, Espiritu suffered loss of income and profit.

The receipts issued to and signed by Tabaniag corroborate the prosecution's testimonial proof that she personally received the jewelry. Tabaniag's uncorroborated claim that Victoria Espiritu directly transferred the jewelry to a certain Jane Bisquera cannot stand along against this factual finding. The checks issued by Bisquera do not conclusively prove a direct transaction between her and Espiritu. x x x24

On March 26, 2004, petitioner filed a Motion for Reconsideration25 assailing the CA decision.

On August 2, 2004, Dennis filed a Motion to Dismiss,26 attaching thereto an Affidavit of Desistance,27 to the effect that he was withdrawing the criminal complaint because he and petitioner had already reached an amicable settlement, the latter obligating herself to pay the civil aspect of the case.

On September 22, 2004, the CA issued a Resolution28 denying petitioner's Motion for Reconsideration, as well as the Motion to Dismiss filed by Dennis.

Hence, herein appeal with the following assignment of errors:

First Assignment of Error

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN CONCLUDING THAT THERE WAS ABUSE OF CONFIDENCE ON THE PART OF ACCUSED/PETITIONER TABANIAG IN ENTRUSTING THE SUBJECT JEWELRIES (SIC) TO BISQUERA FOR SALE ON COMMISSION TO PROSPECTIVE BUYERS.

Second Assignment of Error

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN RULING ON THE VALIDITY OF THE AMENDMENT OF INFORMATION DESPITE ITS VIOLATION OF SUBSTANTIAL RIGHT OF ACCUSED TABANIAG.

Third Assignment of Error

THE HONORABLE COURT OF APPEALS SERIOUSLY ABUSED ITS DISCRETION IN RULING THAT THE LETTER COMPLAINT SENT TO THE BGY. CAPTAIN OF BGY. KAPITOLYO WHICH WAS NEVER RECEIVED BY ACCUSED A DEMAND IN CONTEMPLATION OF SECTION 1(b) OF ARTICLE 315 OF THE REVISED PENAL CODE.

Fourth Assignment of Error

THE RESPONDENT COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT THE MOTION TO DISMISS/AFFIDAVIT OF DESISTANCE OF ESPIRITU WILL NOT EXONERATE ACCUSED TABANIAG DESPITE IT BEING THE SAME PERSON WHO EXECUTED THE SAME AFFIDAVIT TO DISMISS CASE VERSUS ACCUSED MELANIA OLANDIA.

Fifth Assignment of Error

THE RESPONDENT COURT OF APPEALS SERIOUSLY ERRED WHEN IT FAILED TO RENDER A JUDGMENT OF ACQUITTAL OF THE ACCUSED ON GROUND OF REASONABLE DOUBT.29

The petition is impressed with merit.

The elements of estafa under Article 315, par. 1 (b) of the Revised Penal Code are the following: (a) that money, goods or other personal property is received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same; (b) that there be misappropriation or conversion of such money or property by the offender, or denial on his part of such receipt; (c) that such misappropriation or conversion or denial is to the prejudice of another; and (d) there is demand by the offended party to the offender.30

Anent the first error raised by petitioner, this Court finds that, given the facts of the case and the evidence on record, the evidence is wanting to prove that petitioner had misappropriated or converted the pieces of jewelry entrusted to her by Victoria.

In his Complaint-Affidavit,31 Dennis alleged that petitioner gave the pieces of jewelry to her sub-agent Bisquera for the latter to sell the same. Furthermore, Dennis alleged that the checks issued as payment were dishonored, the reason being that the accounts were closed.

Petitioner does not deny entrusting the pieces of jewelry to Bisquera. The records of the case reveal that petitioner had in fact entrusted the pieces of jewelry to Bisquera as evidenced by two receipts32 dated February 16, 1992. The same is bolstered by the testimony of Tapang, who testified that he witnessed petitioner give the pieces of jewelry to Bisquera.33 Thus, since the pieces of jewelry were transferred to Bisquera, petitioner argues that she could not be guilty of misappropriation or conversion as contemplated by Article 315, par. 1(b) of the Revised Penal Code.1avvphi1

The essence of estafa under Article 315, par. 1(b) is the appropriation or conversion of money or property received to the prejudice of the owner. The words "convert" and "misappropriate" connote an act of using or disposing of another’s property as if it were one’s own, or of devoting it to a purpose or use different from that agreed upon. To misappropriate for one’s own use

includes not only conversion to one’s personal advantage, but also every attempt to dispose of the property of another without right.34

The factual milieu of the case at bar is similar to Serona v. Court of Appeals35 (Serona) where pieces of jewelry were also transferred to a sub-agent. The Solicitor General, however, contends that the doctrine laid down inSerona is inapplicable as the agreement between complainants and petitioner provide a clear prohibition against sub-agency.36

The conditions set forth in the two trust receipts signed by petitioner read:

x x x in good condition, to be sold in CASH ONLY within _____, days from date of signing this receipt. If I could not sell, I shall return all the jewelry within the period mentioned above. If I would be able to sell, I shall immediately deliver and account the whole proceeds of the sale thereof to the owner of the jewelries (sic) at his/her residence: my compensation or commission shall be the over-price on the value of each jewelry quoted above. I am prohibited to sell any jewelry on credits or byinstallment, deposit, give for safekeeping, lend pledge or give as security or guarantee under any circumstances or manner, any jewelry to other person or persons, and that I received the above jewelry in the capacity of agent.37

Contrary to the claim of the Solicitor General, the aforementioned conditions do not, in any way, categorically state that petitioner cannot employ a sub-agent. A plain reading of the conditions clearly shows that the restrictions only pertain to the manner in which petitioner may dispose of the property: (1) to sell the jewelry on credit; (2) to sell the jewelry by installment; (3) to give the jewelry for safekeeping; (4) to lend the jewelry; (5) to pledge the jewelry; (6) to give the jewelry as security; and (7) to give the jewelry as guarantee. To this Court's mind, to maintain the position that the said conditions also prohibit the employment of a sub-agent would be stretching the plain meaning of the words too thinly.

Petitioner is thus correct in citing Serona, which is instructive and may be applied by analogy, to wit:

Petitioner did not ipso facto commit the crime of estafa through conversion or misappropriation by delivering the jewelry to a sub-agent for sale on commission basis. x x x

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

x x x x

In the case at bar, it was established that the inability of petitioner as agent to comply with her duty to return either the pieces of jewelry or the proceeds of its sale to her principal Quilatan was due, in turn, to the failure of Labrador to abide by her agreement with petitioner. Notably, Labrador testified that she obligated herself to sell the jewelry in behalf of petitioner also on commission basis or to return the same if not sold. In other words, the pieces of jewelry were given by petitioner to Labrador to achieve the very same end for which they were delivered to her in the first place.1avvphi1 Consequently, there is no conversion since the pieces of jewelry were not devoted to a purpose or use different from that agreed upon.

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

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

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

Furthermore, in Lim v. Court of Appeals, the Court, citing Nepomuceno and the case of People v. Trinidad, held that:

In cases of estafa, the profit or gain must be obtained by the accused personally, through his own acts, and his mere negligence in permitting another to take advantage or benefit from the entrusted chattel cannot constitute estafa under Article 315, paragraph 1-b, of the Revised Penal Code; unless of course the evidence should disclose that the agent acted in conspiracy or connivance with the one who carried out the actual misappropriation, then the accused would be answerable for the acts of his co-conspirators. If there is no such

evidence, direct or circumstantial, and if the proof is clear that the accused herself was the innocent victim of her sub-agent’s faithlessness, her acquittal is in order.38

Petitioner thus cannot be criminally held liable for estafa. Although it cannot be denied that she received the pieces of jewelry from complainants, evidence is wanting in proving that she misappropriated or converted the amount of the pieces of jewelry for her own personal use. Likewise, the prosecution failed to present evidence to show that petitioner had conspired or connived with Bisquera. The mere fact that petitioner failed to return the pieces of jewelry upon demand is not proof of conspiracy, nor is it proof of misappropriation or conversion.

In addition, this Court takes notice of the findings of fact by the RTC in the separate civil action instituted by complainants, the same docketed as Civil Case No. 63131, dealing with the civil aspect of the case at bar:

x x x x

Jane Bisquera cannot interpose the defense that she is not privy to the transaction. Her admission that she has indeed received the pieces of jewelry which is the subject matter of the controversy and her offer to extinguish the obligation by payment or dacion en pago is contradictory to her defense. Therefore, she is estopped from interposing such a defense.

Furthermore, earlier in her transaction with Wilma Tabaniag, the principals, Sps. Espiritu, were not alien to her but were in fact disclosed to her, hence, she has knowledge that the spouses are the principals of Tabaniag.

Bisquera, being a sub-agent to Tabaniag, is in fact privy to the agreement. x x x39

Based on the foregoing, it is clear that petitioner had in fact transferred the pieces of jewelry to Bisquera. Thus, contrary to the finding of the CA, petitioner could not have converted the same for her own benefit, especially since the pieces of jewelry were not with her, and there was no evidence of conspiracy or connivance between petitioner and Bisquera.

Moreover, even Victoria cannot deny knowing that petitioner had given the pieces of jewelry to Bisquera, as Victoria herself was the one who deposited the checks issued by Bisquera to her account, to wit:

Q. Now, madam witness, there is a (sic) mentioned here an amount of P300,000.00 regarding the violation of bouncing check, am I correct?

A. Yes, sir.

Q. And according to you, these were payments made by Wilma Tabaniag, am I correct?

A. Yes, sir.

Q. Who is the drawer of these checks with a P300,000.00 that you mentioned in this particular document, not less than P300,000.00?

A. The total check P300,000.00 was under my name.

Q. No, I mean, who is the drawer?

A. Mrs. Tabaniag issued and the other pieces of jewelry were issued by a certain Jane Bisquera.

Q. No, not jewelries, checks.

A. I'm sorry, checks.

Q. How much was issued by Jane Bisquera?

A. The total is P320,872.00

Q. That was by Jane Bisquera alone?

A. Yes, sir.40

Lastly, although petitioner may have admitted that the cases she filed against Bisquera do not involve the same checks, which are the subject matter of the case at bar, the same does not necessarily manifest a criminal intent on her part. On the contrary, what it shows is that petitioner too may be an unwilling victim of this day-to-day malady of bouncing checks, common in our business field. Certainly, petitioner may have been negligent in entrusting the pieces of jewelry to Bisquera, but in no way can such constitute estafa as defined in the RPC.

As a final note, a reading of the records and transcript of the case seemingly shows an unintentional reference by the parties in describing the transaction as one of sale.41 The foregoing notwithstanding, if this Court were to consider the transaction as one of sale and not one of sub-agency, the same conclusion would nevertheless be reached, as the critical elements of misappropriation or conversion, as previously discussed, are absent in the case at bar.

It is the primordial duty of the prosecution to present its side with clarity and persuasion so that conviction becomes the only logical and inevitable conclusion.42 What is required of it is to justify the conviction of the accused with moral certainty.43 In the case at bar, the prosecution has failed to discharge its burden. Based on the foregoing, it would then be unnecessary to discuss the other assigned errors.

Notwithstanding the above, however, petitioner is not entirely free from any liability towards complainants. The rule is that an accused acquitted of estafa may nevertheless be held civilly liable where the facts established by the evidence so warrant.44 However, since there is a separate civil action instituted by complainants, this Court deems it proper for the civil aspect of the case at bar to be resolved therein.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CR No. 24906, dated February 27, 2004, and its Resolution dated September 22, 2004 are REVERSED and SET ASIDE. Petitioner Wilma Tabaniag is ACQUITTED of the crime charged, without prejudice, however, to the recovery of civil liability in Civil Case No. 63131, before the Regional Trial Court, National Capital Judicial Region, Branch 268, Pasig City.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 158907             February 12, 2007

EDUARDO B. OLAGUER, Petitioner, vs.EMILIO PURUGGANAN, JR. AND RAUL LOCSIN, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the Decision,1 dated 30 June 2003, promulgated by the Court of Appeals, affirming the Decision of the Regional Trial Court, dated 26 July 1995, dismissing the petitioner’s suit.

The parties presented conflicting accounts of the facts.

EDUARDO B. OLAGUER’S VERSION

Petitioner Eduardo B. Olaguer alleges that he was the owner of 60,000 shares of stock of Businessday Corporation (Businessday) with a total par value of P600,000.00, with Certificates of Stock No. 005, No. 028, No. 034, No. 070, and No. 100.2 At the time he was employed with the corporation as Executive Vice-President of Businessday, and President of Businessday Information Systems and Services and of Businessday Marketing Corporation, petitioner,

together with respondent Raul Locsin (Locsin) and Enrique Joaquin (Joaquin), was active in the political opposition against the Marcos dictatorship.3 Anticipating the possibility that petitioner would be arrested and detained by the Marcos military, Locsin, Joaquin, and Hector Holifeña had an unwritten agreement that, in the event that petitioner was arrested, they would support the petitioner’s family by the continued payment of his salary.4 Petitioner also executed a Special Power of Attorney (SPA), on 26 May 1979, appointing as his attorneys-in-fact Locsin, Joaquin and Hofileña for the purpose of selling or transferring petitioner’s shares of stock with Businessday. During the trial, petitioner testified that he agreed to execute the SPA in order to cancel his shares of stock, even before they are sold, for the purpose of concealing that he was a stockholder of Businessday, in the event of a military crackdown against the opposition.5 The parties acknowledged the SPA before respondent Emilio Purugganan, Jr., who was then the Corporate Secretary of Businessday, and at the same time, a notary public for Quezon City.6

On 24 December 1979, petitioner was arrested by the Marcos military by virtue of an Arrest, Search and Seizure Order and detained for allegedly committing arson. During the petitioner’s detention, respondent Locsin ordered fellow respondent Purugganan to cancel the petitioner’s shares in the books of the corporation and to transfer them to respondent Locsin’s name.7

As part of his scheme to defraud the petitioner, respondent Locsin sent Rebecca Fernando, an employee of Businessday, to Camp Crame where the petitioner was detained, to pretend to borrow Certificate of Stock No. 100 for the purpose of using it as additional collateral for Businessday’s then outstanding loan with the National Investment and Development Corporation. When Fernando returned the borrowed stock certificate, the word "cancelled" was already written therein. When the petitioner became upset, Fernando explained that this was merely a mistake committed by respondent Locsin’s secretary.8

During the trial, petitioner also agreed to stipulate that from 1980 to 1982, Businessday made regular deposits, each amounting to P10,000.00, to the Metropolitan Bank and Trust Company accounts of Manuel and Genaro Pantig, petitioner’s in-laws. The deposits were made on every 15th and 30th of the month.9 Petitioner alleged that these funds consisted of his monthly salary, which Businessday agreed to continue paying after his arrest for the financial support of his family.10 After receiving a total of P600,000.00, the payments stopped. Thereafter, respondent Locsin and Fernando went to ask petitioner to endorse and deliver the rest of his stock certificates to respondent Locsin, but petitioner refused. 11

On 16 January 1986, petitioner was finally released from detention. He then discovered that he was no longer registered as stockholder of Businessday in its corporate books. He also learned that Purugganan, as the Corporate Secretary of Businessday, had already recorded the transfer of shares in favor of respondent Locsin, while petitioner was detained. When petitioner demanded that respondents restore to him full ownership of his shares of stock, they refused to do so. On 29 July 1986, petitioner filed a Complaint before the trial court against respondents Purugganan and Locsin to declare as illegal the sale of the shares of stock, to restore to the petitioner full ownership of the shares, and payment of damages.12

RESPONDENT RAUL LOCSIN’S VERSION

In his version of the facts, respondent Locsin contended that petitioner approached him and requested him to sell, and, if necessary, buy petitioner’s shares of stock in Businessday, to assure support for petitioner’s family in the event that something should happen to him, particularly if he was jailed, exiled or forced to go underground.13 At the time petitioner was employed with Businessday, respondent Locsin was unaware that petitioner was part of a group, Light-a-Fire Movement, which actively sought the overthrow of the Marcos government through an armed struggle.14 He denied that he made any arrangements to continue paying the petitioner’s salary in the event of the latter’s imprisonment.15

When petitioner was detained, respondent Locsin tried to sell petitioner’s shares, but nobody wanted to buy them. Petitioner’s reputation as an oppositionist resulted in the poor financial condition of Businessday and discouraged any buyers for the shares of stock.16 In view of petitioner’s previous instructions, respondent Locsin decided to buy the shares himself.1awphi1.net Although the capital deficiency suffered by Businessday caused the book value of the shares to plummet below par value, respondent Locsin, nevertheless, bought the shares at par value.17 However, he had to borrow from Businessday the funds he used in purchasing the shares from petitioner, and had to pay the petitioner in installments of P10,000.00 every 15th and 30th of each month.18

The trial court in its Decision, dated 26 July 1995, dismissed the Complaint filed by the petitioner. It ruled that the sale of shares between petitioner and respondent Locsin was valid. The trial court concluded that petitioner had intended to sell the shares of stock to anyone, including respondent Locsin, in order to provide for the needs of his family should he be jailed or forced to go underground; and that the SPA drafted by the petitioner empowered respondent Locsin, and two other agents, to sell the shares for such price and under such terms and conditions that the agents may deem proper. It further found that petitioner consented to have respondent Locsin buy the shares himself. It also ruled that petitioner, through his wife, received from respondent Locsin the amount ofP600,000.00 as payment for the shares of stock.19 The dispositive part of the trial court’s Decision reads:

WHEREFORE, for failure of the [herein petitioner] to prove by preponderance of evidence, his causes of action and of the facts alleged in his complaint, the instant suit is hereby ordered DISMISSED, without pronouncement as to costs.

[Herein respondents’] counterclaims, however, are hereby DISMISSED, likewise, for dearth of substantial evidentiary support.20

On appeal, the Court of Appeals affirmed the Decision of the trial court that there was a perfected contract of sale.21 It further ruled that granting that there was no perfected contract of sale, petitioner, nevertheless, ratified the sale to respondent Locsin by his receipt of the purchase price, and his failure to raise any protest over the said sale.22 The Court of Appeals refused to credit the petitioner’s allegation that the money his wife received constituted his salary from Businessday since the amount he received as his salary, P24,000.00 per month, did not correspond to the amount he received during his detention, P20,000.00 per month (deposits of P10,000.00 on every 15th and 30th of each month in the accounts of the petitioner’s in-laws).

On the other hand, the total amount received, P600,000.00, corresponds to the aggregate par value of petitioner’s shares in Businessday. Moreover, the financial condition of Businessday prevented it from granting any form of financial assistance in favor of the petitioner, who was placed in an indefinite leave of absence, and, therefore, not entitled to any salary.23

The Court of Appeals also ruled that although the manner of the cancellation of the petitioner’s certificates of stock and the subsequent issuance of the new certificate of stock in favor of respondent Locsin was irregular, this irregularity will not relieve petitioner of the consequences of a consummated sale.24

Finally, the Court of Appeals affirmed the Decision of the trial court disallowing respondent Locsin’s claims for moral and exemplary damages due to lack of supporting evidence.25

Hence, the present petition, where the following issues were raised:

I.

THE APPELLATE COURT ERRED IN RULING THAT THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN PETITIONER AND MR. LOCSIN OVER THE SHARES;

II.

THE APPELLATE COURT ERRED IN RULING THAT PETITIONER CONSENTED TO THE ALLEGED SALE OF THE SHARES TO MR. LOCSIN;

III.

THE APPELLATE COURT ERRED IN RULING THAT THE AMOUNTS RECEIVED BY PETITIONER’S IN LAWS WERE NOT PETITIONER’S SALARY FROM THE CORPORATION BUT INSTALLMENT PAYMENTS FOR THE SHARES;

IV.

THE APPELLATE COURT ERRED IN RULING THAT MR. LOCSIN WAS THE PARTY TO THE ALLEGED SALE OF THE SHARES AND NOT THE CORPORATION; AND

V.

THE APPELLATE COURT ERRED IN RULING THAT THE ALLEGED SALE OF THE SHARES WAS VALID ALTHOUGH THE CANCELLATION OF THE SHARES WAS IRREGULAR.26

The petition is without merit.

The first issue that the petitioner raised is that there was no valid sale since respondent Locsin exceeded his authority under the SPA27 issued in his, Joaquin and Holifena’s favor. He alleged that the authority of the afore-named agents to sell the shares of stock was limited to the following conditions: (1) in the event of the petitioner’s absence and incapacity; and (2) for the limited purpose of applying the proceeds of the sale to the satisfaction of petitioner’s subsisting obligations with the companies adverted to in the SPA.28

Petitioner sought to impose a strict construction of the SPA by limiting the definition of the word "absence" to a condition wherein "a person disappears from his domicile, his whereabouts being unknown, without leaving an agent to administer his property,"29 citing Article 381 of the Civil Code, the entire provision hereunder quoted:

ART 381. When a person disappears from his domicile, his whereabouts being unknown, and without leaving an agent to administer his property, the judge, at the instance of an interested party, a relative, or a friend, may appoint a person to represent him in all that may be necessary.

This same rule shall be observed when under similar circumstances the power conferred by the absentee has expired.

Petitioner also puts forward that the word "incapacity" would be limited to mean "minority, insanity, imbecility, the state of being deaf-mute, prodigality and civil interdiction."30 He cites Article 38 of the Civil Code, in support of this definition, which is hereunder quoted:

ART. 38 Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil interdiction are mere restrictions on capacity to act, and do not exempt the incapacitated person, from certain obligations, as when the latter arise from his acts or from property relations, such as easements.

Petitioner, thus, claims that his arrest and subsequent detention are not among the instances covered by the terms "absence or incapacity," as provided under the SPA he executed in favor of respondent Locsin.

Petitioner’s arguments are unpersuasive. It is a general rule that a power of attorney must be strictly construed; the instrument will be held to grant only those powers that are specified, and the agent may neither go beyond nor deviate from the power of attorney. However, the rule is not absolute and should not be applied to the extent of destroying the very purpose of the power. If the language will permit, the construction that should be adopted is that which will carry out instead of defeat the purpose of the appointment. Clauses in a power of attorney that are repugnant to each other should be reconciled so as to give effect to the instrument in accordance with its general intent or predominant purpose. Furthermore, the instrument should always be deemed to give such powers as essential or usual in effectuating the express powers.31

In the present case, limiting the definitions of "absence" to that provided under Article 381 of the Civil Code and of "incapacity" under Article 38 of the same Code negates the effect of the power

of attorney by creating absurd, if not impossible, legal situations. Article 381 provides the necessarily stringent standards that would justify the appointment of a representative by a judge. Among the standards the said article enumerates is that no agent has been appointed to administer the property. In the present case, petitioner himself had already authorized agents to do specific acts of administration and thus, no longer necessitated the appointment of one by the court. Likewise, limiting the construction of "incapacity" to "minority, insanity, imbecility, the state of being a deaf-mute, prodigality and civil interdiction," as provided under Article 38, would render the SPA ineffective. Article 1919(3) of the Civil Code provides that the death, civil interdiction, insanity or insolvency of the principal or of the agent extinguishes the agency. It would be equally incongruous, if not outright impossible, for the petitioner to require himself to qualify as a minor, an imbecile, a deaf-mute, or a prodigal before the SPA becomes operative. In such cases, not only would he be prevented from appointing an agent, he himself would be unable to administer his property.

On the other hand, defining the terms "absence" and "incapacity" by their everyday usage makes for a reasonable construction, that is, "the state of not being present" and the "inability to act," given the context that the SPA authorizes the agents to attend stockholders’ meetings and vote in behalf of petitioner, to sell the shares of stock, and other related acts. This construction covers the situation wherein petitioner was arrested and detained. This much is admitted by petitioner in his testimony.32

Petitioner’s contention that the shares may only be sold for the sole purpose of applying the proceeds of the sale to the satisfaction of petitioner’s subsisting obligations to the company is far-fetched. The construction, which will carry out the purpose, is that which should be applied. Petitioner had not submitted evidence that he was in debt with Businessday at the time he had executed the SPA. Nor could he have considered incurring any debts since he admitted that, at the time of its execution, he was concerned about his possible arrest, death and disappearance. The language of the SPA clearly enumerates, as among those acts that the agents were authorized to do, the act of applying the proceeds of the sale of the shares to any obligations petitioner might have against the Businessday group of companies. This interpretation is supported by the use of the word "and" in enumerating the authorized acts, instead of phrases such as "only for," "for the purpose of," "in order to" or any similar terms to indicate that the petitioner intended that the SPA be used only for a limited purpose, that of paying any liabilities with the Businessday group of companies.

Secondly, petitioner argued that the records failed to show that he gave his consent to the sale of the shares to respondent Locsin for the price of P600,000.00. This argument is unsustainable. Petitioner received from respondent Locsin, through his wife and in-laws, the installment payments for a total of P600,000.00 from 1980 to 1982, without any protest or complaint. It was only four years after 1982 when petitioner demanded the return of the shares. The petitioner’s claim that he did not instruct respondent Locsin to deposit the money to the bank accounts of his in-laws fails to prove that petitioner did not give his consent to the sale since respondent Locsin was authorized, under the SPA, to negotiate the terms and conditions of the sale including the manner of payment. Moreover, had respondent Locsin given the proceeds directly to the petitioner, as the latter suggested in this petition, the proceeds were likely to have been included

among petitioner’s properties which were confiscated by the military. Instead, respondent Locsin deposited the money in the bank accounts of petitioner’s in-laws, and consequently, assured that the petitioner’s wife received these amounts. Article 1882 of the Civil Code provides that the limits of an agent’s authority shall not be considered exceeded should it have been performed in a manner more advantageous to the principal than that specified by him.

In addition, petitioner made two inconsistent statements when he alleged that (1) respondent Locsin had not asked the petitioner to endorse and deliver the shares of stock, and (2) when Rebecca Fernando asked the petitioner to endorse and deliver the certificates of stock, but petitioner refused and even became upset.33 In either case, both statements only prove that petitioner refused to honor his part as seller of the shares, even after receiving payments from the buyer. Had the petitioner not known of or given his consent to the sale, he would have given back the payments as soon as Fernando asked him to endorse and deliver the certificates of stock, an incident which unequivocally confirmed that the funds he received, through his wife and his in-laws, were intended as payment for his shares of stocks. Instead, petitioner held on to the proceeds of the sale after it had been made clear to him that respondent Locsin had considered the P600,000.00 as payment for the shares, and asked petitioner, through Fernando, to endorse and deliver the stock certificates for cancellation.

As regards the third issue, petitioner’s allegation that the installment payments he was adjudged to have received for the shares were actually salaries which Businessday promised to pay him during his detention is unsupported and implausible. Petitioner received P20,000.00 per month through his in-laws; this amount does not correspond to his monthly salary at P24,000.00.34 Nor does the amount received correspond to the amount which Businessday was supposed to be obliged to pay petitioner, which was only P45,000.00 to P60,000.00 per annum.35 Secondly, the petitioner’s wife did not receive funds from respondent Locsin or Businessday for the entire duration of petitioner’s detention. Instead, when the total amount received by the petitioner reached the aggregate amount of his shares at par value -- P600,000.00 -- the payments stopped. Petitioner even testified that when respondent Locsin denied knowing the petitioner soon after his arrest, he believed respondent Locsin’s commitment to pay his salaries during his detention to be nothing more than lip-service.36

Granting that petitioner was able to prove his allegations, such an act of gratuity, on the part of Businessday in favor of petitioner, would be void. An arrangement whereby petitioner will receive "salaries" for work he will not perform, which is not a demandable debt since petitioner was on an extended leave of absence, constitutes a donation under Article 72637 of the Civil Code. Under Article 748 of the Civil Code, if the value of the personal property donated exceeds P5,000.00, the donation and the acceptance shall have to be made in writing. Otherwise, the donation will be void. In the present case, petitioner admitted in his testimony38 that such arrangement was not made in writing and, hence, is void.

The fact that some of the deposit slips and communications made to petitioner’s wife contain the phrase "household expenses" does not disprove the sale of the shares. The money was being deposited to the bank accounts of the petitioner’s in-laws, and not to the account of the petitioner or his wife, precisely because some of his property had already been confiscated by

the military. Had they used the phrase "sale of shares," it would have defeated the purpose of not using their own bank accounts, which was to conceal from the military any transaction involving the petitioner’s property.

Petitioner raised as his fourth issue that granting that there was a sale, Businessday, and not respondent Locsin, was the party to the transaction. The curious facts that the payments were received on the 15th and 30th of each month and that the payor named in the checks was Businessday, were adequately explained by respondent Locsin. Respondent Locsin had obtained cash advances from the company, paid to him on the 15th and 30th of the month, so that he can pay petitioner for the shares. To support his claim, he presented Businessday’s financial records and the testimony of Leo Atienza, the Company’s Accounting Manager. When asked why the term "shares of stock" was used for the entries, instead of "cash advances," Atienza explained that the term "shares of stock" was more specific rather than the broader phrase "cash advances."39 More to the point, had the entries been for "shares of stock," the issuance of shares should have been reflected in the stock and transfer books of Businessday, which the petitioner presented as evidence. Instead the stock and transfer books reveal that the increase in respondent Locsin’s shares was a result of the cancellation and transfer of petitioner’s shares in favor of respondent Locsin.

Petitioner alleges that the purported sale between himself and respondent Locsin of the disputed shares of stock is void since it contravenes Article 1491 of the Civil Code, which provides that:

ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another:

x x x x

(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; x x x.

It is, indeed, a familiar and universally recognized doctrine that a person who undertakes to act as agent for another cannot be permitted to deal in the agency matter on his own account and for his own benefit without the consent of his principal, freely given, with full knowledge of every detail known to the agent which might affect the transaction.40 The prohibition against agents purchasing property in their hands for sale or management is, however, clearly, not absolute. It does not apply where the principal consents to the sale of the property in the hands of the agent or administrator.> 41

In the present case, the parties have conflicting allegations. While respondent Locsin averred that petitioner had permitted him to purchase petitioner’s shares, petitioner vehemently denies having known of the transaction. However, records show that petitioner’s position is less credible than that taken by respondent Locsin given petitioner’s contemporaneous and subsequent acts.42 In 1980, when Fernando returned a stock certificate she borrowed from the petitioner, it was marked "cancelled." Although the petitioner alleged that he was furious when

he saw the word cancelled, he had not demanded the issuance of a new certificate in his name. Instead of having been put on his guard, petitioner remained silent over this obvious red flag and continued receiving, through his wife, payments which totalled to the aggregate amount of the shares of stock valued at par. When the payments stopped, no demand was made by either petitioner or his wife for further payments.

From the foregoing, it is clear that petitioner knew of the transaction, agreed to the purchase price of P600,000.00 for the shares of stock, and had in fact facilitated the implementation of the terms of the payment by providing respondent Locsin, through petitioner’s wife, with the information on the bank accounts of his in-laws. Petitioner’s wife and his son even provided receipts for the payments that were made to them by respondent Locsin,43 a practice that bespeaks of an onerous transaction and not an act of gratuity.

Lastly, petitioner claims that the cancellation of the shares and the subsequent transfer thereof were fraudulent, and, therefore, illegal. In the present case, the shares were transferred in the name of the buyer, respondent Locsin, without the petitioner delivering to the buyer his certificates of stock. Section 63 of the Corporation Code provides that:

Sec.63. Certificate of stock and transfer of shares.— xxx Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. (Emphasis provided.)

The aforequoted provision furnishes the procedure for the transfer of shares – the delivery of the endorsed certificates, in order to prevent the fraudulent transfer of shares of stock. However, this rule cannot be applied in the present case without causing the injustice sought to be avoided. As had been amply demonstrated, there was a valid sale of stocks. Petitioner’s failure to deliver the shares to their rightful buyer is a breach of his duty as a seller, which he cannot use to unjustly profit himself by denying the validity of such sale. Thus, while the manner of the cancellation of petitioner’s certificates of stock and the issuance of the new certificates in favor of respondent Locsin was highly irregular, we must, nonetheless, declare the validity of the sale between the parties. Neither does this irregularity prove that the transfer was fraudulent. In his testimony, petitioner admitted that they had intended to conceal his being a stockholder of Businessday.44 The cancellation of his name from the stock and transfer book, even before the shares were actually sold, had been done with his consent. As earlier explained, even the subsequent sale of the shares in favor of Locsin had been done with his consent.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed Decision of the Court of Appeals, promulgated on 30 June 2003, affirming the validity of the sale of the shares of stock in favor of respondent Locsin. No costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

SECOND DIVISION

G.R. No. 156015. August 11, 2005

REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. CALIMLIM, in his capacity as former Chief of the Intelligence Service, Armed Forces of the Philippines (ISAFP), and former Commanding General, Presidential Security Group (PSG), and MAJ. DAVID B. DICIANO, in his capacity as an Officer of ISAFP and former member of the PSG, Petitioners, vs.HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge, Regional Trial Court, Branch 223, Quezon City, and DANTE LEGASPI, represented by his attorney-in-fact, Paul Gutierrez, Respondent.

D E C I S I O N

PUNO, J.:

The case at bar stems from a complaint for damages, with prayer for the issuance of a writ of preliminary injunction, filed by private respondent Dante Legaspi, through his attorney-in-fact Paul Gutierrez, against petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. David Diciano before the Regional Trial Court (RTC) of Quezon City.1

The Complaint alleged that private respondent Legaspi is the owner of a land located in Bigte, Norzagaray, Bulacan. In November 1999, petitioner Calimlim, representing the Republic of the Philippines, and as then head of the Intelligence Service of the Armed Forces of the Philippines and the Presidential Security Group, entered into a Memorandum of Agreement (MOA) with one Ciriaco Reyes. The MOA granted Reyes a permit to hunt for treasure in a land in Bigte, Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a witness.2 It was further alleged that thereafter, Reyes, together with petitioners, started, digging, tunneling and blasting works on the said land of Legaspi. The complaint also alleged that petitioner Calimlim assigned about 80 military personnel to guard the area and encamp thereon to intimidate Legaspi and other occupants of the area from going near the subject land.

On February 15, 2000, Legaspi executed a special power of attorney (SPA) appointing his nephew, private respondent Gutierrez, as his attorney-in-fact. Gutierrez was given the power to deal with the treasure hunting activities on Legaspi’s land and to file charges against those who may enter it without the latter’s authority.3Legaspi agreed to give Gutierrez 40% of the treasure that may be found in the land.

On February 29, 2000, Gutierrez filed a case for damages and injunction against petitioners for illegally entering Legaspi’s land. He hired the legal services of Atty. Homobono Adaza. Their contract provided that as legal fees, Atty. Adaza shall be entitled to 30% of Legaspi’s share in whatever treasure may be found in the land. In addition, Gutierrez agreed to pay Atty. Adaza P5,000.00 as appearance fee per court hearing and defray all expenses for the cost of the litigation.4 Upon the filing of the complaint, then Executive Judge Perlita J. Tria Tirona issued a 72-hour temporary restraining order (TRO) against petitioners.

The case5 was subsequently raffled to the RTC of Quezon City, Branch 223, then presided by public respondent Judge Victorino P. Evangelista. On March 2, 2000, respondent judge issued another 72-hour TRO and a summary hearing for its extension was set on March 7, 2000.

On March 14, 2000, petitioners filed a Motion to Dismiss6 contending: first, there is no real party-in-interest as the SPA of Gutierrez to bring the suit was already revoked by Legaspi on March 7, 2000, as evidenced by a Deed of Revocation,7 and, second, Gutierrez failed to establish that the alleged armed men guarding the area were acting on orders of petitioners. On March 17, 2000, petitioners also filed a Motion for Inhibition8 of the respondent judge on the ground of alleged partiality in favor of private respondent.

On March 23, 2000, the trial court granted private respondent’s application for a writ of preliminary injunction on the following grounds: (1) the diggings and blastings appear to have been made on the land of Legaspi, hence, there is an urgent need to maintain the status quo to prevent serious damage to Legaspi’s land; and, (2) the SPA granted to Gutierrez continues to be valid.9 The trial court ordered thus:

WHEREFORE, in view of all the foregoing, the Court hereby resolves to GRANT plaintiff’s application for a writ of preliminary injunction. Upon plaintiff’s filing of an injunction bond in the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00), let a Writ of Preliminary Injunction issue enjoining the defendants as well as their associates, agents or representatives from continuing to occupy and encamp on the land of the plaintiff LEGASPI as well as the vicinity thereof; from digging, tunneling and blasting the said land of plaintiff LEGASPI; from removing whatever treasure may be found on the said land; from preventing and threatening the plaintiffs and their representatives from entering the said land and performing acts of ownership; from threatening the plaintiffs and their representatives as well as plaintiffs’ lawyer.

On even date, the trial court issued another Order10 denying petitioners’ motion to dismiss and requiring petitioners to answer the complaint. On April 4, 2000, it likewise denied petitioners’ motion for inhibition.11

On appeal, the Court of Appeals affirmed the decision of the trial court.12

Hence this petition, with the following assigned errors:

I

WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE RESPONDENT GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI.

II

WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE DISMISSED.

III

WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF FROM FURTHER PROCEEDING WITH THE CASE.

We find no merit in the petition.

On the first issue, petitioners claim that the special power of attorney of Gutierrez to represent Legaspi has already been revoked by the latter. Private respondent Gutierrez, however, contends that the unilateral revocation is invalid as his agency is coupled with interest.

We agree with private respondent.

Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds himself to render some service or do something in representation or on behalf of another, known as the principal, with the consent or authority of the latter.13

A contract of agency is generally revocable as it is a personal contract of representation based on trust and confidence reposed by the principal on his agent. As the power of the agent to act depends on the will and license of the principal he represents, the power of the agent ceases when the will or permission is withdrawn by the principal. Thus, generally, the agency may be revoked by the principal at will.14

However, an exception to the revocability of a contract of agency is when it is coupled with interest, i.e., if a bilateral contract depends upon the agency.15 The reason for its irrevocability is because the agency becomes part of another obligation or agreement. It is not solely the rights of the principal but also that of the agent and third persons which are affected. Hence, the law provides that in such cases, the agency cannot be revoked at the sole will of the principal.

In the case at bar, we agree with the finding of the trial and appellate courts that the agency granted by Legaspi to Gutierrez is coupled with interest as a bilateral contract depends on it. It is clear from the records thatGutierrez was given by Legaspi, inter alia, the power to manage the treasure hunting activities in the subject land; to file any case against anyone who enters the land without authority from Legaspi; to engage the services of lawyers to carry out the agency; and, to dig for any treasure within the land and enter into agreements relative thereto. It was likewise agreed upon that Gutierrez shall be entitled to 40% of

whatever treasure may be found in the land. Pursuant to this authority and to protect Legaspi’s land from the alleged illegal entry of petitioners, agent Gutierrez hired the services of Atty. Adaza to prosecute the case for damages and injunction against petitioners. As payment for legal services, Gutierrez agreed to assign to Atty. Adaza 30% of Legaspi’s share in whatever treasure may be recovered in the subject land. It is clear that the treasure that may be found in the land is the subject matter of the agency; that under the SPA, Gutierrez can enter into contract for the legal services of Atty. Adaza; and, thus Gutierrez and Atty. Adaza have an interest in the subject matter of the agency, i.e., in the treasures that may be found in the land. This bilateral contract depends on the agency and thus renders it as one coupled with interest, irrevocable at the sole will of the principal Legaspi.16 When an agency is constituted as a clause in a bilateral contract, that is, when the agency is inserted in another agreement, the agency ceases to be revocable at the pleasure of the principal as the agency shall now follow the condition of the bilateral agreement.17 Consequently, the Deed of Revocation executed by Legaspi has no effect. The authority of Gutierrez to file and continue with the prosecution of the case at bar is unaffected.

On the second issue, we hold that the issuance of the writ of preliminary injunction is justified. A writ of preliminary injunction is an ancilliary or preventive remedy that is resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action.18 It is issued by the court to prevent threatened or continuous irremediable injury to the applicant before his claim can be thoroughly studied and adjudicated.19 Its aim is to preserve the status quo ante until the merits of the case can be heard fully, upon the applicant’s showing of two important conditions, viz.: (1) the right to be protected prima facie exists; and, (2) the acts sought to be enjoined are violative of that right.20

Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a writ of preliminary injunction may be issued when it is established:

(a) that the applicant is entitled to the relief demanded, the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually;

(b) that the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or

(c) that a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

It is crystal clear that at the hearing for the issuance of a writ of preliminary injunction, mere prima facie evidence is needed to establish the applicant’s rights or interests in the subject matter of the main action.21 It is not required that the applicant should conclusively show that there was a violation of his rights as this issue will still be fully litigated in the main

case.22 Thus, an applicant for a writ is required only to show that he has an ostensible right to the final relief prayed for in his complaint. 23

In the case at bar, we find that respondent judge had sufficient basis to issue the writ of preliminary injunction. It was established, prima facie, that Legaspi has a right to peaceful possession of his land, pendente lite.Legaspi had title to the subject land. It was likewise established that the diggings were conducted by petitioners in the enclosed area of Legaspi’s land. Whether the land fenced by Gutierrez and claimed to be included in the land of Legaspi covered an area beyond that which is included in the title of Legaspi is a factual issue still subject to litigation and proof by the parties in the main case for damages. It was necessary for the trial court to issue the writ of preliminary injunction during the pendency of the main case in order to preserve the rights and interests of private respondents Legaspi and Gutierrez.

On the third issue, petitioners charge that the respondent judge lacked the neutrality of an impartial judge. They fault the respondent judge for not giving credence to the testimony of their surveyor that the diggings were conducted outside the land of Legaspi. They also claim that respondent judge’s rulings on objections raised by the parties were biased against them.

We have carefully examined the records and we find no sufficient basis to hold that respondent judge should have recused himself from hearing the case. There is no discernible pattern of bias on the rulings of the respondent judge. Bias and partiality can never be presumed. Bare allegations of partiality will not suffice in an absence of a clear showing that will overcome the presumption that the judge dispensed justice without fear or favor.24 It bears to stress again that a judge’s appreciation or misappreciation of the sufficiency of evidence adduced by the parties, or the correctness of a judge’s orders or rulings on the objections of counsels during the hearing, without proof of malice on the part of respondent judge, is not sufficient to show bias or partiality. As we held in the case of Webb vs. People,25 the adverse and erroneous rulings of a judge on the various motions of a party do not sufficiently prove bias and prejudice to disqualify him. To be disqualifying, it must be shown that the bias and prejudice stemmed from an extrajudicial source and result in an opinion on the merits on some basis other than what the judge learned from his participation in the case. Opinions formed in the course of judicial proceedings, although erroneous, as long as based on the evidence adduced, do not prove bias or prejudice. We also emphasized that repeated rulings against a litigant, no matter how erroneously, vigorously and consistently expressed, do not amount to bias and prejudice which can be a bases for the disqualification of a judge.

Finally, the inhibition of respondent judge in hearing the case for damages has become moot and academic in view of the latter’s death during the pendency of the case. The main case for damages shall now be heard and tried before another judge.

IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case No. Q-00-40115, dated March 23 and April 4, 2000, are AFFIRMED. The presiding judge of the Regional Trial Court of Quezon City to whom Civil Case No. Q-00-40115 was assigned is directed to proceed with dispatch in hearing the main case for damages. No pronouncement as to costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION 

G.R. No. 110668 February 6, 1997

SMITH, BELL & CO., INC., petitioner, vs.COURT OF APPEALS and JOSEPH BENGZON CHUA, 1 respondents.

PANGANIBAN, J.:

The main issue raised in this case is whether a local claim or settling agent is personally and/or solidarily liable upon a marine insurance policy issued by its disclosed foreign principal.

This is a petition for review on certiorari of the Decision of respondent Court 2 promulgated on January 20, 1993 in CA-G.R. CV No. 31812 affirming the decision 3 of the trial court 4 which disposed as follows: 5

Wherefore, the Court renders judgment condemning the defendants (petitioner and First Insurance Co. Ltd.) jointly and severally to pay the plaintiff (private respondent) the amount of US$7,359.78. plus 24% interest thereon annually until the claim is fully paid, 10% as and for attorney's fees, and the cost.

The Facts

The facts are undisputed by the parties, 6 and are narrated by respondent Court, quoting the trial court, as follows: 7

The undisputed facts of the case have been succintly (sic) summarized by the lower court(,) as follows:

. . . in July 1982, the plaintiffs, doing business under the style of Tic Hin Chiong, Importer, bought and imported to the Philippines from the firm Chin Gact Co., Ltd. of Taipei; Taiwan, 50 metric tons of Dicalcium Phosphate, Feed Grade F-15% valued at US$13,000.00 CIF Manila. These were contained in 1,250 bags and shipped from the Port of Kaohsiung, Taiwan on Board S.S. "GOLDEN WEALTH" for the Port on (sic) Manila. On July 27, 1982, this shipment was insured by the defendant First Insurance Co. for US$19,500.00 "against all risks"

at port of departure under Marine Policy No. 1000M82070033219, with the note "Claim, if any, payable in U.S. currency at Manila (Exh. "1", 'D" for the plaintiff) and with defendant Smith, Bell, and Co. stamped at the lower left side of the policy as "Claim Agent."

The cargo arrived at the Port of Manila on September 1, 1982 aboard the above-mentioned carrying vessel and landed at port on September 2, 1982. thereafter, the entire cargo was discharged to the local arrastre contractor, Metroport Services Inc. with a number of the cargo in apparent bad order condition. On September 27, 1982, the plaintiff secured the services of a cargo surveyor to conduct a survey of the damaged cargo which were (sic) delivered by plaintiff's broker on said date to the plaintiffs premises at 12th Avenue, Grace Park, Caloocan City. The surveyor's report (Exh. "E") showed that of the 1,250 bags of the imported material, 600 were damaged by tearing at the sides of the container bags and the contents partly empty. Upon weighing, the contents of the damaged bags were found to be 18,546.0 kg short. Accordingly, on October 16 following, the plaintiff filed with Smith, Bell, and Co., Inc. a formal statement of claim (Exh. "G") with proof of loss and a demand for settlement of the corresponding value of the losses, in the sum of US$7,357.78.00. (sic) After purportedly conveying the claim to its principal, Smith, Bell, and Co., Inc. informed the plaintiff by letter dated February 15, 1983 (Exh."G-2") that its principal offered only 50% of the claim or US$3,616.17 as redress, on the alleged ground of discrepancy between the amounts contained in the shipping agent's reply to the claimant of only US$90.48 with that of Metroport's. The offer not being acceptable to the plaintiff, the latter wrote Smith, Bell, & Co. expressing his refusal to the "redress" offer. contending that the discrepancy was a result of loss from vessel to arrastre to consignees' warehouse\which losses were still within the "all risk" insurance cover. No settlement of the claim having been made, the plaintiff then caused the instant case to be filed. (p. 2, RTC Decision; p. 142, Record).

Denying any liability, defendant-appellant averred in its answer that it is merely a settling or claim agent of defendant insurance company and as SUCH agent, it is not personally liable under the policy in which it has not even taken part of. It then alleged that plaintiff-appellee has no cause of action against it.

Defendant The First Insurance Co. Ltd. did not file an Answer, hence it was declared in default.

After due trial and proceeding, the lower court rendered a decision favorable to plaintiff-appellee. It ruled that plaintiff-appellee has fully established the liability of the insurance firm on the subject insurance contract as the former presented concrete evidence of the amount of losses resulting from the risks insured against which were supported, by reliable report and assessment of professional cargo surveyor. As regards defendant-appellant, the lower court held that since it is admittedly a claim agent of the foreign insurance firm doing

business in the Philippines justice is better served if said agent is made liable without prejudice to its right of action against its principal, the insurance firm. . . .

The Issue

"Whether or not a local settling or claim agent of a disclosed principal — a foreign insurance company — can be held jointly and severally liable with said principal under the latter's marine cargo insurance policy, given that the agent is not a party to the insurance contract" 8 — is the sole issue-raised by petitioner.

Petitioner rejects liability under the said insurance contract, claiming that: (1) it is merely an agent and thus not personally liable to the party with whom it contracts on behalf of its principal; (2) it had no participation at all in the contract of insurance; and (3) the suit is not brought against the real party-in-interest. 9

On the other hand, respondent Court in ruling against petitioner disposed of the main issue by citing a case it decided in 1987, where petitioner was also a party-litigant. 10 In that case, respondent Court held that petitioner as resident agent of First Insurance Co. Ltd. was "authorized to settle claims against its principal. Its defense that its authority excluded personal liability must be proven satisfactorily. There is a complete dearth of evidence supportive of appellant's non-responsibility as resident agent." The ruling continued with the statement that "the interest of justice is better served by holding the settling or claim agent jointly and severally liable with its principal." 11

Likewise, private respondent disputed the applicability of the cases of E Macias & Co. vs. Warner, Barnes & Co.12 and Salonga vs. Warner, Barnes & Co., Ltd. 13 invoked by petitioner in its appeal. According to private respondent, these two cases impleaded only the "insurance agent" and did not include the principal. While both the foreign principal — which was declared in default by the trial court — and petitioner, as claim agent, were found to be solidarily liable in this case, petitioner still had "recourse" against its foreign principal. Also, being a contract of adhesion, an insurance agreement must be strictly construed against the insurer. 14

The Court's Ruling

There are three reasons why we find for petitioner.

First Reason: Existing Jurisprudence

Petitioner, undisputedly a settling agent acting within the scope of its authority, cannot be held personally and/or solidarily liable for the obligations of its disclosed principal merely because there is allegedly a need for a speedy settlement of the claim of private respondent. In the leading case of Salonga vs. Warner, Barnes & Co., Ltd. this Court ruled in this wise: 15

We agree with counsel for the appellee that the defendant is a settlement and adjustment agent of the foreign insurance company and that as such agent it has the authority to settle all the losses and claims that may arise under the policies that may be issued by or in behalf of said company in accordance with the instructions it may receive from time to time from its principal, but we disagree with counsel in his contention that as such adjustment and settlement agent, the defendant has assumed personal liability under said policies, and, therefore, it can be sued in its own right. An adjustment and settlement agent is no different from any other agent from the point of view of his responsibility (sic), for he also acts in a representative capacity. Whenever he adjusts or settles a claim, he does it in behalf of his principal, and his action is binding not upon himself but upon his principal. And here again, the ordinary rule of agency applies. The following authorities bear this out:

"An insurance adjuster is ordinarily a special agent for the person or company for whom he acts, and his authority is prima facie coextensive with the business intrusted to him. . . ."

"An adjuster does not discharge functions of a quasi-judicial nature, but represents his employer, to whom he owes faithful service, and for his acts, in the employer's interest, the employer is responsible so long as the acts are done while the agent is acting within the scope of his employment." (45 C.J.S., 1338- 1340.)

It, therefore, clearly appears that the scope and extent of the functions of an adjustment and settlement agent do not include personal liability. His functions are merely to settle and adjusts claims in behalf of his principal if those claims are proven and undisputed, and if the claim is disputed or is disapproved by the principal, like in the instant case, the agent does not assume any personal liability. The recourse of the insured is to press his claim against the principal. (Emphasis supplied).

The foregoing doctrine may have been enunciated by this Court in 1951, but the passage of time has not eroded its value or merit. It still applies with equal force and vigor.

Private respondent's contention that Salonga does not apply simply because only the agent was sued therein while here both agent and principal were impleaded and found solidarily liable is without merit.

Such distinction is immaterial. The agent can not be sued nor held liable whether singly or solidarily with its principal.

Every cause of action ex contractu must be founded upon a contract, oral or written, either express or implied. 16The only "involvement" of petitioner in the subject contract of insurance was having its name stamped at the bottom left portion of the policy as "Claim Agent." Without anything else to back it up, such stamp cannot even be deemed by the remotest interpretation to mean that petitioner participated in the preparation of said contract. Hence, there is no privity of contract, and correspondingly there can be no obligation or liability, and thus no Cause of action against petitioner attaches. Under Article 1311 17 of the Civil Code, contracts are binding only upon the parties (and their assigns and heirs) who execute them. The subject cargo insurance was between the First Insurance Company, Ltd. and the Chin Gact Co., Ltd., both of Taiwan, and was signed in Taipei, Taiwan by the president of the First Insurance Company, Ltd. and the president of the Chin Gact Co., Ltd. 18 There is absolutely nothing in the contract which mentions the personal liability of petitioner.

Second Reason: Absence of Solidarity Liability

May then petitioner, in its capacity as resident agent (as found in the case cited by the respondent Court 19) be held solidarily liable with the foreign insurer? Article 1207 of the Civil Code clearly provides that "(t)here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." The well-entrenched rule is that solidary obligation cannot lightly be inferred. It must be positively and clearly expressed. The contention that, in the end, it would really be First Insurance Company, Ltd. which would be held liable is specious and cannot be accepted. Such a stance would inflict injustice upon petitioner which would be made to advance the funds to settle the claim without any assurance that it can collect from the principal which disapproved such claim, in the first place. More importantly, such ,position would have absolutely no legal basis.

The Insurance Code is quite clear as to the Purpose and role of a resident agent. Such agent, as a representative of the foreign insurance company, is tasked only to receive legal processes on behalf of its principal and not to answer personally for any insurance claims. We quote:

Sec. 190. The Commissioner must require as a condition precedent to the transaction of insurance business in the Philippines by any foreign insurance company, that such company file in his office a written power of attorney designating some person who shall be a resident of the Philippines as its general agent, on whom any notice provided by law or by any insurance policy, proof summons and other legal processes may be served in all actions or other legal proceedings against such company, and consenting that service upon such general agent shall be admitted and held as valid as if served upon the foreign company at its home office. Any such foreign company shall, as further condition precedent to the transaction of insurance business in the Philippines, make and file with the Commissioner an agreement or stipulation, executed by the proper authorities of said company in form and substance as follows:

The (name of company) does hereby stipulate and agree in consideration of the permission granted by the Insurance Commissioner to transact business in the

Philippines, that if at any time such company shall leave the Philippines, or cease to transact business therein, or shall be without any agent in the Philippines on whom any notice, proof of loss, summons, or legal process may be served, then in any action or proceeding arising out of any business or transaction which occurred in the Philippines, service of any notice provided by law, or insurance policy, proof of loss, summons, or other legal process may be made upon the Insurance Commissioner shall have the same force and effect as if made upon the company.

Whenever such service of notice, proof of loss, summons or other legal process shall be made upon the Commissioner he must, within ten days thereafter, transmit by mail, postage paid, a copy of such notice, proof of loss, summons, or other legal process to the company at its home or principal office. The sending of such copy of the Commissioner shall be necessary part of the service of the notice, proof of loss, or other legal process. (Emphasis supplied).

Further, we note that in the case cited by respondent Court, petitioner was found to be a resident agent of First Insurance Co. Ltd. In the instant case however, the trial court had to order the service of summons upon First Insurance Co., Ltd. which would not have been necessary if petitioner was its resident agent. Indeed, from our reading of the records of this case, we find no factual and legal bases for the finding of respondent Court that petitioner is the resident agent of First Insurance Co., Ltd.

Third Reason: Not Real Party-In-Interest

Lastly, being a mere agent and representative, petitioner is also not the real party-in-interest in this case. An action is brought for a practical purpose, that is, to obtain actual and positive relief. If the party sued is not the proper party, any decision that may be rendered against him would be futile, for the decision cannot be enforced or executed. Section 2, Rule 3 of the Rules of Court identifies who the real parties-in-interest are, thus:

Sec. 2. Parties in interest. — Every action must be prosecuted and defended in the name of the real party in interest. All persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs. All persons who claim an interest in the controversy or the subject thereof adverse to the, plaintiff, or who are necessary to a complete determination or settlement of the questions involved therein shall be joined as defendants.

The cause of action of private respondent is based on a contract of insurance which as already shown was not participated in by petitioner. It is not a "person who claim(s) an interest adverse to the plaintiff" nor is said respondent "necessary to a complete determination or settlement of the questions involved" in the controversy. Petitioner is improperly impleaded for not being a real-party-interest. It will not benefit or suffer in case the action prospers. 20

Resort to Equity Misplaced

Finally, respondent Court also contends that "the interest of justice is better served by holding the settling agent jointly and severally liable with its principal." As no law backs up such pronouncement, the appellate Court is thus resorting to equity. However, equity which has been aptly described as "justice outside legality," is availed of only in the absence of, and never against, statutory law or judicial pronouncements. 21 Upon the other hand the liability of agents is clearly provided for by our laws and existing jurisprudence.

WHEREFORE, in view of the foregoing considerations, the Petition is GRANTED and the Decision appealed from is REVERSED and SET ASIDE.

No costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 171460               July 24, 2007

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR., represented by their Attorney-In-Fact, ALFREDO M. PEREZ, Petitioners, vs.ALLIED BANKING CORPORATION, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo M. Perez, seeking to reverse and set aside the Decision1 of the Court of Appeals dated 12 October 2005, and its Resolution2 dated 15 February 2006 in CA-G.R. CV No. 82636. The Court of Appeals, in its assailed Decision and Resolution, reversed the Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch 220 dated 23 September 2003, declaring the deeds of real estate mortgage constituted on TCT No. RT-18206 (106338) null and void. The dispositive portion of the assailed Court of Appeals Decision thus reads:

WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new judgment is hereby entered dismissing the [petitioners] complaint.4

Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned several pieces of real property situated in different provinces of the Philippines.

Respondent, on the other hand, is a banking institution duly authorized as such under the Philippine laws.

On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her husband, Julian D. Mercado (Julian) over several pieces of real property registered under her name, authorizing the latter to perform the following acts:

1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over the different parcels of land described hereinafter, to wit:

a) Calapan, Oriental Mindoro Properties covered by Transfer Certificates of Title Nos. T-53618 - 3,522 Square Meters, T-46810 – 3,953 Square Meters, T-53140 – 177 Square Meters, T-21403 – 263 square Meters, T- 46807 – 39 Square Meters of the Registry of Deeds of Oriental Mindoro;

b) Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T-108954 – 600 Square Meters and RT-106338 – 805 Square Meters of the Registry of Deeds of Pasig (now Makati);

c) Personal property – 1983 Car with Vehicle Registration No. R-16381; Model 1983; Make – Toyota; Engine No. T- 2464

2. To sign for and in my behalf any act of strict dominion or ownership any sale, disposition, mortgage, lease or any other transactions including quit-claims, waiver and relinquishment of rights in and over the parcels of land situated in General Trias, Cavite, covered by Transfer Certificates of Title Nos. T-112254 and T-112255 of the Registry of Deeds of Cavite, in conjunction with his co-owner and in the person ATTY. AUGUSTO F. DEL ROSARIO;

3. To exercise any or all acts of strict dominion or ownership over the above-mentioned properties, rights and interest therein. (Emphasis supplied.)

On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a loan from the respondent in the amount of P3,000,000.00, secured by real estate mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel of land with an area of 805 square meters, registered with the Registry of Deeds of Quezon City (subject property).5

Still using the subject property as security, Julian obtained an additional loan from the respondent in the sum ofP5,000,000.00, evidenced by a Promissory Note6 he executed on 5 February 1997 as another real estate mortgage (REM).

It appears, however, that there was no property identified in the SPA as TCT No. RT – 18206 (106338) and registered with the Registry of Deeds of Quezon City. What was identified in the SPA instead was the property covered by TCT No. RT-106338 registered with the Registry of Deeds of Pasig.

Subsequently, Julian defaulted on the payment of his loan obligations. Thus, respondent initiated extra-judicial foreclosure proceedings over the subject property which was subsequently sold at public auction wherein the respondent was declared as the highest bidder as shown in the Sheriff’s Certificate of Sale dated 15 January 1998.7

On 23 March 1999, petitioners initiated with the RTC an action for the annulment of REM constituted over the subject property on the ground that the same was not covered by the SPA and that the said SPA, at the time the loan obligations were contracted, no longer had force and effect since it was previously revoked by Perla on 10 March 1993, as evidenced by the Revocation of SPA signed by the latter.8

Petitioners likewise alleged that together with the copy of the Revocation of SPA, Perla, in a Letter dated 23 January 1996, notified the Registry of Deeds of Quezon City that any attempt to mortgage or sell the subject property must be with her full consent documented in the form of an SPA duly authenticated before the Philippine Consulate General in New York. 9

In the absence of authority to do so, the REM constituted by Julian over the subject property was null and void; thus, petitioners likewise prayed that the subsequent extra-judicial foreclosure proceedings and the auction sale of the subject property be also nullified.

In its Answer with Compulsory Counterclaim,10 respondent averred that, contrary to petitioner’s allegations, the SPA in favor of Julian included the subject property, covered by one of the titles specified in paragraph 1(b) thereof, TCT No. RT- 106338 registered with the Registry of Deeds of Pasig (now Makati). The subject property was purportedly registered previously under TCT No. T-106338, and was only subsequently reconstituted as TCT RT-18206 (106338). Moreover, TCT No. T-106338 was actually registered with the Registry of Deeds of Quezon City and not before the Registry of Deeds of Pasig (now Makati). Respondent explained that the discrepancy in the designation of the Registry of Deeds in the SPA was merely an error that must not prevail over the clear intention of Perla to include the subject property in the said SPA. In sum, the property referred to in the SPA Perla executed in favor of Julian as covered by TCT No. 106338 of the Registry of Deeds of Pasig (now Makati) and the subject property in the case at bar, covered by RT – 18206 (106338) of the Registry of Deeds of Quezon City, are one and the same.

On 23 September 2003, the RTC rendered a Decision declaring the REM constituted over the subject property null and void, for Julian was not authorized by the terms of the SPA to mortgage

the same. The court a quo likewise ordered that the foreclosure proceedings and the auction sale conducted pursuant to the void REM, be nullified. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the [herein petitioners] and against the [herein respondent] Bank:

1. Declaring the Real Estate Mortgages constituted and registered under Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

2. Declaring the Sheriff’s Sale and Certificate of Sale under FRE No. 2217 dated January 15, 1998 over the property covered by TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City as NULL and VOID;

3. Ordering the defendant Registry of Deeds of Quezon City to cancel the annotation of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT-18206 and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of Deeds of Quezon City;

4. Ordering the [respondent] Bank to deliver/return to the [petitioners] represented by their attorney-in-fact Alfredo M. Perez, the original Owner’s Duplicate Copy of TCT No. RT-18206 (106338) free from the encumbrances referred to above; and

5. Ordering the [respondent] Bank to pay the [petitioners] the amount of P100,000.00 as for attorney’s fees plus cost of the suit.

The other claim for damages and counterclaim are hereby DENIED for lack of merit.11

Aggrieved, respondent appealed the adverse Decision before the Court of Appeals.

In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC Decision and upheld the validity of the REM constituted over the subject property on the strength of the SPA. The appellate court declared that Perla intended the subject property to be included in the SPA she executed in favor of Julian, and that her subsequent revocation of the said SPA, not being contained in a public instrument, cannot bind third persons.

The Motion for Reconsideration interposed by the petitioners was denied by the Court of Appeals in its Resolution dated 15 February 2006.

Petitioners are now before us assailing the Decision and Resolution rendered by the Court of Appeals raising several issues, which are summarized as follows:

I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER SUBJECT PROPERTY.

II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.

III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD FAITH.

For a mortgage to be valid, Article 2085 of the Civil Code enumerates the following essential requisites:

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.

In the case at bar, it was Julian who obtained the loan obligations from respondent which he secured with the mortgage of the subject property. The property mortgaged was owned by his wife, Perla, considered a third party to the loan obligations between Julian and respondent. It was, thus, a situation recognized by the last paragraph of Article 2085 of the Civil Code afore-quoted. However, since it was not Perla who personally mortgaged her own property to secure Julian’s loan obligations with respondent, we proceed to determining if she duly authorized Julian to do so on her behalf.

Under Article 1878 of the Civil Code, a special power of attorney is necessary in cases where real rights over immovable property are created or conveyed.12 In the SPA executed by Perla in favor of Julian on 28 May 1992, the latter was conferred with the authority to "sell, alienate, mortgage, lease and deal otherwise" the different pieces of real and personal property registered in Perla’s name. The SPA likewise authorized Julian "[t]o exercise any or all acts of strict dominion or ownership" over the identified properties, and rights and interest therein. The existence and due execution of this SPA by Perla was not denied or challenged by petitioners.

There is no question therefore that Julian was vested with the power to mortgage the pieces of property identified in the SPA. However, as to whether the subject property was among those identified in the SPA, so as to render Julian’s mortgage of the same valid, is a question we still must resolve.

Petitioners insist that the subject property was not included in the SPA, considering that it contained an exclusive enumeration of the pieces of property over which Julian had authority,

and these include only: (1) TCT No. T-53618, with an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810, with an area of 3,953 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140, with an area of 177 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403, with an area of 263 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (5) TCT No. T- 46807, with an area of 39 square meters, located at Calapan, Oriental Mindoro, and registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954, with an area of 690 square meters and located at Susana Heights, Muntinlupa; (7) RT-106338 – 805 Square Meters registered with the Registry of Deeds of Pasig (now Makati); and (8) Personal Property consisting of a 1983 Car with Vehicle Registration No. R-16381, Model – 1983, Make – Toyota, and Engine No. T- 2464. Nowhere is it stated in the SPA that Julian’s authority extends to the subject property covered by TCT No. RT – 18206 (106338) registered with the Registry of Deeds of Quezon City. Consequently, the act of Julian of constituting a mortgage over the subject property is unenforceable for having been done without authority.

Respondent, on the other hand, mainly hinges its argument on the declarations made by the Court of Appeals that there was no property covered by TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati); but there exists a property, the subject property herein, covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. Further verification would reveal that TCT No. RT-18206 is merely a reconstitution of TCT No. 106338, and the property covered by both certificates of title is actually situated in Quezon City and not Pasig. From the foregoing circumstances, respondent argues that Perla intended to include the subject property in the SPA, and the failure of the instrument to reflect the recent TCT Number or the exact designation of the Registry of Deeds, should not defeat Perla’s clear intention.

After an examination of the literal terms of the SPA, we find that the subject property was not among those enumerated therein. There is no obvious reference to the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City.

There was also nothing in the language of the SPA from which we could deduce the intention of Perla to include the subject property therein. We cannot attribute such alleged intention to Perla who executed the SPA when the language of the instrument is bare of any indication suggestive of such intention. Contrariwise, to adopt the intent theory advanced by the respondent, in the absence of clear and convincing evidence to that effect, would run afoul of the express tenor of the SPA and thus defeat Perla’s true intention.

In cases where the terms of the contract are clear as to leave no room for interpretation, resort to circumstantial evidence to ascertain the true intent of the parties, is not countenanced. As aptly stated in the case of JMA House, Incorporated v. Sta. Monica Industrial and Development Corporation,13 thus:

[T]he law is that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. When the language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts may not read into it [in] any other intention that would contradict its main import. The clear terms of the contract should never be the subject matter of interpretation. Neither abstract justice nor the rule on liberal interpretation justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract or obligation not assumed simply or merely to avoid seeming hardships. The true meaning must be enforced, as it is to be presumed that the contracting parties know their scope and effects.14

Equally relevant is the rule that a power of attorney must be strictly construed and pursued. The instrument will be held to grant only those powers which are specified therein, and the agent may neither go beyond nor deviate from the power of attorney.15 Where powers and duties are specified and defined in an instrument, all such powers and duties are limited and are confined to those which are specified and defined, and all other powers and duties are excluded.16 This is but in accord with the disinclination of courts to enlarge the authority granted beyond the powers expressly given and those which incidentally flow or derive therefrom as being usual and reasonably necessary and proper for the performance of such express powers.17

Even the commentaries of renowned Civilist Manresa18 supports a strict and limited construction of the terms of a power of attorney:

The law, which must look after the interests of all, cannot permit a man to express himself in a vague and general way with reference to the right he confers upon another for the purpose of alienation or hypothecation, whereby he might be despoiled of all he possessed and be brought to ruin, such excessive authority must be set down in the most formal and explicit terms, and when this is not done, the law reasonably presumes that the principal did not mean to confer it.

In this case, we are not convinced that the property covered by TCT No. 106338 registered with the Registry of Deeds of Pasig (now Makati) is the same as the subject property covered by TCT No. RT-18206 (106338) registered with the Registry of Deeds of Quezon City. The records of the case are stripped of supporting proofs to verify the respondent’s claim that the two titles cover the same property. It failed to present any certification from the Registries of Deeds concerned to support its assertion. Neither did respondent take the effort of submitting and making part of the records of this case copies of TCTs No. RT-106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of the Registry of Deeds of Quezon City, and closely comparing the technical descriptions of the properties covered by the said TCTs. The bare and sweeping statement of respondent that the properties covered by the two certificates of title are one and the same contains nothing but empty imputation of a fact that could hardly be given any evidentiary weight by this Court.

Having arrived at the conclusion that Julian was not conferred by Perla with the authority to mortgage the subject property under the terms of the SPA, the real estate mortgages Julian executed over the said property are therefore unenforceable.

Assuming arguendo that the subject property was indeed included in the SPA executed by Perla in favor of Julian, the said SPA was revoked by virtue of a public instrument executed by Perla on 10 March 1993. To address respondent’s assertion that the said revocation was unenforceable against it as a third party to the SPA and as one who relied on the same in good faith, we quote with approval the following ruling of the RTC on this matter:

Moreover, an agency is extinguished, among others, by its revocation (Article 1999, New Civil Code of the Philippines). The principal may revoke the agency at will, and compel the agent to return the document evidencing the agency. Such revocation may be express or implied (Article 1920, supra).

In this case, the revocation of the agency or Special Power of Attorney is expressed and by a public document executed on March 10, 1993.

The Register of Deeds of Quezon City was even notified that any attempt to mortgage or sell the property covered by TCT No. [RT-18206] 106338 located at No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full consent documented in the form of a special power of attorney duly authenticated at the Philippine Consulate General, New York City, N.Y., U.S.A.

The non-annotation of the revocation of the Special Power of Attorney on TCT No. RT-18206 is of no consequence as far as the revocation’s existence and legal effect is concerned since actual notice is always superior to constructive notice. The actual notice of the revocation relayed to defendant Registry of Deeds of Quezon City is not denied by either the Registry of Deeds of Quezon City or the defendant Bank. In which case, there appears no reason why Section 52 of the Property Registration Decree (P.D. No. 1529) should not apply to the situation. Said Section 52 of P.D. No. 1529 provides:

"Section 52. Constructive notice upon registration. – Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the Office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering. (Pres. Decree No. 1529, Section 53) (emphasis ours)

It thus developed that at the time the first loan transaction with defendant Bank was effected on December 12, 1996, there was on record at the Office of the Register of Deeds of Quezon City that the special power of attorney granted Julian, Sr. by Perla had been revoked. That notice, works as constructive notice to third parties of its being filed, effectively rendering Julian, Sr. without authority to act for and in behalf of Perla as of the date the revocation letter was received by the Register of Deeds of Quezon City on February 7, 1996.19

Given that Perla revoked the SPA as early as 10 March 1993, and that she informed the Registry of Deeds of Quezon City of such revocation in a letter dated 23 January 1996 and received by the latter on 7 February 1996, then third parties to the SPA are constructively notified that the same had been revoked and Julian no longer had any authority to mortgage the subject property.

Although the revocation may not be annotated on TCT No. RT-18206 (106338), as the RTC pointed out, neither the Registry of Deeds of Quezon City nor respondent denied that Perla’s 23 January 1996 letter was received by and filed with the Registry of Deeds of Quezon City. Respondent would have undoubtedly come across said letter if it indeed diligently investigated the subject property and the circumstances surrounding its mortgage.

The final issue to be threshed out by this Court is whether the respondent is a mortgagee-in-good faith. Respondent fervently asserts that it exercised reasonable diligence required of a prudent man in dealing with the subject property.

Elaborating, respondent claims to have carefully verified Julian’s authority over the subject property which was validly contained in the SPA. It stresses that the SPA was annotated at the back of the TCT of the subject property. Finally, after conducting an investigation, it found that the property covered by TCT No. 106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in the SPA, and the subject property, covered by TCT No. 18206 (106338) registered with the Registry of Deeds of Quezon City, are one and the same property. From the foregoing, respondent concluded that Julian was indeed authorized to constitute a mortgage over the subject property.

We are unconvinced. The property listed in the real estate mortgages Julian executed in favor of PNB is the one covered by "TCT#RT-18206(106338)." On the other hand, the Special Power of Attorney referred to TCT No. "RT-106338 – 805 Square Meters of the Registry of Deeds of Pasig now Makati." The palpable difference between the TCT numbers referred to in the real estate mortgages and Julian’s SPA, coupled with the fact that the said TCTs are registered in the Registries of Deeds of different cities, should have put respondent on guard. Respondent’s claim of prudence is debunked by the fact that it had conveniently or otherwise overlooked the inconsistent details appearing on the face of the documents, which it was relying on for its rights as mortgagee, and which significantly affected the identification of the property being mortgaged. In Arrofo v. Quiño,20 we have elucidated that:

[Settled is the rule that] a person dealing with registered lands [is not required] to inquire further than what the Torrens title on its face indicates. This rule, however, is not absolute but admits of exceptions. Thus, while its is true, x x x that a person dealing with registered lands need not go beyond the certificate of title, it is likewise a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man on his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to face up the fact that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendor’s or mortgagor’s title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defect as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation.

By putting blinders on its eyes, and by refusing to see the patent defect in the scope of Julian’s authority, easily discernable from the plain terms of the SPA, respondent cannot now claim to be an innocent mortgagee.

Further, in the case of Abad v. Guimba,21 we laid down the principle that where the mortgagee does not directly deal with the registered owner of real property, the law requires that a higher degree of prudence be exercised by the mortgagee, thus:

While [the] one who buys from the registered owner does not need to look behind the certificate of title, one who buys from [the] one who is not [the] registered owner is expected to examine not only the certificate of title but all factual circumstances necessary for [one] to determine if there are any flaws in the title of the transferor, or in [the] capacity to transfer the land. Although the instant case does not involve a sale but only a mortgage, the same rule applies inasmuch as the law itself includes a mortgagee in the term "purchaser."22

This principle is applied more strenuously when the mortgagee is a bank or a banking institution. Thus, in the case of Cruz v. Bancom Finance Corporation,23 we ruled:

Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.24

Hence, considering that the property being mortgaged by Julian was not his, and there are additional doubts or suspicions as to the real identity of the same, the respondent bank should have proceeded with its transactions with Julian only with utmost caution. As a bank, respondent must subject all its transactions to the most rigid scrutiny, since its business is impressed with public interest and its fiduciary character requires high standards of integrity and performance.25 Where respondent acted in undue haste in granting the mortgage loans in favor of Julian and disregarding the apparent defects in the latter’s authority as agent, it failed to discharge the degree of diligence required of it as a banking corporation.1awphil

Thus, even granting for the sake of argument that the subject property and the one identified in the SPA are one and the same, it would not elevate respondent’s status to that of an innocent mortgagee. As a banking institution, jurisprudence stringently requires that respondent should take more precautions than an ordinary prudent man should, to ascertain the status and condition of the properties offered as collateral and to verify the scope of the authority of the agents dealing with these. Had respondent acted with the required degree of diligence, it could have acquired knowledge of the letter dated 23 January 1996 sent by Perla to the Registry of Deeds of Quezon City which recorded the same. The failure of the respondent to investigate into the circumstances surrounding the mortgage of the subject property belies its contention of good faith.

On a last note, we find that the real estate mortgages constituted over the subject property are unenforceable and not null and void, as ruled by the RTC. It is best to reiterate that the said mortgage was entered into by Julian on behalf of Perla without the latter’s authority and consequently, unenforceable under Article 1403(1) of the Civil Code. Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified, because either they are entered into without or in excess of authority or they do not comply with the statute of frauds or both of the contracting parties do not possess the required legal capacity.26 An unenforceable contract may be ratified, expressly or impliedly, by the person in whose behalf it has been executed, before it is revoked by the other contracting party.27 Without Perla’s ratification of the same, the real estate mortgages constituted by Julian over the subject property cannot be enforced by any action in court against Perla and/or her successors in interest.

In sum, we rule that the contracts of real estate mortgage constituted over the subject property covered by TCT No. RT – 18206 (106338) registered with the Registry of Deeds of Quezon City are unenforceable. Consequently, the foreclosure proceedings and the auction sale of the subject property conducted in pursuance of these unenforceable contracts are null and void. This, however, is without prejudice to the right of the respondent to proceed against Julian, in his personal capacity, for the amount of the loans.

WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision dated 12 October 2005 and its Resolution dated 15 February 2006 rendered by the Court of Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is hereby REINSTATED and AFFIRMED with modification that the real estate mortgages constituted over TCT No. RT – 18206 (106338) are not null and void but UNENFORCEABLE. No costs.

SO ORDERED.

TRUSTS

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 76590 February 26, 1990

HEIRS OF MARIA DE LA CRUZ Y GUTIERREZ, petitioners, vs.COURT OF APPEALS and HEIRS OF MARIA DE LA CRUZ Y GUEVARRA, respondents.

 

PARAS, J.:

This is a petition for review on certiorari of the June 17, 1986 decision * of the then Intermediate Appellate Court in AC-G.R. CV No. 05785 reversing the appealed decision of the Regional Trial Court of Angeles City, and the November 12, 1986 resolution of the same court denying the motion for reconsideration.

Herein petitioners are the heirs (children) of the late Maria de la Cruz y Gutierrez, married to Mateo del Rosario Lansang, while herein private respondents are the heirs of Maria de la Cruz y Guevarra, married to Calixto Dimalanta, and Fermin de la Cruz. The controversy involves a 1,980 square meters portion of Lot 1488.

From 1921 until her death in 1951, Maria de la Cruz y Gutierrez resided in the questioned lot in the concept of an owner. She declared the lot for tax purposes in her name. Later, she entrusted the administration of the said lot to her niece Maria de la Cruz y Guevarra. When cadastral proceedings were held in Porac, in Cadastral Case No. 18, on March 17, 1926, Maria de la Cruz y Gutierrez filed an answer to the questioned lot. In the said filed answer, over the handwritten name "Maria de la Cruz y Gutierrez" is a thumbmark presumably affixed by her, Exhibit "2-C"; that in paragraph 7, a person named therein as Fermin de la Cruz y Gutierrez is stated to have an interest or participation on the said lot. However, in the space provided in paragraph 8 to be filled up with the personal circumstances of claimant Maria de la Cruz y Gutierrez, what appears therein is the name Maria de la Cruz, married to Calixto Dimalanta, instead of Maria de la Cruz y Gutierrez, Exhibit "2-A"; and in the space provided in paragraph 9, intended for the personal circumstances of other person or persons who may have an interest on the said lot, the name Fermin de la Cruz, single, appears, Exhibit "2-B". Accordingly, the trial court rendered a decision adjudicating Lot No. 1488 in favor of Maria de la Cruz, 26 years old, married to Calixto Dimalanta and Fermin de la Cruz, Single. Finally, Original Certificate of Title No. 16684 of the Register of Deeds of Pampanga was issued in their names.

Petitioners, claiming to have learned of the same only on July 1, 1974, on October 1, 1974 (allegedly barely three months after discovery of the registration, and two years after the death of Maria de la Cruz y Guevarra who, before she died in 1974, revealed to petitioners Daniel Lansang and Isidro Lansang that the lot of their mother Maria de la Cruz y Gutierrez had been included in her title), filed with the then Court of First Instance of Pampanga, Branch IV, presided over by Hon. Cesar V. Alejandria, a complaint for reconveyance, docketed therein as Civil Case No. 2148. The same was amended on June 16, 1975.

The main thrust of the complaint is that the claimant of Lot 1488 in Cadastral Case No. 18 was Maria de la Cruz y Gutierrez and not Maria de la Cruz y Guevarra who by not using her maternal surname "Guevarra" succeeded in registering Lot 1488 in her name and that of her brother Fermin de la Cruz. Under the circumstances, it is claimed that Maria de la Cruz married to Calixto Dimalanta and Fermin de la Cruz hold the property in trust for the petitioners.

In their answer (Rollo, pp. 62-65), private respondents claimed that the land in questin is their �exclusive property, having inherited the same from their parents and the OCT No. 16684 was issued in their names. Moreover, they asserted that petitioners have lost their cause of action by prescription.

During the pre-trial, the parties stipulated the following facts:

1. That Lot No. 1488 is the lot in question as stated in Paragraph 3 of the Complaint;

2. That on March 17, 1926, Maria de la Cruz y Gutierrez filed her Answer over the cadastral lot in question;

3. That Maria de la Cruz y Gutierrez affixed her thumbmark in the Answer dated March 17, 1926;

4. That by virtue of the Answer over Cadastral lot in question filed by Maria de la Cruz y Gutierrez on March 17, 1926, OCT No. 16684 was issued covering the lot in question;

5. That the maternal surname of Maria de la Cruz and Fermin de la Cruz is Guevarra and not Gutierrez; and

6. That Maria de la Cruz y Guevarra and Fermin de la Cruz y Guevarra did not file their answer over the lot in question. (p. 3, Intermediate Appellate Court Decision; p. 46, Rollo)

The issues stated are as follows:

1. Whether or not the handwritings in the Answer of Maria de la Cruz y Gutierrez were her handwritings;

2. Whether or not the heirs of Maria de la Cruz y Gutierrez are paying the land taxes of the lot in question proportionately to their respective shares;

3. Whether or not Lot 1488, the lot in question, is declared in the name of Maria de la Cruz y Gutierrez;

4. Whether or not during the lifetime of Maria de la Cruz y Gutierrez up to the time of her death, she was in actual possession of the lot in question; and

5. If there was fraud in securing OCT No. 16684 in the name of Maria de la Cruz, married to Calixto Dimalanta, and Fermin de la Cruz, single. (pp. 3-4, Intermediate Appellate Court Decision; pp. 4647, Rollo)

After trial, the trial court, in a decision dated November 17, 1983 (ibid., pp. 34-42), ruled in favor of the petitioners. The decretal portion of the said decision, reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs;

(a) ordering the above-named defendants to reconvey to the plaintiffs a portion of 1,980 square meters of Lot No. 1488 covered by Original Certificate of Title No. 16684 of the Register of Deeds of Pampanga, by executing a deed of reconveyance and registering the same with the said Office at their own expense;

(b) ordering the parties to cause the survey and division of Lot No. 1844 into two equal parts in order that two separate titles, one for the plaintiffs and the other for the defendants can be issued by the Register of Deeds of Pampanga in their favor and one-half of the expenses therefore to be shouldered by the plaintiffs, and the other half by the defendant;

(c) ordering that the land to be adjudicated to the plaintiffs should include the portion where the existing house of the late Maria de la Cruz y Gutierrez is situated;

(d) ordering the plaintiffs and the defendants to pay the corresponding estate and inheritance taxes if the parcels of land inherited by them are subject to the payment of the same;

(e) ordering the defendants to pay the costs of suit.

On appeal, considering the action as based on an implied trust, the then Intermediate Appellate Court in its decision promulgated on June 17, 1986 (Ibid., pp. 44-53) reversed the decision of the trial court. The dispositive portion reads:

WHEREFORE, the Court is constrained to REVERSE the decision appealed from. A new one is hereby entered dismissing the complaint.

A Motion for Reconsideration was filed, but the same was denied in a resolution dated November 12, 1986 (Ibid.,p. 66). Hence, the instant petition.

Petitioners raised three (3) reasons warranting review, to wit:

I

RESPONDENT COURT ERRED WHEN IT RULED THAT THE ACTION FOR RECONVEYANCE FILED BY HEREIN PETITIONERS WITH THE LOWER COURT HAD ALREADY PRESCRIBED;

II

RESPONDENT COURT ERRED IN RULING THAT PETITIONERS WERE GUILTY OF LACHES; and

III

RESPONDENT COURT ERRED IN RULING THAT THERE WAS NO EVIDENCE OF FRAUD COMMITTED BY THE PREDECESSOR-IN-INTEREST OF PRIVATE RESPONDENTS IN SECURING TITLE TO THE LOT IN QUESTION.(pp. 13, 20 and 22, Petition for Review pp. 21, 28, and 30 Rollo)

The instant petition is impressed with merit.

The main issue in this case is whether or not petitioners' action for reconveyance has already prescribed.

The answer is in the negative.

As aptly argued by petitioners, the Court of Appeals erred when it ruled that their action has already prescribed; obviously on the wrong premise that the action is one based on implied or constructive trust. As maintained by petitioners, their action is one based on express trust and not on implied or constructive trust. Petitioners' predecessor-in-interest, Maria de la Cruz y Gutierrez, was an unlettered woman, a fact borne out by her affixing her thumbmark in her answer in Cadastral Case No. 18, Exhibit "2-C". Because of her mental weakness, in a prepared document for her, Exhibit "B-3", she consented and authorized her niece Maria de la Cruz y Guevarra to administer the lot in question. Such fact is corroborated by the testimony of Daniel Lansay, the son of Maria de la Cruz y Gutierrez that Maria de la Cruz y Guevarra was the one entrusted with the paying of land taxes.

Private respondents argue that said Exhibit "B-3" is a portion of the tax declaration (Exhibit "B") which was prepared by the Office of the Municipal Assessor/Treasurer where the lot in question is located, and clearly not the written instrument constituting an express trust required under Article 1443 of the Civil Code. This argument of private respondents, is untenable. It has been held that under the law on Trusts, it is not necessary that the document expressly state and

provide for the express trust, for it may even be created orally, no particular words are required for its creation (Article 1444, Civil Code). An express trust is created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust (Sotto v. Teves, 86 SCRA 154 [1978]). No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended (Vda. de Mapa v. Court of Appeals, 154 SCRA 294 [1987]). Hence, petitioner's action, being one based on express trust, has not yet prescribed. Be it noted that Article 1443 of the Civil Code which states "No express trusts concerning an immovable or any interest therein may be proved by parol evidence," refers merely to enforceability, not validity of a contract between the parties. Otherwise stated, for purposes of validity between the parties, an express trust concerning an immovable does not have to be in writing. Thus, Article 1443 may be said to be an extension of the Statute of Frauds. The action to compel the trustee to convey the property registered in his name for the benefit of the cestui for trust does not prescribe. If at all, it is only when the trustee repudiates the trust that the period of prescription may run (Enriquez v. Court of Appeals, 104 SCRA 656 [1981]).

PREMISES CONSIDERED, the June 17, 1986 decision of the Intermediate Appellate Court is hereby REVERSED and the November 17, 1983 decision of the trial court is hereby REINSTATED, excpt as to the latter court's finding that this case deals with an implied trust.

SO ORDERED.

Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 160488             September 3, 2004

FELOMINA1 ABELLANA, petitioner, vs.SPOUSES ROMEO PONCE and LUCILA PONCE and the REGISTER OF DEEDS of BUTUAN CITY,respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari assailing the June 16, 2003 decision2 of the Court of Appeals in CA-G.R. CV No. 69213, which reversed and set aside the August 28, 2000 decision3 of the Regional Trial Court of Butuan City, Branch 2, in Civil Case No. 4270.

The facts as testified to by petitioner Felomina Abellana are as follows:

On July 15, 1981, Felomina, a spinster, pharmacist and aunt of private respondent Lucila Ponce, purchased from the late Estela Caldoza-Pacres a 44,2974 square meter agricultural lot5 with the intention of giving said lot to her niece, Lucila. Thus, in the deed of sale,6 the latter was designated as the buyer of Lot 3, Pcs-10-000198, covered by Original Certificate of Title No. P-27, Homestead Patent No. V-1551 and located at Los Angeles, Butuan City.7The total consideration of the sale was P16,500.00, but only P4,500.00 was stated in the deed upon the request of the seller.8

Subsequently, Felomina applied for the issuance of title in the name of her niece. On April 28, 1992, Transfer Certificate of Title (TCT) No. 28749 over the subject lot was issued in the name of Lucila.10 Said title, however, remained in the possession of Felomina who developed the lot through Juanario Torreon11 and paid real property taxes thereon.12

The relationship between Felomina and respondent spouses Romeo and Lucila Ponce, however, turned sour. The latter allegedly became disrespectful and ungrateful to the point of hurling her insults and even attempting to hurt her physically. Hence, Felomina filed the instant case for revocation of implied trust to recover legal title over the property.13

Private respondent spouses Lucila, also a pharmacist, and Romeo, a marine engineer, on the other hand, claimed that the purchase price of the lot was only P4,500.00 and that it was them who paid the same. The payment and signing of the deed of sale allegedly took place in the office of Atty. Teodoro Emboy in the presence of the seller and her siblings namely, Aquilino Caldoza and the late Lilia Caldoza.14

A year later, Juanario approached Lucila and volunteered to till the lot, to which she agreed.15 In 1987, the spouses consented to Felomina’s proposal to develop and lease the lot. They, however, shouldered the real property taxes on the lot, which was paid through Felomina. In 1990, the spouses demanded rental from Felomina but she refused to pay because her agricultural endeavor was allegedly not profitable.16

When Lucila learned that a certificate of title in her name had already been issued, she confronted Felomina who claimed that she already gave her the title. Thinking that she might have misplaced the title, Lucila executed an affidavit of loss which led to the issuance of another certificate of title in her name.17

On August 28, 2000, the trial court rendered a decision holding that an implied trust existed between Felomina and Lucila, such that the latter is merely holding the lot for the benefit of the former. It thus ordered the conveyance of the subject lot in favor of Felomina. The dispositive portion thereof, reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered declaring, directing and ordering that:

a) An implied trust was created with plaintiff as trustor and private defendant Lucila A. Ponce married to private defendant Engr. Romeo D. Ponce as trustee pursuant to Article 1448 of the New Civil Code;

b) The implied trust, having been created without the consent of the trustee and without any condition, is revoked;

c) The private defendants, who are spouses, execute the necessary deed of conveyance in favor of the plaintiff of the land, covered by and embraced in TCT NO. T-2874, in controversy and in the event private defendants refuse to execute the deed of conveyance, the public defendant City Register of Deeds of Butuan to cancel TCT No. T-2874 and issue a new one in lieu thereof in the name of the plaintiff;

d) The private defendants spouses to pay jointly and severally plaintiff the sum of PhP25,000.00 as attorney’s fees and PhP4,000.00 as expenses of litigation;

e) The dismissal of the counterclaim of private defendants spouses[;] and

f) The private defendants to pay the costs.

SO ORDERED.18

Private respondent spouses appealed to the Court of Appeals which set aside the decision of the trial court ruling that Felomina failed to prove the existence of an implied trust and upheld respondent spouses’ ownership over the litigated lot. The appellate court further held that even assuming that Felomina paid the purchase price of the lot, the situation falls within the exception stated in Article 1448 of the Civil Code which raises a disputable presumption that the property was purchased by Felomina as a gift to Lucila whom she considered as her own daughter. The decretal portion thereof, states –

WHEREFORE, premises considered, the appealed decision of the Regional Trial Court, Branch 2, Butuan City, in Civil Case No. 4270, is hereby REVERSED AND SET ASIDE. A new one is heretofore rendered dismissing the complaint below of plaintiff-appellee, F[e]lomina Abellana.

SO ORDERED.19

Felomina filed a motion for reconsideration but the same was denied.20 Hence, the instant petition.

The issue before us is: Who, as between Felomina and respondent spouses, is the lawful owner of the controverted lot? To resolve this issue, it is necessary to determine who paid the purchase price of the lot.

After a thorough examination of the records and transcript of stenographic notes, we find that it was Felomina and not Lucila who truly purchased the questioned lot from Estela. The positive and consistent testimony of Felomina alone, that she was the real vendee of the lot, is credible to debunk the contrary claim of respondent spouses. Indeed, the lone testimony of a witness, if credible, is sufficient as in the present case.21 Moreover, Aquilino Caldoza, brother of the vendor and one of the witnesses22 to the deed of sale, categorically declared that Felomina was the buyer and the one who paid the purchase price to her sister, Estela.23

Then too, Juanario, who was allegedly hired by Lucila to develop the lot, vehemently denied that he approached and convinced Lucila to let him till the land. According to Juanario, he had never spoken to Lucila about the lot and it was Felomina who recruited him to be the caretaker of the litigated property.24

The fact that it was Felomina who bought the lot was further bolstered by her possession of the following documents from the time of their issuance up to the present, to wit: (1) the transfer certificate of title25 and tax declaration in the name of Lucila;26 (2) the receipts of real property taxes in the name of Felomina Abellana for the years 1982-1984, 1992-1994 and 1995;27 and (3) the survey plan of the lot.28

Having determined that it was Felomina who paid the purchase price of the subject lot, the next question to resolve is the nature of the transaction between her and Lucila.

It appears that Felomina, being of advanced age29 with no family of her own, used to purchase properties and afterwards give them to her nieces. In fact, aside from the lot she bought for Lucila (marked as Exhibit "R-2"), she also purchased 2 lots, one from Aquilino Caldoza (marked as Exhibit "R-1") and the other from Domiciano Caldoza (marked as Exhibit "R-3"), which she gave to Zaida Bascones (sister of Lucila), thus:

Q I am showing to you again Exhibit R, according to you[,] you bought Exhibits R-1, R-2 and R-3, do you remember that?

A Yes sir.

x x x           x x x           x x x

Q Aquilin[o] Caldoza conveyed this land in Exhibit R-1 to you?

A Yes, sir.

Q Is this now titled in your name?

A No. I was planning to give this land to my nieces. One of which [was] already given to Mrs. [Lucila] Ponce.

Q I am talking only about this lot in Exhibit R-1[.]

A Not in my name.

Q In whose name was this lot in Exhibit R-1 now?

A In the name of Zaida Bascones.

Q Who prepared the deed of sale?

A At the start it was in the name of Rudy [Torreon].30 Because Rudy [Torreon] knew that there is some trouble already about that lot he made a deed of sale to the name of Zaida Bascones, which I planned to give that land to her (sic).

Q As regards Exhibit R-1, you bought it actually?

A Yes, sir.

Q But the … original deed of sale was in the name of Rudolfo [Torreon]?

A Yes, sir.

Q And later on Rudolfo [Torreon] again transferred it to Zaida Bascones?

A Yes, sir.31

Likewise, in the case of Lucila, though it was Felomina who paid for the lot, she had Lucila designated in the deed as the vendee thereof and had the title of the lot issued in Lucila’s name. It is clear therefore that Felomina donated the land to Lucila. This is evident from her declarations, viz:

Witness

A In 1981 there was a riceland offered so I told her that I will buy that land and I will give to her later (sic), because since 1981 up to 1992 Mrs. Lucila Ponce has no job.

Q Where is the land located?

A In Los Angeles, Butuan City.

Q Who was the owner of this land?

A The owner of that land is Mrs. Estela Caldoza-Pacr[e]s.

The husband is Pacr[e]s.

x x x           x x x           x x x

Q What did you do with this land belonging to Mrs. Estela-Caldoza- Pacr[e]s?

A I paid the lot, then worked the lot, since at the start of my buying the lot until now (sic).

Q You said that you told Lucila Ponce that you would give the land to her later on, what did you do in connection with this intention of yours to give the land to her?

A So I put the name of the title in her name in good faith (sic).

Q You mean to tell the court that when you purchased this land located at Los Angeles, Butuan City, the instrument of sale or the deed of sale was in the name of Lucila Ponce?

A Yes, sir.32

x x x           x x x           x x x

Q Did you not ask your adviser Rudolfo [Torreon] whether it was wise for you to place the property in the name of Lucila Ponce when you are the one who is the owner?

A Because we have really the intention to give it to her.33

Generally, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. When, however, the law requires that a contract be in some form in order that it may be valid, that requirement is absolute and indispensable. Its non-observance renders the contract void and of no effect.34 Thus, under Article 749 of the Civil Code –

Article 749. In order that the donation of an immovable property may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy.

The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments.

In the instant case, what transpired between Felomina and Lucila was a donation of an immovable property which was not embodied in a public instrument as required by the foregoing article. Being an oral donation, the transaction was void.35 Moreover, even if Felomina enjoyed the fruits of the land with the intention of giving effect to the donation after her demise, the conveyance is still a void donation mortis causa, for non-compliance with the formalities of a will.36 No valid title passed regardless of the intention of Felomina to donate the property to Lucila, because the naked intent to convey without the required solemnities does not suffice for gratuitous alienations, even as between the parties inter se.37 At any rate, Felomina now seeks to recover title over the property because of the alleged ingratitude of the respondent spouses.

Unlike ordinary contracts (which are perfected by the concurrence of the requisites of consent, object and cause pursuant to Article 131838 of the Civil Code), solemn contracts like donations are perfected only upon compliance with the legal formalities under Articles 74839 and 749.40 Otherwise stated, absent the solemnity requirements for validity, the mere intention of the parties does not give rise to a contract. The oral donation in the case at bar is therefore legally inexistent and an action for the declaration of the inexistence of a contract does not prescribe.41Hence, Felomina can still recover title from Lucila.

Article 144842 of the Civil Code on implied trust finds no application in the instant case. The concept of implied trusts is that from the facts and circumstances of a given case, the existence of a trust relationship is inferred in order to effect the presumed intention of the parties.43 Thus, one of the recognized exceptions to the establishment of an implied trust is where a contrary intention is proved,44 as in the present case. From the testimony of Felomina herself, she wanted to give the lot to Lucila as a gift. To her mind, the execution of a deed with Lucila as the buyer and the subsequent issuance of title in the latter’s name were the acts that would effectuate her generosity. In so carrying out what she conceived, Felomina evidently displayed her unequivocal intention to transfer ownership of the lot to Lucila and not merely to constitute her as a trustee thereof. It was only when their relationship soured that she sought to revoke the donation on the theory of implied trust, though as previously discussed, there is nothing to revoke because the donation was never perfected.

In declaring Lucila as the owner of the disputed lot, the Court of Appeals applied, among others, the second sentence of Article 1448 which states –

"x x x However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child."

Said presumption also arises where the property is given to a person to whom the person paying the price stands in loco parentis or as a substitute parent.45

The abovecited provision, however, is also not applicable here because, first, it was not established that Felomina stood as a substitute parent of Lucila; and second, even assuming that she did, the donation is still void because the transfer and acceptance was not embodied in a public instrument. We note that said provision merely raised a presumption that the conveyance was a gift but nothing therein exempts the parties from complying with the formalities of a donation. Dispensation of such solemnities would give rise to anomalous situations where the formalities of a donation and a will in donations inter vivos, and donations mortis causa, respectively, would be done away with when the transfer of the property is made in favor of a child or one to whom the donor stands inloco parentis. Such a scenario is clearly repugnant to the mandatory nature of the law on donation.

While Felomina sought to recover the litigated lot on the ground of implied trust and not on the invalidity of donation, the Court is clothed with ample authority to address the latter issue in order to arrive at a just decision that completely disposes of the controversy.46 Since rules of procedure are mere tools designed to facilitate the attainment of justice, they must be applied in a way that equitably and completely resolve the rights and obligations of the parties.47

As to the trial court’s award of attorney’s fees and litigation expenses, the same should be deleted for lack of basis. Aside from the allegations in the complaint, no evidence was presented in support of said claims. The trial court made these awards in the dispositive portion of its decision without stating any justification therefor in theratio decidendi. Their deletion is therefore proper.48

Finally, in deciding in favor of Felomina, the trial court ordered respondent spouses to execute a deed of sale over the subject lot in favor of Felomina in order to effect the transfer of title to the latter. The proper remedy, however, is provided under Section 10 (a), Rule 39 of the Revised Rules of Civil Procedure which provides that "x x x [i]f real or personal property is situated within the Philippines, the court in lieu of directing a conveyance thereof may by an order divest the title of any party and vest it in others, which shall have the force and effect of a conveyance executed in due form of law."

WHEREFORE, in view of all the foregoing, the petition is GRANTED and the June 16, 2003 decision of the Court of Appeals in CA-G.R. CV No. 69213 is REVERSED and SET ASIDE. The August 28, 2000 decision of the Regional Trial Court of Butuan City, Branch 2, in Civil Case No. 4270, is REINSTATED with the followingMODIFICATIONS:

(1) Declaring petitioner Felomina Abellana as the absolute owner of Lot 3, Pcs-10-000198;

(2) Ordering the Register of Deeds of Butuan City to cancel TCT No. T-2874 in the name of respondent Lucila Ponce and to issue a new one in the name of petitioner Felomina Abellana; and

(3) Deleting the awards of attorney’s fees and litigation expenses for lack of basis.

No pronouncement as to costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 165879             November 10, 2006

MARIA B. CHING, Petitioner, vs.JOSEPH C. GOYANKO, JR., EVELYN GOYANKO, JERRY GOYANKO, IMELDA GOYANKO, JULIUS GOYANKO, MARY ELLEN GOYANKO AND JESS GOYANKO, Respondents.

D E C I S I O N

CARPIO MORALES, J.:

On December 30, 1947, Joseph Goyanko (Goyanko) and Epifania dela Cruz (Epifania) were married.1 Out of the union were born respondents Joseph, Jr., Evelyn, Jerry, Imelda, Julius, Mary Ellen and Jess, all surnamed Goyanko.

Respondents claim that in 1961, their parents acquired a 661 square meter property located at 29 F. Cabahug St., Cebu City but that as they (the parents) were Chinese citizens at the time, the property was registered in the name of their aunt, Sulpicia Ventura (Sulpicia).

On May 1, 1993, Sulpicia executed a deed of sale2 over the property in favor of respondents’ father Goyanko. In turn, Goyanko executed on October 12, 1993 a deed of sale3 over the property in favor of his common-law-wife-herein petitioner Maria B. Ching. Transfer Certificate of Title (TCT) No. 138405 was thus issued in petitioner’s name.

After Goyanko’s death on March 11, 1996, respondents discovered that ownership of the property had already been transferred in the name of petitioner. Respondents thereupon had the

purported signature of their father in the deed of sale verified by the Philippine National Police Crime Laboratory which found the same to be a forgery.4

Respondents thus filed with the Regional Trial Court of Cebu City a complaint for recovery of property and damages against petitioner, praying for the nullification of the deed of sale and of TCT No. 138405 and the issuance of a new one in favor of their father Goyanko.

In defense, petitioner claimed that she is the actual owner of the property as it was she who provided its purchase price. To disprove that Goyanko’s signature in the questioned deed of sale is a forgery, she presented as witness the notary public who testified that Goyanko appeared and signed the document in his presence.

By Decision of October 16, 1998,5 the trial court dismissed the complaint against petitioner, the pertinent portions of which decision read:

There is no valid and sufficient ground to declare the sale as null and void, fictitious and simulated. The signature on the questioned Deed of Sale is genuine. The testimony of Atty. Salvador Barrameda who declared in court that Joseph Goyanko, Sr. and Maria Ching together with their witnesses appeared before him for notarization of Deed of Sale in question is more reliable than the conflicting testimonies of the two document examiners. Defendant Maria Ching asserted that the Deed of Sale executed by Joseph Goyanko, Sr. in her favor is valid and genuine. The signature of Joseph Goyanko, Sr. in the questioned Deed of Absolute Sale is genuine as it was duly executed and signed by Joseph Goyanko, Sr. himself.

The parcel of lands known as Lot No. 6 which is sought to be recovered in this case could never be considered as the conjugal property   of the original Spouses Joseph C. Goyanko and Epifania dela Cruz or the exclusive capital property of the husband. The acquisition of the said property by defendant Maria Ching is well-elicited from the aforementioned testimonial and documentary evidence presented by the defendant. Although for a time being the property passed through Joseph Goyanko, Sr. as a buyer yet his ownership was only temporary and transitory for the reason that it was subsequently sold to herein defendant Maria Ching. Maria Ching claimed that it was even her money which was used by Joseph Goyanko, Sr. in the purchase of the land and so it was eventually sold to her. In her testimony, defendant Ching justified her financial capability to buy the land for herself. The transaction undertaken was from the original owner Sulpicia Ventura to Joseph Goyanko, Sr. and then from Joesph Goyanko, Sr. to herein defendant Maria Ching.

The land subject of the litigation is already registered in the name of defendant Maria Ching under TCT No. 138405. By virtue of the Deed of Sale executed in favor of Maria Ching, Transfer Certificate of Title No. 138405 was issued in her favor. In recognition of the proverbial virtuality of a Torrens title, it has been repeatedly held that, unless bad faith can be established on the part of the person appearing as owner on the certificate of title, there is no other owner than that in whose favor it has been issued. A Torrens title is not subject to collateral attack. It is a well-known doctrine that a Torrens title, as a rule, is irrevocable and indefeasible, and the duty of the

court is to see to it that this title is maintained and respected unless challenged in a direct proceedings [sic].6(Citations omitted; underscoring supplied)

Before the Court of Appeals where respondents appealed, they argued that the trial court erred:

1. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the proliferation in the records and admissions by both parties that defendant-appellee was the "mistress" or "common-law wife" of Joseph, Sr..

2. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the fact that the marriage of Joseph, Sr. and Epifania was then still subsisting thereby rendering the subject property as conjugal property of Joseph, Sr. and Epifania.

3. . . . in dismissing the complaint a quo . . . , in effect, sustaining the validity of the sale of the subject property between Joseph, Sr. and the defendant-appellee, despite the clear findings of forgery and the non-credible testimony of notary public.7

By Decision dated October 21, 2003,8 the appellate court reversed that of the trial court and declared null and void the questioned deed of sale and TCT No. 138405. Held the appellate court:

. . . The subject property having been acquired during the existence of a valid marriage between Joseph Sr. and Epifania dela Cruz-Goyanko, is presumed to belong to the conjugal partnership. Moreover, while this presumption in favor of conjugality is rebuttable with clear and convincing proof to the contrary, we find no evidence on record to conclude otherwise. The record shows that while Joseph Sr. and his wife Epifania have been estranged for years and that he and defendant-appellant Maria Ching, have in fact been living together as common-law husband and wife, there has never been a judicial decree declaring the dissolution of his marriage to Epifania nor their conjugal partnership. It is therefore undeniable that the 661-square meter property located at No. 29 F. Cabahug Street, Cebu City belongs to the conjugal partnership.

Even if we were to assume that the subject property was not conjugal, still we cannot sustain the validity of the sale of the property by Joseph, Sr. to defendant-appellant Maria Ching, there being overwhelming evidence on records that they have been living together as common-law husband and wife. On this score, Art. 1352 of the Civil Code provides:

"Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy."

We therefore find that the contract of sale in favor of the defendant-appellant Maria Ching was null and void   for being contrary to morals and public policy. The purported sale, having been made by Joseph Sr. in favor of his concubine, undermines the stability of the family, a basic social institution which public policy vigilantly protects. Furthermore, the law emphatically prohibits

spouses from selling property to each other, subject to certain exceptions. And this is so because transfers or conveyances between spouses, if allowed during the marriage would destroy the system of conjugal partnership, a basic policy in civil law. The prohibition was designed to prevent the exercise of undue influence by one spouse over the other and is likewise applicable even to common-law relationships otherwise, "the condition of those who incurred guilt would turn out to be better than those in legal union.9 (Underscoring supplied)

Hence, the present petition, petitioners arguing that the appellate court gravely erred in:

I.

. . . APPLYING THE STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES ON THE SUBJECT PROPERTY, THE SAME BEING FOUND BY THE COURT A QUO, AS THE EXCLUSIVE PROPERTY OF PETITIONER, AND THAT THE SAME WAS NEVER PART OF THE CONJUGAL PROPERTY OF THE MARRIAGE BETWEEN RESPONDENTS’ MOTHER EPIFANIA GOYANKO AND PETITIONER’S COMMON LAW HUSBAND, JOSEPH GOYANKO, SR., NOR THE EXCLUSIVE OR CAPITAL PROPERTY OF THE LATTER AT ANYTIME BEFORE THE SAME WAS VALIDLY ACQUIRED BY PETITIONER.

II.

. . . NOT FINDING THAT A JURIDICAL RELATION OF TRUST AS PROVIDED FOR UNDER ARTICLES 1448 AND 1450 OF THE NEW CIVIL CODE CAN VALIDLY EXIST BETWEEN COMMON LAW SPOUSES.

III.

. . . NOT FINDING THAT A CONVEYANCE OVER A PROPERTY MADE BY A TRUSTEE, WHO BECAME AS SUCH IN CONTEMPLATION OF LAW, AND WHO HAPPENS TO BE A COMMON LAW HUSBAND OF THE BENEFICIARY, IS NOT A VIOLATION OF A STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES.

IV.

. . . ALLOWING RESPONDENTS TO ABANDON THEIR ORIGINAL THEORY OF THEIR CASE DURING APPEAL.10

The pertinent provisions of the Civil Code which apply to the present case read:

ART. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.

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

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

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

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

ARTICLE 1490. The husband and wife cannot sell property to each other, except:

(1) When a separation of property was agreed upon in the marriage settlements; or

(2) When there has been a judicial separation of property under Article 191. (Underscoring supplied)

The proscription against sale of property between spouses applies even to common law relationships. So this Court ruled in Calimlim-Canullas v. Hon. Fortun, etc., et al.:11

Anent the second issue, we find that the contract of sale was null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a concubine   after he had abandoned his family and left the conjugal home where his wife and children lived and from whence they derived their support. The sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects.

Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes is contrary to law, morals, good customs, public order, or public policy are void and inexistent from the very beginning.

Article 1352 also provides that: "Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy."

Additionally, the law emphatically prohibits the spouses from selling property to each other subject to certain exceptions.1âwphi1 Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, "the condition of those who incurred guilt would turn out to be better than those in legal union." Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties. . . .12 (Italics in the original; emphasis and underscoring supplied)

As the conveyance in question was made by Goyangko in favor of his common- law-wife-herein petitioner, it was null and void.

Petitioner’s argument that a trust relationship was created between Goyanko as trustee and her as beneficiary as provided in Articles 1448 and 1450 of the Civil Code which read:

ARTICLE 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.

ARTICLE 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom it is paid. The latter may redeem the property and compel a conveyance thereof to him.

does not persuade.

For petitioner’s testimony that it was she who provided the purchase price is uncorroborated. That she may have been considered the breadwinner of the family and that there was proof that she earned a living do not conclusively clinch her claim.

As to the change of theory by respondents from forgery of their father’s signature in the deed of sale to sale contrary to public policy, it too does not persuade. Generally, a party in a litigation is not permitted to freely and substantially change the theory of his case so as not to put the other party to undue disadvantage by not accurately and timely apprising him of what he is up

against,13 and to ensure that the latter is given the opportunity during trial to refute all allegations against him by presenting evidence to the contrary. In the present case, petitioner cannot be said to have been put to undue disadvantage and to have been denied the chance to refute all the allegations against her. For the nullification of the sale is anchored on its illegality per se, it being violative of the above-cited Articles 1352, 1409 and 1490 of the Civil Code.

WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioner.

SO ORDERED

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 149844             October 13, 2004

MIGUEL CUENCO, Substituted by MARIETTA C. CUYEGKENG, petitioner, vs.CONCEPCION CUENCO Vda. DE MANGUERRA, respondent.

D E C I S I O N

PANGANIBAN, J.:

Inasmuch as the facts indubitably and eloquently show an implied trust in favor of respondent, the Court of Appeals did not err in affirming the Decision of the Regional Trial Court ordering petitioner to convey the subject property to her. That Decision satisfied the demands of justice and prevented unjust enrichment.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the August 22, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 54852. The assailed Decision disposed as follows:

"WHEREFORE, the decision appealed from is AFFIRMED."3

On the other hand, the Regional Trial Court (RTC) Decision affirmed by the CA disposed as follows:

"WHEREFORE, considering that this action is essentially one for reconveyance or enforcement of a trust, judgment is hereby rendered ordering the substituted defendant Marietta Cuenco Cuyegkeng to reconvey or transfer, in a duly registrable public instrument, Lot No 903-A-6 under TCT No. 113781 of the Registry of Deeds of Cebu City, of the Banilad Estate with an area of 834 square meters, in favor of plaintiff Concepcion Cuenco Vda. De Manguerra; or should the substituted defendant, for one reason or another, fail to execute the necessary instrument once the decision becomes final, the Clerk of Court of this Court (RTC) is hereby instructed, in accordance with the Rules of Court, to prepare and execute the appropriate and requisite conveyance and instrument in favor of herein plaintiff which, in either case, shall be registered with the Office of the Register of Deeds of Cebu City.

Without costs in this instance."4

The Facts

The facts were summarized by the appellate court as follows:

"On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific performance against her uncle [Petitioner] Miguel Cuenco which averred, inter alia that her father, the late Don Mariano Jesus Cuenco (who became Senator) and said [petitioner] formed the ‘Cuenco and Cuenco Law Offices’; that on or around August 4, 1931, the Cuenco and Cuenco Law Offices served as lawyers in two (2) cases entitled ‘Valeriano Solon versus Zoilo Solon’ (Civil Case 9037) and ‘Valeriano Solon versus Apolonia Solon’ (Civil Case 9040) involving a dispute among relatives over ownership of lot 903 of the Banilad Estate which is near the Cebu Provincial Capitol; that records of said cases indicate the name of the [petitioner] alone as counsel of record, but in truth and in fact, the real lawyer behind the success of said cases was the influential Don Mariano Jesus Cuenco; that after winning said cases, the awardees of Lot 903 subdivided said lot into three (3) parts as follows:

Lot 903-A: 5,000 [square meters]: Mariano Cuenco’s attorney’s fees

Lot 903-B: 5,000 [square meters]: Miguel Cuenco’s attorney’s fees

Lot 903-C: 54,000 [square meters]: Solon’s retention

"That at the time of distribution of said three (3) lots in Cebu, Mariano Jesus Cuenco was actively practicing law in Manila, and so he entrusted his share (Lot 903-A) to his brother law partner (the [petitioner]); that on September 10, 1938, the [petitioner] was able to obtain in his own name a title for Lot 903-A (Transfer Certificate of Title [TCT]

RT-6999 [T-21108]); that he was under the obligation to hold the title in trust for his brother Mariano’s children by first marriage; that sometime in 1947, the Cuenco family was anticipating Mariano’s second marriage, and so on February 1, 1947, they partitioned Lot 903-A into six (6) sub-lots (Lots 903-A-1 to 903-A-6) to correspond to the six (6) children of Mariano’s first marriage (Teresita, Manuel, Lourdes, Carmen, Consuelo, and Concepcion); that the [petitioner] did not object nor oppose the partition plan; that on June 4, 1947, the [petitioner] executed four (4) deeds of donation in favor of Mariano’s four (4) children: Teresita, Manuel, Lourdes, and Carmen, pursuant to the partition plan (per notary documents 183, 184, 185, 186, Book III, Series 1947 of Cebu City Notary Public Candido Vasquez); that on June 24, 1947, the [petitioner] executed the fifth deed of donation in favor of Mariano’s fifth child – Consuelo (per notary document 214, Book III, Series 1947 of Cebu City Notary Public Candido Vasquez) (Exhibits ‘2’ to ‘5’); that said five (5) deeds of donation left out Mariano’s sixth child – Concepcion – who later became the [respondent] in this case; that in 1949, [respondent] occupied and fenced a portion of Lot 903-A-6 for taxation purposes (Exhibit ‘F’, Exhibit ‘6’); that she also paid the taxes thereon (Exhibit ‘G’); that her father died on February 25, 1964 with a Last Will and Testament; that the pertinent portion of her father’s Last Will and Testament bequeaths the lot.

‘… near the Cebu provincial capitol, which were my attorney’s fees from my clients, Victoria Rallos and Zoilo Solon, respectively – have already long been disposed of, and distributed by me, through my brother, Miguel, to all my said children in the first marriage;’

"That on June 3, 1966, the [petitioner] wrote a letter petitioning the Register of Deeds of Cebu to transfer Lot 903-A-6 to his name on the ground that Lot 903-A-6 is a portion of Lot 903-A; that on April 6, 1967, the [respondent] requested the Register of Deeds to annotate an affidavit of adverse claim against the [petitioner’s] TCT RT-6999 (T-21108) which covers Lot 903-A; that on June 3, 1967, the Register of Deeds issued TCT 35275 covering Lot 903-A-6 in the name of the [petitioner] but carrying the earlier annotation of adverse claim; that in 1969, the [petitioner] tore down the wire fence which the [respondent] constructed on Lot 903-A-6 which compelled the latter to institute the instant complaint dated August 20, 1970 on September 19, 1970.

"On December 5, 1970, the answer with counterclaim dated December 3, 1970 of [petitioner] Miguel Cuenco was filed where he alleged that he was the absolute owner of Lot 903-A-6; that this lot was a portion of Lot 903-A which in turn was part of Lot 903 which was the subject matter of litigation; that he was alone in defending the cases involving Lot 903 without the participation of his brother Mariano Cuenco; that he donated five (5) of the six (6) portions of Lot 903-A to the five (5) children of his brother Mariano out of gratitude for the love and care they exhibited to him (Miguel) during the time of his long sickness; that he did not give or donate any portion of the lot to the [respondent] because she never visited him nor took care of him during his long sickness; that he became critically ill on February 11, 1946 and was confined at the Singian’s Clinic in Manila and then transferred to Cebu where he nearly died in 1946;

that his wife Fara Remia Ledesma Cuenco had an operation on January 1951 and was confined at the University of Santo Tomas Hospital and John Hopkins Hospital in the United States; that two of his children died at the University of Santo Tomas Hospital in 1951 and 1952; and that his wife was blind for many months due to malignant hypertension but [respondent] never remembered her nor did she commiserate with him and his wife in their long period of sorrow.

"[Petitioner] Miguel Cuenco took the witness stand as early as September 13, 1974. His self-conducted direct examination lasted until 1985, the last one on November 22, 1985. Unfortunately, he died5 before he was able to submit himself for cross-examination and so his testimony had to be stricken off the record. His only surviving daughter, Marietta Cuyegkeng, stood as the substitute [petitioner] in this case. She testified that she purchased Lot 903-A-6 (the property subject matter of this case) from her late father sometime in 1990 and constructed a house thereon in the same year; that she became aware of this case because her late father used to commute to Cebu City to attend to this case; and that Lot 903-A-6 is in her name per Transfer Certificate of Title #113781 of the Registry of Deeds for Cebu."6

Ruling of the Court of Appeals

The CA found respondent’s action not barred by res judicata, because there was "no identity of causes of action between the Petition for cancellation of adverse claim in L.R.C. Records 5988 and the Complaint for specific performance to resolve the issue of ownership in Civil Case No. R-11891."

The appellate court further found no reason to disturb the findings of the trial court that respondent "has the legal right of ownership over lot 903-A-6." The CA ruled that the subject land "is part of the attorney’s fees of Don Mariano Cuenco, predecessor-in-interest of [Respondent] Concepcion Cuenco vda. de Manguerra and [petitioner] merely holds such property in trust for [her], his title there[to] notwithstanding."

Finally, the CA held that the right of action of respondent "has not yet prescribed as she was in possession of the lot in dispute and the prescriptive period to file the case commences to run only from the time she acquired knowledge of an adverse claim over [her] possession."

Hence, this Petition.7

The Issues

In her Memorandum, petitioner raises the following issues for our consideration:

"I.

On question of law, the Court of Appeals failed to consider facts of substance and significance which, if considered, will show that the preponderance of evidence is in favor of the petitioner.

"II.

On question of law, the Court of Appeals failed to appreciate the proposition that, contrary to the position taken by the trial court, no constructive or implied trust exists between the parties, and neither is the action one for reconveyance based upon a constructive or implied trust.

"III.

On question of law, the Court of Appeals erred in not finding that even where implied trust is admitted to exist the respondent’s action for relief is barred by laches and prescription.

"IV.

On question of law, the trial court and the appellate court erred in expunging from the records the testimony of Miguel Cuenco."8

This Court’s Ruling

The Petition has no merit.

First Issue:

Evaluation of Evidence

Petitioner asks us to appreciate and weigh the evidence offered in support of the finding that Lot 903-A-6 constituted a part of Mariano Cuenco’s share in the attorney’s fees. In other words, she seeks to involve us in a reevaluation of the veracity and probative value of the evidence submitted to the lower court. What she wants us to do is contrary to the dictates of Rule 45 that only questions of law may be raised and resolved in a petition for review. "Absent any whimsical or capricious exercise of judgment, and unless the lack of any basis for the conclusions made by the lower courts be amply demonstrated, the Supreme Court will not disturb such factual findings."9

As a rule, findings of fact of the Court of Appeals affirming those of the trial court are binding and conclusive. Normally, such factual findings are not disturbed by this Court, to which only questions of law may be raised in an appeal by certiorari.10 This Court has consistently ruled that these questions "must involve no examination of the probative value of the evidence presented

by the litigants or any of them."11 Emphasizing the difference between the two types of question, it has explained that "there is a question of law in a given case when the doubt or difference arises as to what the law is pertaining to a certain state of facts, and there is a question of fact when the doubt arises as the truth or the falsity of alleged facts."12

Indeed, after going over the records of the present case, we are not inclined to disturb the factual findings of the trial and the appellate courts, just because of the insistent claim of petitioner. His witnesses allegedly testified that Civil Case No. 9040 involving Lot 903 had not been handled by Mariano for defendants therein -- Apolonia Solon, Zoilo Solon, et al. It has sufficiently been proven, however, that these defendants were represented by the Cuenco and Cuenco Law Office, composed of Partners Mariano Cuenco and Miguel Cuenco.

Given as attorney’s fees was one hectare of Lot 903, of which two five-thousand square meter portions were identified as Lot 903-A and Lot 903-B. That only Miguel handled Civil Case No. 9040 does not mean that he alone is entitled to the attorney’s fees in the said cases. "When a client employs the services of a law firm, he does not employ the services of the lawyer who is assigned to personally handle the case. Rather, he employs the entire law firm."13 Being a partner in the law firm, Mariano -- like Miguel -- was likewise entitled14 to a share in the attorney’s fees from the firm’s clients. Hence, the lower courts’ finding that Lot 903-A was a part of Mariano Cuenco’s attorney’s fees has ample support.

Second Issue:

Implied Trust

Petitioner then contends that no constructive or implied trust exists between the parties.

A trust is a legal relationship between one having an equitable ownership in a property and another having legal title to it.15

Trust relations between parties may either be express or implied.16 Express trusts are created by the direct and positive acts of the parties, indicated through some writing, deed, will, or words evidencing an intention to create a trust.17 On the other hand, implied trusts are those that, "without being express, are deducible from the nature of the transaction as matters of intent[;] or which are superinduced on the transaction by operation of law as a matter of equity, independently of the particular intention of the parties. Implied trusts may either be resulting or constructive trusts, both coming into being by operation of law."18

Resulting trusts are presumed to have been contemplated by the parties and are based on the equitable doctrine that valuable consideration, not legal title, determines the equitable title or interest.19 These trusts arise from the nature of or the circumstances involved in a transaction,20 whereby legal title becomes vested in one person, who is obligated in equity to hold that title for the benefit of another.

Constructive trusts are "created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold."21

A review of the records shows that indeed there is an implied trust between the parties.

Although Lot 903-A was titled in Miguel’s name, the circumstances surrounding the acquisition and the subsequent partial dispositions of this property eloquently speak of the intent that the equitable or beneficial ownership of the property should belong to Mariano and his heirs.

First, Lot 903-A was one half of the one-hectare portion of Lot 903 given as attorney’s fees by a client of the law firm of Partners Miguel and Mariano Cuenco. It constituted the latter’s share in the attorney’s fees and thus equitably belonged to him, as correctly found by the CA. That Lot 903-A had been titled in the name of Miguel gave rise to an implied trust between him and Mariano, specifically, the former holds the property in trust for the latter. In the present case, it is of no moment that the implied trust arose from the circumstance -- a share in the attorney’s fees -- that does not categorically fall under Articles 1448 to 1456 of the Civil Code. The cases of implied trust enumerated therein "does not exclude others established by the general law of trust."22

Second, from the time it was titled in his name in 1938,23 Lot 903-A remained undivided and untouched24by Miguel. Only on February 3, 1947, did Lourdes Cuenco,25 upon the instruction of Mariano, have it surveyed and subdivided into six almost equal portions -- 903-A-1 to 903-A-6. Each portion was specifically allocated to each of the six children of Mariano with his first wife.26

Third, Miguel readily surrendered his Certificate of Title27 and interposed no objection28 to the subdivision and the allocation of the property to Mariano’s six children, including Concepcion.

Fourth, Mariano’s children, including Concepcion,29 were the ones who shouldered the expenses incurred for the subdivision of the property.

Fifth, after the subdivision of the property, Mariano’s children -- including Concepcion30 -- took possession of their respective portions thereof.

Sixth, the legal titles to five portions of the property were transferred via a gratuitous deed of conveyance to Mariano’s five children, following the allocations specified in the subdivision plan prepared for Lourdes Cuenco.31

With respect to Lot 903-A-6 in particular, the existence of Concepcion’s equitable ownership thereof is bolstered, not just by the above circumstances, but also by the fact that respondent fenced the portion allocated to her and planted trees thereon.32

More significantly, she also paid real property taxes on Lot 903-A-6 yearly, from 1956 until 196933 -- the year when she was dispossessed of the property. "Although tax declarations or realty tax payments of property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of owner, for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession."34 Such realty tax payments constitute proof that the holder has a claim of title over the property.

Tellingly, Miguel started paying real property taxes on Lot 903-A-6 only on April 4, 1964,35 after the death of Mariano.36 This fact shows that it was only in that year that he was emboldened to claim the property as his own and to stop recognizing Mariano’s, and subsequently Concepcion’s, ownership rights over it. It was only by then that the one who could have easily refuted his claim had already been silenced by death. Such a situation cannot be permitted to arise, as will be explained below.

Estoppel

From the time Lot 903-A was subdivided and Mariano’s six children -- including Concepcion -- took possession as owners of their respective portions, no whimper of protest from petitioner was heard until 1963. By his acts as well as by his omissions, Miguel led Mariano and the latter’s heirs, including Concepcion, to believe that Petitioner Cuenco respected the ownership rights of respondent over Lot 903-A-6. That Mariano acted and relied on Miguel’s tacit recognition of his ownership thereof is evident from his will, executed in 1963, which states:

"I hereby make it known and declare that x x x all properties which my first wife and I had brought to, or acquired during our marriage, or which I had acquired during the years I was a widower – including jewelry, war damage compensation, and two other lots also located at Cebu City, one near the South-Western University and the other near the Cebu provincial capitol, which were my attorney’s fees from my clients, Victoria Rallos and Zoilo Solon, respectively – have already long been disposed of, and distributed by me, through my brother, Miguel, to all my said six children in the first marriage."37 (emphasis supplied)

Indeed, as early as 1947, long before Mariano made his will in 1963, Lot 903-A -- situated along Juana Osmeña Extension, Kamputhaw, Cebu City,38 near the Cebu Provincial Capitol -- had been subdivided and distributed to his six children in his first marriage. Having induced him and his heirs to believe that Lot 903-A-6 had already been distributed to Concepcion as her own, petitioner is estopped from asserting the contrary and claiming ownership thereof.

The principle of estoppel in pais applies when -- by one’s acts, representations, admissions, or silence when there is a need to speak out -- one, intentionally or through culpable negligence, induces another to believe certain facts to exist; and the latter rightfully relies and acts on such belief, so as to be prejudiced if the former is permitted to deny the existence of those facts.39

Third Issue:

Laches

Petitioner claims that respondent’s action is already barred by laches.

We are not persuaded. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to it has either abandoned or declined to assert it.40 In the present case, respondent has persistently asserted her right to Lot 903-A-6 against petitioner.

Concepcion was in possession as owner of the property from 1949 to 1969.41 When Miguel took steps to have it separately titled in his name, despite the fact that she had the owner’s duplicate copy of TCT No. RT-6999 -- the title covering the entire Lot 903-A -- she had her adverse claim annotated on the title in 1967. When petitioner ousted her from her possession of the lot by tearing down her wire fence in 1969,42 she commenced the present action on September 19, 1970,43 to protect and assert her rights to the property. We find that she cannot be held guilty of laches, as she did not sleep on her rights.

Fourth Issue:

Expunging of Testimony

Petitioner Cuyegkeng questions the expunging of the direct testimony of Miguel Cuenco. Respondent points out that this issue was not raised before the CA. Neither had petitioner asked the trial court to reconsider its Order expunging the testimony. Hence, this issue cannot for the first time be raised at this point of the appeal. Issues, arguments and errors not adequately and seriously brought below cannot be raised for the first time on appeal.44"Basic considerations of due process impel this rule."45

WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 146550             March 17, 2006

FELIPA DELFIN, GINA MAALAT, SHIRLEY TAMAYO, RECIO DAÑOS, and ROBERTO DELFIN, Petitioners, vs.PRESENTACION D. BILLONES, ROSARIO D. DEMONARCA (accompanied by husband Pedro and Demonarca), WENEFREDO DEGALA (representing Pedro Degala), RAMON DELA CRUZ (representing his deceased wife Maria Daradar dela Cruz), TERESITA DALIVA DEVIENTE (daughter of Esperanza Daradar Daliva), and JOLLY DATAR (representing his deceased mother Trinidad D. Datar) and the COURT OF APPEALS, Respondents.

D E C I S I O N

TINGA, J.:

This treats of the petition for review on certiorari assailing the Decision1 and Resolution of the Court of Appeals in CA-G.R. CV No. 54035 entitled Presentacion D. Billones, et al. v. Felipa Delfin, et al., promulgated on 13 October 2000 and 26 December 2000, respectively, which reversed the 27 May 1996 Decision of the Regional Trial Court, Branch 15 of Roxas City.

The antecedents are as follows:

On 29 July 1960, a Deed of Absolute Sale2 over Lot No. 213, covered by RO-5563 (14516) of the Cadastral Survey of Panitan, Capiz, was executed by Teresa Daños, Esperanza Daradar, Estrella Daradar and Maria Daradar, with the marital consent of Cipriano Degala, husband of Teresa Daños, in favor of the spouses Rodolfo Delfin and Felipa Belo (spouses Delfin). The document, so it appears, bore the signatures of Esperanza and Estrella, as well as the thumb marks of Teresa, Maria, and Cipriano, and was acknowledged before a notary public. On 18 November 1980, the spouses Delfin registered the Deed of Absolute Sale with the Register of Deeds of the Province of Capiz. Thereupon, a new title, Transfer Certificate of Title (TCT) No. T-17071, was issued in the name of the spouses Delfin.3

Meanwhile, on 26 March 1965, an Extra-Judicial Partition and Absolute Deed of Sale4 involving Lot No. 3414 then covered by TCT No. T-16804 was made between Teresa Daños, Trinidad Degala, Leopoldo Degala, Presentacion Degala, Rosario Degala and Pedro

Degala, on one part, and the spouses Delfin, on the other. The deed, bearing either the thumb marks or the signatures of the sellers, was likewise notarized. Said document was registered by the spouses Delfin on 24 June 1980. Thus, TCT No. T-16804 covering Lot No. 3414 was cancelled and a new one, TCT No. T-16805, was issued in the names of the spouses Delfin on 24 June 1980.5

The spouses Delfin then consolidated Lots No. 213 and No. 3414 and subdivided the resulting lot into six (6) smaller lots.6 Lot No. 1, covered by TCT No. T-19618, was sold to Roberto Delfin on 21 October 1989; Lot No. 2 covered by TCT No. T-19619 to Recio Daños on 25 April 1985; Lot No. 3 covered by TCT No. T-19620 to Gina Maalat on 14 June 1989, and; Lot No. 4 covered by TCT No.

T-19621 to Shirley Tamayo on 11 August 1989. Lot No. 5 remained with the spouses Delfin, while Lot No. 6 was used as an access road.7

On 12 April 1994, herein respondents, claiming to be the heirs of the former owners of Lots No. 213 and No. 3414, filed an action for annulment, reconveyance, recovery of ownership and possession and damages.8According to them, it was only in 19899 when they

discovered that Teresa Daños, sick and in dire need of money, was constrained to mortgage the one-half (1/2) portion of Lot No. 3414 to the spouses Delfin for P300.00 sometime in 1965.10 Taking advantage of her condition, the spouses Delfin made her sign a document purporting to be a mortgage, but which turned out to be an extrajudicial partition with deed of absolute sale. As to Lot No. 213, respondents averred that the Deed of Sale covering the property was fictitious and the signatures and thumb marks contained therein were all forged because three (3) of the signatories therein died before the alleged sale in 1960, namely: Estrella Daradar, who died in 1934, and Esperanza Daradar and Cipriano Degala, who both died in 1946.11 As proof thereof, respondents presented certifications12 on the deaths of Esperanza Daradar and Cipriano Degala by the Local Civil Registrar of Panitan, Capiz.

To counter respondents’ arguments, petitioners alleged that respondents’ action was already barred by prescription and laches. Further, they argued that the spouses Delfin, as well as the subsequent owners of the subject properties, are innocent purchasers for value and in good faith, whose titles to the lots at the time of the purchase were all clean and free from liens and encumbrances.13 The documents

evidencing the conveyance of the properties were personally and unilaterally executed by the vendors-signatories therein without any intervention from the spouses Delfin, and duly acknowledged before a notary public, petitioners averred.14

Giving credence to the claims of petitioners, the trial court ruled that respondents’ claim of ownership over the subject properties was not established by a preponderance of evidence. Compared to respondents’ verbal claims of ownership, the spouses Delfin were able to prove that they bought the properties from the original owners, the trial court added. The trial court held that the deeds of sale being duly executed notarial and public documents, they enjoy the presumption of regularity which can only be contradicted by clear and convincing evidence. In addition, respondents’ claims based on fraud were barred by prescription, having been filed more than four (4) years from the time the instruments were registered with the Register of Deeds, and they are estopped from annulling the documents by reason of laches, the action having been filed 15 years after the deeds were registered. The trial court also denied respondents’ claims for damages.15

Respondents elevated the case to the Court of Appeals, which reversed the ruling of the trial court. In its Decision,16 the Court of Appeals ruled that while an action for reconveyance based on implied or constructive trust prescribes in ten (10) years from the date of the issuance of the certificate of title over the property, such prescriptive period does not apply if the person

claiming to be the owner of the property is in possession thereof, such as respondents in this case.17 Moreover, considering that a similar action for reconveyance was filed by respondents as early as 1989 which was eventually dismissed without prejudice, respondents’ action to annul the two (2) deeds on the ground of fraud has not yet prescribed, according to the Court of Appeals.18

The appellate court annulled the Extra-Judicial Partition and Deed of Sale covering Lot No. 3414. The appellate court noted that: (i) Teresa Daños was a very old and sickly woman; (ii) she and her children lacked formal education to fully comprehend the document to which they affixed their signatures and/or thumb marks; (iii)P300.00 was inadequate consideration for a lot consisting of 1,565 square meters even in 1965; (iv) respondents were allowed to remain in the subject properties; and (v) the questioned document was registered in the name of the spouses Delfin 15 years after the alleged date of its execution, when most of the alleged vendors have already died. These circumstances surrounding the execution of the said document show that the real intention was merely to secure the loan of P300.00. Thus, what took place was in fact, an equitable mortgage and not a sale.19

As for Lot No. 213, the Court of Appeals held that the Deed of Absolute Sale could not have been executed on 9 July 1960. Relying on the certifications of death presented by respondents, the Court of Appeals ruled that the defense of due execution cannot prevail over the fact that two (2) of the signatories therein have already died prior to said date.20 Roberto Delfin, Recio Daños, Gina Maalat, and Shirley Tamayo, buyers of the subdivided lot, could not be considered as purchasers in good faith nor entitled to be protected in their rights because they were informed by respondents prior to the purchase that they, and not the spouses Delfin, are the real owners of the lots, the appellate court added.21

The Court of Appeals thus ruled:

WHEREFORE, premises considered, the present appeal is hereby GRANTED. The Decision dated May 27, 1996 of the Regional Trial Court of Roxas City, Capiz, Branch 15 presided over by Judge Roger B. Patricio is hereby REVERSED and SET SIDE and a new one entered:

(1) Annulling the Extra-Judicial Partition and Deed of Absolute Sale dated March 26, 1965 and Deed of Absolute Sale dated July 9, 1960;

(2) Reinstating OCT No. RO-5563 (14516) referring to Lot 213 registered in the names of Teresa Daños (1/2 portion), and the children of Lucia Daños, namely: Esperanza Daradar, Estrella Daradar and Maria Daradar (1/2 pro-indiviso) and OCT No. (4650) RO-5529 referring to Lot 3414 registered in the names of the late spouses Cipriano Degala and Teresa Daños, and canceling the TCTs issued thereafter;

(3) Ordering plaintiffs-appellants, jointly and severally, to pay defendant Felipa Belo Delfin the amount ofP300.00 within thirty (30) days from the date of finality of this decision;

(4) Ordering defendants-appellees to free Lots 3414 and 213 from any and all obligations and encumbrances that may have been attached to both lots and thereafter to deliver possession of the same to plaintiffs-appellants; and

(5) Ordering defendants-appellees, jointly and severally, to pay plaintiffs-appellants P10,000.00 as exemplary damages, and [sic] for attorney’s fees and P10,000.00 as litigation expenses.

Costs against defendants-appellees.

SO ORDERED.22

In the present petition for review under Rule 45, petitioners claim that the Court of Appeals erred in finding that respondents retained possession of the subject properties. Moreover, petitioners posit that respondent’s allegations of fraud and forgery confine their action to a four (4)-year prescriptive period which has long expired. Additionally, they argue that respondents failed to: (i) prove the inadequacy of the selling price of Lot No. 3414; (ii) prove the frail condition of Teresa Daños; (iii) show that fraud attended the sale of Lot No. 213; (iv) show that Roberto Delfin, Recio Daños, Gina Maalat and Shirley Tamayo are not purchasers in good faith; and (v) overcome the presumption of regularity enjoyed by the notarized deeds of sale. Petitioners also question the award of exemplary damages and attorney’s fees in favor of respondents.23 On the other hand, respondents for the most part merely reiterated the ruling of the Court of Appeals.24

The complete resolution of the issues presented before the Court requires a determination of facts, which this Court, not being a trier of facts, does not normally exercise in an appeal by certiorari.25 This rule, however, is subject to exceptions, such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory,26 as in the instant case.

When one’s property is registered in another’s name without the former’s consent, an implied trust is created by law in favor of the true owner.27 Implied trusts are those which, without being expressed, are deducible from the nature of the transaction by operation of law as matters of equity, independently of the particular intention of the parties. Meanwhile, constructive trusts are created in order to satisfy the demands of justice and prevent unjust enrichment. They arise against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.28 An action for reconveyance based upon an implied or constructive trust prescribes in ten (10) years from the registration of the deed or from the issuance of the title, registration being constructive notice to all persons.29 However, an action for reconveyance based on fraud is imprescriptible where the plaintiff is in possession of the property subject of the acts.30

In essence, petitioners insist that respondents failed to prove that fraud attended the sale of Lots No. 213 and No. 3414. The Court agrees.

A contract or conduct apparently honest and lawful must be treated as such until it is shown to be otherwise by either positive or circumstantial evidence.31 A duly executed contract carries with it the presumption of validity. The party who impugns its regularity has the burden of proving its simulation.32 A notarized document is executed to lend truth to the statements contained therein and to the authenticity of the signatures. Notarized documents enjoy the presumption of regularity which can be overturned only by clear and convincing evidence.33

As plaintiffs in the action before the trial court, respondents have the burden to establish their case by a preponderance of evidence, or evidence which is of greater weight or more convincing than that which is offered in opposition to it. Hence, parties who have the burden of proof must produce such quantum of evidence, with plaintiffs having to rely on the strength of their own evidence, not on the weakness of the defendant’s.34

As regards Lot No. 3414, respondents specifically alleged that the spouses Delfin "tricked the plaintiffs and their late mother into signing a fictitious and simulated document," and that "TCT No. T-16805 was the product of a fictitious and simulated transaction [that] was obtained through fraud, the same should be declared null and void".35 They claimed that the original owners of Lot No. 3414 did not intend to execute a deed of extra-judicial partition and absolute sale but only a mortgage instrument. However, all that respondents came out with were bare allegations that the said owners were either old and sickly or illiterate; that the purported selling price ofP300.00 was unconscionable; and that petitioners failed to eject respondents from the subject land, as respondents were unable to present any evidence to substantiate their claims, much less the charge of fraud.

Respondents did not present any witness to testify on the execution of the deed, nor on the condition of the signatories thereto. At best, their witnesses merely testified as to the identity of the previous owners of the property. Worse, petitioners Presentacion Degala Billones and Rosario Degala Demonarca, both signatories to the subject deed, were not presented to testify on the real circumstances surrounding the assailed transaction. As for the selling price of P300.00, suffice it to say that respondents did not even present a witness to testify as to its alleged unconscionability vis-a-vis the prevailing market value of the property at the time of the sale. Meanwhile, the belated registration of the document with the Register of Deeds can be explained by the fact that the original of OCT No. 4650 covering Lot No. 3414 was either lost or destroyed and was reconstituted only in 1971, while the original copy of the deed of sale was lost by Felipa Delfin.36

Even respondents’ claim of possession of the subject properties has not been sufficiently proved. This Court has uniformly held that "the one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right. His undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession."37 Actual possession of land consists in the manifestation of acts of dominion over it of such a nature as those a party would naturally exercise over his own property.38

Contrary to the appellate court’s illation, respondents have not established possession of the subject properties. Save for the lone testimony of Orlando Buday, a neighbor, that Rosario Degala Daradar was the only one still residing in the properties in dispute, no other evidence was presented to show that respondents are in actual occupation and possession thereof. Not even Rosario herself testified. Doubts also arise as to the veracity of respondents’ claim of possession since respondents themselves averred in their complaint that the spouses Delfin had immediately taken possession of the subject properties in the same year that the sale was made, and appropriated the produce found in the subject lots from then on.39 Admissions made in the complaint are judicial admissions which are binding on the party who made them and cannot be contradicted40 absent any showing that it was made through palpable mistake. No amount of rationalization can offset such admission.41 By their very own admissions, it can be inferred that respondents or their predecessors-in-interest did not exercise actual occupancy, as they had ceased to perform acts of dominion over the property upon the sale thereof.

Fraud may be, and often is, proved by or inferred from circumstances, and the circumstances proved may in some cases raise a presumption of its existence. However, while fraud may be proved by circumstances or presumed from them, it cannot be demonstrated by mere construction, but must be proven in all cases.42Respondents indeed failed to prove that fraud attended the execution of the Extra-Judicial Partition and Deed of Absolute Sale. Their bare and unsupported allegations are not enough to overthrow the presumption of the validity of said agreement or to raise the presumption of fraud.

Considering that respondents failed to establish the existence of fraud in the spouses Delfin’s acquisition of Lot No. 3414, it cannot be said that implied or constructive trust was created between respondents and the spouses Delfin. The action for reconveyance of Lot No. 3414 must fail. Further, in view of respondents’ failure to show their valid title to Lot No. 3414 or even their occupation thereof, the case cannot prosper even when it is viewed as one for quieting of title.

On the other hand, the Court of Appeals annulled the Deed of Absolute Sale dated 9 July 1960 covering Lot No. 213 because "one of the vendors therein was already dead,"43 relying on the certifications issued by the Local Civil Registrar. In assailing this declaration, petitioners once more point out that the Deed of Sale, being a duly notarized document, should be given full faith and credit. Also, they argue that the appellate court’s conclusion is based on the disputable presumption that identity of names means identity of persons.

Documents consisting of entries in public records made in the performance of a duty by a public officer are prima facie evidence of the facts therein stated.44 Public documents are (i) the written official acts, or records of the official acts of the sovereign authority, official bodies and tribunals, and public officers, whether of the Philippines, or of a foreign country; (ii) documents acknowledged before a notary public except last wills and testaments; and (iii) public records, kept in the Philippines, of private documents required by law to be entered therein.45 Public documents may be proved by the original copy, an official publication thereof, or a certified true copy thereof;46and when a copy of a document or record is attested for the purpose of evidence, the attestation by the officer having legal custody of the record must state that the copy is a correct copy of the original, or a specific part thereof, as the case may be.47 A duly-registered

death certificate is considered a public document and the entries found therein are presumed correct, unless the party who contests its accuracy can produce positive evidence establishing otherwise.48 Nevertheless, this presumption is disputable and is satisfactory only if uncontradicted, and may be overcome by other evidence to the contrary.

The documents presented by respondents were mere certifications and not the certified copies or duly authenticated reproductions of the purported death certificates of Esperanza Daradar

and Cipriano Degala. They are not the public documents referred to by the Rules of Court, nor even records of public documents; thus, they do not enjoy the presumption granted by the Rules. Respondents did not even present the local civil registrar who supposedly issued the certifications to authenticate and identify the same. Likewise, respondent Jolly Datar who adverted to the certifications did not testify on how the certifications were obtained, much less his role therein.49 As a consequence, the trial court did not admit the certifications as independent pieces of evidence but merely as part of the testimony of respondent Jolly Datar.50 A document or writing which is admitted not as an independent evidence but merely as part of the testimony of a witness does not constitute proof of the facts related therein.51 Clearly then, the certifications cannot be given probative value, and their contents cannot be deemed to constitute proof of the facts therein stated.

More importantly, the very exhibits of respondents dispel the presumption of regularity of the issuance of the certifications of death relied upon by the Court of Appeals. The certifications state that both Esperanza Daradar and Cipriano Degala died in 1946 at ages 24 and 63, respectively. However, a careful study of the records of the case shows that in OCT No. RO 5563 (14516),52 Esperanza Daradar was already 20 years old in 1929, making her date of birth to be sometime in 1909. This is totally incongruous with her supposed age of 24 years in 1946, which places the year of her birth in 1922. Likewise, the Court takes note of the Decision of the Court of Appeals in CA-G.R. CV No. 31739,53 wherein the appellate court in its statement of facts found that Esperanza Daradar died on 10 August 1940, while Estrella Daradar died on 15 June 1943, contrary to the claim of respondents in this case.54 The Esperanza Daradar named in the OCT and the one referred to in the aforesaid Decision could not have been the same Esperanza Daradar in the Local Civil Registrar’s certification.

As for the Cipriano’s thumb mark on the deed, suffice it to say that his consent was not in fact needed to perfect the sale. Teresa Daños Degala’s share in Lot 213 was paraphernal property and, under the provisions of the Civil Code applicable at the time of the sale, she could alienate or dispose of the said property without the permission or consent of her husband.55 Thus, with or without such thumb mark, whether it was forged or not, the Deed of Absolute Sale remains valid and effectual.

Under the circumstances, therefore, respondents were unable to overthrow the presumption of validity of the Deed of Absolute Sale. Said deed, as well as the titles derived as a result thereof must be accorded respect and must remain undisturbed.

Anent the charge of bad faith on the part of petitioners, the Court takes note of respondents’ statement in their Plaintiff-Appellants’ Brief,56 to wit:

From the facts and circumstances of this case, Lot 213 and 3414 both of Panitan Cadastre which were consolidated, into one single lot, per consolidated plan as appearing at the back of TCT No. T-17071, and after the two lots were consolidated, and the same was subdivided, into six smaller lots, Lots 1, 4 and 5 thereof still remained in the names of appellees spouses Rodolfo Delfin and Felipa Belo, while Lots 2 and 3 thereof were transferred by the said spouses’ appellees to Recio Daños and Gina Maalat, respectively. These two transferees are innocent purchasers for value which appellants admit, and this appeal is only an appeal by appellants against defendant-appellees spouses Rodolfo Delfin and Felipa Belo, and not against Recio Daños and Gina Maalat.57(Emphasis supplied.)

In effect, contrary to the testimony of respondents’ witness Myrna Degala-Distura that her mother warned petitioners against buying the subject lots,58 respondents admitted that the only persons they consider to be not innocent purchasers are the spouses Delfin. However, in view of respondents’ failure to prove the fraud attributed to the spouses Delfin, the Court has no choice but to declare all petitioners to be purchasers for value and in good faith.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 13 October 2000 is REVERSED and SET ASIDE. The Decision of the Regional Trial Court dated 27 May 1996 is REINSTATED.

No pronouncement as to costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 175073               August 15, 2011

ESTATE OF MARGARITA D. CABACUNGAN, represented by LUZ LAIGO-ALI, Petitioner, vs.MARILOU LAIGO, PEDRO ROY LAIGO, STELLA BALAGOT and SPOUSES MARIO B. CAMPOS AND JULIA S. CAMPOS, Respondents.

CARPIO,* J.,

BRION,**

SERENO,***JJ.

D E C I S I O N

PERALTA, J.:

This Petition for Review under Rule 45 of the Rules of Court assails the October 13, 2006 Decision1 of the Court of Appeals in CA-G.R. CV No. 72371. The assailed decision affirmed the July 2, 2001 judgment2 rendered by the Regional Trial Court of La Union, Branch 33 in Civil Case No. 1031-BG – a complaint for annulment of sale of real property, recovery of ownership and possession, cancellation of tax declarations and damages filed by Margarita Cabacungan,3 represented by her daughter, Luz Laigo-Ali against Marilou Laigo and Pedro Roy Laigo, respondents herein, and against Estella Balagot,4 and the spouses Mario and Julia Campos.

The facts follow.

Margarita Cabacungan (Margarita) owned three parcels of unregistered land in Paringao and in Baccuit, Bauang, La Union, each measuring 4,512 square meters, 1,986 square meters and 3,454 square meters. The properties were individually covered by tax declaration all in her name.5 Sometime in 1968, Margarita’s son, Roberto Laigo, Jr. (Roberto), applied for a non-immigrant visa to the United States, and to support his application, he allegedly asked Margarita to transfer the tax declarations of the properties in his name.6 For said purpose, Margarita, unknown to her other children, executed an Affidavit of Transfer of Real Property whereby the subject properties were transferred by donation to Roberto.7 Not long after, Roberto’s visa was issued and he was able to travel to the U.S. as a tourist and returned in due time. In 1979, he adopted respondents Pedro Laigo (Pedro) and Marilou Laigo (Marilou),8 and then he married respondent Estella Balagot.

In July 1990, Roberto sold the 4,512 sq m property in Baccuit to the spouses Mario and Julia Campos forP23,000.00.9 Then in August 1992, he sold the 1,986 sq m and 3,454 sq m lots in Paringao, respectively, to Marilou for P100,000.00 and to Pedro for P40,000.00.10 Allegedly, these sales were not known to Margarita and her other children.11

It was only in August 1995, at Roberto’s wake, that Margarita came to know of the sales as told by Pedro himself.12 In February 1996, Margarita, represented by her daughter, Luz, instituted the instant complaint for the annulment of said sales and for the recovery of ownership and possession of the subject properties as well as for the cancellation of Ricardo’s tax declarations. Margarita admitted having accommodated Roberto’s request for the transfer of the properties to his name, but pointed out that the arrangement was only for the specific purpose of supporting his U.S. visa application. She emphasized that she never intended to divest herself of ownership over the subject lands and, hence, Roberto had no right to sell them to respondents and the Spouses Campos. She likewise alleged that the sales, which were fictitious and simulated considering the gross inadequacy of the stipulated price, were fraudulently entered into by Roberto. She imputed bad faith to Pedro, Marilou and the Spouses Campos as buyers of the lots,

as they supposedly knew all along that Roberto was not the rightful owner of the properties.13 Hence, she principally prayed that the sales be annulled; that Roberto’s tax declarations be cancelled; and that the subject properties be reconveyed to her.14

The Spouses Campos advanced that they were innocent purchasers for value and in good faith, and had merely relied on Roberto’s representation that he had the right to sell the property; and that, hence, they were not bound by whatever agreement entered by Margarita with her son. They posited that the alleged gross inadequacy of the price would not invalidate the sale absent a vitiation of consent or proof of any other agreement. Further, they noted that Margarita’s claim was already barred by prescription and laches owing to her long inaction in recovering the subject properties. Finally, they believed that inasmuch as Roberto had already passed away, Margarita must have, instead, directed her claim against his estate.15

In much the same way, Marilou and Pedro,16 who likewise professed themselves to be buyers in good faith and for value, believed that Margarita’s cause of action had already been barred by laches, and that even assuming the contrary, the cause of action was nevertheless barred by prescription as the same had accrued way back in 1968 upon the execution of the affidavit of transfer by virtue of which an implied trust had been created. In this regard, they emphasized that the law allowed only a period of ten (10) years within which an action to recover ownership of real property or to enforce an implied trust thereon may be brought, but Margarita merely let it pass.17

On February 3, 1999, prior to pre-trial, Margarita and the Spouses Campos amicably entered into a settlement whereby they waived their respective claims against each other.18 Margarita died two days later and was forthwith substituted by her estate.19 On February 8, 1999, the trial court rendered a Partial Decision20 approving the compromise agreement and dismissing the complaint against the Spouses Campos. Forthwith, trial on the merits ensued with respect to Pedro and Marilou.

On July 2, 2001, the trial court rendered judgment dismissing the complaint as follows:

WHEREFORE, in view of the foregoing considerations, the complaint is DISMISSED.21

The trial court ruled that the 1968 Affidavit of Transfer operated as a simple transfer of the subject properties from Margarita to Roberto. It found no express trust created between Roberto and Margarita by virtue merely of the said document as there was no evidence of another document showing Roberto’s undertaking to return the subject properties. Interestingly, it concluded that, instead, an "implied or constructive trust" was created between the parties, as if affirming that there was indeed an agreement – albeit unwritten – to have the properties returned to Margarita in due time. 22

Moreover, the trial court surmised how Margarita could have failed to recover the subject properties from Roberto at any time between 1968, following the execution of the Affidavit of Transfer, and Roberto’s return from the United States shortly thereafter. Finding Margarita

guilty of laches by such inaction, the trial court barred recovery from respondents who were found to have acquired the properties supposedly in good faith and for value.23 It also pointed out that recovery could no longer be pursued in this case because Margarita had likewise exhausted the ten-year prescriptive period for reconveyance based on an implied trust which had commenced to run in 1968 upon the execution of the Affidavit of Transfer.24 Finally, it emphasized that mere inadequacy of the price as alleged would not be a sufficient ground to annul the sales in favor of Pedro and Marilou absent any defect in consent.25

Aggrieved, petitioner appealed to the Court of Appeals which, on October 13, 2006, affirmed the trial court’s disposition. The appellate court dismissed petitioner’s claim that Roberto was merely a trustee of the subject properties as there was no evidence on record supportive of the allegation that Roberto merely borrowed the properties from Margarita upon his promise to return the same on his arrival from the United States. Further, it hypothesized that granting the existence of an implied trust, still Margarita’s action thereunder had already been circumscribed by laches. 26

Curiously, while the appellate court had found no implied trust relation in the transaction between Margarita and Roberto, nevertheless, it held that the ten-year prescriptive period under Article 1144 of the Civil Code, in relation to an implied trust created under Article 1456, had already been exhausted by Margarita because her cause of action had accrued way back in 1968; and that while laches and prescription as defenses could have availed against Roberto, the same would be unavailing against Pedro and Marilou because the latter were supposedly buyers in good faith and for value.27 It disposed of the appeal, thus:

WHEREFORE, the Appeal is hereby DENIED. The assailed Decision dated 2 July 2001 of the Regional Trial Court of Bauang, La Union, Branch 33 is AFFIRMED.

SO ORDERED.28

Hence, the instant recourse imputing error to the Court of Appeals in holding: (a) that the complaint is barred by laches and prescription; (b) that the rule on innocent purchaser for value applies in this case of sale of unregistered land; and (c) that there is no evidence to support the finding that there is an implied trust created between Margarita and her son Roberto.29

Petitioner posits that the Court of Appeals should not have haphazardly applied the doctrine of laches and failed to see that the parties in this case are bound by familial ties. They assert that laches must not be applied when an injustice would result from it. Petitioner believes that the existence of such confidential relationship precludes a finding of unreasonable delay on Margarita’s part in enforcing her claim, especially in the face of Luz’s testimony that she and Margarita had placed trust and confidence in Roberto. Petitioner also refutes the Court of Appeals’ finding that there was a donation of the properties to Roberto when the truth is that the subject properties were all that Margarita possessed and that she could not have failed to provide for her other children nor for means by which to support herself. It reiterates that the

transfer to Roberto was only an accommodation so that he could submit proof to support his U.S. visa application.

On the issue of prescription, petitioner advances that it runs from the time Roberto, as trustee, has repudiated the trust by selling the properties to respondents in August 15, 1992; that hence, the filing of the instant complaint in 1996 was well within the prescriptive period. Finally, petitioner states that whether a buyer is in good or bad faith is a matter that attains relevance in sales of registered land, as corollary to the rule that a purchaser of unregistered land uninformed of the seller’s defective title acquires no better right than such seller.

Respondents stand by the ruling of the Court of Appeals. In their Comment, they theorize that if indeed Margarita and Roberto had agreed to have the subject properties returned following the execution of the Affidavit of Transfer, then there should have been a written agreement evincing such intention of the parties. They note that petitioner’s reliance on the Affidavit of Transfer as well as on the alleged unwritten agreement for the return of the properties must fail, simply because they are not even parties to it. Be that as it may, the said document had effectively transferred the properties to Roberto who, in turn, had acquired the full capacity to sell them, especially since these properties could well be considered as Roberto’s inheritance from Margarita who, on the contrary, did have other existing properties in her name. Moreover, they believe that the liberal application of the rule on laches between family members does not apply in the instant case because there is no fiduciary relationship and privity between them and Margarita.

There is merit in the petition.

To begin with, the rule is that the latitude of judicial review under Rule 45 generally excludes factual and evidentiary reevaluation, and the Court ordinarily abides by the uniform conclusions of the trial court and the appellate court. Yet, in the case at bar, while the courts below have both arrived at the dismissal of petitioner’s complaint, there still remains unsettled the ostensible incongruence in their respective factual findings. It thus behooves us to be thorough both in reviewing the records and in appraising the evidence, especially since an opposite conclusion is warranted and, as will be shown, justified.

A trust is the legal relationship between one person having an equitable ownership of property and another person owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter.30 Trusts are either express or implied.31 Express or direct trusts are created by the direct and positive acts of the parties, by some writing or deed, or will, or by oral declaration in words evincing an intention to create a trust.32 Implied trusts – also called "trusts by operation of law," "indirect trusts" and "involuntary trusts" – arise by legal implication based on the presumed intention of the parties or on equitable principles independent of the particular intention of the parties.33 They are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or, independently of the particular intention of the parties, as being inferred from the transaction by operation of law basically by reason of equity.34

Implied trusts are further classified into constructive trusts and resulting trusts. Constructive trusts, on the one hand, come about in the main by operation of law and not by agreement or intention. They arise not by any word or phrase, either expressly or impliedly, evincing a direct intention to create a trust, but one which arises in order to satisfy the demands of justice.35 Also known as trusts ex maleficio, trusts ex delicto and trusts de son tort, they are construed against one who by actual or constructive fraud, duress, abuse of confidence, commission of a wrong or any form of unconscionable conduct, artifice, concealment of questionable means, or who in any way against equity and good conscience has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy.36 They are aptly characterized as "fraud-rectifying trust,"37 imposed by equity to satisfy the demands of justice38 and to defeat or prevent the wrongful act of one of the parties.39Constructive trusts are illustrated in Articles 1450, 1454, 1455 and 1456.40

On the other hand, resulting trusts arise from the nature or circumstances of the consideration involved in a transaction whereby one person becomes invested with legal title but is obligated in equity to hold his title for the benefit of another. This is based on the equitable doctrine that valuable consideration and not legal title is determinative of equitable title or interest and is always presumed to have been contemplated by the parties.41Such intent is presumed as it is not expressed in the instrument or deed of conveyance and is to be found in the nature of their transaction.42 Implied trusts of this nature are hence describable as "intention-enforcing trusts."43Specific examples of resulting trusts may be found in the Civil Code, particularly Articles 1448, 1449, 1451, 1452 and 1453.44

Articles 1448 to 1456 of the Civil Code enumerate cases of implied trust, but the list according to Article 1447 is not exclusive of others which may be established by the general law on trusts so long as the limitations laid down in Article 1442 are observed,45 that is, that they be not in conflict with the New Civil Code, the Code of Commerce, the Rules of Court and special laws.46

While resulting trusts generally arise on failure of an express trust or of the purpose thereof, or on a conveyance to one person upon a consideration from another (sometimes referred to as a "purchase-money resulting trust"), they may also be imposed in other circumstances such that the court, shaping judgment in its most efficient form and preventing a failure of justice, must decree the existence of such a trust.47 A resulting trust, for instance, arises where, there being no fraud or violation of the trust, the circumstances indicate intent of the parties that legal title in one be held for the benefit of another.48 It also arises in some instances where the underlying transaction is without consideration, such as that contemplated in Article 144949 of the Civil Code. Where property, for example, is gratuitously conveyed for a particular purpose and that purpose is either fulfilled or frustrated, the court may affirm the resulting trust in favor of the grantor or transferor,50 where the beneficial interest in property was not intended to vest in the grantee.51

Intention – although only presumed, implied or supposed by law from the nature of the transaction or from the facts and circumstances accompanying the transaction, particularly the source of the consideration – is always an element of a resulting trust52 and may be inferred from the acts or conduct of the parties rather than from direct expression of conduct.53 Certainly,

intent as an indispensable element, is a matter that necessarily lies in the evidence, that is, by evidence, even circumstantial, of statements made by the parties at or before the time title passes.54 Because an implied trust is neither dependent upon an express agreement nor required to be evidenced by writing,55 Article 145756 of our Civil Code authorizes the admission of parole evidence to prove their existence. Parole evidence that is required to establish the existence of an implied trust necessarily has to be trustworthy and it cannot rest on loose, equivocal or indefinite declarations.57

Thus, contrary to the Court of Appeals’ finding that there was no evidence on record showing that an implied trust relation arose between Margarita and Roberto, we find that petitioner before the trial court, had actually adduced evidence to prove the intention of Margarita to transfer to Roberto only the legal title to the properties in question, with attendant expectation that Roberto would return the same to her on accomplishment of that specific purpose for which the transaction was entered into. The evidence of course is not documentary, but rather testimonial.

We recall that the complaint before the trial court alleged that the 1968 Affidavit of Transfer was executed merely to accommodate Roberto’s request to have the properties in his name and thereby produce proof of ownership of certain real properties in the Philippines to support his U.S. visa application. The agreement, the complaint further stated, was for Margarita to transfer the tax declarations of the subject properties to Roberto for the said purpose and without the intention to divest her of the rights of ownership and dominion.58 Margarita, however, died before trial on the merits ensued;59 yet the allegation was substantiated by the open-court statements of her daughter, Luz, and of her niece, Hilaria Costales (Hilaria), a disinterested witness.

In her testimony, Luz, who affirmed under oath her own presence at the execution of the Affidavit of Transfer, described the circumstances under which Margarita and Roberto entered into the agreement. She narrated that Roberto had wanted to travel to the U.S and to show the embassy proof of his financial capacity, he asked to "borrow" from Margarita the properties involved but upon the condition that he would give them back to her upon his arrival from the United States. She admitted that Roberto’s commitment to return the properties was not put in writing because they placed trust and confidence in him, and that while she had spent most of her time in Mindanao since she married in 1956, she would sometimes come to La Union to see her mother but she never really knew whether at one point or another her mother had demanded the return of the properties from Roberto.60 She further asserted that even after Roberto’s arrival from the United States, it was Margarita who paid off the taxes on the subject properties and that it was only when her health started to deteriorate that Roberto had taken up those obligations.61 Hilaria’s testimony ran along the same line. Like Luz, she was admittedly present at the execution of the Affidavit of Transfer which took place at the house she shared with Jacinto Costales, the notarizing officer who was her own brother. She told that Roberto at the time had wanted to travel to the U.S. but did not have properties in the Philippines which he could use to back up his visa application; as accommodation, Margarita "lent" him the tax declarations covering the properties but with the understanding that upon his return he would

give them back to Margarita. She professed familiarity with the properties involved because one of them was actually sitting close to her own property.62

While indeed at one point at the stand both of Luz‘s and Hilaria’s presence at the execution of the affidavit had been put to test in subtle interjections by respondents’ counsel to the effect that their names and signatures did not appear in the Affidavit of Transfer as witnesses, this, to our mind, is of no moment inasmuch as they had not been called to testify on the fact of, or on the contents of, the Affidavit of Transfer or its due execution. Rather, their testimony was offered to prove the circumstances surrounding its execution – the circumstances from which could be derived the unwritten understanding between Roberto and Margarita that by their act, no absolute transfer of ownership would be effected. Besides, it would be highly unlikely for Margarita to institute the instant complaint if it were indeed her intention to vest in Roberto, by virtue of the Affidavit of Transfer, absolute ownership over the covered properties.

It is deducible from the foregoing that the inscription of Roberto’s name in the Affidavit of Transfer as Margarita’s transferee is not for the purpose of transferring ownership to him but only to enable him to hold the property in trust for Margarita. Indeed, in the face of the credible and straightforward testimony of the two witnesses, Luz and Hilaria, the probative value of the ownership record forms in the names of respondents, together with the testimony of their witness from the municipal assessor’s office who authenticated said forms, are utterly minimal to show Roberto’s ownership. It suffices to say that respondents did not bother to offer evidence that would directly refute the statements made by Luz and Hilaria in open court on the circumstances underlying the 1968 Affidavit of Transfer.

As a trustee of a resulting trust, therefore, Roberto, like the trustee of an express passive trust, is merely a depositary of legal title having no duties as to the management, control or disposition of the property except to make a conveyance when called upon by the cestui que trust.63 Hence, the sales he entered into with respondents are a wrongful conversion of the trust property and a breach of the trust. The question is: May respondents now be compelled to reconvey the subject properties to petitioner? We rule in the affirmative.

Respondents posit that petitioner’s claim may never be enforced against them as they had purchased the properties from Roberto for value and in good faith. They also claim that, at any rate, petitioner’s cause of action has accrued way back in 1968 upon the execution of the Affidavit of Transfer and, hence, with the 28 long years that since passed, petitioner’s claim had long become stale not only on account of laches, but also under the rules on extinctive prescription governing a resulting trust. We do not agree.

First, fundamental is the rule in land registration law that the issue of whether the buyer of realty is in good or bad faith is relevant only where the subject of the sale is registered land and the purchase was made from the registered owner whose title to the land is clean, in which case the purchaser who relies on the clean title of the registered owner is protected if he is a purchaser in good faith and for value.64 Since the properties in question are unregistered lands, respondents purchased the same at their own peril. Their claim of having bought the properties in good faith, i.e., without notice that there is some other person with a right to or interest

therein, would not protect them should it turn out, as it in fact did in this case, that their seller, Roberto, had no right to sell them.

Second, the invocation of the rules on limitation of actions relative to a resulting trust is not on point because the resulting trust relation between Margarita and Roberto had been extinguished by the latter’s death. A trust, it is said, terminates upon the death of the trustee, particularly where the trust is personal to him.65 Besides, prescription and laches, in respect of this resulting trust relation, hardly can impair petitioner’s cause of action. On the one hand, in accordance with Article 114466 of the Civil Code, an action for reconveyance to enforce an implied trust in one’s favor prescribes in ten (10) years from the time the right of action accrues, as it is based upon an obligation created by law.67 It sets in from the time the trustee performs unequivocal acts of repudiation amounting to an ouster of the cestui que trust which are made known to the latter.68 In this case, it was the 1992 sale of the properties to respondents that comprised the act of repudiation which, however, was made known to Margarita only in 1995 but nevertheless impelled her to institute the action in 1996 – still well within the prescriptive period. Hardly can be considered as act of repudiation Roberto’s open court declaration which he made in the 1979 adoption proceedings involving respondents to the effect that he owned the subject properties,69 nor even the fact that he in 1977 had entered into a lease contract on one of the disputed properties which contract had been subject of a 1996 decision of the Court of Appeals.70 These do not suffice to constitute unequivocal acts in repudiation of the trust.

On the other hand, laches, being rooted in equity, is not always to be applied strictly in a way that would obliterate an otherwise valid claim especially between blood relatives. The existence of a confidential relationship based upon consanguinity is an important circumstance for consideration; hence, the doctrine is not to be applied mechanically as between near relatives.71 Adaza v. Court of Appeals72 held that the relationship between the parties therein, who were siblings, was sufficient to explain and excuse what would otherwise have been a long delay in enforcing the claim and the delay in such situation should not be as strictly construed as where the parties are complete strangers vis-a-vis each other; thus, reliance by one party upon his blood relationship with the other and the trust and confidence normally connoted in our culture by that relationship should not be taken against him. Too, Sotto v. Teves73 ruled that the doctrine of laches is not strictly applied between near relatives, and the fact that the parties are connected by ties of blood or marriage tends to excuse an otherwise unreasonable delay.

Third, there is a fundamental principle in agency that where certain property entrusted to an agent and impressed by law with a trust in favor of the principal is wrongfully diverted, such trust follows the property in the hands of a third person and the principal is ordinarily entitled to pursue and recover it so long as the property can be traced and identified, and no superior equities have intervened. This principle is actually one of trusts, since the wrongful conversion gives rise to a constructive trust which pursues the property, its product or proceeds, and permits the beneficiary to recover the property or obtain damages for the wrongful conversion of the property. Aptly called the "trust pursuit rule," it applies when a constructive or resulting trust has once affixed itself to property in a certain state or form.74

Hence, a trust will follow the property – through all changes in its state and form as long as such property, its products or its proceeds, are capable of identification, even into the hands of a transferee other than a bona fidepurchaser for value, or restitution will be enforced at the election of the beneficiary through recourse against the trustee or the transferee personally. This is grounded on the principle in property law that ownership continues and can be asserted by the true owner against any withholding of the object to which the ownership pertains, whether such object of the ownership is found in the hands of an original owner or a transferee, or in a different form, as long as it can be identified.75 Accordingly, the person to whom is made a transfer of trust property constituting a wrongful conversion of the trust property and a breach of the trust, when not protected as a bona fide purchaser for value, is himself liable and accountable as a constructive trustee. The liability attaches at the moment of the transfer of trust property and continues until there is full restoration to the beneficiary. Thus, the transferee is charged with, and can be held to the performance of the trust, equally with the original trustee, and he can be compelled to execute a reconveyance.76

This scenario is characteristic of a constructive trust imposed by Article 145677 of the Civil Code, which impresses upon a person obtaining property through mistake or fraud the status of an implied trustee for the benefit of the person from whom the property comes. Petitioner, in laying claim against respondents who are concededly transferees who professed having validly derived their ownership from Roberto, is in effect enforcing against respondents a constructive trust relation that arose by virtue of the wrongful and fraudulent transfer to them of the subject properties by Roberto.

Aznar Brother Realty Co. v. Aying,78 citing Buan Vda. de Esconde v. Court of Appeals,79 explained this form of implied trust as follows:

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust, confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary.

x x x x

x x x [C]onstructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.80

It is settled that an action for reconveyance based on a constructive implied trust prescribes in 10 years likewise in accordance with Article 1144 of the Civil Code. Yet not like in the case of a

resulting implied trust and an express trust, prescription supervenes in a constructive implied trust even if the trustee does not repudiate the relationship. In other words, repudiation of said trust is not a condition precedent to the running of the prescriptive period.81

As to when the prescriptive period commences to run, Crisostomo v. Garcia82 elucidated as follows:

When property is registered in another's name, an implied or constructive trust is created by law in favor of the true owner. The action for reconveyance of the title to the rightful owner prescribes in 10 years from the issuance of the title. An action for reconveyance based on implied or constructive trust prescribes in ten years from the alleged fraudulent registration or date of issuance of the certificate of title over the property.1avvphi1

It is now well settled that the prescriptive period to recover property obtained by fraud or mistake, giving rise to an implied trust under Art. 1456 of the Civil Code, is 10 years pursuant to Art. 1144. This ten-year prescriptive period begins to run from the date the adverse party repudiates the implied trust, which repudiation takes place when the adverse party registers the land.83

From the foregoing, it is clear that an action for reconveyance under a constructive implied trust in accordance with Article 1456 does not prescribe unless and until the land is registered or the instrument affecting the same is inscribed in accordance with law, inasmuch as it is what binds the land and operates constructive notice to the world.84 In the present case, however, the lands involved are concededly unregistered lands; hence, there is no way by which Margarita, during her lifetime, could be notified of the furtive and fraudulent sales made in 1992 by Roberto in favor of respondents, except by actual notice from Pedro himself in August 1995. Hence, it is from that date that prescription began to toll. The filing of the complaint in February 1996 is well within the prescriptive period. Finally, such delay of only six (6) months in instituting the present action hardly suffices to justify a finding of inexcusable delay or to create an inference that Margarita has allowed her claim to stale by laches.

WHEREFORE, the Petition is GRANTED. The October 13, 2006 Decision of the Court of Appeals in CA-G.R. CV No. 72371, affirming the July 2, 2001 judgment of the Regional Trial Court of La Union, Branch 33 in Civil Case No. 1031-BG, is REVERSED and SET ASIDE, and a new one is entered (a) directing the cancellation of the tax declarations covering the subject properties in the name of Roberto D. Laigo and his transferees; (b) nullifying the deeds of sale executed by Roberto D. Laigo in favor of respondents Pedro Roy Laigo and Marilou Laigo; and (c) directing said respondents to execute reconveyance in favor of petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 165849               December 10, 2007

GILBERT G. GUY, Petitioner, vs.THE COURT OF APPEALS (8th DIVISION), NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and EMILIA TABUGADIR, Respondents.

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G.R. No. 170185

IGNACIO AND IGNACIO LAW OFFICES, Petitioner, vs.THE COURT OF APPEALS (7th DIVISION), NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and EMILIA A. TABUGADIR, Respondents.

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G.R. No. 170186

SMARTNET PHILIPPINES, Petitioner, vs.THE COURT OF APPEALS (7th DIVISION), NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and EMILIA A. TABUGADIR, Respondents.

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

G.R. No. 171066

LINCOLN CONTINENTAL DEVELOPMENT CO., INC., Petitioner, vs.NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GRACE G. CHEU, GLADYS G. YAO, and EMILIA A. TABUGADIR, Respondents.

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

G.R. No. 176650

LINCOLN CONTINENTAL DEVELOPMENT COMPANY, INC., Petitioner, vs.NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GRACE G. CHEU, GLADYS G. YAO, and EMILIA A. TABUGADIR, Respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us are five (5) consolidated cases which stemmed from Civil Case No. 04-109444 filed with the Regional Trial Court (RTC), Branch 24, Manila, subsequently re-raffled to Branch 461 and eventually to Branch 25.2

The instant controversies arose from a family dispute. Gilbert Guy is the son of Francisco and Simny Guy. Geraldine, Gladys and Grace are his sisters. The family feud involves the ownership and control of 20,160 shares of stock of Northern Islands Co., Inc. (Northern Islands) engaged in the manufacture, distribution, and sales of various home appliances bearing the "3-D" trademark.

Simny and her daughters Geraldine, Gladys and Grace, as well as Northern Islands and Emilia Tabugadir, have been impleaded as respondents in the above-entitled cases. Northern Islands is a family-owned corporation organized in 1957 by spouses Francisco and respondent Simny Guy. In November 1986, they incorporated Lincoln Continental Development Corporation, Inc. (Lincoln Continental) as a holding company of the 50% shares of stock of Northern Islands in trust for their three (3) daughters, respondents Geraldine, Gladys and Grace. Sometime in December 1986, upon instruction of spouses Guy, Atty. Andres Gatmaitan, president of Lincoln Continental, indorsed in blank Stock Certificate No. 132 (covering 8,400 shares) and Stock Certificate No. 133 (covering 11,760 shares) and delivered them to Simny.

In 1984, spouses Guy found that their son Gilbert has been disposing of the assets of their corporations without authority. In order to protect the assets of Northern Islands, Simny surrendered Stock Certificate Nos. 132 and 133 to Emilia Tabugadir, an officer of Northern Islands. The 20,160 shares covered by the two Stock Certificates were then registered in the names of respondent sisters, thus enabling them to assume an active role in the management of Northern Islands.

On January 27, 2004, during a special meeting of the stockholders of Northern Islands, Simny was elected President; Grace as Vice-President for Finance; Geraldine as Corporate Treasurer; and Gladys as Corporate Secretary. Gilbert retained his position as Executive Vice President. This development started the warfare between Gilbert and his sisters.

On March 18, 2004, Lincoln Continental filed with the RTC, Branch 24, Manila a Complaint for Annulment of the Transfer of Shares of Stock against respondents, docketed as Civil Case No. 04-109444. The complaint basically alleges that Lincoln Continental owns 20,160 shares of stock of

Northern Islands; and that respondents, in order to oust Gilbert from the management of Northern Islands, falsely transferred the said shares of stock in respondent sisters’ names. Lincoln Continental then prayed for an award of damages and that the management of Northern Islands be restored to Gilbert. Lincoln also prayed for the issuance of a temporary restraining order (TRO) and a writ of preliminary mandatory injunction to prohibit respondents from exercising any right of ownership over the shares.

On June 16, 2004, Lincoln Continental filed a Motion to Inhibit the Presiding Judge of Branch 24, RTC, Manila on the ground of partiality. In an Order dated June 22, 2004, the presiding judge granted the motion and inhibited himself from further hearing Civil Case No. 04-109444. It was then re-raffled to Branch 46 of the same court.

On July 12, 2004, Branch 46 set the continuation of the hearing on Lincoln Continental’s application for a TRO.

On July 13, 2004, respondents filed with the Court of Appeals a Petition for Certiorari and Mandamus, docketed as CA-G.R. SP No. 85069, raffled off to the Tenth Division. Respondents alleged that the presiding judge of Branch 24, in issuing the Order dated June 22, 2004 inhibiting himself from further hearing Civil Case No. 04-109444, and the presiding judge of Branch 46, in issuing the Order dated July 12, 2004 setting the continuation of hearing on Lincoln Continental’s application for a TRO, acted with grave abuse of discretion tantamount to lack or excess of jurisdiction.

Meanwhile, on July 15, 2004, the trial court issued the TRO prayed for by Lincoln Continental directing respondents to restore to Gilbert the shares of stock under controversy. In the same Order, the trial court set the hearing of Lincoln Continental’s application for a writ of preliminary injunction on July 19, 20, and 22, 2004.

On July 16, 2004, the Court of Appeals (Tenth Division) issued a TRO enjoining Branch 46, RTC, Manila from enforcing, maintaining, or giving effect to its Order of July 12, 2004 setting the hearing of Lincoln Continental’s application for a TRO.

Despite the TRO, the trial court proceeded to hear Lincoln Continental’s application for a writ of preliminary injunction. This prompted respondents to file in the same CA-G.R. SP No. 85069 a Supplemental Petition forCertiorari, Prohibition, and Mandamus seeking to set aside the Orders of the trial court setting the hearing and actually hearing Lincoln Continental’s application for a writ of preliminary injunction. They prayed for a TRO and a writ of preliminary injunction to enjoin the trial court (Branch 46) from further hearing Civil Case No. 04-109444.

On September 17, 2004, the TRO issued by the Court of Appeals (Tenth Division) in CA-G.R. SP No. 85069 expired.

On September 20, 2004, Gilbert filed a Motion for Leave to Intervene and Motion to Admit Complaint-in-Intervention in Civil Case No. 04-109444. In its Order dated October 4, 2004, the trial court granted the motions.

Meantime, on October 13, 2004, the trial court issued the writ of preliminary mandatory injunction prayed for by Lincoln Continental in Civil Case No. 04-109444.

On October 20, 2004, the Court of Appeals (Tenth Division) denied respondents’ application for injunctive relief since the trial court had already issued a writ of preliminary injunction in favor of Lincoln Continental. Consequently, on October 22, 2004, respondents filed with the Tenth Division a Motion to Withdraw Petition and Supplemental Petition in CA-G.R. SP No. 85069.

On October 26, 2004, respondents filed a new Petition for Certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 87104, raffled off to the Eighth Division. They prayed that the TRO and writ of preliminary injunction issued by the RTC, Branch 46, Manila be nullified and that an injunctive relief be issued restoring to them the management of Northern Islands. They alleged that Gilbert has been dissipating the assets of the corporation for his personal gain.

On October 28, 2004, the Court of Appeals Eighth Division issued a TRO enjoining the implementation of the writ of preliminary injunction dated October 13, 2004 issued by the trial court in Civil Case No. 04-109444; and directing Lincoln Continental to turn over the assets and records of Northern Islands to respondents.

On November 2, 2004, respondents filed with the appellate court (Eighth Division) an Urgent Omnibus Motion praying for the issuance of a break-open Order to implement its TRO.

On November 4, 2004, the Eighth Division issued a Resolution granting respondents’ motion. Pursuant to this Resolution, respondents entered the Northern Islands premises at No. 3 Mercury Avenue, Libis, Quezon City.

On November 18, 2004, Gilbert filed with this Court a petition for certiorari, docketed as G.R. No. 165849, alleging that the Court of Appeals (Eighth Division), in granting an injunctive relief in favor of respondents, committed grave abuse of discretion tantamount to lack or in excess of jurisdiction. The petition also alleges that respondents resorted to forum shopping.

Meanwhile, on December 16, 2004, Smartnet Philippines, Inc. (Smartnet) filed with the Metropolitan Trial Court (MeTC), Branch 35, Quezon City a complaint for forcible entry against respondents, docketed as Civil Case No. 35-33937. The complaint alleges that in entering the Northern Islands premises, respondents took possession of the area being occupied by Smartnet and barred its officers and employees from occupying the same.

Likewise on December 16, 2004, Ignacio and Ignacio Law Offices also filed with Branch 37, same court, a complaint for forcible entry against respondents, docketed as Civil Case No. 34106. It

alleges that respondents forcibly occupied its office space when they took over the premises of Northern Islands.

On December 22, 2004, the Eighth Division issued the writ of preliminary injunction prayed for by respondents in CA-G.R. SP No. 87104.

Subsequently, the presiding judge of the RTC, Branch 46, Manila retired. Civil Case No. 04-109444 was then re-raffled to Branch 25.

On January 20, 2005, respondents filed with the Eighth Division of the appellate court a Supplemental Petition forCertiorari with Urgent Motion for a Writ of Preliminary Injunction to Include Supervening Events. Named as additional respondents were 3-D Industries, Judge Celso D. Laviña, Presiding Judge, RTC, Branch 71, Pasig City and Sheriff Cresencio Rabello, Jr. This supplemental petition alleges that Gilbert, in an attempt to circumvent the injunctive writ issued by the Eighth Division of the appellate court, filed with the RTC, Branch 71, Pasig City a complaint for replevin on behalf of 3-D Industries, to enable it to take possession of the assets and records of Northern Islands. The complaint was docketed as Civil Case No. 70220. On January 18, 2005, the RTC issued the writ of replevin in favor of 3-D Industries.

On April 15, 2005, respondents filed with the Eighth Division a Second Supplemental Petition for Certiorari and Prohibition with Urgent Motion for the Issuance of an Expanded Writ of Preliminary Injunction. Impleaded therein as additional respondents were Ignacio and Ignacio Law Offices, Smartnet, Judge Maria Theresa De Guzman, Presiding Judge, MeTC, Branch 35, Quezon City, Judge Augustus C. Diaz, Presiding Judge, MeTC, Branch 37, Quezon City, Sun Fire Trading Incorporated, Zolt Corporation, Cellprime Distribution Corporation, Goodgold Realty and Development Corporation, John Does and John Doe Corporations. Respondents alleged in the main that the new corporations impleaded are alter egos of Gilbert; and that the filing of the forcible entry cases with the MeTC was intended to thwart the execution of the writ of preliminary injunction dated December 22, 2004 issued by the Court of Appeals (Eighth Division) in CA-G.R. SP No. 87104.1awphil

On April 26, 2005, the Eighth Division issued a Resolution admitting respondents’ new pleading. On August 19, 2005, the Eighth Division (now Seventh Division) rendered its Decision in CA-G.R. SP No. 87104, the dispositive portion of which reads:

WHEREFORE, premises considered, the petition is hereby GRANTED and the October 13, 2004 Order and the October 13, 2004 Writ of Preliminary Mandatory Injunction issued by Branch 46 of the Regional Trial Court of Manila are hereby REVERSED and SET ASIDE. The December 17, 2004 Order and Writ of Preliminary Injunction issued by this Court of Appeals are hereby MADE PERMANENT against all respondents herein.

SO ORDERED.

Meanwhile, in a Decision3 dated September 19, 2005, the RTC, Branch 25, Manila dismissed the complaint filed by Lincoln Continental and the complaint-in-intervention of Gilbert in Civil Case No. 04-109444, thus:

WHEREFORE, in view of the foregoing, the Complaint and the Complaint-in-Intervention are hereby DISMISSED. Plaintiff and plaintiff-intervenor are hereby ordered to jointly and severally pay defendants the following:

(a) Moral damages in the amount of Php2,000,000.00 each for defendants Simny Guy, Geraldine Guy, Grace Guy-Cheu and Gladys Yao;

(b) Moral damages in the amount of Php200,000.00 for defendant Emilia Tabugadir;

(c) Exemplary damages in the amount of Php2,000,000.00 each for defendants Simny Guy, Geraldine Guy, Grace Guy-Cheu, and Gladys Yao;

(d) Exemplary damages in the amount of Php200,000.00 for defendant Emilia Tabugadir;

(e) Attorney’s fees in the amount of Php2,000.000.00; and

(f) Costs of suit.

SO ORDERED.

The trial court held that Civil Case No. 04-109444 is a baseless and an unwarranted suit among family members; that based on the evidence, Gilbert was only entrusted to hold the disputed shares of stock in his name for the benefit of the other family members; and that it was only when Gilbert started to dispose of the assets of the family’s corporations without their knowledge that respondent sisters caused the registration of the shares in their respective names.

Both Lincoln Continental and Gilbert timely appealed the RTC Decision to the Court of Appeals, docketed therein as CA-G.R. CV No. 85937.

On September 15, 2005, 3-D Industries, Inc. filed a petition for certiorari, prohibition, and mandamus with this Court assailing the Decision of the Court of Appeals in CA-G.R. SP No. 87104 setting aside the writ of preliminary injunction issued by the RTC, Branch 46. The petition was docketed as G.R. No. 169462 and raffled off to the Third Division of this Court.

On October 3, 2005, the Third Division of this Court issued a Resolution4 dismissing the petition of 3-D Industries in G.R. No. 169462. 3-D Industries timely filed its motion for reconsideration but this was denied by this Court in its Resolution5 dated December 14, 2005.

Meanwhile, on October 10, 2005, Gilbert, petitioner in G.R. No. 165849 for certiorari, filed with this Court a Supplemental Petition for Certiorari, Prohibition, and Mandamus with Urgent Application for a Writ of Preliminary Mandatory Injunction challenging the Decision of the Court of Appeals (Seventh Division), dated August 19, 2005, in CA-G.R. SP No. 87104. This Decision set aside the Order dated October 13, 2004 of the RTC, Branch 46 granting the writ of preliminary injunction in favor of Lincoln Continental.

On November 8, 2005, Ignacio and Ignacio Law Offices and Smartnet filed with this Court their petitions forcertiorari, docketed as G.R. Nos. 170185 and 170186, respectively.

On February 27, 2006, Lincoln Continental filed with this Court a petition for review on certiorari challenging the Decision of the Court of Appeals (Seventh Division) in CA-G.R. CV No. 85937, docketed as G.R. No. 171066.

On March 20, 2006, we ordered the consolidation of G.R. No. 171066 with G.R. Nos. 165849, 170185, and 170186.

In the meantime, in a Decision dated November 27, 2006 in CA-G.R. CV No. 85937, the Court of Appeals (Special Second Division) affirmed the Decision in Civil Case No. 04-109444 of the RTC (Branch 25) dismissing Lincoln Continental’s complaint and Gilbert’s complaint-in-intervention, thus:

WHEREFORE, the appeals are dismissed and the assailed decision AFFIRMED with modifications that plaintiff and plaintiff-intervenor are ordered to pay each of the defendants-appellees Simny Guy, Geraldine Guy, Grace Guy-Cheu and Gladys Yao moral damages of P500,000.00, exemplary damages of P100,000.00 and attorney’s fees of P500,000.00.

SO ORDERED.

Lincoln Continental and Gilbert filed their respective motions for reconsideration, but they were denied in a Resolution promulgated on February 12, 2007.

Lincoln Continental then filed with this Court a petition for review on certiorari assailing the Decision of the Court of Appeals (Former Special Second Division) in CA-G.R. CV No. 85937. This petition was docketed as G.R. No. 176650 and raffled off to the Third Division of this Court.

In our Resolution dated June 6, 2007, we ordered G.R. No. 176650 consolidated with G.R. Nos. 165849, 170185, 170186, and 171066.

THE ISSUES

In G.R. Nos. 165849 and 171066, petitioners Gilbert and Lincoln Continental raise the following issues: (1) whether respondents are guilty of forum shopping; and (2) whether they are entitled to the injunctive relief granted in CA-G.R. SP No. 87104.

In G.R. Nos. 170185 and 170186, the pivotal issue is whether the Court of Appeals committed grave abuse of discretion amounting to lack or excess of jurisdiction in ruling that petitioners Ignacio and Ignacio Law Offices and Smartnet are also covered by its Resolution granting the writ of preliminary injunction in favor of respondents.

In G.R. No. 176650, the core issue is whether the Court of Appeals (Special Second Division) erred in affirming the Decision of the RTC, Branch 25, Manila dated September 19, 2005 dismissing the complaint of Lincoln Continental and the complaint-in-intervention of Gilbert in Civil Case No. 04-109444.

THE COURT’S RULING

A. G.R. Nos. 165849 and 171066

On the question of forum shopping, petitioners Gilbert and Lincoln Continental contend that the acts of respondents in filing a petition for certiorari and mandamus in CA-G.R. SP No. 85069 and withdrawing the same and their subsequent filing of a petition for certiorari in CA-G.R. SP No. 87104 constitute forum shopping; that respondents withdrew their petition in CA-G.R. SP No. 85069 after the Tenth Division issued a Resolution dated October 20, 2004 denying their application for a writ of preliminary injunction; that they then filed an identical petition in CA-G.R. SP No. 87104 seeking the same relief alleged in their petition in CA-G.R. SP No. 85069; and that by taking cognizance of the petition in CA-G.R. SP No. 87104, instead of dismissing it outright on the ground of forum shopping, the Court of Appeals committed grave abuse of discretion tantamount to lack or excess of jurisdiction.

A party is guilty of forum shopping when he repetitively avails of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues either pending in, or already resolved adversely by some other court.6 It is prohibited by Section 5, Rule 7 of the 1997 Rules of Civil Procedure, as amended, which provides:

SECTION 5. Certification against forum shopping. – The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any other claim involving the same issues in any court, tribunal, or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon motion and hearing. The submission of a false certification or non-compliance with any of the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions.

Forum shopping is condemned because it unnecessarily burdens our courts with heavy caseloads, unduly taxes the manpower and financial resources of the judiciary and trifles with and mocks judicial processes, thereby affecting the efficient administration of justice.7 The primary evil sought to be proscribed by the prohibition against forum shopping is, however, the possibility of conflicting decisions being rendered by the different courts and/or administrative agencies upon the same issues.8

Forum shopping may only exist where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other.9 Litis pendentia as a ground for dismissing a civil action is that situation wherein another action is pending between the same parties for the same cause of action, such that the second action is unnecessary and vexatious. The elements of litis pendentia are as follows: (a) identity of parties, or at least such as representing the same interest in both actions; (b) identity of rights asserted and the relief prayed for, the relief being founded on the same facts; and (c) the identity of the two cases such that judgment in one, regardless of which party is successful, would amount to res judicata in the other.10 From the foregoing, it is clear that sans litis pendentia or res judicata, there can be no forum shopping.

While the first element of litis pendentia – identity of parties – is present in both CA-G.R. SP No. 85069 and CA-G.R. SP No. 87104, however, the second element, does not exist. The petitioners in CA-G.R. SP No. 85069 prayed that the following Orders be set aside:

(1) the Order of inhibition dated June 22, 2004 issued by the presiding judge of the RTC of Manila, Branch 24; and

(2) the Order dated July 12, 2004 issued by Branch 46 setting Gilbert’s application for preliminary injunction for hearing.

In their petition in CA-G.R. SP No. 87104, respondents prayed for the annulment of the writ of preliminary injunction issued by the RTC, Branch 46 after the expiration of the TRO issued by the Tenth Division of the Court of Appeals. Evidently, this relief is not identical with the relief sought by respondents in CA-G.R. SP No. 85069. Clearly, the second element of litis pendentia – the identity of reliefs sought - is lacking in the two petitions filed by respondents with the appellate court. Thus, we rule that no grave abuse of discretion amounting to lack or excess of jurisdiction

may be attributed to the Court of Appeals (Eighth Division) for giving due course to respondents’ petition in CA-G.R. SP No. 87104.

On the second issue, Section 3, Rule 58 of the 1997 Rules of Civil Procedure, as amended provides:

SECTION 3. Grounds for issuance of preliminary injunction. – A preliminary injunction may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance, or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency, or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

For a party to be entitled to an injunctive writ, he must show that there exists a right to be protected and that the acts against which the injunction is directed are violative of this right.11 In granting the respondents’ application for injunctive relief and making the injunction permanent, the Court of Appeals (Seventh Division) found that they have shown their clear and established right to the disputed 20,160 shares of stock because: (1) they have physical possession of the two stock certificates equivalent to the said number of shares; (2) Lincoln Continental is a mere trustee of the Guy family; and (3) respondents constitute a majority of the board of directors of Northern Islands, and accordingly have management and control of the company at the inception of Civil Case No. 94-109444. The appellate court then ruled that the trial court committed grave abuse of discretion in issuing a writ of preliminary mandatory injunction in favor of Guy. The writ actually reduced the membership of Northern Islands board to just one member - Gilbert Guy. Moreover, he failed to establish by clear and convincing evidence his ownership of the shares of stock in question. The Court of Appeals then held there was an urgent necessity to issue an injunctive writ in order to prevent serious damage to the rights of respondents and Northern Islands.

We thus find no reason to depart from the findings of the Court of Appeals. Indeed, we cannot discern any taint of grave abuse of discretion on its part in issuing the assailed writ of preliminary injunction and making the injunction permanent.

B. G.R. Nos. 170185 & 170186

Ignacio and Ignacio Law Offices and Smartnet, petitioners, claim that the Court of Appeals never acquired jurisdiction over their respective persons as they were not served with summons, either by the MeTC or by the appellate court in CA-G.R. SP No. 87104. Thus, they submit that the Court of Appeals committed grave abuse of discretion amounting to lack or excess of jurisdiction when it included them in the coverage of its injunctive writ.

Jurisdiction is the power or capacity given by the law to a court or tribunal to entertain, hear, and determine certain controversies.12 Jurisdiction over the subject matter of a case is conferred by law.

Section 9 (1) of Batas Pambansa Blg. 129,13 as amended, provides:

SEC. 9. Jurisdiction. – The Court of Appeals shall exercise:

(1) Original jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas corpus, and quo warranto, and auxiliary writs or processes, whether or not in aid of its appellate jurisdiction.

Rule 46 of the 1997 Rules of Civil Procedure, as amended, governs all cases originally filed with the Court of Appeals. The following provisions of the Rule state:

SEC. 2. To what actions applicable. – This Rule shall apply to original actions for certiorari, prohibition, mandamusand quo warranto.

Except as otherwise provided, the actions for annulment of judgment shall be governed by Rule 47, for certiorari, prohibition, and mandamus by Rule 65, and for quo warranto by Rule 66.

x x x

SEC. 4. Jurisdiction over person of respondent, how acquired. – The court shall acquire jurisdiction over the person of the respondent by the service on him of its order or resolution indicating its initial action on the petition or by his voluntary submission to such jurisdiction.

SEC. 5. Action by the court. – The court may dismiss the petition outright with specific reasons for such dismissal or require the respondent to file a comment on the same within ten (10) days from notice. Only pleadings required by the court shall be allowed. All other pleadings and papers may be filed only with leave of court.

It is thus clear that in cases covered by Rule 46, the Court of Appeals acquires jurisdiction over the persons of the respondents by the service upon them of its order or resolution indicating its initial action on the petitions or by their voluntary submission to such jurisdiction.14 The reason for this is that, aside from the fact that no summons or other coercive process is served on respondents, their response to the petitions will depend on the initial action of the court thereon.

Under Section 5, the court may dismiss the petitions outright, hence, no reaction is expected from respondents and under the policy adopted by Rule 46, they are not deemed to have been brought within the court’s jurisdiction until after service on them of the dismissal order or resolution.15

Records show that on April 27, 2005, petitioners in these two forcible entry cases, were served copies of the Resolution of the Court of Appeals (Seventh Division) dated April 26, 2005 in CA-G.R. SP No. 87104.16 The Resolution states:

Private respondents SMARTNET PHILIPPINES, INC., IGNACIO & IGNACIO LAW OFFICE, SUNFIRE TRADING, INC., ZOLT CORPORATION, CELLPRIME DISTRIBUTION CORPO., GOODGOLD REALTY & DEVELOPMENT CORP., are hereby DIRECTED to file CONSOLIDATED COMMENT on the original Petition for Certiorari, the First Supplemental Petition for Certiorari, and the Second Supplemental Petition for Certiorari (not a Motion to Dismiss) within ten (10) days from receipt of a copy of the original, first and second Petitions for Certiorari.17

Pursuant to Rule 46, the Court of Appeals validly acquired jurisdiction over the persons of Ignacio and Ignacio Law Offices and Smartnet upon being served with the above Resolution.

But neither of the parties bothered to file the required comment. Their allegation that they have been deprived of due process is definitely without merit. We have consistently held that when a party was afforded an opportunity to participate in the proceedings but failed to do so, he cannot complain of deprivation of due process for by such failure, he is deemed to have waived or forfeited his right to be heard without violating the constitutional guarantee.18

On the question of whether the Court of Appeals could amend its Resolution directing the issuance of a writ of preliminary injunction so as to include petitioners, suffice to state that having acquired jurisdiction over their persons, the appellate court could do so pursuant to Section 5 (g), Rule 135 of the Revised Rules of Court, thus:

SEC. 5. Inherent powers of courts. – Every court shall have power:

x x x

(g) To amend and control its process and orders so as to make them conformable to law and justice.

In Villanueva v. CFI of Oriental Mindoro19 and Eternal Gardens Memorial Parks Corp. v. Intermediate Appellate Court,20 we held that under this Rule, a court has inherent power to amend its judgment so as to make it conformable to the law applicable, provided that said judgment has not yet acquired finality, as in these cases.

C. G.R. No. 176650

The fundamental issue is who owns the disputed shares of stock in Northern Islands.

We remind petitioner Lincoln Continental that what it filed with this Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended. It is a rule in this jurisdiction that in petitions for review under Rule 45, only questions or errors of law may be raised.21 There is a question of law when the doubt or controversy concerns the correct application of law or jurisprudence to a certain set of facts, or when the issue does not call for an examination of the probative value of the evidence presented. There is a question of fact when the doubt arises as to the truth or falsehood of facts or when there is a need to calibrate the whole evidence considering mainly the credibility of the witnesses, the existence and relevancy of specific surrounding circumstances, as well as their relation to each other and to the whole, and the probability of the situation.22Obviously, the issue raised by the instant petition for review on certiorari, involves a factual matter, hence, is outside the domain of this Court. However, in the interest of justice and in order to settle this controversy once and for all, a ruling from this Court is imperative.

One thing is clear. It was established before the trial court, affirmed by the Court of Appeals, that Lincoln Continental held the disputed shares of stock of Northern Islands merely in trust for the Guy sisters. In fact, the evidence proffered by Lincoln Continental itself supports this conclusion. It bears emphasis that this factual finding by the trial court was affirmed by the Court of Appeals, being supported by evidence, and is, therefore, final and conclusive upon this Court.

Article 1440 of the Civil Code provides that:

ART. 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary.

In the early case of Gayondato v. Treasurer of the Philippine Islands,23 this Court defines trust, in its technical sense, as "a right of property, real or personal, held by one party for the benefit of another." Differently stated, a trust is "a fiduciary relationship with respect to property, subjecting the person holding the same to the obligation of dealing with the property for the benefit of another person."24

Both Lincoln Continental and Gilbert claim that the latter holds legal title to the shares in question. But record shows that there is no evidence to support their claim. Rather, the evidence on record clearly indicates that the stock certificates representing the contested shares are in respondents’ possession. Significantly, there is no proof to support his allegation that the transfer of the shares of stock to respondent sisters is fraudulent. As aptly held by the Court of Appeals, fraud is never presumed but must be established by clear and convincing evidence.25 Gilbert failed to discharge this burden. We, agree with the Court of Appeals that respondent sisters own the shares of stocks, Gilbert being their mere trustee. Verily, we find no

reversible error in the challenged Decision of the Court of Appeals (Special Second Division) in CA-G.R. CV No. 85937.

WHEREFORE, we DISMISS the petitions in G.R. Nos. 165849, 170185, 170186 and 176650; and DENY the petitions in G.R. Nos. 171066 and 176650. The Resolutions of the Court of Appeals (Eighth Division), dated October 28, 2004 and November 4, 2004, as well as the Decision dated October 10, 2005 of the Court of Appeals (Seventh Division) in CA-G.R. SP No. 87104 are AFFIRMED. We likewise AFFIRM IN TOTO the Decision of the Court of Appeals (Special Second Division), dated November 27, 2006 in CA-G.R. CV No. 85937. Costs against petitioners.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 165849               December 10, 2007

GILBERT G. GUY, Petitioner, vs.THE COURT OF APPEALS (8th DIVISION), NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and EMILIA TABUGADIR, Respondents.

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

G.R. No. 170185

IGNACIO AND IGNACIO LAW OFFICES, Petitioner, vs.THE COURT OF APPEALS (7th DIVISION), NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and EMILIA A. TABUGADIR, Respondents.

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

G.R. No. 170186

SMARTNET PHILIPPINES, Petitioner, vs.THE COURT OF APPEALS (7th DIVISION), NORTHERN ISLANDS CO., INCORPORATED,

SIMNY G. GUY, GERALDINE G. GUY, GLADYS G. YAO, and EMILIA A. TABUGADIR, Respondents.

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

G.R. No. 171066

LINCOLN CONTINENTAL DEVELOPMENT CO., INC., Petitioner, vs.NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GRACE G. CHEU, GLADYS G. YAO, and EMILIA A. TABUGADIR, Respondents.

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

G.R. No. 176650

LINCOLN CONTINENTAL DEVELOPMENT COMPANY, INC., Petitioner, vs.NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GRACE G. CHEU, GLADYS G. YAO, and EMILIA A. TABUGADIR, Respondents.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us are five (5) consolidated cases which stemmed from Civil Case No. 04-109444 filed with the Regional Trial Court (RTC), Branch 24, Manila, subsequently re-raffled to Branch 461 and eventually to Branch 25.2

The instant controversies arose from a family dispute. Gilbert Guy is the son of Francisco and Simny Guy. Geraldine, Gladys and Grace are his sisters. The family feud involves the ownership and control of 20,160 shares of stock of Northern Islands Co., Inc. (Northern Islands) engaged in the manufacture, distribution, and sales of various home appliances bearing the "3-D" trademark.

Simny and her daughters Geraldine, Gladys and Grace, as well as Northern Islands and Emilia Tabugadir, have been impleaded as respondents in the above-entitled cases. Northern Islands is a family-owned corporation organized in 1957 by spouses Francisco and respondent Simny Guy. In November 1986, they incorporated Lincoln Continental Development Corporation, Inc. (Lincoln Continental) as a holding company of the 50% shares of stock of Northern Islands in trust for their three (3) daughters, respondents Geraldine, Gladys and Grace. Sometime in December 1986, upon instruction of spouses Guy, Atty. Andres Gatmaitan, president of Lincoln

Continental, indorsed in blank Stock Certificate No. 132 (covering 8,400 shares) and Stock Certificate No. 133 (covering 11,760 shares) and delivered them to Simny.

In 1984, spouses Guy found that their son Gilbert has been disposing of the assets of their corporations without authority. In order to protect the assets of Northern Islands, Simny surrendered Stock Certificate Nos. 132 and 133 to Emilia Tabugadir, an officer of Northern Islands. The 20,160 shares covered by the two Stock Certificates were then registered in the names of respondent sisters, thus enabling them to assume an active role in the management of Northern Islands.

On January 27, 2004, during a special meeting of the stockholders of Northern Islands, Simny was elected President; Grace as Vice-President for Finance; Geraldine as Corporate Treasurer; and Gladys as Corporate Secretary. Gilbert retained his position as Executive Vice President. This development started the warfare between Gilbert and his sisters.

On March 18, 2004, Lincoln Continental filed with the RTC, Branch 24, Manila a Complaint for Annulment of the Transfer of Shares of Stock against respondents, docketed as Civil Case No. 04-109444. The complaint basically alleges that Lincoln Continental owns 20,160 shares of stock of Northern Islands; and that respondents, in order to oust Gilbert from the management of Northern Islands, falsely transferred the said shares of stock in respondent sisters’ names. Lincoln Continental then prayed for an award of damages and that the management of Northern Islands be restored to Gilbert. Lincoln also prayed for the issuance of a temporary restraining order (TRO) and a writ of preliminary mandatory injunction to prohibit respondents from exercising any right of ownership over the shares.

On June 16, 2004, Lincoln Continental filed a Motion to Inhibit the Presiding Judge of Branch 24, RTC, Manila on the ground of partiality. In an Order dated June 22, 2004, the presiding judge granted the motion and inhibited himself from further hearing Civil Case No. 04-109444. It was then re-raffled to Branch 46 of the same court.

On July 12, 2004, Branch 46 set the continuation of the hearing on Lincoln Continental’s application for a TRO.

On July 13, 2004, respondents filed with the Court of Appeals a Petition for Certiorari and Mandamus, docketed as CA-G.R. SP No. 85069, raffled off to the Tenth Division. Respondents alleged that the presiding judge of Branch 24, in issuing the Order dated June 22, 2004 inhibiting himself from further hearing Civil Case No. 04-109444, and the presiding judge of Branch 46, in issuing the Order dated July 12, 2004 setting the continuation of hearing on Lincoln Continental’s application for a TRO, acted with grave abuse of discretion tantamount to lack or excess of jurisdiction.

Meanwhile, on July 15, 2004, the trial court issued the TRO prayed for by Lincoln Continental directing respondents to restore to Gilbert the shares of stock under controversy. In the same

Order, the trial court set the hearing of Lincoln Continental’s application for a writ of preliminary injunction on July 19, 20, and 22, 2004.

On July 16, 2004, the Court of Appeals (Tenth Division) issued a TRO enjoining Branch 46, RTC, Manila from enforcing, maintaining, or giving effect to its Order of July 12, 2004 setting the hearing of Lincoln Continental’s application for a TRO.

Despite the TRO, the trial court proceeded to hear Lincoln Continental’s application for a writ of preliminary injunction. This prompted respondents to file in the same CA-G.R. SP No. 85069 a Supplemental Petition forCertiorari, Prohibition, and Mandamus seeking to set aside the Orders of the trial court setting the hearing and actually hearing Lincoln Continental’s application for a writ of preliminary injunction. They prayed for a TRO and a writ of preliminary injunction to enjoin the trial court (Branch 46) from further hearing Civil Case No. 04-109444.

On September 17, 2004, the TRO issued by the Court of Appeals (Tenth Division) in CA-G.R. SP No. 85069 expired.

On September 20, 2004, Gilbert filed a Motion for Leave to Intervene and Motion to Admit Complaint-in-Intervention in Civil Case No. 04-109444. In its Order dated October 4, 2004, the trial court granted the motions.

Meantime, on October 13, 2004, the trial court issued the writ of preliminary mandatory injunction prayed for by Lincoln Continental in Civil Case No. 04-109444.

On October 20, 2004, the Court of Appeals (Tenth Division) denied respondents’ application for injunctive relief since the trial court had already issued a writ of preliminary injunction in favor of Lincoln Continental. Consequently, on October 22, 2004, respondents filed with the Tenth Division a Motion to Withdraw Petition and Supplemental Petition in CA-G.R. SP No. 85069.

On October 26, 2004, respondents filed a new Petition for Certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 87104, raffled off to the Eighth Division. They prayed that the TRO and writ of preliminary injunction issued by the RTC, Branch 46, Manila be nullified and that an injunctive relief be issued restoring to them the management of Northern Islands. They alleged that Gilbert has been dissipating the assets of the corporation for his personal gain.

On October 28, 2004, the Court of Appeals Eighth Division issued a TRO enjoining the implementation of the writ of preliminary injunction dated October 13, 2004 issued by the trial court in Civil Case No. 04-109444; and directing Lincoln Continental to turn over the assets and records of Northern Islands to respondents.

On November 2, 2004, respondents filed with the appellate court (Eighth Division) an Urgent Omnibus Motion praying for the issuance of a break-open Order to implement its TRO.

On November 4, 2004, the Eighth Division issued a Resolution granting respondents’ motion. Pursuant to this Resolution, respondents entered the Northern Islands premises at No. 3 Mercury Avenue, Libis, Quezon City.

On November 18, 2004, Gilbert filed with this Court a petition for certiorari, docketed as G.R. No. 165849, alleging that the Court of Appeals (Eighth Division), in granting an injunctive relief in favor of respondents, committed grave abuse of discretion tantamount to lack or in excess of jurisdiction. The petition also alleges that respondents resorted to forum shopping.

Meanwhile, on December 16, 2004, Smartnet Philippines, Inc. (Smartnet) filed with the Metropolitan Trial Court (MeTC), Branch 35, Quezon City a complaint for forcible entry against respondents, docketed as Civil Case No. 35-33937. The complaint alleges that in entering the Northern Islands premises, respondents took possession of the area being occupied by Smartnet and barred its officers and employees from occupying the same.

Likewise on December 16, 2004, Ignacio and Ignacio Law Offices also filed with Branch 37, same court, a complaint for forcible entry against respondents, docketed as Civil Case No. 34106. It alleges that respondents forcibly occupied its office space when they took over the premises of Northern Islands.

On December 22, 2004, the Eighth Division issued the writ of preliminary injunction prayed for by respondents in CA-G.R. SP No. 87104.

Subsequently, the presiding judge of the RTC, Branch 46, Manila retired. Civil Case No. 04-109444 was then re-raffled to Branch 25.

On January 20, 2005, respondents filed with the Eighth Division of the appellate court a Supplemental Petition forCertiorari with Urgent Motion for a Writ of Preliminary Injunction to Include Supervening Events. Named as additional respondents were 3-D Industries, Judge Celso D. Laviña, Presiding Judge, RTC, Branch 71, Pasig City and Sheriff Cresencio Rabello, Jr. This supplemental petition alleges that Gilbert, in an attempt to circumvent the injunctive writ issued by the Eighth Division of the appellate court, filed with the RTC, Branch 71, Pasig City a complaint for replevin on behalf of 3-D Industries, to enable it to take possession of the assets and records of Northern Islands. The complaint was docketed as Civil Case No. 70220. On January 18, 2005, the RTC issued the writ of replevin in favor of 3-D Industries.

On April 15, 2005, respondents filed with the Eighth Division a Second Supplemental Petition for Certiorari and Prohibition with Urgent Motion for the Issuance of an Expanded Writ of Preliminary Injunction. Impleaded therein as additional respondents were Ignacio and Ignacio Law Offices, Smartnet, Judge Maria Theresa De Guzman, Presiding Judge, MeTC, Branch 35, Quezon City, Judge Augustus C. Diaz, Presiding Judge, MeTC, Branch 37, Quezon City, Sun Fire Trading Incorporated, Zolt Corporation, Cellprime Distribution Corporation, Goodgold Realty and Development Corporation, John Does and John Doe Corporations. Respondents alleged in the main that the new corporations impleaded are alter egos of Gilbert; and that the filing of the

forcible entry cases with the MeTC was intended to thwart the execution of the writ of preliminary injunction dated December 22, 2004 issued by the Court of Appeals (Eighth Division) in CA-G.R. SP No. 87104.1awphil

On April 26, 2005, the Eighth Division issued a Resolution admitting respondents’ new pleading. On August 19, 2005, the Eighth Division (now Seventh Division) rendered its Decision in CA-G.R. SP No. 87104, the dispositive portion of which reads:

WHEREFORE, premises considered, the petition is hereby GRANTED and the October 13, 2004 Order and the October 13, 2004 Writ of Preliminary Mandatory Injunction issued by Branch 46 of the Regional Trial Court of Manila are hereby REVERSED and SET ASIDE. The December 17, 2004 Order and Writ of Preliminary Injunction issued by this Court of Appeals are hereby MADE PERMANENT against all respondents herein.

SO ORDERED.

Meanwhile, in a Decision3 dated September 19, 2005, the RTC, Branch 25, Manila dismissed the complaint filed by Lincoln Continental and the complaint-in-intervention of Gilbert in Civil Case No. 04-109444, thus:

WHEREFORE, in view of the foregoing, the Complaint and the Complaint-in-Intervention are hereby DISMISSED. Plaintiff and plaintiff-intervenor are hereby ordered to jointly and severally pay defendants the following:

(a) Moral damages in the amount of Php2,000,000.00 each for defendants Simny Guy, Geraldine Guy, Grace Guy-Cheu and Gladys Yao;

(b) Moral damages in the amount of Php200,000.00 for defendant Emilia Tabugadir;

(c) Exemplary damages in the amount of Php2,000,000.00 each for defendants Simny Guy, Geraldine Guy, Grace Guy-Cheu, and Gladys Yao;

(d) Exemplary damages in the amount of Php200,000.00 for defendant Emilia Tabugadir;

(e) Attorney’s fees in the amount of Php2,000.000.00; and

(f) Costs of suit.

SO ORDERED.

The trial court held that Civil Case No. 04-109444 is a baseless and an unwarranted suit among family members; that based on the evidence, Gilbert was only entrusted to hold the disputed

shares of stock in his name for the benefit of the other family members; and that it was only when Gilbert started to dispose of the assets of the family’s corporations without their knowledge that respondent sisters caused the registration of the shares in their respective names.

Both Lincoln Continental and Gilbert timely appealed the RTC Decision to the Court of Appeals, docketed therein as CA-G.R. CV No. 85937.

On September 15, 2005, 3-D Industries, Inc. filed a petition for certiorari, prohibition, and mandamus with this Court assailing the Decision of the Court of Appeals in CA-G.R. SP No. 87104 setting aside the writ of preliminary injunction issued by the RTC, Branch 46. The petition was docketed as G.R. No. 169462 and raffled off to the Third Division of this Court.

On October 3, 2005, the Third Division of this Court issued a Resolution4 dismissing the petition of 3-D Industries in G.R. No. 169462. 3-D Industries timely filed its motion for reconsideration but this was denied by this Court in its Resolution5 dated December 14, 2005.

Meanwhile, on October 10, 2005, Gilbert, petitioner in G.R. No. 165849 for certiorari, filed with this Court a Supplemental Petition for Certiorari, Prohibition, and Mandamus with Urgent Application for a Writ of Preliminary Mandatory Injunction challenging the Decision of the Court of Appeals (Seventh Division), dated August 19, 2005, in CA-G.R. SP No. 87104. This Decision set aside the Order dated October 13, 2004 of the RTC, Branch 46 granting the writ of preliminary injunction in favor of Lincoln Continental.

On November 8, 2005, Ignacio and Ignacio Law Offices and Smartnet filed with this Court their petitions forcertiorari, docketed as G.R. Nos. 170185 and 170186, respectively.

On February 27, 2006, Lincoln Continental filed with this Court a petition for review on certiorari challenging the Decision of the Court of Appeals (Seventh Division) in CA-G.R. CV No. 85937, docketed as G.R. No. 171066.

On March 20, 2006, we ordered the consolidation of G.R. No. 171066 with G.R. Nos. 165849, 170185, and 170186.

In the meantime, in a Decision dated November 27, 2006 in CA-G.R. CV No. 85937, the Court of Appeals (Special Second Division) affirmed the Decision in Civil Case No. 04-109444 of the RTC (Branch 25) dismissing Lincoln Continental’s complaint and Gilbert’s complaint-in-intervention, thus:

WHEREFORE, the appeals are dismissed and the assailed decision AFFIRMED with modifications that plaintiff and plaintiff-intervenor are ordered to pay each of the defendants-appellees Simny Guy, Geraldine Guy, Grace Guy-Cheu and Gladys Yao moral damages of P500,000.00, exemplary damages of P100,000.00 and attorney’s fees of P500,000.00.

SO ORDERED.

Lincoln Continental and Gilbert filed their respective motions for reconsideration, but they were denied in a Resolution promulgated on February 12, 2007.

Lincoln Continental then filed with this Court a petition for review on certiorari assailing the Decision of the Court of Appeals (Former Special Second Division) in CA-G.R. CV No. 85937. This petition was docketed as G.R. No. 176650 and raffled off to the Third Division of this Court.

In our Resolution dated June 6, 2007, we ordered G.R. No. 176650 consolidated with G.R. Nos. 165849, 170185, 170186, and 171066.

THE ISSUES

In G.R. Nos. 165849 and 171066, petitioners Gilbert and Lincoln Continental raise the following issues: (1) whether respondents are guilty of forum shopping; and (2) whether they are entitled to the injunctive relief granted in CA-G.R. SP No. 87104.

In G.R. Nos. 170185 and 170186, the pivotal issue is whether the Court of Appeals committed grave abuse of discretion amounting to lack or excess of jurisdiction in ruling that petitioners Ignacio and Ignacio Law Offices and Smartnet are also covered by its Resolution granting the writ of preliminary injunction in favor of respondents.

In G.R. No. 176650, the core issue is whether the Court of Appeals (Special Second Division) erred in affirming the Decision of the RTC, Branch 25, Manila dated September 19, 2005 dismissing the complaint of Lincoln Continental and the complaint-in-intervention of Gilbert in Civil Case No. 04-109444.

THE COURT’S RULING

A. G.R. Nos. 165849 and 171066

On the question of forum shopping, petitioners Gilbert and Lincoln Continental contend that the acts of respondents in filing a petition for certiorari and mandamus in CA-G.R. SP No. 85069 and withdrawing the same and their subsequent filing of a petition for certiorari in CA-G.R. SP No. 87104 constitute forum shopping; that respondents withdrew their petition in CA-G.R. SP No. 85069 after the Tenth Division issued a Resolution dated October 20, 2004 denying their application for a writ of preliminary injunction; that they then filed an identical petition in CA-G.R. SP No. 87104 seeking the same relief alleged in their petition in CA-G.R. SP No. 85069; and that by taking cognizance of the petition in CA-G.R. SP No. 87104, instead of dismissing it outright on the ground of forum shopping, the Court of Appeals committed grave abuse of discretion tantamount to lack or excess of jurisdiction.

A party is guilty of forum shopping when he repetitively avails of several judicial remedies in different courts, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances, and all raising substantially the same issues either pending in, or already resolved adversely by some other court.6 It is prohibited by Section 5, Rule 7 of the 1997 Rules of Civil Procedure, as amended, which provides:

SECTION 5. Certification against forum shopping. – The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed therewith: (a) that he has not theretofore commenced any action or filed any other claim involving the same issues in any court, tribunal, or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other pending action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action has been filed or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice, unless otherwise provided, upon motion and hearing. The submission of a false certification or non-compliance with any of the undertakings therein shall constitute indirect contempt of court, without prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal with prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions.

Forum shopping is condemned because it unnecessarily burdens our courts with heavy caseloads, unduly taxes the manpower and financial resources of the judiciary and trifles with and mocks judicial processes, thereby affecting the efficient administration of justice.7 The primary evil sought to be proscribed by the prohibition against forum shopping is, however, the possibility of conflicting decisions being rendered by the different courts and/or administrative agencies upon the same issues.8

Forum shopping may only exist where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other.9 Litis pendentia as a ground for dismissing a civil action is that situation wherein another action is pending between the same parties for the same cause of action, such that the second action is unnecessary and vexatious. The elements of litis pendentia are as follows: (a) identity of parties, or at least such as representing the same interest in both actions; (b) identity of rights asserted and the relief prayed for, the relief being founded on the same facts; and (c) the identity of the two cases such that judgment in one, regardless of which party is successful, would amount to res judicata in the other.10 From the foregoing, it is clear that sans litis pendentia or res judicata, there can be no forum shopping.

While the first element of litis pendentia – identity of parties – is present in both CA-G.R. SP No. 85069 and CA-G.R. SP No. 87104, however, the second element, does not exist. The petitioners in CA-G.R. SP No. 85069 prayed that the following Orders be set aside:

(1) the Order of inhibition dated June 22, 2004 issued by the presiding judge of the RTC of Manila, Branch 24; and

(2) the Order dated July 12, 2004 issued by Branch 46 setting Gilbert’s application for preliminary injunction for hearing.

In their petition in CA-G.R. SP No. 87104, respondents prayed for the annulment of the writ of preliminary injunction issued by the RTC, Branch 46 after the expiration of the TRO issued by the Tenth Division of the Court of Appeals. Evidently, this relief is not identical with the relief sought by respondents in CA-G.R. SP No. 85069. Clearly, the second element of litis pendentia – the identity of reliefs sought - is lacking in the two petitions filed by respondents with the appellate court. Thus, we rule that no grave abuse of discretion amounting to lack or excess of jurisdiction may be attributed to the Court of Appeals (Eighth Division) for giving due course to respondents’ petition in CA-G.R. SP No. 87104.

On the second issue, Section 3, Rule 58 of the 1997 Rules of Civil Procedure, as amended provides:

SECTION 3. Grounds for issuance of preliminary injunction. – A preliminary injunction may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance, or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency, or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

For a party to be entitled to an injunctive writ, he must show that there exists a right to be protected and that the acts against which the injunction is directed are violative of this right.11 In granting the respondents’ application for injunctive relief and making the injunction permanent, the Court of Appeals (Seventh Division) found that they have shown their clear and established right to the disputed 20,160 shares of stock because: (1) they have physical possession of the two stock certificates equivalent to the said number of shares; (2) Lincoln Continental is a mere

trustee of the Guy family; and (3) respondents constitute a majority of the board of directors of Northern Islands, and accordingly have management and control of the company at the inception of Civil Case No. 94-109444. The appellate court then ruled that the trial court committed grave abuse of discretion in issuing a writ of preliminary mandatory injunction in favor of Guy. The writ actually reduced the membership of Northern Islands board to just one member - Gilbert Guy. Moreover, he failed to establish by clear and convincing evidence his ownership of the shares of stock in question. The Court of Appeals then held there was an urgent necessity to issue an injunctive writ in order to prevent serious damage to the rights of respondents and Northern Islands.

We thus find no reason to depart from the findings of the Court of Appeals. Indeed, we cannot discern any taint of grave abuse of discretion on its part in issuing the assailed writ of preliminary injunction and making the injunction permanent.

B. G.R. Nos. 170185 & 170186

Ignacio and Ignacio Law Offices and Smartnet, petitioners, claim that the Court of Appeals never acquired jurisdiction over their respective persons as they were not served with summons, either by the MeTC or by the appellate court in CA-G.R. SP No. 87104. Thus, they submit that the Court of Appeals committed grave abuse of discretion amounting to lack or excess of jurisdiction when it included them in the coverage of its injunctive writ.

Jurisdiction is the power or capacity given by the law to a court or tribunal to entertain, hear, and determine certain controversies.12 Jurisdiction over the subject matter of a case is conferred by law.

Section 9 (1) of Batas Pambansa Blg. 129,13 as amended, provides:

SEC. 9. Jurisdiction. – The Court of Appeals shall exercise:

(1) Original jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas corpus, and quo warranto, and auxiliary writs or processes, whether or not in aid of its appellate jurisdiction.

Rule 46 of the 1997 Rules of Civil Procedure, as amended, governs all cases originally filed with the Court of Appeals. The following provisions of the Rule state:

SEC. 2. To what actions applicable. – This Rule shall apply to original actions for certiorari, prohibition, mandamusand quo warranto.

Except as otherwise provided, the actions for annulment of judgment shall be governed by Rule 47, for certiorari, prohibition, and mandamus by Rule 65, and for quo warranto by Rule 66.

x x x

SEC. 4. Jurisdiction over person of respondent, how acquired. – The court shall acquire jurisdiction over the person of the respondent by the service on him of its order or resolution indicating its initial action on the petition or by his voluntary submission to such jurisdiction.

SEC. 5. Action by the court. – The court may dismiss the petition outright with specific reasons for such dismissal or require the respondent to file a comment on the same within ten (10) days from notice. Only pleadings required by the court shall be allowed. All other pleadings and papers may be filed only with leave of court.

It is thus clear that in cases covered by Rule 46, the Court of Appeals acquires jurisdiction over the persons of the respondents by the service upon them of its order or resolution indicating its initial action on the petitions or by their voluntary submission to such jurisdiction.14 The reason for this is that, aside from the fact that no summons or other coercive process is served on respondents, their response to the petitions will depend on the initial action of the court thereon. Under Section 5, the court may dismiss the petitions outright, hence, no reaction is expected from respondents and under the policy adopted by Rule 46, they are not deemed to have been brought within the court’s jurisdiction until after service on them of the dismissal order or resolution.15

Records show that on April 27, 2005, petitioners in these two forcible entry cases, were served copies of the Resolution of the Court of Appeals (Seventh Division) dated April 26, 2005 in CA-G.R. SP No. 87104.16 The Resolution states:

Private respondents SMARTNET PHILIPPINES, INC., IGNACIO & IGNACIO LAW OFFICE, SUNFIRE TRADING, INC., ZOLT CORPORATION, CELLPRIME DISTRIBUTION CORPO., GOODGOLD REALTY & DEVELOPMENT CORP., are hereby DIRECTED to file CONSOLIDATED COMMENT on the original Petition for Certiorari, the First Supplemental Petition for Certiorari, and the Second Supplemental Petition for Certiorari (not a Motion to Dismiss) within ten (10) days from receipt of a copy of the original, first and second Petitions for Certiorari.17

Pursuant to Rule 46, the Court of Appeals validly acquired jurisdiction over the persons of Ignacio and Ignacio Law Offices and Smartnet upon being served with the above Resolution.

But neither of the parties bothered to file the required comment. Their allegation that they have been deprived of due process is definitely without merit. We have consistently held that when a party was afforded an opportunity to participate in the proceedings but failed to do so, he cannot complain of deprivation of due process for by such failure, he is deemed to have waived or forfeited his right to be heard without violating the constitutional guarantee.18

On the question of whether the Court of Appeals could amend its Resolution directing the issuance of a writ of preliminary injunction so as to include petitioners, suffice to state that

having acquired jurisdiction over their persons, the appellate court could do so pursuant to Section 5 (g), Rule 135 of the Revised Rules of Court, thus:

SEC. 5. Inherent powers of courts. – Every court shall have power:

x x x

(g) To amend and control its process and orders so as to make them conformable to law and justice.

In Villanueva v. CFI of Oriental Mindoro19 and Eternal Gardens Memorial Parks Corp. v. Intermediate Appellate Court,20 we held that under this Rule, a court has inherent power to amend its judgment so as to make it conformable to the law applicable, provided that said judgment has not yet acquired finality, as in these cases.

C. G.R. No. 176650

The fundamental issue is who owns the disputed shares of stock in Northern Islands.

We remind petitioner Lincoln Continental that what it filed with this Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended. It is a rule in this jurisdiction that in petitions for review under Rule 45, only questions or errors of law may be raised.21 There is a question of law when the doubt or controversy concerns the correct application of law or jurisprudence to a certain set of facts, or when the issue does not call for an examination of the probative value of the evidence presented. There is a question of fact when the doubt arises as to the truth or falsehood of facts or when there is a need to calibrate the whole evidence considering mainly the credibility of the witnesses, the existence and relevancy of specific surrounding circumstances, as well as their relation to each other and to the whole, and the probability of the situation.22Obviously, the issue raised by the instant petition for review on certiorari, involves a factual matter, hence, is outside the domain of this Court. However, in the interest of justice and in order to settle this controversy once and for all, a ruling from this Court is imperative.

One thing is clear. It was established before the trial court, affirmed by the Court of Appeals, that Lincoln Continental held the disputed shares of stock of Northern Islands merely in trust for the Guy sisters. In fact, the evidence proffered by Lincoln Continental itself supports this conclusion. It bears emphasis that this factual finding by the trial court was affirmed by the Court of Appeals, being supported by evidence, and is, therefore, final and conclusive upon this Court.

Article 1440 of the Civil Code provides that:

ART. 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary.

In the early case of Gayondato v. Treasurer of the Philippine Islands,23 this Court defines trust, in its technical sense, as "a right of property, real or personal, held by one party for the benefit of another." Differently stated, a trust is "a fiduciary relationship with respect to property, subjecting the person holding the same to the obligation of dealing with the property for the benefit of another person."24

Both Lincoln Continental and Gilbert claim that the latter holds legal title to the shares in question. But record shows that there is no evidence to support their claim. Rather, the evidence on record clearly indicates that the stock certificates representing the contested shares are in respondents’ possession. Significantly, there is no proof to support his allegation that the transfer of the shares of stock to respondent sisters is fraudulent. As aptly held by the Court of Appeals, fraud is never presumed but must be established by clear and convincing evidence.25 Gilbert failed to discharge this burden. We, agree with the Court of Appeals that respondent sisters own the shares of stocks, Gilbert being their mere trustee. Verily, we find no reversible error in the challenged Decision of the Court of Appeals (Special Second Division) in CA-G.R. CV No. 85937.

WHEREFORE, we DISMISS the petitions in G.R. Nos. 165849, 170185, 170186 and 176650; and DENY the petitions in G.R. Nos. 171066 and 176650. The Resolutions of the Court of Appeals (Eighth Division), dated October 28, 2004 and November 4, 2004, as well as the Decision dated October 10, 2005 of the Court of Appeals (Seventh Division) in CA-G.R. SP No. 87104 are AFFIRMED. We likewise AFFIRM IN TOTO the Decision of the Court of Appeals (Special Second Division), dated November 27, 2006 in CA-G.R. CV No. 85937. Costs against petitioners.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 159494               July 31, 2008

ROGELIO, GEORGE, LOLITA, ROSALINDA, and JOSEPHINE, all surnamed PASIÑO, represented by their father and attorney-in-fact JOSE PASIÑO Petitioners, vs.DR. TEOFILO EDUARDO F. MONTERROYO, ROMUALDO MONTERROYO, MARIA TERESA MONTERROYO, and STEPHEN MONTERROYO, Respondents.

D E C I S I O N

CARPIO, J.:

The Case

Before the Court is a petition for review1 assailing the 31 January 2003 Decision2 and the 5 August 2003 Resolution3 of the Court of Appeals in CA-G.R. CV No. 63199. The Court of Appeals affirmed the Decision4 dated 2 February 1999 of the Regional Trial Court of Iligan City, Branch 6 (trial court), in Civil Case No. 06-3060.

The Antecedent Facts

This case originated from an action for recovery of possession and damages, with prayer for the issuance of a temporary restraining order or writ of preliminary mandatory injunction, filed by Rogelio, George, Lolita, Rosalinda and Josephine, all surnamed Pasiño, represented by their father and attorney-in-fact Jose Pasiño (petitioners) against Dr. Teofilo Eduardo F. Monterroyo (Dr. Monterroyo), later substituted by his heirs Romualdo, Maria Teresa and Stephen, all surnamed Monterroyo (respondents).

Cad. Lot No. 2139 of Cad. 292, Iligan Cadastre (Lot No. 2139), with an area of 19,979 square meters, located at Panul-iran, Abuno, Iligan City, was part of a 24-hectare land occupied, cultivated and cleared by Laureano Pasiño (Laureano) in 1933. The 24-hectare land formed part of the public domain which was later declared alienable and disposable. On 18 February 1935, Laureano filed a homestead application over the entire 24-hectare land under Homestead Application No. 205845.5 On 22 April 1940, the Bureau of Forestry wrote Laureano and informed him that the tract of land covered by his application was not needed for forest purposes.6 On 11 September 1941, the Director of Lands issued an Order7 approving Laureano’s homestead application and stating that Homestead Entry No. 154651 was recorded in his name for the land applied for by him.

Laureano died on 24 March 1950. On 15 April 1952, the Director of Lands issued an Order8 for the issuance of a homestead patent in favor of Laureano, married to Graciana Herbito9 (Graciana). Laureano’s heirs did not receive the order and consequently, the land was not registered under Laureano’s name or under that of his heirs. In 1953, the property was covered by Tax Declaration No. 1110210 in the name of Laureano with Graciana11 as administrator.

Between 1949 and 1954, a Cadastral Survey was conducted in Iligan City. The surveyor found that a small creek divided the 24-hectare parcel of land into two portions, identified as Lot No. 2138 and Lot No. 2139.

Petitioners claimed that Laureano’s heirs, headed by his son Jose, continuously possessed and cultivated both lots. On 16 October 1962, Jose’s co-heirs executed a Deed of Quitclaim

renouncing their rights and interest over the land in favor of Jose. Jose secured a title in his name for Lot No. 2138. Later, Jose alienated Lot No. 2139 in favor of his children (petitioners in this case) who, on 8 January 1994, simultaneously filed applications for grant of Free Patent Titles over their respective shares of Lot No. 2139 before the Land Management Bureau of the Department of Environment and Natural Resources (DENR). On 22 August 1994, the DENR granted petitioners’ applications and issued Original Certificate of Title (OCT) No. P-1322 (a.f.) in favor of Rogelio Pasiño, OCT No. P-1318 (a.f.) in favor of George Pasiño, OCT No. P-1317 (a.f.) in favor of Lolita Pasiño, OCT No. P-1321 (a.f.) in favor of Josephine Pasiño, and OCT No. P-1319 (a.f.) in favor of Rosalinda Pasiño. Petitioners alleged that their possession of Lot No. 2139 was interrupted on 3 January 1993 when respondents forcibly took possession of the property.

Respondents alleged that they had been in open, continuous, exclusive and notorious possession of Lot No. 2139, by themselves and through their predecessors-in-interest, since 10 July 1949. They alleged that on 10 July 1949, Rufo Larumbe (Larumbe) sold Lot No. 2139 to Petra Teves (Petra). On 27 February 1984, Petra executed a deed of sale over Lot No. 2139 in favor of Vicente Teves (Vicente). On 20 February 1985, Vicente executed a pacto de retro sale over the land in favor of Arturo Teves (Arturo). In 1992, Arturo sold Lot No. 2139 in favor of respondents’ father, Dr. Monterroyo, by virtue of an oral contract. On 5 January 1995, Arturo executed a Deed of Confirmation of Absolute Sale of Unregistered Land in favor of Dr. Monterroyo’s heirs.

Respondents alleged that Jose was not the owner of Lot No. 2139 and as such, he could not sell the land to his children. They alleged that petitioners’ OCTs were null and void for having been procured in violation of the Public Land Act. They further alleged that the Land Management Bureau had no authority to issue the free patent titles because Lot No. 2139 was a private land.

The Ruling of the Trial Court

In its 2 February 1999 Decision, the trial court ruled, as follows:

WHEREFORE, judgment is rendered in favor of all the defendants and against the plaintiffs:

1. Dismissing the complaint;

2. Declaring Lot No. 2139, Iligan Cadastre 292, located at Panul-iran, Abuno, Iligan City to have acquired the character of a private land over which the Land Management Bureau has been divested of jurisdiction;

3. Declaring the defendants to be the owners and possessors of the said lot;

4. Declaring OCT Nos. P-1322 (a.f.) of Rogelio Pasiño, P-1318 (a.f.) of George Pasiño, P-1317 (a.f.) of Lolita Pasiño, P-1321 (a.f.) of Josephine Pasiño and P-1319 (a.f.) of Rosalinda Pasiño to be null and void for having been procured by fraud and for having been issued by the Land Management Bureau which has been divested of jurisdiction over said lot;

5. Declaring the defendants to be entitled to the sum of P6,000.00 deposited with the Office of the Clerk of Court under O.R. No. 1487777;

6. Dismissing the defendants’ counterclaim for attorney’s fees.

Costs against the plaintiffs.

SO ORDERED.12

The trial court ruled that as of January 1994, Lot No. 2139 had already acquired the character of a private land by operation of law. Since Lot No. 2139 had already ceased to be a public land, the Land Management Bureau had no power or authority to dispose of it by issuing free patent titles.

The trial court ruled that respondents’ counterclaim stands on the same footing as an independent action. Thus, it could not be considered a collateral attack on petitioners’ titles. The trial court further ruled that respondents filed their counterclaim within one year from the grant of petitioners’ titles, which was the reglementary period for impugning a title.

The trial court ruled that the order for the issuance of a patent in favor of Laureano lapsed and became functus officio when it was not registered with the Director of Deeds. The trial court ruled that while Laureano was the original claimant of the entire 24 hectares, he ceded the right to possession over half of the property, denominated as Lot No. 2139, to Larumbe sometime in 1947. The trial court found that Laureano offered to sell half of the land to his tenant Gavino Quinaquin (Gavino) but he did not have money. Later, Gavino learned from Larumbe that he (Larumbe) acquired half of the land from Laureano. Gavino then started delivering the owner’s share of the harvest to Larumbe. Laureano never contested Gavino’s action nor did he demand that Gavino deliver to him the owner’s share of the harvest and not to Larumbe. When Lot No. 2139 was sold, Gavino and his successors delivered the owner’s share of the harvest to Petra, Vicente, Arturo, Dr. Monterroyo, and Dindo Monterroyo, successively. The trial court also found that the other tenants had never given any share of the harvest to Jose. The trial court ruled that petitioners had failed to present convincing evidence that they and their predecessors-in-interest were in possession of Lot No. 2139 from 1947 to 1994 when they filed their application for free patent. The trial court ruled that petitioners committed actual fraud when they misrepresented in their free patent applications that they were in possession of the property continuously and publicly.

Petitioners appealed from the trial court’s Decision.

The Ruling of the Court of Appeals

In its 31 January 2003 Decision, the Court of Appeals affirmed the trial court’s Decision.

The Court of Appeals ruled that the trial court did not err in allowing respondents’ counterclaim despite the non-appearance of Dr. Monterroyo, the original defendant, at the barangay

conciliation proceedings. The Court of Appeals ruled that petitioners themselves did not personally appear. They were represented by their attorney-in-fact although they were all of legal age, which was a violation of the Katarungang Pambarangay proceedings requiring the personal appearance of the parties. Hence, the Court of Appeals ruled that there was never a valid conciliation proceeding. However, while this would have been a ground for the dismissal of the complaint, the issue was deemed waived because respondents did not raise it in their answer before the trial court.

The Court of Appeals ruled that the validity of petitioners’ titles could be attacked in a counterclaim. The Court of Appeals ruled that respondents’ counterclaim was a compulsory counterclaim.

The Court of Appeals sustained the trial court’s ruling that the Land Management Bureau had been divested of jurisdiction to grant the patent because the land already acquired the character of a private land. While the homestead patent was issued in favor of Laureano, the issuance of patent order became functus officio when it was not registered. The Court of Appeals further sustained the trial court’s finding that respondents were in physical, open, public, adverse and continuous possession of Lot No. 2139 in the concept of owner for at least 30 years prior to petitioners’ application for free patent titles over the land.

Petitioners filed a motion for reconsideration.

In its 5 August 2003 Resolution, the Court of Appeals denied petitioners’ motion for reconsideration.

Hence, the petition before this Court.

The Issue

Petitioners raised the sole issue of whether the Court of Appeals erred in sustaining the trial court’s Decision declaring respondents as the rightful owners and possessors of Lot No. 2139.13

The Ruling of this Court

The petition has no merit.

Land Management Bureau Had No JurisdictionTo Issue Free Patent Titles

In Director of Lands v. IAC,14 the Court ruled:

[A]lienable public land held by a possessor, continuously or through his predecessors-in-interest, openly, continuously and exclusively for the prescribed statutory period (30 years under The

Public Land Act, as amended) is converted to private property by the mere lapse or completion of the period, ipso jure.15

In Magistrado v. Esplana,16 the Court ruled that so long as there is a clear showing of open, continuous, exclusive and notorious possession, and hence, a registrable possession, by present or previous occupants, by any proof that would be competent and admissible, the property must be considered to be private.

In this case, the trial court found that the preponderance of evidence favors respondents as the possessors of Lot No. 2139 for over 30 years, by themselves and through their predecessors-in-interest. The question of who between petitioners and respondents had prior possession of the property is a factual question whose resolution is the function of the lower courts.17 When the factual findings of both the trial court and the Court of Appeals are supported by substantial evidence, they are conclusive and binding on the parties and are not reviewable by this Court.18 While the rule is subject to exceptions, no exception exists in this case.

Respondents were able to present the original Deed of Absolute Sale, dated 10 July 1949, executed by Larumbe in favor of Petra.19 Respondents also presented the succeeding Deeds of Sale showing the transfer of Lot No. 2139 from Petra to Vicente20 and from Vicente to Arturo21 and the Deed of Confirmation of Absolute Sale of Unregistered Real Property executed by Arturo in favor of respondents.22 Respondents also presented a certification23 executed by P/Sr. Superintendent Julmunier Akbar Jubail, City Director of Iligan City Police Command and verified from the Log Book records by Senior Police Officer Betty Dalongenes Mab-Abo confirming that Andres Quinaquin made a report that Jose, Rogelio and Luciana Pasiño, Lucino Pelarion and Nando Avilo forcibly took his copra. This belied petitioners’ allegation that they were in possession of Lot No. 2139 and respondents forcibly took possession of the property only in January 1993.

Considering that petitioners’ application for free patent titles was filed only on 8 January 1994, when Lot No. 2139 had already become private land ipso jure, the Land Management Bureau had no jurisdiction to entertain petitioners’ application.

Non-Registration of Homestead Patent Rendered itFunctus Officio

Once a homestead patent granted in accordance with law is registered, the certificate of title issued by virtue of the patent has the force and effect of a Torrens title issued under the land registration law.24 In this case, the issuance of a homestead patent in 1952 in favor of Laureano was not registered. Section 103 of Presidential Decree No. 152925 mandates the registration of patents, and registration is the operative act to convey the land to the patentee, thus:

Sec. 103. x x x x. The deed, grant, patent or instrument of conveyance from the Government to the grantee shall not take effect as a conveyance or bind the land but shall operate only as a contract between the Government and the grantee and as evidence of authority to the Register of Deeds

to make registration. It is the act of registration that shall be the operative act to affect and convey the land, and in all cases under this Decree, registration shall be made in the office of the Register of Deeds of the province or city where the land lies. The fees for registration shall be paid by the grantee. After due registration and issuance of the certificate of title, such land shall be deemed to be registered land to all intents and purposes under this Decree. (Emphasis supplied)1avvphi1

Further, in this case, Laureano already conveyed Lot No. 2139 to Larumbe in 1947 before the approval of his homestead application. In fact, Larumbe already sold the land to Petra in 1949, three years before the issuance of the homestead patent in favor of Laureano. The trial court found that since 1947, the tenants of Lot No. 2139 had been delivering the owner’s share of the harvest, successively, to Larumbe, Petra, Vicente and Arturo Teves, Dr. Monterroyo and Dindo Monterroyo. The trial court found no instance when the owner’s share of the harvest was delivered to Jose Pasiño.

Hence, we sustain the trial court that the non-registration of Laureano’s homestead patent had rendered it functus officio.

A Counterclaim is Not a Collateral Attack on the Title

It is already settled that a counterclaim is considered an original complaint and as such, the attack on the title in a case originally for recovery of possession cannot be considered as a collateral attack on the title.26 Development Bank of the Philippines v. Court of Appeals27 is similar to the case before us insofar as petitioner in that case filed an action for recovery of possession against respondent who, in turn, filed a counterclaim claiming ownership of the land. In that case, the Court ruled:

Nor is there any obstacle to the determination of the validity of TCT No. 10101. It is true that the indefeasibility of torrens title cannot be collaterally attacked. In the instant case, the original complaint is for recovery of possession filed by petitioner against private respondent, not an original action filed by the latter to question the validity of TCT No. 10101 on which petitioner bases its right. To rule on the issue of validity in a case for recovery of possession is tantamount to a collateral attack. However, it should not [b]e overlooked that private respondent filed a counterclaim against petitioner, claiming ownership over the land and seeking damages. Hence, we could rule on the question of the validity of TCT No. 10101 for the counterclaim can be considered a direct attack on the same. ‘A counterclaim is considered a complaint, only this time, it is the original defendant who becomes the plaintiff... It stands on the same footing and is to be tested by the same rules as if it were an independent action.’ x x x.28

As such, we sustain both the trial court and the Court of Appeals on this issue.

Principle of Constructive Trust Applies

Under the principle of constructive trust, registration of property by one person in his name, whether by mistake or fraud, the real owner being another person, impresses upon the title so acquired the character of a constructive trust for the real owner, which would justify an action for reconveyance.29 In the action for reconveyance, the decree of registration is respected as incontrovertible but what is sought instead is the transfer of the property wrongfully or erroneously registered in another’s name to its rightful owner or to one with a better right.30 If the registration of the land is fraudulent, the person in whose name the land is registered holds it as a mere trustee, and the real owner is entitled to file an action for reconveyance of the property.31

In the case before us, respondents were able to establish that they have a better right to Lot No. 2139 since they had long been in possession of the property in the concept of owners, by themselves and through their predecessors-in-interest. Hence, despite the irrevocability of the Torrens titles issued in their names and even if they are already the registered owners under the Torrens system, petitioners may still be compelled under the law to reconvey the property to respondents.32

WHEREFORE, we DENY the petition. We AFFIRM the 31 January 2003 Decision and the 5 August 2003 Resolution of the Court of Appeals in CA-G.R. CV No. 63199. Costs against petitioners.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 115925            August 15, 2003

SPOUSES RICARDO PASCUAL and CONSOLACION SIOSON, petitioners, vs.COURT OF APPEALS and REMEDIOS S. EUGENIO-GINO, respondents.

CARPIO, J.:

The Case

This is a petition for review of the Decision1 dated 31 January 1994 of the Court of Appeals ordering the Register of Deeds of Metro Manila, District III, to place TCT No. (232252) 1321 in the name of respondent Remedios S. Eugenio-Gino. The Decision ordered the Register of Deeds to cancel the names of petitioners Ricardo Pascual and Consolacion Sioson ("petitioners") in TCT

No. (232252) 1321. The Decision also directed petitioners to pay respondent moral and exemplary damages and attorney’s fees.

The Facts

Petitioner Consolacion Sioson ("CONSOLACION") and respondent Remedios S. Eugenio-Gino ("REMEDIOS") are the niece and granddaughter, respectively, of the late Canuto Sioson ("CANUTO"). CANUTO and 11 other individuals, including his sister Catalina Sioson ("CATALINA") and his brother Victoriano Sioson ("VICTORIANO"), were co-owners of a parcel of land in Tanza, Navotas, Metro Manila. The property, known as Lot 2 of Plan Psu 13245, had an area of 9,347 square meters and was covered by Original Certificate of Title No. 4207 issued by the Register of Deeds of Rizal. CATALINA, CANUTO, and VICTORIANO each owned an aliquot 10/70 share or 1,335 square meters of Lot 2.2

On 20 November 1951, CANUTO had Lot 2 surveyed and subdivided into eight lots (Lot Nos. 2-A to 2-H) through Subdivision Plan Psd 34713 which the Director of Lands approved on 30 May 1952. Lot No. 2-A, with an area of 670 square meters, and Lot No. 2-E, with an area of 2,000 square meters, were placed under CANUTO’s name. Three other individuals took the remaining lots.3

On 26 September 1956, CANUTO and CONSOLACION executed a Kasulatan ng Bilihang Tuluyan4("KASULATAN"). Under the KASULATAN, CANUTO sold his 10/70 share in Lot 2 in favor of CONSOLACION forP2,250.00. The KASULATAN, notarized by Notary Public Jose T. de los Santos of Navotas, provides:

Na ako, CANUTO SIOSON, mamamayang Pilipino, may katampatang gulang, kasal kay Raymunda San Diego, at naninirahan sa Tanza, Navotas, Rizal, sa bisa at pamamagitan ng kasulatang ito ay nagpapatunay at nagpapatibay:

1. Na ako ang lubos at tunay na may-ari ng 10/70 bahaging hindi hati (10/70 porcion pro-indiviso) ng isang lagay na lupa (Lote No. 2, Plano Psu-13245), na nasa sa nayon ng Tanza, Municipio ng Navotas, Provincia ng Rizal, at ang descripcion o pagkakakilanlan ng nasabing lote ay nakasaad sa Certificado Original, de Titulo No. 4207 ng Oficina ng Registrador de Titulos ng Rizal, gaya ng sumusunod:

x x x x

2. Na dahil at alang-alang sa halagang Dalawang Libo Dalawang Daan at Limampung Piso (P2,250.00), salaping Pilipino, na sa akin ay ibinayad ni CONSOLACION SIOSON, kasal kay Ricardo S. Pascual, may sapat na gulang, mamamayang Pilipino, at naninirahan sa Dampalit, Malabon, Rizal at ang pagkakatanggap ng nasabing halaga ay aking inaamin at pinatutunayan, ay aking ipinagbili, inilipat at isinalin, sa pamamagitan ng bilihang tuluyan at

walang pasubali a favor [sic] sa nasabing si CONSOLACION SIOSON, sa kanyang tagapagmana at mapaglilipatan ang lahat ng aking titulo, karapatan at kaparti na binubuo ng 10/70 bahaging hindi hati (10/70 porcion pro-indiviso) ng loteng descrito or tinutukoy sa itaas nito. (Emphasis supplied)

CONSOLACION immediately took possession of Lot Nos. 2-A and 2-E. She later declared the land for taxation purposes and paid the corresponding real estate taxes.5

On 23 October 1968, the surviving children of CANUTO, namely, Felicidad and Beatriz, executed a joint affidavit6("JOINT AFFIDAVIT") affirming the KASULATAN in favor of CONSOLACION. They also attested that the lots their father had sold to CONSOLACION were Lot Nos. 2-A and 2-E of Subdivision Plan Psd 34713. The JOINT AFFIDAVIT reads:

KAMING sina FELICIDAD SIOSON at BEATRIZ SIOSON, pawang mga Pilipino, kapuwa may sapat na gulang at naninirahan, ang una sa Tanza, Navotas at ang ikalawa sa Concepcion, Malabon, lalawigan ng Rizal, sa ilalim ng isang ganap na panunumpa alinsunod sa batas, ay malayang nagsasalaysay ng mga sumusunod:

Na kami ang mga buhay na anak na naiwan ni CANUTO SIOSON na nagmamay-ari ng 10/70 bahaging hindi hati (10/70 porcion pro-indiviso) ng isang lagay na lupa (Lote No. 2, plano Psu-13245), na nasa Nayon ng Tanza, Navotas, Rizal, at ang mga palatandaan nito ay nasasaad sa Certificado Original de Titulo No. 4207 ng Tanggapan ng Registrador de Titulos ng Rizal;

Na sa lubos naming kaalaman, ay ipinagbili ng aming Ama na si Canuto Sioson ang kaniyang buong bahagi na 10/70 sa nasabing Lote No. 2, kay CONSOLACION SIOSON, may-bahay ni Ricardo S. Pascual, na taga Dampalit, Malabon, Rizal, sa halagang P2,250.00, salaping pilipino, noong ika 16 [sic] ng Septiembre, 1956, sa pamamagitan ng isang KASULATAN NG BILIHANG TULUYAN na pinagtibay sa harap ng Notario Publico Jose T. de los Santos nang pechang nabanggit, sa Navotas, Rizal, (Doc. No. 194, Page No. 84; Book No. IV; Series of 1956);

Na ang nasabing lupa na ipinagbili ng aming Ama kay Consolacion Sioson ni Pascual, ay nakikilala ngayong mga Lote No. 2-A at Lote 2-E ng Plano de Subdivision Psd-34713; na pinagtibay ng Assistant Director of Lands noong Mayo 30, 1952;

Na aming ngayong pinatitibayan ang pagka-pagbili ng bahagi ng aming Ama kay Consolacion Sioson ni Pascual ng ngayo’y nakikilalang Lote No. 2-A at Lote No. 2-E ng Plano de Subdivision Psd-34713. (Emphasis supplied)

On 28 October 1968, CONSOLACION registered the KASULATAN and the JOINT AFFIDAVIT with the Office of the Register of Deeds of Rizal ("Register of Deeds"). Based on these documents, the Register of Deeds issued to CONSOLACION Transfer Certificate of Title No. (232252) 1321

covering Lot Nos. 2-A and 2-E of Subdivision Plan Psd 34713 with a total area of 2,670 square meters.

On 4 February 1988, REMEDIOS filed a complaint against CONSOLACION and her spouse Ricardo Pascual in the Regional Trial Court of Malabon, Branch 165, for "Annulment or Cancellation of Transfer Certificate [of Title] and Damages." REMEDIOS claimed that she is the owner of Lot Nos. 2-A and 2-E because CATALINA devised these lots to her in CATALINA’s last will and testament7 ("LAST WILL") dated 29 May 1964. REMEDIOS added that CONSOLACION obtained title to these lots through fraudulent means since the area covered by TCT (232252) 1321 is twice the size of CANUTO’s share in Lot 2. REMEDIOS prayed for the cancellation of CONSOLACION’s title, the issuance of another title in her name, and the payment to her of damages.

Petitioners sought to dismiss the complaint on the ground of prescription. Petitioners claimed that the basis of the action is fraud, and REMEDIOS should have filed the action within four years from the registration of CONSOLACION’s title on 28 October 1968 and not some 19 years later on 4 February 1988. REMEDIOS opposed the motion, claiming that she became aware of CONSOLACION’s adverse title only in February 1987. CONSOLACION maintained that she had timely filed her complaint within the four-year prescriptive on 4 February 1988.

In its order of 28 April 1988, the trial court denied petitioners’ motion to dismiss. The trial court held that the reckoning of the prescriptive period for filing REMEDIOS’ complaint is evidentiary in nature and must await the presentation of the parties’ evidence during the trial. During the pre-trial stage, REMEDIOS clarified that she was claiming only CATALINA’s 10/70 share in Lot 2, or 1,335 square meters, which constitute ½ of the area of Lot Nos. 2-A and 2-E.8 The trial of the case then ensued.

The Ruling of the Trial Court

On 26 November 1990, the trial court rendered judgment dismissing the case and ordering REMEDIOS to pay petitioners P10,000 as attorney’s fees and the cost of suit. The trial court held that the action filed by REMEDIOS is based on fraud, covered by the four-year prescriptive period. The trial court also held that REMEDIOS knew of petitioners’ adverse title on 19 November 1982 when REMEDIOS testified against petitioners in an ejectment suit petitioners had filed against their tenants in Lot Nos. 2-A and 2-E. Thus, the complaint of REMEDIOS had already prescribed when she filed it on 4 February 1988.

The trial court further ruled that REMEDIOS has no right of action against petitioners because CATALINA’s LAST WILL from which REMEDIOS claims to derive her title has not been admitted to probate. Under Article 838 of the Civil Code, no will passes real or personal property unless it is allowed in probate in accordance with the Rules of Court. The dispositive portion of the trial court’s decision provides:

WHEREFORE, judgment is hereby rendered in favor of the defendants and against plaintiff, ordering:

1. The dismissal of this case;

2. The plaintiff to pay the defendants the sum of Ten Thousand (P10,000.00) Pesos as and for attorney’s fees; and

3. The plaintiff to pay the costs of suit.9

REMEDIOS appealed to the Court of Appeals.

The Ruling of the Court of Appeals

On 31 January 1994, the Court of Appeals rendered judgment reversing the decision of the trial court. The appellate court held that what REMEDIOS filed was a suit to enforce an implied trust allegedly created in her favor when CONSOLACION fraudulently registered her title over Lot Nos. 2-A and 2-E. Consequently, the prescriptive period for filing the complaint is ten years, not four. The Court of Appeals counted this ten-year period from 19 November 1982. Thus, when REMEDIOS filed her complaint on 4 February 1988, the ten-year prescriptive period had not yet expired.

The appellate court held that CATALINA’s unprobated LAST WILL does not preclude REMEDIOS from seeking reconveyance of Lot Nos. 2-A and 2-E as the LAST WILL may subsequently be admitted to probate. The dispositive portion of the appellate court’s ruling provides:

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The Registry of Deeds of Rizal or Metro Manila, District III, is ordered to place Transfer Certificate of Title No. (232252) 1321 under the name of Remedios S. Eugenio-Gino as executor of the will of Catalina Sioson and cancel the names of the Spouses Ricardo Pascual and Consolacion Sioson inscribed over said title as owners of the covered lot. Defendants-appellees spouses Ricardo Pascual and Consolacion Sioson are ordered to pay plaintiff-appellant Remedios S. Eugenio-Gino moral damages in the amount of P50,000.00, exemplary damages ofP20,000[.00] and attorney’s fees of P20,000.00 and P500.00 per appearance.10

Petitioners sought reconsideration of the ruling. However, the Court of Appeals denied their motion in its order dated 15 June 1994.

Hence, this petition.

The Issues

Petitioners allege the following assignment of errors:

I. THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT’S CAUSE OF ACTION IS NOT BARRED BY PRESCRIPTION WHICH FINDING IS MANIFESTLY CONTRARY TO LAW AND THE APPLICABLE DECISIONS OF THIS HONORABLE COURT.

II. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE RESPONDENT DOES NOT HAVE ANY TITLE AND HAS UTTERLY FAILED TO PROVE ANY TITLE TO THE LOTS INVOLVED IN THIS CASE, AND IN ORDERING THE CANCELLATION OF THE CERTIFICATE OF TITLE OF PETITIONERS.

III. THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION AND IN GROSS VIOLATION OF THE RULES OF COURT IN ORDERING THE ENTIRE PROPERTY COVERED BY TRANSFER CERTIFICATE OF TITLE NO. (232252) 1321 TO BE PLACED IN THE NAME OF PRIVATE RESPONDENT, BECAUSE THE CLAIM OF PRIVATE RESPONDENT IS LIMITED ONLY TO ONE-HALF (1/2) PORTION OF THE PROPERTY, AND THE OTHER HALF THEREOF UNQUESTIONABLY BELONGS TO PETITIONERS.

IV. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS ACTED FRAUDULENTLY AND IN BAD FAITH IN SECURING THEIR CERTIFICATE OF TITLE TO THE PROPERTY INVOLVED IN THIS CASE, AND IN ORDERING PETITIONERS TO PAY PRIVATE RESPONDENTS MORAL DAMAGES, EXEMPLARY DAMAGES AND ATTORNEY’S FEES.11

The pivotal questions are: (1) whether prescription bars the action filed by REMEDIOS, and (2) whether REMEDIOS is a real party-in-interest.

The Ruling of the Court

The petition has merit.

The Action is Barred by Prescription

The trial court held that the action filed by REMEDIOS is one based on fraud. REMEDIOS’ action seeks to recover real property that petitioners allegedly acquired through fraud. Consequently, the trial court held that the action prescribes in four years counted from REMEDIOS’ actual discovery of petitioners’ adverse title. The trial court concluded that REMEDIOS belatedly filed her suit on 4 February 1988 because she actually knew of petitioners’ adverse title since 19 November 1982.

On the other hand, the Court of Appeals held that what REMEDIOS filed was a suit to enforce an implied trust. REMEDIOS had ten years counted from actual notice of the breach of trust, that is, the assertion of adverse title, within which to bring her action. The appellate court held that

REMEDIOS seasonably filed her complaint on 4 February 1988 because she allegedly discovered petitioners’ adverse title only on 19 November 1982.

What REMEDIOS filed was an action to enforce an implied trust but the same is already barred by prescription.

Prescriptive Period is 10 Years Counted

From Registration of Adverse Title

The four-year prescriptive period relied upon by the trial court applies only if the fraud does not give rise to an implied trust, and the action is to annul a voidable contract under Article 139012 of the Civil Code. In such a case, the four-year prescriptive period under Article 139113 begins to run from the time of discovery of the mistake, violence, intimidation, undue influence or fraud.

In the present case, REMEDIOS does not seek to annul the KASULATAN. REMEDIOS does not assail the KASULATAN as a voidable contract. In fact, REMEDIOS admits the validity of the sale of 1,335 square meters of land under the KASULATAN. However, REMEDIOS alleges that the excess area of 1,335 meters is not part of the sale under the KASULATAN. REMEDIOS seeks the removal of this excess area from TCT No. (232252) 1321 that was issued to CONSOLACION. Consequently, REMEDIOS’ action is for "Annulment or Cancellation of Transfer Certificate [of Title] and Damages."14

REMEDIOS’ action is based on an implied trust under Article 1456 since she claims that the inclusion of the additional 1,335 square meters in TCT No. (232252) 1321 was without basis. In effect, REMEDIOS asserts that CONSOLACION acquired the additional 1,335 square meters through mistake or fraud and thus CONSOLACION should be considered a trustee of an implied trust for the benefit of the rightful owner of the property. Clearly, the applicable prescriptive period is ten years under Article 1144 and not four years under Articles 1389 and 1391.

It is now well-settled that the prescriptive period to recover property obtained by fraud or mistake, giving rise to an implied trust under Article 145615 of the Civil Code, is ten years pursuant to Article 1144.16 This ten-year prescriptive period begins to run from the date the adverse party repudiates the implied trust, which repudiation takes place when the adverse party registers the land.17

REMEDIOS filed her complaint on 4 February 1988 or more than 19 years after CONSOLACION registered her title over Lot Nos. 2-A and 2-E on 28 October 1968. Unquestionably, REMEDIOS filed the complaint late thus warranting its dismissal. As the Court recently declared in Spouses Alfredo v. Spouses Borras,18 —

Following Caro,19 we have consistently held that an action for reconveyance based on an implied trust prescribes in ten years. We went further by specifying the reference point of the ten-year prescriptive period as the date of the registration of the deed or the issuance of the title.

The Court of Appeals’ Reckoning of

Prescriptive Period from Actual Notice

of Adverse Title Not Justified

In holding that the action filed by REMEDIOS has not prescribed, the Court of Appeals invoked this Court’s ruling in Adille v. Court of Appeals.20 In Adille, the Court reckoned the ten-year prescriptive period for enforcing implied trusts not from registration of the adverse title but from actual notice of the adverse title by the cestui que trust. However, the Court, in justifying its deviation from the general rule, explained:

[W]hile actions to enforce a constructive trust prescribes (sic) in ten years, reckoned from the date of the registration of the property, we x x x are not prepared to count the period from such date in this case. We note the petitioner’s sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother Feliza["] with the consequence that he was able to secure title in his name also. (Emphasis supplied)

Such commission of specific fraudulent conduct is absent in the present case. Other than asserting that petitioners are guilty of fraud because they secured title to Lot Nos. 2-A and 2-E with an area twice bigger than what CANUTO allegedly sold to CONSOLACION, REMEDIOS did not present any other proof of petitioners’ fraudulent conduct akin to Adille.

CONSOLACION obtained title to Lot Nos. 2-A and 2-E through the KASULATAN executed by CANUTO and the JOINT AFFIDAVIT executed by his surviving children, one of whom, Felicidad, is the mother of REMEDIOS. The KASULATAN referred to the sale of CANUTO’s 10/70 share in Lot 2 without specifying the area of the lot sold. The JOINT AFFIDAVIT referred to the "Plano de Subdivision Psd-34713" without also specifying the area of the lot sold. However, Subdivision Plan Psd 34713, as certified by the Assistant Director of Lands on 30 May 1952, showed an area of 2,670 square meters in the name of CANUTO. Based on these documents, the Register of Deeds issued TCT No. (232252) 1321 to CONSOLACION covering an area of 2,670 square meters.

REMEDIOS does not assail the KASULATAN or the JOINT AFFIDAVIT as fictitious or forged. REMEDIOS even admits the authenticity of Subdivision Plan Psd 34713 as certified by the Assistant Director of Lands.21 Moreover, REMEDIOS has not contested petitioners’ claim that CANUTO doubled his share in Lot 2 by acquiring VICTORIANO’s share.22

Plainly, the increase in the area sold from 1,335 square meters to 2,670 square meters is a glaring mistake. There is, however, no proof whatsoever that this increase in area was the result of fraud. Allegations of fraud in actions to enforce implied trusts must be proved by clear and convincing evidence.23 Adille, which is anchored on fraud,24 cannot apply to the present case.

At any rate, even if we apply Adille to this case, prescription still bars REMEDIOS’ complaint. As executrix of CATALINA’s LAST WILL, REMEDIOS submitted to the then Court of First Instance of Caloocan in Special Proceedings Case No. C-208 the inventory of all the property comprising CATALINA’s estate, which included Lot Nos. 2-A and 2-E. In a motion dated 7 November 1977, CONSOLACION sought the exclusion of these lots from the inventory, invoking her title over them. REMEDIOS was served a copy of the motion on 8 November 1977 against which she filed an opposition. Nevertheless, the trial court overruled REMEDIOS’ objection. In its order of 3 January 1978, the trial court granted CONSOLACION’s motion and ordered the exclusion of Lot Nos. 2-A and 2-E from the estate of CATALINA. REMEDIOS did not appeal from this ruling.

REMEDIOS thus had actual notice of petitioners’ adverse title on 8 November 1977. Even if, for the sake of argument, the ten-year prescriptive period begins to run upon actual notice of the adverse title, still REMEDIOS’ right to file this suit has prescribed. REMEDIOS had until 11 November 1987 within which to file her complaint. When she did so on 4 February 1988, the prescriptive period had already lapsed.

Respondent is Not a Real Party-in-Interest

Not only does prescription bar REMEDIOS’ complaint. REMEDIOS is also not a real party-in-interest who can file the complaint, as the trial court correctly ruled.

The 1997 Rules of Civil Procedure require that every action must be prosecuted or defended in the name of the real party-in-interest who is the party who stands to benefit or suffer from the judgment in the suit.25 If one who is not a real party-in-interest brings the action, the suit is dismissible for lack of cause of action.26

REMEDIOS anchored her claim over Lot Nos. 2-A and 2-E (or over its one-half portion) on the devise of these lots to her under CATALINA’s LAST WILL. However, the trial court found that the probate court did not issue any order admitting the LAST WILL to probate. REMEDIOS does not contest this finding. Indeed, during the trial, REMEDIOS admitted that Special Proceedings Case No. C-208 is still pending.27

Article 838 of the Civil Code states that "[N]o will shall pass either real or personal property unless it is proved and allowed in accordance with the Rules of Court." This Court has interpreted this provision to mean, "until admitted to probate, [a will] has no effect whatever and no right can be claimed thereunder."28 REMEDIOS anchors her right in filing this suit on her being a devisee of CATALINA’s LAST WILL. However, since the probate court has not admitted CATALINA’s LAST WILL, REMEDIOS has not acquired any right under the LAST WILL. REMEDIOS is thus without any cause of action either to seek reconveyance of Lot Nos. 2-A and 2-E or to enforce an implied trust over these lots.

The appellate court tried to go around this deficiency by ordering the reconveyance of Lot Nos. 2-A and 2-E to REMEDIOS in her capacity as executrix of CATALINA’s LAST WILL. This is

inappropriate because REMEDIOS sued petitioners not in such capacity but as the alleged owner of the disputed lots. Thus, REMEDIOS alleged in her complaint:

3. The plaintiff is a niece and compulsory heir of the late CATALINA SIOSON who died single and without any child of her own and who, during her lifetime, was the owner of those two (2) parcels of land located at Tanza, Navotas, Rizal (now Metro Manila), formerly covered by Original Certificate of Title No. 4207 of the Registry of Deeds for the Province of Rizal, x x x.

4. The plaintiff, aside from being the compulsory heir of the deceased CATALINA SIOSON, has sole and exclusive claim of ownership over the above-mentioned two (2) parcels of land by virtue of a will or "Huling Habilin at Pagpapasiya" executed by Catalina Sioson on May 19, 1964 before Notary Public Efren Y. Angeles at Navotas, Rizal, in which document the deceased Catalina Sioson specifically and exclusively bequeathed to the plaintiff the above-mentioned Lots 2-A and 2-E of Psd-34713 approved by the Bureau of Lands on May 30, 1952. Copy of the "Huling Habilin at Pagpapasiya" consisting of four (4) pages is hereto attached and forms an integral part hereof as Annex "A;"

5. Sometime on or about February, 1987, plaintiff discovered that the above-mentioned Lots 2-A and 2-E of subdivision plan Psd-34713 are now registered or titled in the name of the defendants under Transfer Certificate of Title No. (232252) 1321 of the Registry of Deeds of Rizal, now Metro-Manila District III. Copy of the title is hereto attached and forms an integral part hereof as Annex "B;"

6. Upon further inquiry and investigation, plaintiff discovered that the defendants were able to obtain title in their name of the said parcels of land by virtue of a "Kasulatan ng Bilihang Tuluyan" allegedly executed by Canuto Sioson on September 26, 1956 before Notary Public Jose [T.] de los Santos of Navotas, Metro-Manila. Copy of the said document is hereto attached and forms an integral part hereof as Annex "C;"

7. The plaintiff also discovered that although x x x the original sale did not specify the parcels of land sold by Canuto Sioson, the defendants submitted an alleged Affidavit executed by Felicidad Sioson and Beatriz Sioson identifying the lots sold by Canuto Sioson to the defendants as Lots 2-A and 2-E of subdivision plan Psd-34713. Copy of the Affidavit dated October 3, 1968 on the basis of which the present Transfer Certificate of Title No. (232252) 1321 was issued to the defendants is hereto attached and forms an integral part hereof as Annex "D;"

8. The defendants are clearly guilty of fraud in presenting the aforementioned Affidavit (Annex "D") to the Register of Deeds as the basis of their claim to Lots 2-A and 2-E in view of the fact that the parcels sold to them by Canuto Sioson, assuming there was such a sale, were different parcels of land, Lots 2-A and 2-E being the properties of the late Catalina Sioson who bequeathed the same to the plaintiff.

x x x x

12. Because of the defendants’ fraudulent actuations on this matter, plaintiff suffered and continious [sic] to suffer moral damages arising from anxiety, shock and wounded feelings. Defendants should also be assessed exemplary damages by way of a lesson to deter them from again committing the fraudulent acts, or acts of similar nature, by virtue of which they were able to obtain title to the parcels of land involved in this case x x x.29(Emphasis supplied)

Indeed, all throughout the proceedings below and even in her Comment to this petition, REMEDIOS continued to pursue her claim as the alleged owner of one-half of the disputed lots.

Other Matters Raised in the Petition

The Court deems it unnecessary to pass upon the other errors petitioners assigned concerning the award of damages and attorneys fees to REMEDIOS. Such award assumes that REMEDIOS is a real party-in-interest and that she timely filed her complaint. As earlier shown, this is not the case.

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals dated 31 January 1994 and its Resolution dated 15 June 1994 are SET ASIDE. The complaint filed by respondent Remedios Eugenio-Gino, dated 2 February 1988 is DISMISSED.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 181844               September 29, 2010

SPS. FELIPE and JOSEFA PARINGIT, Petitioner, vs.MARCIANA PARINGIT BAJIT, ADOLIO PARINGIT and ROSARIO PARINGIT ORDOÑO, Respondents.

D E C I S I O N

ABAD, J.:

This case is about the existence of an implied trust in a transaction where a property was bought by one sibling supposedly for the benefit of all. The other siblings now want to recover their share in the property by reimbursing their brother for their share in the purchase price.

The Facts and the Case

During their lifetime, spouses Julian and Aurelia Paringit leased a lot on Norma Street, Sampaloc, Manila (the lot) from Terocel Realty, Inc. (Terocel Realty).1 They built their home there and raised five children, namely, Florencio, Felipe, Marciana, Adolio, and Rosario.2 Aurelia died on November 6, 1972.3

For having occupied the lot for years, Terocel Realty offered to sell it to Julian but he did not have enough money at that time to meet the payment deadline. Julian sought the help of his children so he can buy the property but only his son Felipe and wife Josefa had the financial resources he needed at that time.4 To bring about the purchase, on January 16, 1984 Julian executed a deed of assignment of leasehold right in favor of Felipe and his wife that would enable them to acquire the lot.5 On January 30, 1984 the latter bought the same from Terocel Realty for P55,500.00 to be paid in installments.6 On April 12, 1984 Felipe and his wife paid the last installment and the realty company executed a Deed of Absolute Sale in their favor and turned over the title to them.7

On February 25, 1985, due to issues among Julian’s children regarding the ownership of the lot, Julian executed an affidavit clarifying the nature of Felipe and his wife’s purchase of the lot. He claimed that it was bought for the benefit of all his children.8 He said in his affidavit:

3. That recently, the Terocel Realty, Inc., owners of the subdivision lots in Sampaloc, gave a limited period to actual occupants like us within which to purchase the lands occupied and as I had no funds at that time, I asked all my children and their respective spouses to contribute money with which to purchase the lot and thereafter to divide the lot among themselves but only my son Felipe Paringit and his wife Josefa answered my plea and so, in order that they could purchase the land, I assigned to my son and his wife my right to the whole property and with this assignment, the couple purchased the parcel of land from the Terocel Realty, Inc. for the sum of Fifty Five Thousand Five Hundred Pesos (P55,500.00) Philippine currency on April 12, 1984 as shown in the Deed of Absolute sale executed by the Terocel Realty, Inc. bearing Registry No. 273, Page 56, Book XV, Series of 1984, of Notary Public of Manila, Atty. Albino B. Achas plus the sum of P4,500.00 expenses or a total of Sixty Thousand (P60,000.00);

x x x x

5. That to set the records straight, and to effect peace and understanding among my children and their respective families, I, as father and head of the family, hereby declare:

x x x x

c) That my conjugal share in the above described property is one half or 75 sq. m. and the other half or 75 sq. m. belongs to my deceased wife;

d) That I waive my share in the estate of my deceased wife and as she has no will regarding the said estate, the same must be divided equally among my five children at

15 sq. m. each; but each of them should reimburse their brother Felipe and his wife, Josefa the proportional amount advanced by them as I also will reimburse him the sum of P30,000.00 or one half of the amount that the couple advanced.

e) That if any of my children claims or needs a bigger area than 15 sq. m., he/she should amicably talk with or negotiate with any other brother or sister for transfer or assignment of such area as they agree.9

Expressing their concurrence with what their father said in his affidavit, Felipe’s siblings, namely, Marciana, Rosario, and Adolio (collectively, Marciana, et al) signed the same. Josefa, Felipe’s wife, also signed the affidavit for Felipe who was in Saudi Arabia.10 Only Florencio, among the siblings, did not sign.

On January 23, 1987 Felipe and his wife registered their purchase of the lot,11 resulting in the issuance of Transfer Certificate of Title 172313 in their names.12 Despite the title, however, the spouses moved to another house on the same street in 1988.13 Marciana, et al, on the other hand, continued to occupy the lot with their families without paying rent.14 This was the situation when their father Julian died on December 21, 1994.

On December 18, 1995 Felipe and his wife sent a demand letter to Marciana, et al asking them to pay rental arrearages for occupying the property from March 1990 to December 1995 at the rate of P2,400.00 a month, totaling P168,000.00.15 Marciana, et al refused to pay or reply to the letter, believing that they had the right to occupy the house and lot, it being their inheritance from their parents. On March 11, 1996 Felipe and his wife filed an ejectment suit against them.16 The suit prospered, resulting in the ejectment of Marciana, et al and their families from the property.17 Shortly after, Felipe and his wife moved into the same.18

To vindicate what they regarded as their right to the lot and the house, on July 24, 1996 Marciana, et al filed the present action against Felipe and his wife for annulment of title and reconveyance of property before the Regional Trial Court (RTC) of Manila, Branch 39.19

In his answer, Felipe denied knowledge of the agreement among the siblings that the property would devolve to them all.20 Josefa, his wife, claimed that she signed the affidavit only because Marciana, et al were going to get mad at her had she refused.21 She also claimed that she signed the document only to prove having received it.22

For their part, Marciana, et al insisted that the agreement was that Felipe and his wife would acquire the lot for the benefit of all the siblings. They even tried to reimburse the spouses for their shares in the lot’s price.23 In fact, Adolio offered to pay P32,000.00 for his 30 square meter-portion of the lot but Felipe and his wife did not accept it. The other siblings tried to pay for their shares of the purchase price, too, but the spouses already avoided them.24 Marciana, et al denied pressuring Josefa into signing the document in question. They claimed that it was in fact Josefa who caused the drafting of the affidavit.25

On July 21, 2004 the RTC rendered a decision, finding the evidence of Marciana, et al insufficient to prove by preponderance of evidence that Felipe and his wife bought the subject lot for all of the siblings. Not satisfied with that decision, Marciana, et al appealed to the Court of Appeals (CA).

On August 29, 2007 the CA rendered judgment26 reversing the decision of the RTC and ordering Felipe and his wife to reconvey to Marciana, et al their proportionate share in the lot upon reimbursement of what the spouses paid to acquire it plus legal interest. Felipe and his wife filed a motion for reconsideration of the decision but the CA denied it on February 21, 2008,27 prompting them to come to this Court on a petition for review.

The Issues Presented

This case presents the following issues:

1. Whether or not the CA erred in finding that Felipe and his wife purchased the subject lot under an implied trust for the benefit of all the children of Julian; and

2. Whether or not the CA erred in failing to hold that Marciana, et al’s right of action was barred by prescription or laches.

The Court’s Rulings

The CA found that Felipe and his wife’s purchase of the lot falls under the rubric of the implied trust provided in Article 1450 of the Civil Code.28 Implied trust under Article 1450 presupposes a situation where a person, using his own funds, buys property on behalf of another, who in the meantime may not have the funds to purchase it. Title to the property is for the time being placed in the name of the trustee, the person who pays for it, until he is reimbursed by the beneficiary, the person for whom the trustee bought the land. It is only after the beneficiary reimburses the trustee of the purchase price that the former can compel conveyance of the property from the latter.29

Felipe and his wife claim 1) that they did not lend money to Marciana, et al for the purchase of the lot; 2) that they did not buy it for the benefit of the siblings; and 3) that the conveyance of the lot was not to secure the payment of any supposed loan. Felipe and his wife insist that they had no agreement with Marciana, et al regarding the spouses’ purchase of the lot for the benefit of all of Julian’s children.

But the circumstances of this case are actually what implied trust is about. Although no express agreement covered Felipe and his wife’s purchase of the lot for the siblings and their father, it came about by operation of law and is protected by it. The nature of the transaction established the implied trust and this in turn gave rise to the rights and obligations provided by law. Implied trust is a rule of equity, independent of the particular intention of the parties.30

Here, the evidence shows that Felipe and his wife bought the lot for the benefit of Julian and his children, rather than for themselves. Thus:

First. There is no question that the house originally belonged to Julian and Aurelia who built it. When Aurelia died, Julian and his children inherited her conjugal share of the house. When Terocel Realty, therefore, granted its long time tenants on Norma Street the right to acquire the lots on which their house stood, that right technically belonged to Julian and all his children. If Julian really intended to sell the entire house and assign the right to acquire the lot to Felipe and his wife, he would have arranged for Felipe’s other siblings to give their conformity as co-owners to such sale. And if Felipe and his wife intended to buy the lot for themselves, they would have, knowing that Felipe’s siblings co-owned the same, taken steps to secure their conformity to the purchase. These did not happen.

Second. Julian said in his affidavit that Felipe and his wife bought the lot from Terocel Realty on his behalf and on behalf of his other children. Felipe and his wife advanced the payment because Julian and his other children did not then have the money needed to meet the realty company’s deadline for the purchase. Julian added that his other children were to reimburse Felipe for the money he advanced for them.

Notably, Felipe, acting through his wife, countersigned Julian’s affidavit the way his siblings did. The document expressly acknowledged the parties’ intention to establish an implied trust between Felipe and his wife, as trustees, and Julian and the other children as trustors. Josefa, Felipe’s wife, of course claims that she signed the document only to show that she received a copy of it. But her signature did not indicate that fact. She signed the document in the manner of the others.

Third. If Felipe and his wife really believed that the assignment of the house and the right to buy the lot were what their transactions with Julian were and if the spouses also believed that they became absolute owners of the same when they paid for the lot and had the title to it transferred in their name in 1987, then their moving out of the house in 1988 and letting Marciana, et al continue to occupy the house did not make sense. They would make sense only if, as Marciana, et al and their deceased father claimed, Felipe and his wife actually acquired the lot only in trust for Julian and all the children.

Fourth. Felipe and his wife demanded rent from Marciana, et al only on December 18, 1995, a year following Julian’s death on December 21, 1994. This shows that from 1984 when they bought the lot to December 18, 1995, when they made their demand on the occupants to leave, or for over 10 years, Felipe and his wife respected the right of the siblings to reside on the property. This is incompatible with their claim that they bought the house and lot for themselves back in 1984. Until they filed the suit, they did nothing to assert their supposed ownership of the house and lot.

Felipe and his wife also claim that Marciana, et al’s action to recover their portions of the house and lot had already prescribed. True, an implied trust prescribes within 10 years from the time the right of action accrues.31But when did the right of action based on the implied trust accrue in this case? A right of action implies the existence of a cause of action and a cause of action has three elements: a) the existence of a right in plaintiff’s favor; b) defendant’s obligation to respect such right; and c) defendant’s act or omission that violates the plaintiff’s right. Only when the last element occurs or takes place can it be said in law that a cause of action has arisen.32

In an implied trust, the beneficiary’s cause of action arises when the trustee repudiates the trust, not when the trust was created as Felipe and his wife would have it.33 The spouses of course registered the lot in their names in January 1987 but they could not be said to have repudiated the implied trust by that registration. Their purchase of the land and registration of its title in their names are not incompatible with implied trust. It was understood that they did this for the benefit of Julian and all the children.

At any rate, even assuming that Felipe and his wife’s registration of the lot in their names in January 1987 constituted a hostile act or a violation of the implied trust, Marciana, et al had 10 years or until January of 1997 within which to bring their action. Here, they filed such action in July 1996 well within the period allowed them.

Felipe and his wife also claim that Marciana, et al’s action was barred by laches. But there is no basis for such claim. Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence could or should have been done earlier.341avvphil

Here, Marciana, et al had no reason to file an earlier suit against Felipe and his wife since the latter had not bothered them despite their purchase of the lot in their names on January 30, 1984. Only about 12 years later or on December 18, 1995 when they wrote their demand letter did the spouses take an adverse attitude against Marciana, et al. The latter filed their action to annul Felipe and his wife’s title and have the same transferred to their names not too long later on July 24, 1996.

Finally, the CA ordered Marciana, et al to reimburse Felipe and his wife the individual siblings’ proportionate share in the P55,500.00 that the spouses paid the realty company. But, according to Julian’s affidavit, concurred in by Felipe, his wife, and Marciana, et al, the total acquisition cost of the lot was P60,000.00 (purchase price ofP55,500.00 plus additional expenses of P4,500.00). Thus, respondents should reimburse petitioners their proportionate contribution in the total acquisition cost of P60,000.00.

WHEREFORE, the Court DENIES the petition, and AFFIRMS the decision of the Court of Appeals in CA-G.R. CV 84792 with the MODIFICATION that respondents Marciana Paringit Bajit, Adolio Paringit, and Rosario Paringit Ordoño reimburse petitioners Felipe and Josefa Paringit of their corresponding share in the purchase price plus expenses advanced by petitioners amounting to P60,000.00 with legal interest from April 12, 1984 until fully paid.

SO ORDERED.